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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KENSEY NASH CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 36-3316412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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MARSH CREEK CORPORATE CENTER, 55 EAST UWCHLAN AVENUE, EXTON, PENNSYLVANIA,
19341, (610) 524-0188
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JOSEPH W. KAUFMANN
CHIEF EXECUTIVE OFFICER
KENSEY NASH CORPORATION
MARSH CREEK CORPORATE CENTER, 55 EAST UWCHLAN AVENUE, EXTON, PENNSYLVANIA,
19341, (610) 524-0188
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
DAVID R. SHEVITZ, ESQ.
KATTEN MUCHIN ZAVIS
525 WEST MONROE STREET, SUITE 1600
CHICAGO, ILLINOIS 60661-3693
(312) 902-5200
JAMES R. TANENBAUM, ESQ.
ANNA T. PINEDO, ESQ.
STROOCK & STROOCK & LAVAN LLP
180 MAIDEN LANE
NEW YORK, NEW YORK 10038-4982
(212) 806-5400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE PROPOSED MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE(2) OFFERING PRICE FEE
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Common Stock, par value $.001... 3,680,000 shares $13.625 per share $50,140,000 $13,237
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</TABLE>
(1) Includes 480,000 shares to be offered upon exercise of the underwriters'
over-allotment option.
(2) Based upon the closing sales price of our common stock as reported on Nasdaq
on April 20, 2000 and solely for purposes of calculating the registration
fee pursuant to Rule 457 under the Securities Act of 1933, as amended.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
KENSEY NASH MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION-APRIL 24, 2000
PROSPECTUS
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3,200,000 Shares
[KENSEY NASH LOGO]
Common Stock
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Kensey Nash Corporation is offering 2,500,000 shares and the selling
stockholders are offering 700,000 shares of common stock. Kensey Nash will not
receive any proceeds from the sale of shares by the selling stockholders.
Kensey Nash designs, develops, manufactures and markets resorbable biomaterials
products in the orthopedic, cardiology, drug and biologics delivery and wound
care markets, and has developed cardiovascular medical technology devices for
arterial revascularization and arterial puncture closure.
The shares of Kensey Nash are quoted in the Nasdaq National Market under the
symbol "KNSY". On April 20, 2000, the last reported sale price in the Nasdaq
National Market was $13.625 per share.
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Per Share Total
<S> <C> <C>
Public offering price...................................... $ $
Underwriting discounts and commissions..................... $ $
Proceeds, before expenses, to Kensey Nash.................. $ $
Proceeds to selling stockholders........................... $ $
</TABLE>
SEE "RISK FACTORS" ON PAGES 7 TO 13 FOR FACTORS THAT SHOULD BE CONSIDERED BEFORE
INVESTING IN THE SHARES OF KENSEY NASH.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
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The underwriters may, under certain circumstances, purchase up to 280,000
additional shares from Kensey Nash and up to 200,000 additional shares from two
other selling stockholders at the public offering price, less underwriting
discounts and commissions. Delivery and payment for the shares will be on
, 2000.
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
PAINEWEBBER INCORPORATED
WARBURG DILLON READ LLC
, 2000
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FRONT COVER:
[The front cover will have a white background, the text will be printed in
black and the logo will be printed in teal.]
INSIDE FRONT COVER:
[On a white background, our logo will be centered at the top of the page.
Under the logo will be the phrase "Delivering resorbable products. Engineering
resorbable solutions." Centered on the page will be a scientific image of a
human body with indicator arrows pointing to various body sections. Each section
highlighted will represent a market segment we are pursuing. The market will be
identified and a list of product examples within that market will follow
underneath. Each of the products will be color coded to indicate whether they
are commercialized, under development or in a target market we are pursuing.]
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary................. 3
Risk Factors....................... 7
Forward-Looking Statements......... 14
Use of Proceeds.................... 15
Price Range of Common Stock and
Dividend Policy.................. 15
Capitalization..................... 16
Selected Consolidated Financial
Data............................. 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 18
Business........................... 24
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PAGE
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Management......................... 36
Certain Transactions............... 38
Principal and Selling
Stockholders..................... 39
Shares Eligible for Future Sale.... 40
Underwriting....................... 41
Legal Matters...................... 42
Experts............................ 42
Available Information.............. 43
Incorporation by Reference......... 43
Index to Consolidated Financial
Statements....................... F-1
</TABLE>
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This prospectus contains trademarks and tradenames of Kensey Nash
Corporation and other companies. Angio-Seal(TM) is a trademark of St. Jude
Medical, Inc.
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You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities in any
jurisdiction where the offer or sale is not permitted. You should not assume
that the information contained in this prospectus is accurate as of any date
other than the date on the front cover of this prospectus.
2
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that
investors should consider before investing in the common stock of Kensey Nash.
Investors should read the entire prospectus carefully.
OUR COMPANY
We have developed, or assisted in developing, and are manufacturing
resorbable biomaterials products for leading companies in the orthopedic,
cardiology, drug/biologics delivery and wound care markets for incorporation
into their products. We are also independently or on behalf of our customers
designing and developing various new resorbable biomaterials products for all of
these markets.
We are leaders in the development and manufacturing of cardiovascular
medical technology devices for arterial revascularization and arterial puncture
closure. We are developing the Aegis Vortex(TM) system, a device designed to
remove occlusive material from saphenous vein grafts implanted during coronary
bypass surgeries. We have completed a pilot clinical trial for the Aegis Vortex
and intend to commercialize the device. Additionally, we are the original
designers, developers and manufacturers of the Angio-Seal(TM), a leading product
in arterial puncture closure, which is manufactured, marketed and sold by St.
Jude Medical, Inc. This device is designed to seal and close femoral artery
punctures made during diagnostic and therapeutic cardiovascular
catheterizations.
OUR BIOMATERIALS TECHNOLOGY
Advances in biomaterials technology and a better understanding of the
biological processes involved in tissue formation and remodeling have led to the
introduction of resorbable biomaterials based products to address long-standing
deficiencies of traditional products and therapies. This trend has been observed
in many markets, including orthopedics, cardiology, drug/biologics delivery,
wound care, surgery, dentistry and urology. The technological challenges
involved in developing biomaterials products are substantial.
Through years of experience in biomaterials technology, we have addressed
these challenges and developed expertise in the use of collagen, polymers,
ceramics and other resorbable materials, as well as the processing of these
materials to make biomaterials products. We use this expertise to supply our
customers with complete solutions, including product design and engineering,
tool design, process development, commercial manufacturing and packaging
configuration. We believe that our biomaterials technology provides us with a
competitive advantage in that we are able to provide the essential building
blocks to develop biomaterials products.
OUR BIOMATERIALS STRATEGY
Our strategy is to expand our leadership position and expertise in
biomaterials products and technologies. The components of our strategy are as
follows:
- - Develop new proprietary biomaterials products. We are using our expertise in
resorbable biomaterials technology to develop new biomaterials products,
formulations and applications.
- - Expand our existing biomaterials business. We intend to aggressively expand
our existing biomaterials business by continuing to invest in new
manufacturing technologies and processes.
- - Commercialize biomaterials products. We are increasing the level of value we
add to the services and products we sell to our customers and believe we will
be able to increase our financial participation in the commercialization of
these services and products.
- - Pursue strategic acquisitions and alliances. We will seek strategic
acquisitions and alliances which add complementary technologies and expertise
in order to enhance our competitive position and broaden our intellectual
property portfolio.
3
<PAGE> 6
OUR BIOMATERIALS PRODUCTS
We currently provide our customers with proprietary biomaterials products
within the following markets:
- - Orthopedics: meniscal repair tacks, anterior cruciate ligament repair screws
and rotator cuff repair screws for use in sports medicine, repair plates,
screws and tacks for use in cranio-maxillofacial fixation and spinal fusion
resorbable growth factor delivery matrices for use in spinal fixation;
- - Cardiology: resorbable polymer anchors and collagen plugs for the Angio-Seal
for use in arterial puncture closure and vascular graft coatings;
- - Drug/Biologics Delivery: drug delivery matrices to treat cervical cancer and
dysplasia; and
- - Wound Care: collagen tissue engineering substrates used for culturing skin
cells to treat burns and skin defects and topical wound dressings.
We also have additional biomaterials products in development.
OUR CARDIOVASCULAR MEDICAL TECHNOLOGY BUSINESS
Aegis Vortex System
There are approximately 650,000 coronary bypass surgeries performed
annually and approximately half of all bypass grafts become diseased or occluded
within ten years of the surgery. Our Aegis Vortex System is designed to remove
occlusive material from saphenous vein grafts, thereby restoring blood flow to
the heart. The Aegis Vortex combines three key features to treat diseased
saphenous vein grafts: a high-speed rotating tip catheter, a distal protection
balloon and an extraction system. We believe the Aegis Vortex is the only
device, either in clinical trials or available commercially, which incorporates
all three of these features to address the diseased saphenous vein graft. We
have completed a pilot clinical trial and are pursuing commercialization of the
Aegis Vortex. The Aegis Vortex has not been approved by the FDA for marketing.
Angio-Seal
We are the original developers and manufacturers of the Angio-Seal device
which acts to seal and close femoral artery punctures made during diagnostic and
therapeutic cardiac catheterizations, such as angiograms, balloon angioplasties
and the placement of stents. There are approximately 6.5 million cardiac
catheterization procedures performed annually. The Angio-Seal device is a leader
in this marketplace with over 770,000 devices sold to date. The device consists
of four components: a resorbable polymer anchor, a resorbable collagen plug, a
resorbable suture and a delivery system. St. Jude Medical currently
manufactures, markets and distributes the Angio-Seal under exclusive worldwide
license agreements. We receive a royalty on every Angio-Seal device sold.
WHERE TO CONTACT US
Our principal executive offices are located at Marsh Creek Corporate
Center, 55 East Uwchlan Avenue, Exton, Pennsylvania 19341 and our telephone
number is (610) 524-0188. Our web site is located at http://www.kenseynash.com.
Information on our website is not a part of this prospectus.
4
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THE OFFERING
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Shares offered by Kensey Nash............................... 2,500,000 shares
Shares offered by the selling stockholders.................. 700,000 shares
Total shares to be outstanding after this offering.......... 9,992,488 shares
Use of proceeds by Kensey Nash.............................. For continued development of the
Aegis Vortex, repayment of
outstanding debt, potential
acquisitions or strategic
alliances, working capital and
other corporate purposes.
Nasdaq National Market symbol............................... KNSY
</TABLE>
The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding as of April 24, 2000, and
does not include the following:
- 1,744,298 shares of common stock issuable upon exercise of outstanding
stock options with a weighted average exercise price of $9.64 per share;
- 447,207 shares of common stock reserved for grants that we may make in
the future under our employee incentive compensation plan;
- 82,500 shares of common stock reserved for issuance under our
non-employee directors' stock plan; and
- up to 280,000 shares of common stock that the underwriters may purchase
from us if they exercise the over-allotment option.
In addition to the above, the underwriters may purchase up to 200,000
shares of currently outstanding common stock from two other selling stockholders
if they exercise the over-allotment options.
RISK FACTORS
You should consider the risk factors and the impact of various events that
could adversely affect our business before investing in our common stock.
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
You should read this summary information with the discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements and related notes to those
financial statements included elsewhere in this prospectus. The summary
consolidated financial data for the fiscal years ended June 30, 1998 and June
30, 1999 has been derived from our Consolidated Financial Statements for those
years, which have been audited by Deloitte & Touche, LLP, independent auditors,
whose report for those years is included elsewhere herein. The summary
consolidated financial data for the nine months ended March 31, 1999 and 2000
has been derived from our Consolidated Financial Statements for those periods
and is unaudited.
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<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
------------------ ------------------
1998 1999 1999 2000
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Net sales............................................. $ 4,669 $ 7,168 $ 4,996 $ 9,075
Research and development.............................. 3,642 1,894 1,611 48
Royalty income........................................ 3,008 7,183 5,027 4,640
------- ------- ------- -------
Total revenues..................................... 11,319 16,245 11,634 13,763
------- ------- ------- -------
Operating costs and expenses:
Costs of products sold................................ 4,084 5,135 3,713 5,088
Research and development.............................. 5,524 5,668 4,265 4,074
Selling, general and administrative................... 1,762 2,584 1,897 2,041
------- ------- ------- -------
Total operating costs and expenses................. 11,370 13,387 9,875 11,203
------- ------- ------- -------
(Loss) income from operations........................... (51) 2,858 1,759 2,560
------- ------- ------- -------
Other income (expense):
Net interest income (expense)......................... 390 317 222 273
Other................................................. 4 4 3 (1)
------- ------- ------- -------
Total other income -- net.......................... 394 321 225 272
------- ------- ------- -------
Net income.............................................. $ 343 $ 3,179 $ 1,984 $ 2,832
======= ======= ======= =======
Basic and diluted earnings per share.................... $ 0.05 $ 0.43 $ 0.27 $ 0.37
======= ======= ======= =======
</TABLE>
The following table presents our balance sheet as of March 31, 2000 on an
actual basis and on an as adjusted basis giving effect to our sale of 2,500,000
shares of common stock in this offering at an assumed public offering price of
$ per share, after deducting underwriting discounts and commissions and
estimated offering expenses.
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MARCH 31, 2000
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ACTUAL AS ADJUSTED
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $ 9,032
Working capital........................................... 14,517
Total assets.............................................. 29,148
Total stockholders' equity................................ 21,580
</TABLE>
6
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RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information set forth in this prospectus, before purchasing shares of
common stock of Kensey Nash. Each of these risk factors could adversely affect
our business, operating results and financial condition, as well as adversely
affect the value of an investment in our common stock. This investment involves
a high degree of risk.
RISKS RELATED TO OUR BUSINESS
IF OUR BIOMATERIALS PRODUCTS ARE NOT SUCCESSFUL, OUR OPERATING RESULTS AND
BUSINESS MAY BE SUBSTANTIALLY IMPAIRED
The success of our existing biomaterials products, as well as any we
develop in the future, depends on a variety of factors, including our ability to
continue to manufacture, sell and competitively price these products and the
acceptance of these products by the medical profession. In addition, we may be
required to obtain regulatory approval for any future biomaterials products. We
will require substantial additional funds to develop and market our biomaterials
products. We expect to fund the growth of our biomaterials business out of our
operating income and cannot guarantee that this operating income will be
sufficient to develop new biomaterials products. To date, we have relied on
strategic partners or customers to market and sell our biomaterials products. We
cannot assure you that we will commercialize our products successfully either
indirectly through strategic partners or directly through the development of a
sales force.
WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO OBTAIN THE NECESSARY
REGULATORY APPROVALS FOR THE AEGIS VORTEX
We need to conduct additional human feasibility clinical trials for the
Aegis Vortex. The Aegis Vortex has not been approved for marketing by the FDA or
by any governmental entity outside of the United States. We will require
substantial additional funds to develop the product, conduct clinical trials and
gain the necessary regulatory approvals for the Aegis Vortex. Prior to granting
approval, the FDA may require clarification of information provided in our
regulatory submissions, more information or more clinical studies. If granted,
FDA approval may impose limitations on the uses for which our product may be
marketed or how our product may be marketed. Should we experience delays or be
unable to receive approval from the FDA, our operating results and business may
be substantially impaired.
A SUBSTANTIAL PORTION OF OUR REVENUES WILL CONTINUE TO COME FROM THE
ANGIO-SEAL WHICH IS MANUFACTURED, MARKETED AND DISTRIBUTED BY ST. JUDE
MEDICAL
To date, a significant portion of our revenues have been derived from
Angio-Seal sales. Under our license agreements with St. Jude Medical, Angio-Seal
is manufactured, marketed and sold on a worldwide basis by St. Jude Medical. Two
of our significant sources of revenue for the future are expected to be sales of
collagen to St. Jude Medical for use in the Angio-Seal devices and royalty
income from the sale of the Angio-Seal product line. Beginning June 1, 2000, St.
Jude Medical will no longer be obligated to buy collagen from us. Furthermore,
we expect a reduction in our royalty rate, from 12% to 9%, during the second
quarter of fiscal year 2001 in accordance with our license agreements. Our
success with Angio-Seal depends in part on the time, effort and attention that
St. Jude Medical devotes to the Angio-Seal product line and on their success in
manufacturing, marketing and selling the Angio-Seal product line. Under the
terms of our agreements with St. Jude Medical, we have no control over the
pricing and marketing strategy for the Angio-Seal product line. In addition, we
depend on St. Jude Medical to successfully maintain levels of manufacturing
sufficient to meet anticipated demand, abide by applicable manufacturing
regulations and seek reimbursement approvals. St. Jude Medical can terminate our
arrangement at any time after September 30, 2001 for any reason upon 12 months
notice. There can be no assurance that St. Jude Medical will successfully pass
future inspections of its manufacturing facility or adequately perform its
manufacturing, marketing and selling duties. Any such failure by St. Jude
Medical may negatively impact Angio-Seal sales and therefore reduce our
royalties and impair our operating results and business.
7
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WE DEPEND ON OUR CUSTOMERS TO MARKET AND OBTAIN REGULATORY APPROVALS FOR
THEIR BIOMATERIALS PRODUCTS
We depend on the efforts of our biomaterials customers in marketing their
products which include our biomaterials components. There can be no assurance
that our customers' end use products which include our biomaterials components
will be commercialized successfully by our customers or that our customers will
otherwise be able to compete effectively in their markets. If our customers fail
to commercialize their products, our operating results and business may be
substantially impaired.
IF WE RECEIVE FDA APPROVAL, WE MAY NOT BE SUCCESSFUL COMMERCIALIZING THE
AEGIS VORTEX
If the Aegis Vortex clinical trials are completed successfully and we
obtain the necessary governmental approvals, we will need to commercialize the
product. We cannot assure you that we will be able to find a suitable partner
and/or develop and train our own sales force to sell and market the Aegis
Vortex. We do not have a sales and marketing force nor do we have any experience
hiring or training a sales and marketing force. We may not be able to establish
and maintain an internal sales and marketing force with technical expertise and
supporting distribution capabilities. If we are unable to successfully
commercialize the Aegis Vortex, our growth prospects will be diminished.
WE MAY BE REQUIRED TO DELAY, REDUCE OR ELIMINATE SOME OR ALL OF OUR EFFORTS
TO DEVELOP AND MARKET THE AEGIS VORTEX IF WE FAIL TO OBTAIN ADDITIONAL
FUNDING THAT MAY BE REQUIRED TO SATISFY OUR FUTURE CAPITAL NEEDS
We plan to continue to spend substantial funds to develop and market the
Aegis Vortex. Our future liquidity and capital requirements will depend upon
numerous factors, including the progress and success of our clinical trials, the
timing and cost involved in obtaining regulatory approvals, the timing and cost
of developing sales and marketing strategies, our ability to enter into
strategic alliances, manufacturing and research and development activities, the
extent to which the Aegis Vortex gains market acceptance and competitive
developments. Any additional required financing may not be available on
satisfactory terms, if at all. If we are unable to obtain financing, we may be
required to delay, reduce or eliminate some or all of our research and
development activities or sales and marketing efforts, in which case our
operating results and business may be substantially impaired.
THE MARKETS FOR OUR PRODUCTS ARE HIGHLY COMPETITIVE AND ARE LIKELY TO
BECOME MORE COMPETITIVE, AND OUR COMPETITORS MAY BE ABLE TO RESPOND MORE
QUICKLY TO NEW OR EMERGING TECHNOLOGIES AND CHANGES IN CUSTOMER
REQUIREMENTS
The existing markets for our current and proposed products are intensely
competitive. We expect competition to increase further as additional companies
begin to enter our markets and/or modify their existing products to compete
directly with ours. We compete with some of the largest players in the
biomaterials markets. If we are successful in commercializing the Aegis Vortex,
our competitors will include Boston Scientific Corporation, Johnson and Johnson,
Inc., Possis Medical, Inc., Percu-Surge Inc. and Interventional Technologies,
Inc., as well as other companies and other current and future therapies. The
primary competitors in the vascular sealing device market are Abbott
Laboratories (which owns Perclose, Inc.), Datascope Corp. and Vascular
Solutions, Inc.
Our competitors may have broad product lines which allow them to negotiate
exclusive, long-term supply contracts and offer comprehensive pricing for their
products. Broader product lines may also provide our competitors with a
significant advantage in marketing competing products to group purchasing
organizations and other managed care organizations that are increasingly seeking
to reduce costs through centralized purchasing. Greater financial resources and
product development capabilities may allow our competitors to respond more
quickly to new or emerging technologies and changes in customer requirements
that may render our products obsolete.
8
<PAGE> 11
Because a significant portion of our revenue depends on sales of medical
devices by our customers to the end user market, we are also affected by
competition within the markets for these devices. Competition within the medical
device market could also have an adverse effect on our business for a variety of
reasons, including that our customers may compete directly with larger, dominant
manufacturers with extensive product lines and greater sales, marketing and
distribution capabilities. We are also unable to control other factors that may
impact the commercialization of our components for end use products, such as
marketing and sales efforts and competitive pricing pressures within particular
markets.
IF OUR PRODUCTS ARE NOT ACCEPTED BY THE MEDICAL COMMUNITY, OUR BUSINESS MAY
SUFFER
The success of our existing products depends on continued acceptance of
these products by the medical community. The success of any products we develop
in the future will depend on the adoption of these products by our targeted
markets. We cannot predict how quickly, if at all, the medical community will
accept our future products or the extent to which our future products will be
used. If we encounter difficulties introducing future products into our targeted
markets, our operating results and business may be substantially impaired.
THE LOSS OF, OR INTERRUPTION OF SUPPLY FROM, KEY VENDORS COULD LIMIT OUR
ABILITY TO MANUFACTURE OUR PRODUCTS
We purchase certain materials and components for our products from various
suppliers. Some of these components are custom made for us. Any loss of, or
interruption of supply from, key vendors may require us to find new vendors. We
could experience production or development delays while we seek new vendors
which could substantially impair our operating results and business.
WE MAY HAVE PROBLEMS MANUFACTURING AND DELIVERING OUR BIOMATERIALS PRODUCTS
IN THE FUTURE
The biomaterials industry is an emerging area, using many materials which
are untested or whose properties are still not known. Consequently, from time to
time we may experience unanticipated difficulties in manufacturing and
delivering our biomaterials products to our customers. These difficulties may
include an inability to meet customer demand, delays in delivering products or
quality control problems with certain biomaterials products. Any such difficulty
to fulfill orders on a timely basis could materially and adversely affect our
operating results and business.
OUR USE OF HAZARDOUS MATERIALS EXPOSES US TO THE RISK OF MATERIAL
ENVIRONMENTAL LIABILITIES
Because we use hazardous substances in our research and development and
manufacturing operations, we are potentially subject to material liabilities
related to personal injuries or property damages that may be caused by hazardous
substance releases or exposures at or from our facility. Decontamination costs,
other clean-up costs and related damages or liabilities could substantially
impair our business and operating results. We are required to comply with
increasingly stringent laws and regulations governing environmental protection
and workplace safety, including requirements governing the handling, storage and
disposal of hazardous substances.
ST. JUDE MEDICAL'S INTERNATIONAL SALES ARE SUBJECT TO A NUMBER OF RISKS
THAT COULD HARM FUTURE INTERNATIONAL SALES OF ANGIO-SEAL AND THEIR ABILITY
TO SUCCESSFULLY COMMERCIALIZE NEW PRODUCTS IN INTERNATIONAL MARKETS
St. Jude Medical sells the Angio-Seal product line internationally and pays
us a royalty on each unit sold. Our royalties are subject to several risks,
including:
- the impact of recessions in economies outside the United States;
- unexpected changes in regulatory requirements, tariffs or other trade
barriers;
- weaker intellectual property rights protection in some countries;
9
<PAGE> 12
- fluctuations in exchange rates;
- potentially adverse tax consequences; and
- political and economic instability.
The occurrence of any of these events could seriously harm St. Jude
Medical's future international sales and our ability to receive royalties from
sales of the Angio-Seal in international markets.
OUR SUCCESS DEPENDS ON KEY PERSONNEL, THE LOSS OF WHOM COULD IMPAIR OUR
OPERATING RESULTS AND BUSINESS
Our success depends, to a significant extent, upon the efforts and
abilities of Joseph W. Kaufmann, Douglas G. Evans and other members of senior
management. The loss of the services of one or more of these key employees could
harm our operating results and business. In addition, we will not be successful
unless we can attract and retain skilled personnel, particularly in the areas of
research and product development.
OUR FAILURE TO EXPAND OUR MANAGEMENT SYSTEMS AND CONTROLS TO SUPPORT
ANTICIPATED GROWTH OR INTEGRATE FUTURE ACQUISITIONS COULD SERIOUSLY HARM
OUR OPERATING RESULTS AND BUSINESS
Our operations continue to grow and we expect this expansion to continue as
we execute our business strategy. Sustaining our growth has placed significant
demands on management and our administrative, operational, information
technology, manufacturing, financial and personnel resources. Accordingly, our
future operating results will depend on the ability of our officers and other
key employees to continue to implement and improve our operational, client
support and financial control systems, and effectively expand, train and manage
our employee base. We may not be able to manage our growth successfully. This
inability to sustain or manage our growth could seriously harm our operating
results and business.
THE OWNERSHIP INTEREST OF OUR STOCKHOLDERS MAY BE DILUTED BY ANY FUTURE
ACQUISITIONS OR STRATEGIC ALLIANCES
Our stockholders will depend upon the judgment of our management with
respect to any future acquisitions we make or strategic alliances we enter into.
Our management may decide to acquire other companies or finance strategic
alliances by issuing equity securities. As a result, you may experience dilution
of your ownership interest.
RISKS RELATED TO OUR INTELLECTUAL PROPERTY
IF WE ARE UNABLE TO PROTECT OUR PATENTS AND PROPRIETARY RIGHTS, OUR
REPUTATION AND COMPETITIVENESS IN THE MARKETPLACE MAY BE MATERIALLY DAMAGED
We regard our patents, biomaterials trade secrets and other intellectual
property as important to our success. We rely upon patent law, trade secret
protection, confidentiality agreements and license agreements with St. Jude
Medical to protect our proprietary rights. We have registered certain of our
patents with applicable governmental authorities. Effective patent protection
may not be available in every country in which our products are made available,
and we have not sought protection for our intellectual property in every country
where our products may be sold. There can be no assurance that the steps we take
to protect our proprietary rights will be adequate or that third parties will
not infringe or otherwise violate our patents or similar proprietary rights.
We and St. Jude Medical are plaintiffs in a patent infringement lawsuit
against Perclose, which was acquired by Abbott Laboratories, and we are
co-defendants against counterclaims filed by Perclose in response to our
complaint. We have spent substantial resources on this litigation. Intellectual
property litigation in recent years has proven to be very costly and complex,
and the outcome of such litigation is difficult to predict.
10
<PAGE> 13
WE MAY BE ACCUSED OF INFRINGING UPON THE PROPRIETARY RIGHTS OF OTHERS AND
ANY RELATED LITIGATION COULD MATERIALLY DAMAGE OUR OPERATING RESULTS AND
BUSINESS
An adverse determination in any intellectual property litigation or
interference proceedings brought against us could prohibit us from selling our
products, subject us to significant liabilities to third parties or require us
to seek licenses from third parties. The costs associated with these license
arrangements may be substantial and could include ongoing royalties.
Furthermore, the necessary licenses may not be available to us on satisfactory
terms, if at all. Adverse determinations in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent us from
manufacturing and selling our products.
WE DO NOT OWN OR CONTROL THE USE OF THE ANGIO-SEAL TRADEMARK
The term Angio-Seal is a trademark of St. Jude Medical. All goodwill
generated by the marketing and sales of devices bearing the Angio-Seal trademark
belongs to St. Jude Medical and not to us. Should the St. Jude Medical license
agreements terminate, we would not have the right to call any of our products
"Angio-Seal" unless we purchase or license the trademark from St. Jude Medical.
Without rights to the Angio-Seal trademark, we would have to market our products
under a different trademark. Moreover, upon the termination of the St. Jude
Medical license agreements, St. Jude Medical would have the right to compete
against us by selling collagen and puncture closure devices under the Angio-Seal
trademark. Thus, purchasers of puncture closure devices may be more likely to
recognize and purchase products labeled Angio-Seal regardless of whether those
devices originate from us.
RISKS RELATED TO OUR INDUSTRY
WE MAY FACE PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN COSTLY LITIGATION
AND SIGNIFICANT LIABILITIES
The manufacture and sale of medical products entail significant risk of
product liability claims. The medical device industry in general has been
subject to significant product liability litigation. Any product liability
claims, with or without merit, could result in costly litigation, reduced sales,
significant liabilities and diversion of our management's time, attention and
resources. We cannot be sure that our product liability insurance coverage is
adequate or that it will continue to be available to us on acceptable terms, if
at all.
WE FACE UNCERTAINTY RELATING TO THIRD PARTY REIMBURSEMENT FOR OUR PRODUCTS
We could be seriously harmed by changes in reimbursement policies of
governmental or private healthcare payors, particularly to the extent any
changes affect reimbursement for catheterization procedures in which our
products are used. If physicians, hospitals and other users of our products fail
to obtain sufficient reimbursement from healthcare payors for procedures in
which our products are used or adverse changes occur in governmental and private
third-party payors' policies toward reimbursement for these procedures, our
operating results and business may be substantially impaired.
OUR PRODUCTS AND MANUFACTURING ACTIVITIES ARE SUBJECT TO EXTENSIVE
GOVERNMENTAL REGULATION THAT COULD MAKE IT MORE EXPENSIVE AND TIME
CONSUMING FOR US TO INTRODUCE NEW AND IMPROVED PRODUCTS
Our products and manufacturing activities are subject to extensive
regulation by a number of governmental agencies, including the FDA and
comparable international agencies. We are required to:
- obtain the approval of the FDA and international agencies before we can
market and sell new products;
- satisfy these agencies' requirements for all of our labeling, sales and
promotional materials in connection with our existing products;
- comply with all applicable manufacturing regulations; and
- undergo rigorous inspections by these agencies.
11
<PAGE> 14
Compliance with the regulations of these agencies may delay or prevent us
from introducing any new or improved products, including the Aegis Vortex.
Furthermore, we may be subject to sanctions, including temporary or permanent
suspension of operations, product recalls and marketing restrictions if we fail
to comply with the laws and regulations pertaining to our business.
We are also required to demonstrate compliance with the FDA's quality
system regulations. The FDA enforces its quality system regulations through
pre-approval and periodic post-approval inspections. These regulations relate to
product testing, vendor qualification, design control and quality assurance, as
well as the maintenance of records and documentation. If we are unable to
conform to these regulations, we will be required to locate alternative
manufacturers that do conform. Identifying and qualifying alternative
manufacturers may be a long, costly and difficult process and could seriously
harm our business.
The FDA and international regulatory agencies may also limit the
indications for which our products are approved. These regulatory agencies may
restrict or withdraw approvals we have received if additional information
becomes available to support this action.
RISKS RELATED TO OUR OFFERING
CONCENTRATION OF OWNERSHIP IN OUR COMPANY MAY GIVE SOME STOCKHOLDERS
SUBSTANTIAL INFLUENCE AND MAY PREVENT OR DELAY A CHANGE IN CONTROL OF OUR
COMPANY
We anticipate that our executive officers and directors, together with
their affiliates, will, in the aggregate, beneficially own approximately
3,391,131 shares, or 33.94%, of our outstanding common stock following the
completion of this offering, or approximately 3,191,131 shares, or 31.06% of our
common stock if the underwriters exercise their over-allotment options in full.
These stockholders may be able to exercise substantial influence over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also have the effect of delaying or preventing a change in control of our
company.
OUR FUTURE OPERATING RESULTS ARE DIFFICULT TO PREDICT AND MAY VARY
SIGNIFICANTLY FROM QUARTER TO QUARTER
Our operating results have varied significantly from quarter to quarter in
the past and are likely to vary substantially in the future as a result of a
number of factors, some of which are not in our control, including:
- market perception and customer acceptance of our products;
- market perception and acceptance of our customer's products;
- our efforts to increase sales of our biomaterials products;
- the loss of significant orders;
- changes in our relationship with St. Jude Medical;
- our establishment of strategic alliances or acquisitions;
- timely implementation of new and improved products;
- delays in obtaining regulatory approvals;
- increased competition; and
- litigation concerning intellectual property rights in the medical device
industry.
THE TRADING PRICE OF OUR COMMON STOCK IS LIKELY TO FLUCTUATE SUBSTANTIALLY
IN THE FUTURE
The price of our common stock in this offering may not be indicative of the
prices that will prevail in the public market after this offering.
The trading price of our common stock may fluctuate widely as a result of a
number of factors, some of which are not in our control, including:
- quarter to quarter variations in our operating results;
- announcements regarding clinical activities or new products by us or our
competitors;
12
<PAGE> 15
- our announcements regarding the Aegis Vortex clinical trials;
- general conditions in the medical device industry;
- changes in earnings estimates by analysts; and
- price and volume fluctuations in the overall stock market, which have
particularly affected the market prices of many medical device companies.
In addition, the market for our stock has experienced extreme price and
volume fluctuations, which have often been unrelated to our operating
performance.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET BY STOCKHOLDERS WITH
SIGNIFICANT HOLDINGS COULD CAUSE OUR STOCK PRICE TO FALL
Upon completion of the offering, we will have 9,992,488 outstanding shares
of common stock, assuming no exercise of outstanding options after April 24,
2000 and no exercise of the underwriters' over-allotment option. We will have
10,272,488 outstanding shares of common stock upon the completion of the
offering if the underwriters exercise their over-allotment option in full,
assuming no exercise of outstanding options after April 24, 2000.
Sales of a substantial number of shares of our common stock in the public
market following this offering or the perception that such sales could occur
could cause the market price of our common stock to decline or adversely affect
our future ability to raise capital through an offering of equity securities.
The number of shares of common stock available for sale in the public market is
limited by restrictions under federal securities law and under lock-up
agreements that our executive officers and directors have entered into with
Prudential Securities Incorporated. Under these lock-up agreements, our
executive officers and directors have agreed not to offer or sell any shares of
common stock for a period of 90 days after the date of this prospectus without
the prior written consent of Prudential Securities Incorporated. Kenneth R.
Kensey, M.D. and John E. Nash have entered into similar agreements for periods
of 180 days and one year, respectively. Virtually all of Dr. Kensey's shares are
subject to pledge agreements with third parties. These pledge agreements provide
that if the price of our common stock falls below certain levels, the pledged
shares could be sold by third parties into the public market. Prudential
Securities Incorporated may, at any time and without notice, waive any of the
terms of these lock-up agreements.
The following table indicates approximately when the shares of our common
stock that are subject to these lock-up agreements will be eligible for sale
into the public market, subject to Rule 144 of the Securities Act.
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR RESALE INTO PUBLIC MARKET
- ---------------- ------------------------------------------------------------
<S> <C>
1,127,304 90 days after the date of this prospectus due to a lock-up
agreement these stockholders and optionholders have with
Prudential Securities Incorporated.
1,760,077 180 days after the date of this prospectus due to a lock-up
agreement that Kenneth R. Kensey, M.D. has with Prudential
Securities Incorporated.
485,000 365 days after the date of this prospectus due to a lock-up
agreement that John E. Nash, P.E. has with Prudential
Securities Incorporated.
</TABLE>
MANAGEMENT COULD SPEND OR INVEST OUR NET PROCEEDS OF THIS OFFERING IN WAYS
WHICH OUR STOCKHOLDERS MAY NOT AGREE, INCLUDING THE FINANCING OF ANY FUTURE
ACQUISITIONS OR ALLIANCES
A substantial portion of the proceeds of our offering are not allocated for
specific purposes. Our management can spend or invest our net proceeds from this
offering in ways with which the stockholders may not agree. The investment of
these proceeds may not yield a favorable return. Our management may use a
portion of our net proceeds from this offering to finance any future
acquisitions we may make or alliances we enter into.
OUR SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND DELAWARE
LAW MAY DISCOURAGE AN ACQUISITION OF OUR COMPANY
Provisions of our second amended and restated certificate of incorporation
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders.
13
<PAGE> 16
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. We have
based these forward-looking statements largely on our current expectations and
projections about future events and financial trends affecting the financial
condition of our business. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions about Kensey Nash, including,
among other things:
- general economic and business conditions, both nationally and in our
markets;
- our expectations and estimates concerning future financial performance
and financing plans;
- the impact of competition;
- anticipated trends in our business;
- existing and future regulations affecting our business;
- strategic alliances and acquisition opportunities; and
- other risk factors set forth under "Risk Factors" in this prospectus.
In addition, in this prospectus, the words "believe", "may", "will",
"estimate", "continue", "anticipate", "intend", "expect" and similar
expressions, as they relate to Kensey Nash, our business or our management, are
intended to identify forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise
after the date of this prospectus. In light of these risks and uncertainties,
the forward-looking events and circumstances discussed in this prospectus may
not occur and actual results could differ materially from those anticipated or
implied in the forward-looking statements.
14
<PAGE> 17
USE OF PROCEEDS
We will receive net proceeds of approximately $ million from the sale
of 2,500,000 shares of common stock by us in the offering, or $ million if
the underwriters exercise their over-allotment option from us in full, assuming
a public offering price of $ , after deducting underwriting discounts and
commissions and estimated offering expenses. We intend to use the net proceeds
as follows:
- approximately $15.0 million to continue to develop and conduct clinical
trials and complete regulatory submissions in the U.S. and
internationally for the Aegis Vortex;
- $6.1 million to repay outstanding debt comprised of a $1.1 million 8% per
annum term loan maturing January 1, 2005, and a $5.0 million loan with a
quarterly adjusted interest rate (which is currently 7.68%) maturing
January 1, 2006; and
- the remainder for general corporate purposes, including capital
expenditures and potential strategic acquisitions and alliances.
While we continue to evaluate potential strategic acquisitions and
alliances, we currently have no agreements regarding potential strategic
acquisitions or alliances. Our management has broad discretion over the use of
proceeds and may spend the net proceeds from this offering in ways with which
our stockholders may not agree. Pending use of the net proceeds of this
offering, we intend to invest them in short-term, interest-bearing,
investment-grade securities or guaranteed obligations of the U.S. government. We
will not receive any proceeds from the sale of shares of common stock by the
selling stockholders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is quoted in the Nasdaq National Market under the symbol
"KNSY" and has been traded publicly since our initial public offering in
December 1995. The following table sets forth the high and low closing sale
prices per share of our common stock as reported by the Nasdaq National Market
for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
YEAR ENDED JUNE 30, 1998
First Quarter............................................. $ 16.00 $ 10.38
Second Quarter............................................ 17.00 13.00
Third Quarter............................................. 24.25 14.00
Fourth Quarter............................................ 23.63 8.88
YEAR ENDED JUNE 30, 1999
First Quarter............................................. 9.88 7.13
Second Quarter............................................ 11.00 5.75
Third Quarter............................................. 11.75 8.31
Fourth Quarter............................................ 10.25 7.25
YEAR ENDED JUNE 30, 2000
First Quarter............................................. 15.63 7.75
Second Quarter............................................ 16.75 10.00
Third Quarter............................................. 21.38 12.50
Fourth Quarter (through April 20, 2000)................... 18.88 13.00
</TABLE>
On April 20, 2000, the last reported sale price of our common stock in the
Nasdaq National Market was $13.625 per share. As of March 31, 2000, there were
67 record owners and approximately 2,604 beneficial owners of our common stock.
We have not declared or paid cash dividends and do not anticipate declaring
or paying any dividends on our common stock in the near future. Our loan and
security agreement with Chester County Industrial Development Authority and
Commerce Bank, N.A. prohibits us from paying any type of dividend on our common
stock. This agreement will terminate when we repay the debt we incurred with
them out of the net proceeds of this offering. Any future determination as to
the declaration and payment of dividends will be at the discretion of our board
of directors and will depend on then existing conditions, including our
financial conditions, results of operations, contractual restrictions, capital
requirements, business prospects, and such other relevant factors.
15
<PAGE> 18
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
- on an actual basis; and
- on an as adjusted basis to give effect to the sale of common stock in
this offering at an assumed public offering price of $ per share and the
application of the net proceeds, after deducting underwriting discounts
and commissions and our estimated offering expenses.
This table should be read in conjunction with our financial statements and
related notes appearing elsewhere in this prospectus. See "Use of Proceeds" on
page 15.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt.............................................. $ 5,860
------- --------
Stockholders' equity:
Preferred stock, $.001 par value, 100,000 shares
authorized, no shares issued and outstanding, actual... --
Common stock, $.001 par value, 25,000,000 shares
authorized and 7,492,488 shares issued and outstanding,
actual, shares issued and outstanding, as
adjusted............................................... 7
Additional paid-in capital................................ 37,851
Accumulated deficit....................................... (15,731)
Accumulated other comprehensive income.................... (548)
------- --------
Total stockholders' equity.................................. 21,580
------- --------
Total capitalization........................................ $27,440
======= ========
</TABLE>
The above table excludes the following shares at March 31, 2000:
- 1,744,298 shares of common stock issuable upon the exercise of
outstanding stock options with a weighted average exercise price of $9.64
per share;
- 447,207 shares of common stock reserved for grants that we may make in
the future under our employee incentive compensation plan;
- 82,500 shares of common stock reserved for issuance under our
non-employee directors' stock plan; and
- up to 280,000 shares of common stock that the underwriters may purchase
from us if they exercise their over-allotment option.
16
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated statement of
operations and consolidated balance sheet data for the fiscal years ended June
30, 1995, 1996, 1997, 1998 and 1999 and the nine months ended March 31, 1999 and
2000. The selected consolidated financial data for each such fiscal year listed
below has been derived from our Consolidated Financial Statements for those
years, which have been audited by Deloitte & Touche, LLP, independent auditors,
whose report for fiscal years 1998 and 1999 is included elsewhere herein. The
selected consolidated financial data for the nine months ended March 31, 1999
and 2000 has been derived from our Consolidated Financial Statements for those
periods and is unaudited. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Consolidated Financial Statements and related Notes and
other financial information included herein. Our interim results of operations
do not necessarily indicate our results for the full fiscal year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
-------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Net sales....................... $ 1,358 $ 1,315 $ 3,661 $ 4,669 $ 7,168 $ 4,996 $ 9,075
Research and development........ 468 1,576 2,843 3,642 1,894 1,611 48
Milestone fees.................. 2,700 -- 1,050 -- -- -- --
Royalty income.................. 41 76 353 3,008 7,183 5,027 4,640
-------- ------- ------- ------- ------- ------- -------
Total revenues................ 4,567 2,967 7,907 11,319 16,245 11,634 13,763
-------- ------- ------- ------- ------- ------- -------
Operating costs and expenses:
Cost of products sold........... 1,468 1,637 3,063 4,084 5,135 3,713 5,088
Research and development........ 3,034 3,581 4,695 5,524 5,668 4,265 4,074
Selling, general and
administrative................ 1,850 2,132 1,823 1,762 2,584 1,897 2,041
Deferred compensation........... 1,182 1,493 -- -- -- -- --
Product return.................. -- 574 -- -- -- -- --
-------- ------- ------- ------- ------- ------- -------
Total operating costs and
expenses................... 7,534 9,417 9,581 11,370 13,387 9,875 11,203
-------- ------- ------- ------- ------- ------- -------
(Loss) income from operations..... (2,967) (6,450) (1,674) (51) 2,858 1,759 2,560
-------- ------- ------- ------- ------- ------- -------
Other (expense) income:
Net interest (expense) income... (1,081) (473) 435 390 317 222 273
Insurance settlement............ -- 946 969 -- -- -- --
Other........................... (164) 62 8 4 4 3 (1)
-------- ------- ------- ------- ------- ------- -------
Total other (expense) income
-- net..................... (1,245) 535 1,412 394 321 225 272
-------- ------- ------- ------- ------- ------- -------
Net (loss) income................. $ (4,212) $(5,915) $ (262) $ 343 $ 3,179 $ 1,984 $ 2,832
======== ======= ======= ======= ======= ======= =======
Basic and diluted (loss) earnings
per common share................ $ (0.92) $ (1.00) $ (0.04) $ 0.05 $ 0.43 $ 0.27 $ 0.37
======== ======= ======= ======= ======= ======= =======
Weighted average common shares
outstanding..................... 4,599 5,927 7,182 7,552 7,477 7,479 7,616
======== ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
-------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments.......... $ 8 $11,734 $ 7,351 $ 7,777 $ 9,669 $ 8,130 $ 9,032
Working capital (deficit)......... (14,044) 6,678 9,172 9,423 10,860 10,860 14,517
Total assets...................... 1,931 19,743 16,593 22,039 28,215 27,558 29,148
Long-term obligations, including
capital lease obligations....... 108 81 574 2,374 6,013 6,061 5,864
Total stockholders' (deficit)
equity.......................... (16,095) 12,001 12,127 15,863 18,901 17,937 21,580
</TABLE>
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and our financial statements and the
related notes included in this prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in the forward-looking
statements as a result of various factors including the risks discussed in "Risk
Factors" and elsewhere in this prospectus.
OVERVIEW
We were founded in 1984 and our common stock became publicly traded in
December 1995. We have been profitable in each of our last ten fiscal quarters.
Revenues
Our revenues consist of three components: net sales, research and
development revenue and royalty income.
Net Sales. Net sales is comprised of resorbable biomaterials products and
Angio-Seal devices manufactured by us.
Biomaterials. The biomaterials component of net sales represents the
sale of our biomaterials products to customers for use in the following
markets: orthopedics, cardiology, drug/biologics delivery and wound care.
Historically, our biomaterials sales have represented primarily the
resorbable collagen and polymer components of the Angio-Seal device
supplied to St. Jude Medical. We have experienced significant sales growth
in our biomaterials products in fiscal years 1998, 1999 and 2000 due to
sales to new customers, increased sales to existing customers, new product
offerings and the expansion of our marketing activities. We believe this
growth will continue because of greater acceptance by the medical community
of biomaterials and technological advances which have expanded the
applications for our biomaterials products.
Angio-Seal Devices. Historically, we supplied our strategic partner
with partially completed 8F Angio-Seal devices. In fiscal year 1999 and
2000, we have supplied our partner with 6F Angio-Seal devices to supplement
their production requirements. We anticipate that St. Jude Medical will
transition the manufacturing of these devices to their facility by June 30,
2000.
Research and Development Revenue. Historically, research and development
revenue has been derived solely from development work performed on the
Angio-Seal. As anticipated, the research and development activities have
transitioned to St. Jude Medical and no additional research and development
revenue is expected.
Royalty Income. We receive a royalty on every Angio-Seal unit sold
worldwide. We anticipate sales of the Angio-Seal device will continue to grow,
particularly due to the recent launches of the 6F Angio-Seal in the U.S. and
Europe. As a result, royalty income will continue to be a significant source of
revenue. The anticipated increase in unit sales will be partially offset in the
fiscal year 2001 by an anticipated reduction in our royalty rate, from 12% to
9%, in accordance with our licensing agreements. We expect this rate reduction
will occur during the second quarter of fiscal year 2001.
Cost of Products Sold
We have experienced an overall increase in gross margin during the fiscal
year 2000 as our net sales have increased and we have been able to spread our
fixed costs of manufacturing over a greater number of units. We anticipate our
gross margin will continue to improve as our sales levels increase and our
product mix becomes more favorable, reflecting the shift to higher margin sales
of biomaterials products and a reduction in sales of lower margin Angio-Seal
devices.
18
<PAGE> 21
Research and Development Expense
Research and development expense consists of expenses incurred for the
development of our proprietary technology such as the Aegis Vortex, resorbable
biomaterials products and technologies and other development programs. While
research and development on the Angio-Seal has become an insignificant portion
of our overall development costs, the progression of the Aegis Vortex into the
clinical trial phase and our continued development of proprietary biomaterials
products and technologies will offset this decrease. We anticipate research and
development expense will continue to increase as we pursue commercialization of
the Aegis Vortex as well as explore opportunities for our other technologies.
Selling, General and Administrative
Selling, general and administrative expenses include general and
administrative costs as well as costs related to the marketing of our products.
During the fiscal years 1999 and 2000, the costs of our patent litigation are
also included within selling, general and administrative expenses. We anticipate
the marketing component of selling, general and administrative expenses, which
has been insignificant in past fiscal years, will increase as we evaluate
opportunities for commercialization of the Aegis Vortex and expand the marketing
efforts for our biomaterials business.
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED MARCH 31, 1999 AND 2000
Revenues. Revenues increased 18% to $13.8 million in the nine months ended
March 31, 2000 from $11.6 million in the nine months ended March 31, 1999. Net
sales of products increased 82% to $9.1 million from $5.0 million for the nine
months ended March 31, 2000 and 1999, respectively. Of this increase, $2.5
million was attributable to an increase in sales of 6F Angio-Seal devices to St.
Jude Medical. The remaining $1.6 million was attributable to increased sales of
biomaterials products. We have been providing St. Jude Medical with 6F
Angio-Seal devices for the international and U.S. markets. We expect to continue
to supplement St. Jude Medical's manufacturing of these devices for the
remainder of fiscal year 2000.
Research and Development Revenues. Research and development revenues
decreased 97% to $48,000 from $1.6 million for the nine months ended March 31,
2000 and 1999, respectively. St. Jude Medical has transitioned substantially all
of the Angio-Seal research and development in-house. We do not expect research
and development revenues to be significant in the future.
Royalty Income. Royalty income increased 8%, net of a $750,000 supplemental
payment from our previous strategic partner in the nine months ended March 31,
1999, to $4.6 million from $4.3 million in the nine months ended March 31, 2000
and 1999, respectively. Royalty units increased as approximately 255,000
Angio-Seal units were sold to end-users during the nine months ended March 31,
2000 compared to approximately 227,000 units sold during the nine months ended
March 31, 1999. This unit increase was due to St. Jude Medical's increased sales
and marketing efforts primarily in the U.S. and sales of the new 6F device in
the international markets. The 6F device was introduced in the international
markets in April 1999 and in the U.S. in late March 2000.
Cost of Products Sold. Cost of products sold increased 37% to $5.1 million
in the nine months ended March 31, 2000 from $3.7 million in the nine months
ended March 31, 1999. However, gross margin increased to 44% from 26%. This
increase reflected an allocation of overhead across a greater sales volume,
which resulted in a decrease in per unit costs.
Research and Development Expense. Research and development expense
decreased 4% to $4.1 million in the nine months ended March 31, 2000 compared to
$4.3 million in the nine months ended March 31, 1999. This decrease was mainly
attributable to the transition of substantially all of the development for the
Angio-Seal product line to St. Jude Medical. This decrease was offset by our
continued development efforts on the Aegis Vortex, including clinical trial
expenses. We also continued to expand our development efforts on our
biomaterials products. We expect research and development
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<PAGE> 22
expense to increase as we investigate and develop new products, conduct clinical
trials and seek regulatory approvals for our proprietary products.
Selling, General and Administrative. Selling, general and administrative
expense increased 8% to $2.0 million in the nine months ended March 31, 2000
from $1.9 million in the nine months ended March 31, 1999. This increase was
primarily the result of increased sales and marketing efforts for the Aegis
Vortex and our biomaterials products.
Net Interest Income. Interest expense increased 58% to $351,000 in the nine
months ended March 31, 2000 from $222,000 in the nine months ended March 31,
1999. This was due to the addition of a $5.0 million financing agreement in
January 1999, of which $925,000 was used to repay a portion of the $2.0 million
term loan. The remainder of the proceeds from the $5.0 million financing
agreement are being used to fund leasehold improvements and capital expansion.
Interest income increased 40% to $623,000 in the nine months ended March 31,
2000 from $444,000 in the nine months ended March 31, 1999 as a result of an
increase in average total cash and investment balances.
COMPARISON OF FISCAL 1998 AND 1999
Revenues. Revenues increased 44% to $16.2 million in the year ended June
30, 1999, or fiscal 1999, from $11.3 million in the year ended June 30, 1998, or
fiscal 1998. Net sales of products increased 54% to $7.2 million from $4.7
million. Of this, $2.5 million was attributable to increased sales of
biomaterials products comprised of $1.8 million of biomaterials products sold to
multiple customers and $700,000 of increased sales of Angio-Seal components to
St. Jude Medical. The remaining increase was attributable to the sale of 6F
Angio-Seal devices to St. Jude Medical for the international market.
Research and Development Revenue. Research and development revenue
decreased 48% to $1.9 million from $3.6 million. The decrease was due to a
reduction in Angio-Seal research and development activity as the 6F Angio-Seal
transitioned from development to commercialization.
Royalty Income. Royalty income increased 139% to $7.2 million from $3.0
million in fiscal 1999 and fiscal 1998, respectively. Of this increase, $2.7
million was due to increased unit sales of Angio-Seal. Approximately 310,000
Angio-Seal units were sold to end users in fiscal 1999 compared to approximately
178,000 units sold in fiscal 1998. The increase in Angio-Seal unit volume
reflected the launch of the 6F Angio-Seal in Europe in fiscal 1999 as well as
increased demand for the 8F Angio-Seal in both the U.S. and European markets in
fiscal 1999 versus fiscal 1998. In addition, we received a $1.5 million
supplemental royalty payment in fiscal 1999.
Cost of Products Sold. Cost of products sold increased 26% to $5.1 million
in fiscal 1999 from $4.1 million in fiscal 1998. However, the gross margin
increased to 28% from 13%. The increase in gross margin reflects an allocation
of overhead across greater sales volume, which results in a decrease in per unit
costs, as well as increased sales of higher margin biomaterials products.
Research and Development Expense. Research and development expense
increased 3% to $5.7 million in fiscal 1999 from $5.5 million in fiscal 1998.
This increase was mainly attributable to increased development efforts on the
Aegis Vortex as we applied for and received our investigational device
exemption, or IDE, from the FDA and prepared for the initiation of clinical
trials of the device. We also expanded our development efforts in the area of
resorbable biomaterials. These increases in expense were offset by the ongoing
transition of development of the Angio-Seal product line to St. Jude Medical
along with the 6F product moving to commercialization.
Selling, General and Administrative. Selling, general and administrative
expense increased 47% to $2.6 million in fiscal 1999 from $1.8 million in fiscal
1998. This increase was primarily a result of legal expenses in the amount of
$640,000 related to our ongoing patent infringement suit. We incurred no legal
expenses related to this lawsuit in fiscal 1998.
Net Interest Income. Interest expense increased 121% to $332,000 in fiscal
1999 from $150,000 in fiscal 1998. This increase was due to the addition of a
$5.0 million financing agreement in fiscal 1999, of
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which $925,000 was used to repay a portion of the existing $2.0 million term
loan. The remainder of the proceeds from the $5.0 million financing agreement
will be used to fund leasehold improvements and for capital expansion. Interest
income increased 20% to $649,000 in fiscal 1999 from $540,000 in fiscal 1998 as
a result of an increase in average total cash and investment balances.
Other Non-Operating Income. Other non-operating income remained constant
at $4,000 for fiscal 1999 and fiscal 1998. Fiscal 1999 other non-operating
income represented primarily a net gain on the sale of fixed assets while fiscal
1998 represented miscellaneous nonrecurring items.
COMPARISON OF FISCAL 1997 AND 1998
Revenues. Revenues increased 43% to $11.3 million in fiscal 1998 from $7.9
million in fiscal 1997. Net sales of products increased 28% to $4.7 million from
$3.6 million. Sales of Angio-Seal components to our partner increased $1.7
million as a result of increased demand for the Angio-Seal in the U.S. and
European markets. This increase was offset by a $900,000 decrease in sales of
complete Angio-Seal devices to our partner as they increased their manufacturing
capacity to meet increased market demands. In addition, biomaterials product
sales increased $200,000, as our business with third-party customers expanded.
Research and Development Revenue. Research and development revenue
increased 28% to $3.7 million in fiscal 1998 from $2.8 million in fiscal 1997.
The increase related to research and development, including clinical trials,
performed for our partner on the Angio-Seal product line.
Milestone Fees. The $1.1 million milestone fee represented the final
milestone under the license agreement with our strategic partner and was earned
by us upon receipt of FDA approval in the first quarter of fiscal 1997.
Royalty Income. Royalty income increased 752% to $3.0 million from
$353,000 in fiscal 1998 and fiscal 1997, respectively. Approximately 178,000
Angio-Seal units were sold by our partner to end users in fiscal year 1998
compared to approximately 26,000 in fiscal 1997. The increase in royalty income
represented a full year of 8F Angio-Seal U.S. unit sales in fiscal 1998 compared
to nine months of U.S. unit sales in fiscal 1997, a significant increase in
demand in the U.S. and European markets and a 3% increase in total royalty per
unit resulting from our acquisition of a third party's patents in November 1997.
Cost of Products Sold. Cost of products sold increased 33% to $4.1 million
in fiscal 1998 from $3.1 million in fiscal 1997 and our gross margin declined to
13% from 16%. The increase in cost of products sold reflected increased unit
sales. The reduction in gross margin was caused by manufacturing inefficiencies
realized in the start-up phase of production for the new sizes of the Angio-Seal
and new biomaterials products during the fiscal year.
Research and Development Expense. Research and development expense
increased 18% to $5.5 million in fiscal 1998 from $4.7 million in fiscal 1997.
We expanded the development of additional Angio-Seal sizes and biomaterials
products, including resorbable polymers and collagen, and increased clinical
trial activity. In addition, we significantly expanded our development on the
Aegis Vortex as we targeted commencement of clinical trials in fiscal year 1999.
Selling, General and Administrative. Selling, general and administrative
expense decreased 3%, or $61,000, in fiscal 1998 from fiscal 1997. This decrease
was primarily due to a reduction in certain outside professional fees.
Net Interest Income. Interest expense decreased 22% to $150,000 for fiscal
1998 from $193,000 for fiscal 1997. This decrease resulted from the repayment of
a credit agreement with our partner in October 1996 offset by amounts drawn
under our bank line of credit during the current fiscal year and interest
charges recorded in relation to the obligation under our patent acquisition
agreement. Interest income decreased 14% to $540,000 in fiscal 1998 from
$627,000 in fiscal 1997. The decrease was primarily
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attributable to a decrease in cash, cash equivalent and investment balances in
the first quarter of fiscal 1997, representing funds used to repay our credit
agreement.
Insurance Settlement. During fiscal 1997, we received $1.3 million in
final settlement for the business interruption portion of our insurance claim
from our roof collapse in 1996. Of this amount, $969,000 was recorded as other
income.
Other Non-Operating Income. Other non-operating income decreased 47% from
$8,375 in fiscal 1997 to $4,405 in fiscal 1998. Fiscal 1998 represented
miscellaneous nonrecurring items while fiscal 1997 represented primarily a net
gain on the sale of fixed assets.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by our operating activities was $78,000 and $935,000
during the nine months ended March 31, 2000 and 1999, respectively. In the nine
months ending March 31, 2000, changes in asset and liability balances resulted
in a net $3.9 million use of cash, offset by net income of $2.8 million and non-
cash depreciation and amortization of $1.1 million. Changes in asset and
liability balances resulted in a net $2.0 million use of cash, offset by net
income of $2.0 million and non-cash depreciation and amortization of $914,000,
in the nine months ending March 31, 1999.
Our cash, cash equivalents and short-term investments were $9.0 million at
March 31, 2000. In addition, we have $2.5 million in restricted investment
accounts. We have pledged $1.9 million in investments as collateral to secure
bank loans made to employees to pay taxes incurred by these employees when they
received common stock at the time of our initial public offering. In exchange
for our pledging this collateral, the employees have pledged their common stock
to us as collateral. We also have $507,000 in investments restricted for capital
spending through June 30, 2000 under the terms of an agreement which provided a
total of $5.0 million. Related to this financing agreement, we have a capital
spending plan for fiscal year 2000 of which, for the nine months ended March 31,
2000, $2.2 million was expended primarily on machinery, equipment and leasehold
improvements. These expenditures were related to the continued expansion of our
manufacturing capabilities, principally for our biomaterials product lines.
We received a $3.0 million royalty advance under our licensing agreement
upon receipt of FDA approval for the Angio-Seal in fiscal year 1997. This
royalty advance has been reduced in each period by 50% of the excess of royalty
income over minimum royalties stipulated within the licensing agreement. During
the nine months ended March 31, 2000, the liability was retired.
In November 1997, we acquired patents in exchange for 200,000 shares of
common stock and a series of eight quarterly cash payments, which began on March
31, 1998, totaling $1.2 million. The patents were recorded on the balance sheet
at the value of the shares on the date of the agreement plus the present value
of the $1.2 million cash and the legal and other related costs incurred to
acquire such patents. The present value of the cash payments was $1.1 million
and was recorded on the balance sheet as an obligation. The obligation was fully
repaid during the nine months ended March 31, 2000.
We plan to continue to spend substantial amounts to fund clinical trials,
to gain regulatory approvals and to continue to expand research and development
activities, particularly for the Aegis Vortex and our biomaterials products. We
believe cash generated from operations will be sufficient to meet our operating
and capital requirements for the next twelve months.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our interest income and expense are sensitive to changes in the general
level of interest rates. In this regard, changes in interest rates affect the
interest earned on our cash, cash equivalents and investments as well as
interest paid on our debt.
Our investment portfolio consists primarily of high quality U.S. government
securities and certificates of deposit with an average maturity of one year or
less. We mitigate default risk by investing in what we believe are the safest
and highest credit quality securities and by monitoring the credit rating of
investment
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issuers. The portfolio includes only marketable securities with active secondary
or resale markets to ensure portfolio liquidity and there are limitations
regarding duration of investments. These available-for-sale securities are
subject to interest rate risk and decrease in market value if interest rates
increase. At March 31, 2000, our total portfolio consisted of approximately
$11.5 million of investments, all of which had maturities within one year.
Additionally, we generally hold securities until maturity. Therefore, we do not
expect our results of operations or cash flows to be materially impacted due to
a sudden change in interest rates. We have $1.1 million in fixed rate debt, for
which the risk would be an inability to refinance if rates decreased. The
remaining $5.0 million of our debt fluctuates with the U.S. treasury rate and is
therefore subject to increases in U.S. interest rates. The estimated potential
reduction in earnings from a one-point increase in the Five Year U.S. treasury
rate for the nine months ended March 31, 2000 would have been approximately
$37,500.
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BUSINESS
OVERVIEW
We are experts in designing, developing, manufacturing and processing
proprietary biomaterials products for the orthopedics, cardiology,
drug/biologics delivery and wound care markets. We also are a leader in
cardiovascular medical technology, specifically, arterial revascularization and
puncture closure devices. We are in clinical trials with the Aegis Vortex
System, a device designed to remove occlusive material from saphenous vein
grafts implanted during coronary bypass surgeries. Additionally, we were the
original designers, developers and manufacturers of the Angio-Seal, a device
designed to seal and close femoral artery punctures made during diagnostic and
therapeutic cardiovascular catheterizations. We intend to leverage our
proprietary knowledge and expertise to develop new products and technologies and
to explore additional applications for our products.
BIOMATERIALS MARKET OPPORTUNITY
Biomaterials, which are substances that treat, augment, or replace tissue,
organs or body functions, are used regularly as components and elements in a
wide variety of resorbable and permanent implants. Advances in materials
technology and a better understanding of the biological processes involved in
tissue formation and remodeling have led to the introduction of resorbable
biomaterials based products to address long-standing deficiencies of traditional
products and therapies. This trend has been observed in many markets, including
orthopedics, cardiology, drug/biologics delivery, wound care, surgery, dentistry
and urology. Generally, resorbable biomaterials based products have proven
attractive solutions for a number of reasons. First, physicians like to use an
implant which will not require a second surgery to remove the device. In
addition, the rate of resorption of products can be carefully engineered to
promote healing as the biomaterials based products work with the body's natural
healing response. Finally, resorbable biomaterials offer tremendous potential
for drug delivery. The ability to provide staged and sustained release of drugs
and biologics is a critical attribute of the growth in the use of resorbable
biomaterials based products.
The technological challenges involved in developing biomaterials products
are substantial. Developing products made from resorbable biomaterials requires
an understanding of the mechanical integrity, biocompatibility, resorption rates
and ability to sterilize these products without jeopardizing the material
properties.
OUR BIOMATERIALS TECHNOLOGY
Our expertise in biomaterials enables us to design, develop and manufacture
proprietary biomaterials products. These products are characterized by their
ability to be resorbed or incorporated in the body's own tissue. Our particular
expertise is in the properties, usage and processing of collagen, polymers,
ceramics and other resorbable materials. We believe that our biomaterials
technology gives us a competitive advantage because we are able to provide the
essential biomaterials building blocks to address specific product needs.
- Polymers. We are a leader in the design, development and manufacture of
resorbable polymer products. We use many different types of polymers, in
combination or as single entities, to achieve the desired properties in a
particular product. We have developed several unique polymer based
materials, products and processes, which have a variety of applications
in implantable resorbable medical devices. We offer our customers and
partners a complete solution, including product design and engineering,
tool design, process development, commercial manufacture and packaging
configuration.
- Collagen and Other Naturally Occurring Materials. We design, develop and
manufacture products using naturally occurring materials such as
collagen, elastin, hyaluronic acid and alginate, which have applications
in a wide variety of resorbable medical devices. We are experts in
processing collagen into diverse product formulations, including powders,
gels, pastes, sponges and structural matrices. We combine collagen and
other naturally occurring materials using our proprietary processes,
thereby creating new materials with unique characteristics and diverse
product applications.
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We have completed extensive biocompatibility and viral inactivation studies on
our collagen products. We have established, and currently maintain, device
master files which contain the data from these studies. Our device master files
allow customers who incorporate our collagen products into their products
to reference our device master files in their regulatory submissions,
thereby eliminating the extensive and time consuming process of
independently generating their own data. We believe our ability to make
our device master files available to our customers provides us with a
significant competitive advantage.
- Ceramics Products. We are developing products using ceramic materials in
combination with other biomaterials that have applications in bone
grafting, spinal fusion, filling of bone defects and fracture repair. We
have ceramic experience primarily with calcium phosphate salts such as
hydroxyapatite. These materials can be designed to replicate bone
structure and support new bone growth or as osteoconductive implants.
Ceramics are also useful for enhancing the material properties of
products, such as strength, when used in combination with other
biomaterials.
OUR BIOMATERIALS STRATEGY
Our strategy is to expand our leadership position and expertise in
biomaterials products and technology. The components of our strategy are
presented below.
- Develop New Proprietary Biomaterials Products. We are leveraging our
technology and expertise to develop new proprietary biomaterials
products. We are experts in polymers, collagen and other resorbable
materials, as well as in processing these materials. In addition, we have
particular expertise in the use of biomaterials in the orthopedics,
cardiology, drug/biologics delivery and wound care markets. We are using
our expertise to develop new biomaterials products, new formulations of
existing biomaterials and new biomaterials applications. For example, we
are using our expertise in resorbable polymers and cardiovascular devices
to design and develop a resorbable polymer matrix to deliver angiogenic
growth factors to promote the growth of new blood vessels for use in
myocardial revascularization procedures.
- Expand Our Existing Biomaterials Business. We intend to aggressively
expand our existing biomaterials business by increasing sales to our
current customers and attracting new customers by providing proprietary,
technologically superior biomaterials products. We offer a complete range
of services including design, development, regulatory consulting,
manufacturing and package engineering. We will continue to invest in new
manufacturing technology and processes to meet our customers'
requirements, support product launches and increase the demand for our
biomaterials products. Additionally, we will expand our marketing efforts
to broaden our customer base in the orthopedic, cardiology,
drug/biologics delivery and wound care markets.
- Commercialize Biomaterials Products. We are increasing the level of value
we add to the services and products we sell to our customers and believe
we will be able to increase our financial participation in the
commercialization of these services and products. We either manufacture
our biomaterials products and provide them to our customers for
incorporation into their products or manufacture a complete product
incorporating our biomaterials and provide the finished product to our
customers for distribution. Currently, we are independently designing and
developing biomaterials products which may enhance the features and
benefits of our customers' products. In addition, we are independently
developing new proprietary products and exploring new commercial
relationships with customers to maximize our return on our increased
investment in these products. As we continue to increase our investment
in the development of new biomaterials and products, we believe we will
be able to retain an increased percentage of the financial return
associated with the commercialization of products using our biomaterials
technology.
- Pursue Strategic Acquisitions and Alliances. We will seek strategic
acquisitions and alliances which add complementary technologies and
expertise, broaden our intellectual property portfolio and strengthen our
competitive position in our biomaterials business. We believe that our
expertise in biomaterials allows us to identify and attract these
opportunities.
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OUR BIOMATERIALS PRODUCTS
We provide our customers with a variety of proprietary products ranging
from components to final packaged products which are then marketed and sold to
end users. We sell our biomaterials products to leading companies in each of the
markets listed below. The structure of our relationships with our customers
varies and includes development partnerships and manufacturing contracts. The
following table describes our biomaterials products, the markets they address
and their current status.
<TABLE>
BIOMATERIALS MARKETS BIOMATERIALS PRODUCTS PRODUCT STATUS
<S> <C> <C>
Orthopedics:
Sports Medicine Meniscal Repair Tacks Commercial
Anterior Cruciate Ligament Repair Screws Commercial; additional products in
development and regulatory review
Rotator Cuff Repair Screws Commercial; additional products in
development and regulatory review
Cranio-maxillofacial Fixation Cranio-maxillofacial Repair Plates, Commercial; additional products in
Screws and Tacks development
Spinal Fixation Resorbable Growth Factor Delivery Commercial, international only; clinical;
Matrices additional products in development
Trauma Fixation Bone Graft Substrates Development
Fracture Fixation Screws Development
Cardiology:
Arterial Puncture Closure Resorbable Polymer Anchors and Collagen Commercial
Plugs for Angio-Seal
Vascular Grafts Vascular Graft Coatings Commercial, international only
Resorbable Vascular Grafts Research
Angiogenesis Angiogenic Growth Factors and Development
Pharmaceutical Delivery Matrices
Arterial Stents Advanced Intravascular Resorbable Stents Development
and Stent Covers
Anastomosis Vascular Graft Connection Systems Development
Drug/Biologics Delivery:
Cervical Cancer and Dysplasia Drug Delivery Matrices Clinical
Wound Care:
Burn Treatments and Skin Collagen Tissue Engineering Substrates FDA approved for humanitarian use;
Defects used for Culturing Skin Cells clinical
Wound Dressings Collagen Incorporated into Topical Wound Commercial
Dressings
</TABLE>
Product status definitions:
Commercial -- Product approved by the appropriate regulatory agency and
available for sale.
Clinical -- Product approved by the appropriate regulatory agency for human
clinical studies.
Development -- Product in-process which has demonstrated feasibility but has not
been approved for clinical trials or sale.
Research -- Product or therapy concept which has not advanced to the development
stage.
We have products that are commercially available for sale in the U.S. and
international markets, and products that are in various stages of development,
clinical trials or regulatory review. Additionally, we have biomaterials
research programs which we believe will provide us with opportunities to expand
our product offerings and strategic alliances.
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Orthopedic Products. Applications in the orthopedic market for our
biomaterials products include sports medicine, as well as spinal and trauma
fixation. Orthopedic applications of biomaterials include repair, regeneration
or augmentation of musculoskeletal tissues, including bone, cartilage,
ligaments, spinal discs and tendons. We estimate the potential market for
products we manufacture, develop and market in these segments to be in excess of
$600 million annually. Companies in this market often look to third parties to
develop and manufacture their product concepts into marketable products. Our
capabilities and expertise have enabled us to develop relationships with several
of the major orthopedic companies, which we provide with our biomaterials
products.
Many of our biomaterials products manufactured from resorbable materials
are designed to replace metallic devices used in the fixation and repair of
musculoskeletal tissues. Use of resorbable biomaterials eliminates the need for
a second surgery which is frequently necessary to remove non-resorbable metallic
implants like bone rods and pins. This benefit provides our customers with a
cost-effective alternative to traditional non-resorbable based products.
Sports Medicine. The primary application for biomaterials in the
sports medicine segment is soft tissue fixation. Soft tissue fixation
includes the repair of tendons and ligaments in the knee, such as the
meniscus and the anterior cruciate ligament, and in the shoulder, such as
the rotator cuff. The worldwide soft tissue fixation segment of the sports
medicine market was estimated to be approximately $360 million for 1999 and
is growing at an estimated 15% to 20% per year.
In soft tissue fixation, we have assisted in developing and
manufacturing three product lines marketed and sold by our customers.
Additionally, we have assisted in developing and will manufacture, six new
product lines for which our customers are awaiting regulatory approval.
These product lines include various types of resorbable screws, tacks and
other fixation devices.
Cranio-maxillofacial. Our biomaterial products address the repair of
the skull or bones of the face using resorbable tacks, screws and plates.
The potential worldwide market for our cranio-maxillofacial applications
was estimated to be $250 million for 1999. The cranio-maxillofacial market
is a subsegment of the trauma fixation market.
We have assisted with the design and the development of, and are
manufacturing, a product line for cranio-maxillofacial repair marketed and
sold by one of our customers. We also are assisting with the design and
development of a new product line for another customer. In addition, we are
developing proprietary technologies that will have applications in this
segment and intend to commercialize these technologies through arrangements
similar to our existing customer relationships.
Spinal Fixation. The primary application for our biomaterials in the
spinal fixation market is spinal fusion, a $405 million market in 1999.
Spinal fusion devices are used to restore normal spinal disc spacing and
fuse adjacent vertebrae for the correction of a spine or improvement in
chronic back pain. We supply our proprietary collagen products for use in
coating spinal fusion cages manufactured, marketed and sold by our
customer.
Trauma Fixation. Trauma fixation devices are used to repair broken
bones using nails, screws, plates, pins and bone growth stimulation
products. We are developing a product line with a customer incorporating
one of our proprietary biomaterials formulations. We also are working with
other customers to expand their product offerings by providing our
proprietary biomaterials products for incorporation into their products. We
are currently exploring the use of our biomaterials products to deliver
growth factors for applications in trauma fixation.
Cardiology Products. Our biomaterials are used in arterial puncture closure
products and coatings for synthetic vascular grafts. The potential worldwide
arterial puncture closure market is estimated to be between $750 million and $1
billion, with the U.S. market accounting for approximately 75%. We manufacture
the resorbable polymer anchor and collagen plug components for the Angio-Seal.
We also supply our proprietary collagen to a customer for use as a synthetic
vascular graft coating. We are independently developing a resorbable polymer
matrix to deliver angiogenic growth factors to promote the growth of new blood
vessels for use in myocardial revascularization procedures. We are also
independently exploring the use of our biomaterials in an arterial stent, a
stent cover, an anastomosis connector and a vascular graft.
Drug/Biologics Delivery Products. Biomaterials are particularly useful for
the controlled release of drugs and other biologically active agents such as
growth factors. In these applications, the drug is deposited or incorporated
into a biomaterials delivery matrix. As the matrix dissolves or is degraded by
the body, the drug is gradually released. The use of a biomaterials matrix for
drug delivery permits a
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locally targeted, low-dose release profile, improving the delivery of the drug.
We supply a proprietary collagen matrix to a customer which is developing a drug
delivery system to treat cervical cancer and dysplasia.
Wound Care Products. While the wound care market is currently dominated by
conventional bandages and dressings and surgical staples or sutures, there is a
new generation of products resulting from recent advances in biomaterials,
tissue engineering and biotechnology. We manufacture collagen which is
incorporated into an artificial skin product manufactured, marketed and sold by
our customer to treat burns and skin defects, a market of approximately $230
million in 1999. Additionally, we supply collagen for use in a topical wound
dressing manufactured, marketed and sold by our customer. We are independently
pursuing additional wound care applications for our biomaterials, including
surgical sealants and glues and adhesion prevention segments.
Surgery, Dentistry and Urology Products. Biomaterials are used in these
market segments in products ranging from resorbable sutures to tissue barriers
to stents. We intend to pursue the development of products for these markets.
THE AEGIS VORTEX SYSTEM
We are designing and developing the Aegis Vortex system to remove occlusive
material from saphenous vein grafts implanted during coronary artery bypass
surgeries. There are approximately 650,000 coronary bypass surgeries performed
annually worldwide and approximately half of all bypass grafts become diseased
or occluded within ten years of surgery. Saphenous vein grafts are used in
coronary bypass graft procedures as a replacement for the diseased or occluded
native artery to restore blood flow. The saphenous vein is removed from the
patient's leg and surgically implanted in place of the diseased or occluded
native artery. Current treatment options for diseased saphenous vein grafts
include drug therapy, device-based therapies (including angioplasty and the
placement of stents), repeat bypass surgery and transmyocardial
revascularization. There are significant risks involved with these treatments
ranging from continued progression of disease, heart attack and possible death.
We believe the use of the Aegis Vortex will reduce these risks for patients.
We believe the Aegis Vortex currently is the only device, in clinical
trials or commercially available, which offers all three of the following
features:
- a catheter with a high-speed rotating tip advanced over a guidewire that
delivers fluid to the vessel; the tip rotates at up to 150,000
revolutions per minute in order to dislodge and break the occlusion into
particles;
- a distal protection balloon placed beyond the occlusion to prevent debris
from flowing downstream and potentially causing a heart attack; and
- a controlled extraction system which removes the debris.
[ART]
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To operate the Aegis Vortex system, a guiding catheter is positioned at the
entrance to the graft. The guidewire, containing the distal protection balloon,
is advanced through the saphenous vein graft beyond the occlusion. The distal
protection balloon is inflated and the rotating tip catheter is advanced over
the guidewire and through the diseased or occluded graft. Saline and contrast
media are delivered into the graft from the catheter. The combination of the
rotating catheter tip and saline and contrast media create a vortex which
dislodges and breaks up the occlusive material. The particles and debris that
are dislodged by the rotating tip catheter are extracted through the lumen of
the guiding catheter.
We have completed an initial 17 patient pilot clinical trial of the Aegis
Vortex. We believe this trial demonstrated the safety and feasibility of the
Aegis Vortex in humans. We are incorporating design enhancements and planning
our pivotal trial protocol. We expect to submit an investigational device
exemption, or IDE, supplement to the FDA during the second quarter of fiscal
year 2001 to initiate additional trials of the device. We anticipate beginning a
trial in Europe during the fourth quarter of fiscal year 2000 which will be used
as support for a CE Mark filing. The CE Mark is an international symbol of
adherence to quality assurance standards established by the European Union and
compliance with applicable European medical device directives.
We intend to commercialize the Aegis Vortex by building a direct sales and
marketing force in the interventional cardiology market or establishing a
strategic alliance with a leader in this market.
We intend to modify the design of the Aegis Vortex to address additional
related applications including the treatment of diseased native coronary and
peripheral arteries and the re-occlusion of stented arteries. We are currently
evaluating selected design modifications to address these applications.
THE ANGIO-SEAL
The Angio-Seal is a leader in the worldwide arterial puncture closure
market with over 770,000 devices sold to date. We estimate the Angio-Seal
worldwide market share in 1999 was approximately 35%. We believe there are
approximately 6.5 million cardiovascular catheterization procedures performed
annually. The potential worldwide arterial puncture closure market is estimated
to be between $750 million and $1 billion, with the U.S. market accounting for
approximately 75%. We believe that current U.S. market penetration of arterial
puncture closure devices is approximately 20% and the international market
penetration is approximately 5%.
The Angio-Seal is a puncture closure device that acts to close and seal
femoral artery punctures made during diagnostic and therapeutic cardiovascular
catheterizations. The device consists of four components:
- a resorbable polymer anchor seated securely against the inside surface of
a patient's artery at the point of puncture;
- a resorbable collagen plug applied adjacent to the outside of the artery
wall;
- a resorbable suture; and
- a delivery system consisting of an insertion sheath, puncture locator,
guidewire, tamper tube and spring.
The anchor and suture act as a pulley to position the collagen into the
puncture tract adjacent to the outside of the artery wall, to seal and close the
puncture. A tamper tube is used to further position and secure the closure
device. The anchor, collagen and suture are all designed to be resorbed into the
patient's body within 60 to 90 days after the procedure. We believe that this
mechanical (via the anchor and collagen) and biochemical (via the collagen) seal
offers physicians a method for sealing and closing punctures with significant
advantages over traditional manual or mechanical compression methods, as well as
over other competitive products. We believe the Angio-Seal has several
advantages over traditional manual or mechanical compression procedures,
including: reduced time to ambulation, reduced staffing and hospital time,
possible reduction in procedure costs, increased patient comfort, greater
flexibility in post-procedure blood thinning therapy and increased blood flow to
the leg.
29
<PAGE> 32
Centered at the top of the page is the heading: "The following four diagrams
demonstrate how the Angio-Seal operates."
[ART]
[In the upper left quadrant, a drawing labeled Figure 1 will illustrate how the
absorbable anchor is inserted through the tissue onto the surface of the
punctured artery. The tissue and artery, as well as the guidewire, drip hole and
arteriotomy locator parts of the location system, will be labeled. The following
caption will appear below this figure: "A patented puncture location system
identifies the location of the arterial puncture."
In the upper right quadrant, a drawing labeled Figure 2 will illustrate how the
Angio-Seal device is inserted through the hemostatic valve. The reference
indicator, carrier tube, bypass tube and hemostatic valve parts of the
Angio-Seal device will be labeled. The following caption will appear below this
figure: "The Angio-Seal resorbable components are inserted using the delivery
system into the patient."
In the lower left quadrant, a drawing labeled Figure 3 will illustrate how the
tamper tube is inserted and the puncture location system is removed. The crimp
stop and tamper tube parts of the Angio-Seal device will be labeled. The
following caption will appear below this figure: "The delivery system is removed
and the resorbable closure device is secured at the puncture."
In the lower right quadrant, a drawing labeled Figure 4 will illustrate how the
arterial puncture is sealed beneath the surface of the skin. The skin, tissue
and artery are labeled with lines pointing to their corresponding parts on the
picture. The caption will appear below this figure: "The device acts to seal and
close the puncture and resorbs completely within 60 to 90 days."]
The Angio-Seal is manufactured, marketed, sold and distributed by St. Jude
Medical. We receive a royalty on every Angio-Seal unit sold. In addition, we
have manufactured components for all Angio-Seal devices and augmented St. Jude
Medical's manufacturing of completed devices. In December 1999, St. Jude Medical
significantly expanded its U.S. sales and marketing efforts for the Angio-Seal.
In early 2000, the 6F Angio-Seal was approved for sale in the U.S. The 6F
device, the smallest and latest size of the Angio-Seal device, specifically
addresses arterial punctures created during diagnostic angiograms, which account
for approximately 70% of all cardiac catheterization procedures. In the
international market, the 6F device was approved in early 1999 and its sales
have increased significantly since the launch. We believe the impact of the
additional sales and marketing efforts, along with the 6F device U.S. launch and
new product enhancements planned by St. Jude Medical, will provide additional
growth opportunities for the Angio-Seal.
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<PAGE> 33
PATENTS AND PROPRIETARY RIGHTS
Our intellectual property covers technology in the fields of arterial
puncture closure, blood vessel location, arterial revascularization systems,
drug/biologics delivery products, wound care products, angiogenesis products and
surgical instruments. We protect our technology by, among other things, filing
patent applications for the patentable technologies that we consider material to
our business. Our first U.S. patent for the concept of sealing arterial
punctures was issued in 1988. As of April 24, 2000, we held 70 United States
patents and 68 foreign national patents and had several United States patents
and foreign national patent applications pending.
We also rely heavily on trade secrets and unpatented proprietary know-how
which we seek to protect through non-disclosure agreements with corporations,
institutions and individuals exposed to our proprietary information. As a
condition of employment, we require that all full-time and part-time employees
enter into an invention assignment and non-disclosure agreement.
We have licensed our United States and foreign patents for the Angio-Seal
to St. Jude Medical and are required to license all improvements for Angio-Seal
to St. Jude Medical. The license agreements with St. Jude Medical are exclusive
and worldwide, with rights to make, have made, use, sell, and have sold the
Angio-Seal, but are limited to the cardiovascular field of use only.
We will continue to aggressively protect any new manufacturing processes,
biomaterials products and technologies and medical products and devices. We
intend to broaden the scope of our intellectual property and consider our core
technologies to be critical to our future product development.
MANUFACTURING
We have developed unique manufacturing and processing capabilities for
resorbable collagen and polymers. We manufacture numerous resorbable
biomaterials products for use in applications including orthopedics, cardiology,
drug/biologics delivery and wound care. We have our own capabilities in tool and
die making, injection molding, extrusion, compounding, machining, model making
and laser welding, which allows us to engineer and reengineer our products in
development on site.
To date, our Angio-Seal manufacturing activities have consisted primarily
of producing Angio-Seal devices for use worldwide in clinical trials and
partially and fully completed commercial devices for sale in the U.S. and
Europe. Historically, we have manufactured two of the major resorbable
components of the Angio-Seal, the collagen plug and polymer anchor, to fulfill
the worldwide requirements of St. Jude Medical and our previous partners for
Angio-Seal. St. Jude Medical has the right to manufacture the resorbable polymer
anchor and intends to manufacture that component in the future. However, we
anticipate we will continue to be an additional source of anchor requirements
through the end of fiscal year 2000.
Our FDA-registered manufacturing facility in Exton, Pennsylvania contains
separate areas for Angio-Seal assembly, resorbable collagen and polymer
manufacturing. Our manufacturing facility is equipped with multiple class
100,000 clean room facilities and is certified to the two international quality
standards, ISO 9001 and EN 46001. Certification is based on adherence to
established standards of quality assurance and manufacturing process control.
Our manufacturing facility is subject to regulatory requirements and periodic
inspection by regulatory authorities. We have a separate in-house quality
assurance department that sets standards, monitors production, writes and
reviews operating procedures and protocols and performs final testing of sample
devices and products manufactured by or for us.
We purchase most raw materials, parts and peripheral components used in our
products. Although many of these supplies are off-the-shelf items readily
available from several supply sources, others are custom-made to meet our
specifications. We believe that, in most of these cases, alternative sources of
supply for custom-made materials are available or could be developed within a
reasonable period of time.
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<PAGE> 34
RESEARCH AND DEVELOPMENT
Our research and development and regulatory and clinical staff consisted of
39 individuals at April 24, 2000. Our research and development efforts are
focused on the development of the Aegis Vortex and the continued development of
our biomaterials capabilities. We incurred total research and development
expenses of $4.7, $5.5 and $5.7 million in the fiscal years ended June 30, 1997,
1998 and 1999, respectively.
In addition to the resources dedicated to the product development process,
we have an internal regulatory affairs and clinical management staff responsible
for managing our clinical trials for the Aegis Vortex. Our staff worked closely
with our strategic partners to gain regulatory approvals for additions to the
Angio-Seal product lines in the U.S., the European Union and several other
countries.
OUR RELATIONSHIP WITH ST. JUDE MEDICAL
We have a strategic alliance with St. Jude Medical who manufactures,
markets and sells the Angio-Seal worldwide. The Angio-Seal has been sold in
Europe since 1995 and in the U.S. since 1996. The Angio-Seal is now sold in the
U.S., Europe, Canada, Latin America and Australia, among other countries. To
date, there have been over 770,000 devices sold to end users.
Under our license agreements, St. Jude Medical has exclusive rights to
manufacture, market and distribute all current and future sizes of the
Angio-Seal for cardiovascular use worldwide. We retain the rights to use our
puncture closure technology for other applications. We earn a royalty on each
Angio-Seal sold by St. Jude Medical. The royalty rates are based on aggregate
volume of Angio-Seals sold. We expect a reduction in our royalty rate during the
second quarter of fiscal year 2001. These royalty agreements provide for minimum
royalty payments for five years following FDA approval (ending September 30,
2001). If St. Jude Medical fails to pay the minimum royalty, the license
agreements become non-exclusive. This right of conversion is our sole remedy for
St. Jude Medical's failure to make any minimum royalty payment, and if it is
exercised, St. Jude Medical has no further obligation to make any minimum
royalty payments.
The term of the license agreements extends to the expiration date of the
most recently issued licensed patent, including all continuations or
supplements. The most recent patent for the Angio-Seal technology was issued in
1999, although we have applied for, and expect to have issued to us, additional
patents. St. Jude Medical may terminate the license agreements any time after
the fifth royalty year (ending September 30, 2001) for any reason upon 12 months
notice.
If a license under any third-party patent is necessary to make, use or sell
the Angio-Seal product line, any payments and royalties for such third-party
license, and any related attorney's fees, will be deducted from payments due to
us, on a territory-by-territory basis, in an amount not to exceed in any one
year one-half of any royalties in any such territory for that year. "Angio-Seal"
is a trademark of St. Jude Medical.
SALES AND MARKETING
As we develop and receive regulatory approval for new products, we will
explore a variety of means of commercializing these products. As a result, we
may contract with distributors, develop our own sales and marketing force and/or
license products to third parties. We have no experience hiring or training a
sales and marketing force and we may not be able to maintain a sales and
marketing force with technical expertise and the necessary supporting
distribution capabilities. We recently created a new senior marketing position
and hired someone to fill this position. This person is responsible for leading
our expanded marketing and sales efforts and further developing our future
distribution strategy for the Aegis Vortex.
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COMPETITION
The market for our various products is fragmented, competitive and rapidly
changing. We compete directly and indirectly for customers with a wide variety
of companies. We believe that the principal competitive factors for our products
include:
- the ability to obtain regulatory approvals;
- safety and effectiveness;
- performance and quality;
- marketing;
- distribution;
- pricing;
- cost effectiveness;
- customer service;
- the development or acquisition of proprietary products and processes;
- the ability to attract and retain skilled personnel;
- improvements to existing technologies;
- reimbursement; and
- compliance with regulations.
We believe our products compete favorably with those of our competitors.
However, many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories in these markets, greater name
recognition, larger customer bases and greater financial, technical and
marketing resources.
GOVERNMENT REGULATION
Our medical devices are subject to extensive regulation by the Food and
Drug Administration, or FDA, and by foreign governments. The FDA regulates the
clinical testing, design, manufacture, labeling, distribution and promotion of
medical devices. Noncompliance with applicable requirements can result in, among
other things, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the government
to grant pre-market clearance or pre-market approval for devices, withdrawal of
marketing approvals and criminal prosecution. The FDA also has the authority to
recall, request repair, replacement or refund of the cost of any device we
manufacture or distribute.
FDA premarket approval was granted for the Angio-Seal 8F device in
September 1996 and for the 6F device in early 2000. St. Jude Medical is
responsible for all future FDA premarket approval application supplements for
the Angio-Seal device. The 8F Angio-Seal received CE Mark approval from the
European Community in September 1995. The 6F Angio-Seal received CE Mark
approval in February 1999.
The Angio-Seal is also available for sale in a number of other countries.
International sales of medical devices are subject to the regulatory agency
product registration requirements of each country in which they are sold. The
regulatory review process varies from country to country. Many countries also
impose product standards, packaging requirements, labeling requirements, price
restraints and import restrictions on devices. Delays in receipt of, or a
failure to receive approvals or clearances, or the loss of any previously
received approvals or clearances, could have a material adverse effect on our
business, financial condition and results of operations. In addition,
reimbursement coverage must be obtained in some countries.
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<PAGE> 36
Generally, our biomaterials products are incorporated by our customers into
another product which receives FDA approval. We maintain device master files for
some of our biomaterials products containing information relating to the
specifications, manufacturing, biochemical characterization, biocompatibility
and viral safety of our biomaterials products. These files, in addition to our
technical expertise, help our clients in their regulatory approval process for
products incorporating our biomaterials.
We must obtain CE Mark approval and premarket approval from the FDA, as
well as all future premarket approval application supplements for the Aegis
Vortex. We expect to submit an IDE supplement to the FDA during the second
quarter of fiscal year 2001 to initiate additional trials of the device.
When human clinical trials of a device are required in connection with our
new proprietary products and the device presents a significant risk, we must
file an IDE application with the FDA prior to commencing human clinical trials.
The IDE application must be supported by data, typically including the results
of animal and laboratory testing. If the IDE application is approved, human
clinical trials may begin at a specific number of investigational sites with a
specific number of patients, as approved by the FDA. The conduct of human
clinical trials is also subject to regulation by the FDA. Sponsors of clinical
trials are permitted to sell those devices distributed during the course of the
trial provided such compensation does not exceed recovery of the costs of
manufacture, research, development and handling. Similar approvals are required
to conduct clinical trials in foreign countries.
Any products we manufacture or distribute pursuant to FDA clearance or
approvals are subject to pervasive and continuing regulation by the FDA,
including record keeping requirements and reporting of adverse experiences with
the use of the device. As a device manufacturer, we are required to register our
manufacturing facility with the FDA; list our devices with the FDA; and are
subject to periodic inspections by the FDA and certain state agencies. The
Federal Food, Drug, and Cosmetic Act requires devices to be manufactured in
accordance with Quality System regulations which impose certain procedural and
documentation requirements with respect to manufacturing and quality assurance
activities. Labeling and promotional activities are subject to scrutiny by the
FDA and, in certain instances, by the Federal Trade Commission. The FDA actively
enforces regulations prohibiting marketing of products for unapproved uses.
Manufacturers are also subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. We may be required to incur significant costs
to comply with such laws and regulations in the future and any failure to comply
with such laws or regulations will have a material adverse effect upon our
ability to do business.
EMPLOYEES
As of April 24, 2000, we have 140 employees, including 66 full time and 20
temporary employees in operations, 39 employees in research and development and
clinical and regulatory affairs and 15 employees in finance and administration.
All of our employees are located at our facility in Exton, Pennsylvania. We
believe that our success depends in a large part on our ability to attract and
retain employees in all areas of our business.
PROPERTIES
We lease approximately 44,000 square feet of executive offices,
manufacturing and research and development facilities in Exton, Pennsylvania, a
suburb of Philadelphia. Our lease expires in 2005, subject to renewal options.
We believe that our facility is sufficient for our current operations.
LEGAL PROCEEDINGS
In March 1998, we, along with our former Angio-Seal strategic partner,
filed a patent infringement suit against Perclose, Inc., a competitor in the
puncture closure market. Upon their acquisition of the
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<PAGE> 37
Angio-Seal license in March 1999, St. Jude Medical, as part of the transaction,
assumed certain rights and responsibilities with respect to the lawsuit from our
previous partner. In 1999, we amended the complaint to add a second patent to
the infringement suit. The original and amended complaints, filed in the Eastern
District of Pennsylvania, claim that Perclose infringes our U.S. patent numbers
5,676,689 and 5,861,004. These patents cover systems and methods related to
sealing percutaneous punctures. We seek damages and an order to permanently
enjoin Perclose from making, using or selling products that infringe these
patents.
Perclose filed four counterclaims against us and our strategic partner's
predecessor in answer to the complaint. The first counterclaim seeks to declare
our patents invalid and not infringed. The additional counterclaims asserted by
Perclose allege that our claims are frivolous and assert various antitrust
counter-claims, including price discrimination, predatory pricing and attempted
monopolization of the puncture closure market. We are unable to predict the
final outcome of this suit or whether the resolution of this matter could
materially affect our results of operations, cash flows or financial position.
Abbott Laboratories acquired Perclose in November 1999.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table contains certain information with respect to our
executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Joseph W. Kaufmann................. 48 Chief Executive Officer, President, Secretary and Director
Douglas G. Evans, P.E.............. 35 Chief Operating Officer, Assistant Secretary and Director
John E. Nash, P.E.................. 65 Vice President of New Technologies and Director
Julie N. Broderick................. 35 Vice President of Clinical and Regulatory Affairs
Wendy F. DiCicco, CPA.............. 32 Chief Financial Officer
Robert J. Bobb..................... 53 Director
Harold N. Chefitz.................. 65 Director
Kenneth R. Kensey, M.D. ........... 49 Director
Walter R. Maupay, Jr............... 61 Director
</TABLE>
Joseph W. Kaufmann. Mr. Kaufmann has served as our Chief Executive Officer
and President since March 1995. Mr. Kaufmann joined us in 1989 as Chief
Financial Officer, was appointed Vice President, Finance and Administration in
January 1994, has been one of our directors since September 1992 and has served
as our Secretary since 1989. Prior to joining us, Mr. Kaufmann held executive
finance positions at divisions of both Hanson, PLC and Syntex Corporation. Mr.
Kaufmann received a B.S. degree in Accounting from St. Joseph's University. Mr.
Kaufmann is Chairman of our executive committee.
Douglas G. Evans, P.E. Mr. Evans has served as our Chief Operating Officer
since March 1995, was elected as one of our directors in May 1995 and has served
as our Assistant Secretary since October 1995. Mr. Evans is responsible for
protecting and developing our intellectual property, assessing new technologies,
and overseeing our daily operations. From 1989 to 1993, Mr. Evans held several
senior positions at Kensey Nash in product development and engineering. From
1986 until he joined Kensey Nash in 1989, Mr. Evans held a number of positions
in engineering and business development for several divisions of the General
Electric Company. Mr. Evans received a B.S. degree in Engineering Science and a
Masters degree in Business Management from Pennsylvania State University and a
M.S. degree in Electrical Engineering from the University of Pennsylvania. Mr.
Evans is a Registered Professional Engineer in the United States and has served
as a director for Laser Cellular Corporation since 1999.
John E. Nash, P.E. Mr. Nash is one of our co-founders and is currently our
Vice President of New Technologies and one of our directors. Mr. Nash served as
our Vice Chairman of the board and Executive Vice President from 1984 to October
1998. Prior to co-founding Kensey Nash, Mr. Nash was employed by Syntex
Corporation in a number of engineering and development positions within its
Syntex Dental subsidiary, including Vice President of Research and Development.
Mr. Nash holds qualifications in Mechanical and Production Engineering from
Kingston College of Technology in the United Kingdom and is a Registered
Professional Engineer in both the United Kingdom and the United States. Julie N.
Broderick is Mr. Nash's daughter.
Julie N. Broderick. Ms. Broderick was appointed our Vice President of
Clinical and Regulatory Affairs in March 1998. She previously held the positions
of Director of Clinical and Regulatory Affairs since August 1994 and Manager of
Clinical and Regulatory Affairs since joining us in 1988. Prior to her
association with us, Ms. Broderick was a consultant in the Washington, D.C.
Government Services Office of Price Waterhouse & Co. Ms. Broderick holds a B.A.
degree in Economics from the University of Virginia and a M.S. degree in Quality
Assurance and Regulatory Affairs from Temple University. Mr. Nash is Ms.
Broderick's father.
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<PAGE> 39
Wendy F. DiCicco, CPA. Ms. DiCicco has served as our Chief Financial
Officer since August 1998. From 1996 through 1998, Ms. DiCicco served as our
Controller. Prior to joining us in 1996, Ms. DiCicco was an Accounting and Audit
Manager at the public accounting firm Deloitte & Touche LLP, where she was
employed since 1989. Ms. DiCicco holds a B.S. degree in accounting from
Philadelphia University and is a Certified Public Accountant in the Commonwealth
of Pennsylvania.
Robert J. Bobb. Mr. Bobb has been one of our directors since 1984. For over
fifteen years, Mr. Bobb has been a principal equity investor and key management
participant in a number of operating companies. Mr. Bobb received a B.S. degree
from Western Michigan University and a J.D. degree from the University of Notre
Dame Law School and studied at the University of Belgrade and the University of
London. Mr. Bobb is the Chairman of our compensation committee and a member of
our audit and executive committees.
Harold N. Chefitz. Mr. Chefitz has been one of our directors since June
1995. Mr. Chefitz has many years of experience in investment banking in the
healthcare industry and presently is a general partner at CK Capital L.P., and a
partner at Boles Knop & Company LLC. Mr. Chefitz was a senior managing director
of Gerard Klauer Mattison & Co. LLC from June 1995 through November 1998 and
since 1995 has been a director of Warner Chilcott, PLC, a Dublin, Ireland-based
company traded on the Nasdaq National Market which develops, markets and
distributes prescription pharmaceuticals in the United States and has since 1999
been a director of Precision Therapeutics, Inc., a privately held
Pittsburgh-based biomedical company. From March 1993 until March 1995, Mr.
Chefitz served as a managing director and the head of healthcare investment
banking for Prudential Securities Incorporated in New York City. Mr. Chefitz
received a B.S. degree from Boston University and attended Boston College Law
School. Mr. Chefitz is a member of our audit, compensation and executive
committees.
Kenneth R. Kensey, M.D. Dr. Kensey is one of our co-founders and directors
and served as Chairman of the Board from 1984 until October 1998. Dr. Kensey
also served as our Chief Executive Officer until 1992. Dr. Kensey is a limited
partner in several real estate holding companies and is involved in several
private research and development companies as well. Prior to co-founding Kensey
Nash, Dr. Kensey was a cardiology fellow at Michael Reese Hospital in Chicago.
Dr. Kensey received a B.A. degree from Ohio Wesleyan University and an M.D.
degree from Ohio State University.
Walter R. Maupay, Jr. Mr. Maupay has been one of our directors since June
1995. In May 1995, he retired from his position as Group Executive and President
of Calgon Vestal Laboratories, a division of Bristol Myers Squibb Company, a
position he held since January 1995. From 1988 to December 1994, Mr. Maupay
served as President of Calgon Vestal Laboratories, which was then a division of
Merck & Co. where Mr. Maupay spent 33 years in corporate and divisional
positions. Mr. Maupay received a B.S. degree in Pharmacy from Temple University
and an M.B.A. degree from Lehigh University. Mr. Maupay has been a director of
Life Medical Sciences, Inc. since 1996, a director of Cubist Pharmaceuticals
since June 1999 and is a director of several private companies. Mr. Maupay is
Chairman of our audit committee and a member of our compensation and executive
committees.
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CERTAIN TRANSACTIONS
We have pledged $1.9 million in investments as collateral to secure bank
loans made to employees to pay taxes incurred by these employees when they
received common stock at the time of our initial public offering. In exchange
for our pledging collateral for these loans, each employee has pledged his
common stock to us as collateral. The aggregate balance outstanding on these
employee loans was $2.0 million at March 31, 2000.
We have entered into a loan agreement with Joseph W. Kaufmann under which
he has borrowed $700,000 from us since November 1998 at an interest rate of 7%
per annum. This interest rate was the most favorable investment rate available
to us at the time the loan was made, plus 1%. In exchange for the loan, Mr.
Kaufmann has pledged his common stock as collateral to us. The term of the loan
expires on January 2, 2001 unless Mr. Kaufmann's employment with us is
terminated or he sells all of his common stock before January 2, 2001, in which
case the loan will immediately become due and payable.
The loans from the bank and us will be repaid if the underwriters exercise
their over-allotment option to purchase shares of our common stock from the
other selling stockholders.
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<PAGE> 41
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of April 24, 2000, and as adjusted to reflect
the sale of the shares of common stock in this offering, by:
- each person or group of affiliated persons known by us to beneficially
own more than 5% of the outstanding shares of our common stock;
- each of our directors;
- our chief executive officer and other executive officers whose combined
salary and bonus exceeded $100,000 for fiscal year 1999; and
- all of our directors and executive officers as a group.
Unless otherwise indicated below, the persons in the table have sole voting
and investment power with respect to all shares shown as beneficially owned by
them. Beneficial ownership is determined in accordance with the rules of the
SEC. The number of shares beneficially owned by a person and the percentage
ownership of that person include shares of our common stock subject to options
held by that person that are currently exercisable or exercisable within 60 days
of April 24, 2000. Two other selling stockholders may sell up to an aggregate of
200,000 shares of common stock pursuant to the exercise of the underwriters'
over-allotment options.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING NUMBER OF AFTER THE OFFERING
---------------------- SHARES BEING --------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------------------- ---------- -------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Kenneth R. Kensey, M.D. (1)(3)..................... 2,028,827 27.08 250,000 1,778,827 17.80
John E. Nash, P.E. (2)(4).......................... 935,000 12.48 450,000 485,000 4.85
Joseph W. Kaufmann (5)............................. 656,833 8.23 -- 656,833 6.57
Douglas G. Evans, P.E. (6)......................... 356,050 4.58 -- 356,050 3.56
Robert J. Bobb (7)................................. 12,501 * -- 12,501 *
Julie N. Broderick (8)............................. 54,484 * -- 54,484 *
Walter R. Maupay, Jr. (9).......................... 13,501 * -- 13,501 *
Harold N. Chefitz (10)............................. 12,501 * -- 12,501 *
Wendy F. DiCicco, CPA (11)......................... 21,434 * -- 21,434 *
Arbor Capital Management, L.L.C. (12).............. 742,400 9.90 -- 742,400 7.43
--------- ----- ------- --------- -----
All named executive officers and directors as a
group (9 persons)................................ 4,091,131 48.89 700,000 3,391,131 33.94
</TABLE>
- -------------------------
* Less than 1%.
(1) Dr. Kensey's address is c/o Edgehill Enterprises, 75 East Uwchlan Ave.,
Exton, Pennsylvania 19341.
(2) Mr. Nash's address is c/o Kensey Nash Corporation, 55 East Uwchlan Ave.,
Exton, Pennsylvania 19341.
(3) Represents 2,028,827 shares of common stock held by the Kenneth Kensey
Revocable Trust and excludes 18,750 shares of common stock held by the
Kenneth Kensey Gift Trust to which Dr. Kensey disclaims beneficial
ownership. Virtually all of Dr. Kensey's shares have been pledged as
collateral in connection with certain of his financing arrangements with
third parties.
(4) Represents 935,000 shares of common stock held by the John E. Nash
Revocable Trust.
(5) Represents 165,833 shares of common stock and 491,000 stock options and
does not take into account the 150,000 shares of common stock that Mr.
Kaufmann may sell if the underwriters exercise their over-allotment option.
(6) Represents 70,000 shares of common stock held by the Douglas G. Evans
Revocable Trust, 1,050 shares held indirectly by his minor children and
285,000 stock options and does not take into account the 50,000 shares of
common stock that Mr. Evans may sell if the underwriters exercise their
over-allotment option.
(7) Represents 12,501 stock options.
(8) Represents 13,150 shares of common stock held by Ms. Broderick and 41,334
stock options.
(9) Represents 1,000 shares of common stock held by Mr. Maupay and 12,501 stock
options.
(10) Represents 12,501 stock options.
(11) Represents 600 shares of common stock held by Ms. DiCicco and 20,834 stock
options.
(12) Arbor Capital Management, LLC's address is One Financial Plaza, 120 South
Sixth Street, Suite 1000, Minneapolis, Minnesota 55402. According to the
Schedule 13G filed with the Securities and Exchange Commission on December
31, 1999, Arbor Capital Management, L.L.C. claims joint beneficial
ownership to these shares with Rick D. Leggott, the Chief Executive
Officer of Arbor Capital Management, L.L.C.
39
<PAGE> 42
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our common stock could decline due to sales of a large
number of shares of our common stock or the perception that these sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.
After this offering, 9,992,488 shares of common stock will be outstanding,
10,272,488 shares if the underwriters exercise their over-allotment options from
us in full. All of the shares sold in this offering will be freely tradeable
without restriction under the Securities Act except for any shares purchased by
our affiliates as defined in Rule 144 under the Securities Act.
We and our officers and directors, including the other selling
stockholders, have entered into lock-up agreements pursuant to which we and they
have agreed not to offer or sell any shares of common stock or securities
convertible into or exchangeable or exercisable for shares of common stock for a
period of 90 days from the date of this prospectus without the prior written
consent of Prudential Securities Incorporated, on behalf of the underwriters.
Kenneth R. Kensey, M.D. and John E. Nash, P.E. have entered into similar
agreements for a period of 180 days and one year, respectively. Virtually all of
Dr. Kensey's shares are subject to pledge agreements with third parties. These
pledge agreements provide that if the price of our common stock falls below
certain levels, the pledged shares could be sold by third parties into the
public market. Prudential Securities Incorporated may, at any time and without
notice, waive any of the terms of these lock-up agreements specified in the
underwriting agreement. Following the lock-up period, these shares will not be
eligible for sale in the public market without registration under the Securities
Act unless these sales meet the conditions and restrictions of Rule 144 as
described below.
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR RESALE INTO PUBLIC MARKET
- ---------------- ------------------------------------------------------------
<S> <C>
1,127,304 90 days after the date of this prospectus due to lock-up
agreements these stockholders and optionholders have with
Prudential Securities Incorporated.
1,760,077 180 days after the date of this prospectus due to a lock-up
agreement that Kenneth R. Kensey, M.D. has with Prudential
Securities Incorporated.
485,000 365 days after the date of this prospectus due a lock-up
agreement that John E. Nash, P.E. has with Prudential
Securities Incorporated.
</TABLE>
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for a period of at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of
- 1% of the then outstanding shares of common stock and
- the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which the notice of such
sale on Form 144 is filed with the Securities and Exchange Commission.
In addition, a person (or persons whose shares are aggregated) who has not
been an affiliate of ours at any time during the 90 days immediately preceding a
sale, and who has beneficially owned the shares for a least two years, would be
entitled to sell such shares under Rule 144(k) without regard to the volume
limitation and other conditions described above.
40
<PAGE> 43
UNDERWRITING
We and the selling stockholders have entered into an underwriting agreement
with Prudential Securities Incorporated, PaineWebber Incorporated and Warburg
Dillon Read LLC. We and the selling stockholders are obligated to sell, and the
underwriters are obligated to purchase, all of the shares offered on the cover
page of this prospectus, if any are purchased. Subject to certain conditions in
the underwriting agreement, each underwriter has severally agreed to purchase
the shares indicated opposite its name:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERWRITERS ---------
<S> <C>
Prudential Securities Incorporated..........................
PaineWebber Incorporated....................................
Warburg Dillon Read LLC.....................................
---------
Total.................................................. 3,200,000
=========
</TABLE>
The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, over-allotment options to purchase up to
280,000 additional shares from us and up to 200,000 additional shares from two
other selling stockholders. If any additional shares are purchased, the
underwriters will severally purchase the shares in the same proportion as per
the table above.
The underwriters have advised us and the selling stockholders that the
shares will be offered to the public at the offering price indicated on the
cover page of this prospectus. The underwriters may allow to selected dealers a
concession not in excess of $ per share and these dealers may allow a
concession not in excess of $ per share to some other dealers. After
the shares are released for sale to the public, the underwriters may change the
offering price and the concessions.
We and the selling stockholders have agreed to pay to the underwriters the
following fees, assuming both no exercise and full exercise of the underwriters'
over-allotment options to purchase additional shares:
<TABLE>
<CAPTION>
TOTAL FEES
------------------------------------------------
FEE PER WITHOUT EXERCISE OF FULL EXERCISE OF
SHARE OVER-ALLOTMENT OPTIONS OVER-ALLOTMENT OPTIONS
------- ---------------------- ----------------------
<S> <C> <C> <C>
Fees paid by us.............................. $ $ $
Fees paid by the selling stockholders........ $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $ in
expenses for this offering including those of the selling stockholders. We and
the selling stockholders have agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act, or
contribute to payments that the underwriters may be required to make in respect
of these liabilities.
We and our officers and directors, including the other selling
stockholders, have entered into lock-up agreements pursuant to which we and they
have agreed not to offer or sell any shares of common stock or securities
convertible into or exchangeable or exercisable for shares of common stock for a
period of 90 days from the date of this prospectus without the prior written
consent of Prudential Securities Incorporated, on behalf of the underwriters.
Kenneth R. Kensey, M.D. and John E. Nash, P.E. have entered into similar
agreements for a period of 180 days and one year, respectively. Virtually all of
Dr. Kensey's shares are subject to pledge agreements with third parties. These
pledge agreements provide that if the price of our common stock falls below
certain levels, the pledged shares could be sold by third parties into the
public market. Prudential Securities Incorporated may, at any time and without
notice, waive any of the terms of these lock-up agreements specified in the
underwriting agreement. Following the lock-up period, these shares will not be
eligible for sale in the public market without registration under the Securities
Act unless these sales meet the conditions and restrictions of Rule 144.
41
<PAGE> 44
Prudential Securities Incorporated, on behalf of the underwriters, may
engage in the following activities in accordance with applicable securities
rules:
- Over-allotments involving sales in excess of the offering size, creating
a short position. Prudential Securities Incorporated may elect to reduce
this short position by exercising some or all of the over-allotment
options.
- Stabilizing and short covering: stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in
the open market may also reduce the short position. These activities may
cause the price of the shares to be higher than would otherwise exist in
the open market.
- Penalty bids permitting the representatives to reclaim concessions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.
These activities, which may be commenced and discontinued at any time, may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise. Also and prior to the pricing of the shares, and until some time when
a stabilizing bid may have been made, some or all of the underwriters who are
market makers in the shares that make bids for or purchases of shares subject to
certain restrictions, known as passive market making activities.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
- the Public Offers of Securities Regulations 1995,
- the Financial Services Act 1986, and
- the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 (as amended).
Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
Advisor(SM), a full service brokerage firm program, may view offering terms and
a prospectus online and place orders through their financial advisors.
LEGAL MATTERS
Katten Muchin Zavis, Chicago, Illinois, will pass upon the validity of the
common stock and other legal matters for us. Stroock & Stroock & Lavan LLP, New
York, New York, will pass upon legal matters in connection with this offering
for the underwriters.
EXPERTS
The financial statements as of June 30, 1999 and 1998 and for each of the
three years in the period ended June 30, 1999 included and incorporated by
reference in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report incorporated by reference and
appearing herein, and have been so included and incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
42
<PAGE> 45
AVAILABLE INFORMATION
We have filed a registration statement on Form S-3 with the SEC in
connection with this offering. In addition, we are required to file annual,
quarterly and current reports, proxy statements and other information with the
SEC.
This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement and all of its
exhibits, certificates and schedules. Whenever a reference is made in this
prospectus to any contract or other document of ours, the reference may not be
complete and you should refer to the exhibits that are a part of the
registration statement for a copy of the contract or document.
You may read and copy our registration statement and all of its exhibits
and schedules at the following SEC public reference rooms:
<TABLE>
<S> <C> <C>
450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Judiciary Plaza Suite 1300 500 West Madison Street
Room 1024 New York, NY 10048 Suite 1400
Washington, D.C. 20549 Chicago, IL 60601
</TABLE>
You may obtain information on the operation of the SEC public reference
room in Washington, D.C. by calling the SEC at 1-800-SEC-0330. You may also
inspect and copy the complete registration statement and other information at
the offices of The Nasdaq Stock Market located at 1735 K Street, N.W.,
Washington, D.C. 20006-1500.
The registration statement is also available from the SEC's web site at
http://www.sec.gov, which contains reports, proxy and information statements and
other information regarding issuers that file electronically.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information that we
file with the SEC, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus and should be read with the same
care. Later information that we file with the SEC will automatically update and
supersede information in this prospectus or an earlier filed document. We have
filed with the SEC and incorporate by reference the documents below:
(i) Our Annual Report on Form 10-K and Form 10-K/A for the year ended
June 30, 1999;
(ii) Our definitive Proxy Statement filed with the SEC on November 4,
1999;
(iii) Our Quarterly Report on Form 10-Q for the quarters ended September
30, 1999, December 31, 1999 and March 31, 2000; and
(iv) The description of our common stock contained in the Registration
Statement on Form 8-A filed on November 1, 1995.
All reports and other documents that we file under Sections 13(a), 13(c),
14, and 15(d) of the Exchange Act after the date of this prospectus and before
the termination of the offering shall be deemed to be incorporated by reference
in this prospectus from the date of the filing of the reports and documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference in this prospectus shall be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement contained in this
prospectus or in any other subsequently filed document which also is or is
deemed to be incorporated by reference in this prospectus modifies or supersedes
that statement. Any statement that is modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.
43
<PAGE> 46
You may request a free copy of any of these filings by writing or
telephoning us at the following address or telephone number:
Kensey Nash Corporation
Marsh Creek Corporate Center
55 East Uwchlan Avenue
Exton, Pennsylvania 19341
Attention: Secretary
Telephone Number: (610) 524-0188
You should rely only on the information contained in, or incorporated by
reference in, this prospectus. We have not, and any underwriters, agents or
dealers have not, authorized anyone else to provide you with different
information. We are not, and any underwriters, agents or dealers are not, making
an offer of these securities in any state where the offer is not permitted. You
should not assume that the information contained in this prospectus is accurate
as of any date other than the date on the front of the prospectus or that the
information incorporated by reference in this prospectus is accurate as of any
date other than the date on the front of those documents.
44
<PAGE> 47
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INTERIM FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of March 31, 2000
(unaudited) and June 30, 1999.......................... F-2
Consolidated Statements of Operations for the Three and
Nine Months Ended March 31, 2000 and 1999
(unaudited)............................................ F-3
Consolidated Statements of Stockholders' Equity as of
March 31, 2000 (unaudited) and June 30, 1999........... F-4
Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 2000 and 1999 (unaudited).............. F-5
Notes to Consolidated Financial Statements (unaudited).... F-6
ANNUAL FINANCIAL STATEMENTS:
Independent Auditors' Report.............................. F-8
Consolidated Balance Sheets as of June 30, 1999 and
1998................................................... F-9
Consolidated Statements of Operations for the Years Ended
June 30, 1999, 1998 and 1997........................... F-10
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1999, 1998 and 1997............... F-11
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1999, 1998 and 1997........................... F-12
Notes to Consolidated Financial Statements................ F-13
</TABLE>
F-1
<PAGE> 48
KENSEY NASH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,398,998 $ 1,189,083
Short-term investments.................................... 7,633,405 8,479,617
Trade receivables......................................... 2,582,339 2,247,050
Royalties receivable (Note 2)............................. 1,736,071 742,143
Officer loans............................................. 783,797 264,535
Other receivables (including approximately $112,407 and
$62,000 at March 31, 2000 and June 30, 1999,
respectively, due from employees)....................... 339,327 170,181
Inventory (Note 3)........................................ 1,137,197 748,698
Prepaid expenses and other................................ 610,279 320,106
----------- -----------
Total current assets............................... 16,221,413 14,161,413
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Leasehold improvements.................................... 5,666,083 4,023,373
Machinery, furniture and equipment........................ 5,997,698 4,840,529
Construction in progress.................................. 105,207 676,836
----------- -----------
Total property, plant and equipment................ 11,768,988 9,540,738
Accumulated depreciation.................................. (4,729,838) (3,801,514)
----------- -----------
Net property, plant and equipment.................. 7,039,150 5,739,224
----------- -----------
OTHER ASSETS:
Restricted investments (Note 4)........................... 2,455,725 4,675,725
Property under capital leases, net........................ 12,341 28,368
Acquired patents, net of accumulated amortization of
$572,810 and $381,873 at March 31, 2000 and June 30,
1999, respectively...................................... 3,419,599 3,610,536
----------- -----------
Total other assets................................. 5,887,665 8,314,629
----------- -----------
TOTAL....................................................... $29,148,228 $28,215,266
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 974,037 $ 1,446,800
Accrued expenses.......................................... 523,415 863,458
Current portion of debt, obligation under patent
acquisition agreement and capital lease obligations..... 196,725 600,398
Deferred revenue -- royalties and other (Note 2).......... 10,250 390,846
----------- -----------
Total current liabilities.......................... 1,704,427 3,301,502
Debt and Obligation Under Capital Leases, long-term
portion................................................... 5,863,917 6,012,863
----------- -----------
Total liabilities.................................. 7,568,344 9,314,365
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 4):
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 100,000 shares
authorized, no shares issued or outstanding at March 31,
2000 and June 30, 1999..................................
Common stock, $.001 par value, 25,000,000 shares
authorized, 7,492,488 and 7,470,710 shares issued and
outstanding at March 31, 2000 and June 30, 1999,
respectively............................................ 7,492 7,470
Capital in excess of par value............................ 37,850,676 37,697,452
Accumulated deficit....................................... (15,730,644) (18,562,619)
Accumulated other comprehensive income.................... (547,640) (241,402)
----------- -----------
Total stockholders' equity......................... 21,579,884 18,900,901
----------- -----------
TOTAL....................................................... $29,148,228 $28,215,266
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 49
KENSEY NASH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES (Notes 1 and 2):
Net sales............................. $3,702,541 $1,789,974 $9,075,453 $4,996,010
Research and development.............. 5,447 451,677 48,044 1,611,315
Royalty income (Note 2)............... 1,693,726 2,126,718 4,639,943 5,026,853
---------- ---------- ---------- ----------
Total revenues................ 5,401,714 4,368,369 13,763,440 11,634,178
---------- ---------- ---------- ----------
OPERATING COSTS AND EXPENSES:
Cost of products sold................. 2,022,742 1,274,399 5,088,140 3,713,322
Research and development.............. 1,434,389 1,438,534 4,074,294 4,265,523
Selling, general and administrative... 700,299 781,762 2,040,744 1,896,657
---------- ---------- ---------- ----------
Total operating costs and
expenses.................... 4,157,430 3,494,695 11,203,178 9,875,502
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS.................. 1,244,284 873,674 2,560,262 1,758,676
---------- ---------- ---------- ----------
OTHER INCOME:
Interest income....................... 186,311 180,605 623,162 443,837
Interest expense...................... (118,211) (95,836) (350,743) (221,731)
Other................................. 300 488 (706) 2,856
---------- ---------- ---------- ----------
Total other income -- net..... 68,400 85,257 271,713 224,962
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES.............. 1,312,684 958,931 2,831,975 1,983,638
Provision for income taxes (Note 5)...
---------- ---------- ---------- ----------
NET INCOME.............................. $1,312,684 $ 958,931 $2,831,975 $1,983,638
========== ========== ========== ==========
BASIC AND DILUTED EARNINGS PER SHARE.... $ 0.17 $ 0.13 $ 0.37 $ 0.27
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (Note 1).................. 7,867,490 7,513,359 7,616,374 7,478,887
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 50
KENSEY NASH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK CAPITAL OTHER
------------------ IN EXCESS ACCUMULATED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT OF PAR VALUE DEFICIT LOSS INCOME/(LOSS) TOTAL
--------- ------ ------------ ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1997........... 7,198,251 $7,198 $34,203,807 $(22,084,059) $12,126,946
Exercise of stock options...... 61,021 61 556,174 556,235
Shares issued under Patent
Acquisition Agreement........ 200,000 200 2,837,400 2,837,600
Net income..................... 342,682 $ 342,682 342,682
--------- ------ ----------- ------------ ---------- -----------
BALANCE, JUNE 30, 1998........... 7,459,272 7,459 37,597,381 (21,741,377) 15,863,463
--------- ------ ----------- ------------ -----------
Exercise of stock options...... 11,438 11 100,071 100,082
Net income..................... 3,178,758 3,178,758 3,178,758
Comprehensive loss(Note 1)..... (241,402) (241,402) (241,402)
---------- -----------
Comprehensive income........... 2,937,356
--------- ------ ----------- ------------ --------- ---------- -----------
BALANCE, JUNE 30, 1999........... 7,470,710 $7,470 $37,697,452 $(18,562,619) $(241,402) $18,900,901
--------- ------ ----------- ------------ --------- -----------
Exercise of stock options...... 21,778 22 153,224 153,246
Net income..................... 2,831,975 2,831,975 2,831,975
Comprehensive loss(Note 1)..... (306,238) (306,238) (306,238)
Comprehensive income........... $2,525,737
--------- ------ ----------- ------------ --------- ========== -----------
BALANCE, MARCH 31, 2000
(unaudited).................... 7,492,488 $7,492 $37,850,676 $(15,730,644) $(547,640) $21,579,884
========= ====== =========== ============ ========= ===========
</TABLE>
See notes to the consolidated financial statements.
F-4
<PAGE> 51
KENSEY NASH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 2,831,975 $ 1,983,638
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 1,135,288 913,718
Changes in assets and liabilities which provided (used)
cash:
Accounts receivable.................................... (2,017,625) (1,916,614)
Prepaid expenses and other current assets.............. (290,173) (152,648)
Inventory.............................................. (388,499) 332,710
Accounts payable and accrued expenses.................. (812,806) 706,767
Deferred revenue....................................... (380,596) (932,858)
----------- -----------
Net cash provided by operating activities............ 77,564 934,713
----------- -----------
INVESTING ACTIVITIES:
Additions to property, plant and equipment................ (2,228,250) (982,462)
Purchase of restricted investments........................ (3,359,969)
Sale of investments....................................... 2,759,974 1,064,502
----------- -----------
Net cash provided by (used in) investing
activities........................................ 531,724 (3,277,929)
----------- -----------
FINANCING ACTIVITIES:
Principal payments under capital leases................... (19,688) (28,560)
Repayments of patent acquisition obligation............... (503,453) (375,776)
Proceeds from long-term debt.............................. 5,000,000
Repayments of long-term debt.............................. (29,478) (925,000)
Exercise of stock options................................. 153,246 90,398
----------- -----------
Net cash (used in) provided by financing
activities........................................ (399,373) 3,761,062
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 209,915 1,417,846
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 1,189,083 1,407,684
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 1,398,998 $ 2,825,530
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 357,296 $ 204,830
=========== ===========
Cash paid for income taxes................................ $ $
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 52
KENSEY NASH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The consolidated balance sheet at March 31, 2000, the consolidated
statements of operations for the three and nine months ended March 31, 2000 and
1999 and the consolidated statements of cash flows for the nine months ended
March 31, 2000 and 1999 have been prepared by Kensey Nash Corporation (the
"Company") and have not been audited by the Company's Independent Auditors. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at March 31, 2000 and for all periods presented have
been made.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's June 30, 1999 consolidated financial
statements filed with the Securities and Exchange Commission on Form 10-K. The
results of operations for the period ended March 31, 2000 are not necessarily
indicative of operating results for the full year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash in banks and short-term
investments having an original maturity of less than three months.
EXPORT SALES
There were no export sales from the Company's US operations to unaffiliated
customers in Europe for the three months ended March 31, 2000. Export sales
totaled $102,878 for the three months ended March 31, 1999 and $206,045 and
$242,893 for the nine months ended March 31, 2000 and 1999, respectively.
EARNINGS PER SHARE
Basic and diluted EPS are computed using the weighted average number of
shares of common stock outstanding, with common equivalent shares from options
included in the diluted computation when their effect is dilutive.
COMPREHENSIVE INCOME
Accumulated other comprehensive loss, shown in the consolidated statements
of shareholders' equity at March 31, 2000 and June 30, 1999, 1998 and 1997, is
solely comprised of unrealized losses on the Company's available-for-sale
securities. There were no unrealized gains or losses in the year ended June 30,
1998. The tax effect of other comprehensive income on fiscal years 2000 and 1999
was not significant.
NOTE 2 -- DEFERRED REVENUE -- ROYALTIES
Upon receipt of pre-market approval for the 8 French ("F") size Angio-Seal
device (the "Angio-Seal") from the Food and Drug Administration (the "FDA") on
September 30, 1996, the Company received a $3 million advance on future
royalties under the Company's licensing agreement (the "Licensing Agreement")
with its strategic partner, St. Jude Medical, Inc. ("St. Jude Medical"). Such
advance was recorded as deferred revenue. The Licensing Agreement provides for
certain minimum royalty payments ("Minimum Royalty") during the first five years
after receiving FDA approval (each royalty year begins on October 1 and ends on
September 30). As stipulated in the Licensing Agreement, the $3.0 million
advance was reduced in
F-6
<PAGE> 53
KENSEY NASH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
each period by 50% of royalties earned in excess of the Minimum Royalty in any
royalty year. The remainder of royalties earned was received as cash proceeds by
the Company. At March 31, 2000 the entire $3.0 million royalty advance had been
repaid by the Company through these royalty payment reductions.
NOTE 3 -- INVENTORY
Inventory is stated at the lower of cost (determined by the average cost
method, which approximates first-in, first-out) or market. Inventory primarily
includes the cost of material utilized in the processing of the Company's
products and is as follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
---------- --------
<S> <C> <C>
Raw materials................................. $ 896,169 $666,271
Work in process............................... 241,028 82,427
---------- --------
Total......................................... $1,137,197 $748,698
========== ========
</TABLE>
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
The Company has pledged $1,949,386 in investments as collateral to secure
certain bank loans to employees which were used by such employees for the
payment of taxes incurred by such employees as the result of the receipt of
Common Stock in settlement of the employee stock rights. In exchange for the
Company pledging collateral for such loans, each affected employee has pledged
their Common Stock as collateral to the Company. The balance outstanding on such
employee loans was $1,975,908 at March 31, 2000.
In addition, under the terms of the Company's Financing Agreement, the
Company has placed the remaining proceeds of such agreement into a certificate
of deposit ("CD"). The CD is restricted for capital expenditure purposes only.
The balance of the CD at March 31, 2000 was $506,339 and is included in
restricted investments due to the capital expenditure restriction placed on its
use.
NOTE 5 -- INCOME TAXES
As of June 30, 1999, the Company had net operating loss carryforwards for
federal and state tax purposes totaling $14.8 and $3.0 million, respectively. As
such, no provision has been made for income taxes for the three or nine months
ended March 31, 2000 or 1999. A portion of the NOL may be subject to various
statutory limitations as to its usage.
NOTE 6 -- 6F ANGIO-SEAL FDA APPROVAL
In March 2000, the Company announced that the FDA granted approval to St.
Jude Medical, Inc. for the new 6F Angio-Seal puncture closure device, allowing
sale of the product in the United States. This smaller version of the Angio-Seal
is designed to seal arterial punctures 6F and smaller and specifically address
the largest segment of the puncture closure market.
F-7
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
KENSEY NASH CORPORATION:
We have audited the accompanying consolidated balance sheets of Kensey Nash
Corporation (the "Company") as of June 30, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Kensey Nash Corporation as of
June 30, 1999 and 1998, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1999 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
August 11, 1999
F-8
<PAGE> 55
KENSEY NASH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,189,083 $ 1,407,684
Short-term investments.................................... 8,479,617 6,368,866
Trade receivables, net of allowance for doubtful accounts
of $19,000 and $0 at June 30, 1999 and 1998,
respectively (Note 11)................................. 2,247,050 1,369,960
Royalties receivable (Note 2 and 11)...................... 742,143 645,784
Officer loans (Note 4).................................... 264,535 55,361
Other receivables (including approximately $62,000 and
$59,000 at June 30, 1999 and 1998, respectively, due
from employees)........................................ 170,181 170,063
Inventory (Note 1)........................................ 748,698 1,027,326
Prepaid expenses and other................................ 320,106 200,169
----------- -----------
Total current assets................................. 14,161,413 11,245,213
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST (Note 1):
Leasehold improvements.................................... 4,023,373 4,006,066
Machinery, furniture and equipment........................ 4,840,529 3,599,827
Construction in progress.................................. 676,836 191,154
----------- -----------
Total property, plant and equipment.................. 9,540,738 7,797,047
Accumulated depreciation.................................. (3,801,514) (2,843,785)
----------- -----------
Net property, plant and equipment.................... 5,739,224 4,953,262
----------- -----------
OTHER ASSETS:
Restricted investments (Notes 6 and 9).................... 4,675,725 1,914,418
Property under capital leases, net (Note 3)............... 28,368 61,181
Acquired patents, net of accumulated amortization of
$381,873 and $127,291 at June 30, 1999 and 1998,
respectively (Note 5).................................. 3,610,536 3,865,118
----------- -----------
Total other assets................................... 8,314,629 5,840,717
----------- -----------
TOTAL....................................................... $28,215,266 $22,039,192
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,446,800 $ 639,605
Accrued expenses.......................................... 863,458 551,573
Current portion of debt, obligation under patent
acquisition agreement and capital lease obligations
(Notes 3, 5 and 6)..................................... 600,398 577,891
Deferred revenue -- royalties and other (Note 2).......... 390,846 53,120
----------- -----------
Total current liabilities............................ 3,301,502 1,822,189
----------- -----------
DEFERRED REVENUE -- ROYALTIES (Note 2)...................... 1,979,580
DEBT AND OBLIGATION UNDER CAPITAL LEASES, LONG-TERM PORTION
(Notes 3
and 6).................................................... 6,012,863 2,373,960
----------- -----------
Total liabilities.................................... 9,314,365 6,175,729
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 9, 12, 14 and 18)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 100,000 shares
authorized, no shares issued or outstanding at June 30,
1999 and 1998 (Note 13)
Common stock, $.001 par value, 25,000,000 shares
authorized, 7,470,710 and 7,459,272 shares issued and
outstanding at June 30, 1999 and 1998, respectively
(Notes 1 and 14)....................................... 7,470 7,459
Capital in excess of par value (Note 1)................... 37,697,452 37,597,381
Accumulated deficit....................................... (18,562,619) (21,741,377)
Accumulated other comprehensive income.................... (241,402)
----------- -----------
Total stockholders' equity........................... 18,900,901 15,863,463
----------- -----------
TOTAL....................................................... $28,215,266 $22,039,192
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 56
KENSEY NASH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
REVENUES (Notes 1, 2 and 11):
Net sales........................................ $ 7,168,103 $ 4,668,913 $3,661,323
Research and development......................... 1,894,350 3,641,492 2,842,433
Milestone fees................................... 1,050,000
Royalty income................................... 7,182,969 3,008,327 353,239
----------- ----------- ----------
Total revenues.............................. 16,245,422 11,318,732 7,906,995
----------- ----------- ----------
OPERATING COSTS AND EXPENSES:
Cost of products sold............................ 5,135,311 4,083,543 3,062,670
Research and development......................... 5,667,668 5,524,501 4,695,323
Selling, general and administrative.............. 2,584,766 1,762,011 1,822,986
----------- ----------- ----------
Total operating costs and expenses.......... 13,387,745 11,370,055 9,580,979
----------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS...................... 2,857,677 (51,323) (1,673,984)
----------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest income.................................. 649,435 539,577 627,184
Interest expense................................. (331,969) (149,977) (192,812)
Insurance settlement (Note 10)................... 968,761
Other............................................ 3,615 4,405 8,375
----------- ----------- ----------
Total other income -- net................... 321,081 394,005 1,411,508
----------- ----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.................. 3,178,758 342,682 (262,476)
PROVISION FOR INCOME TAXES (Note 8)................
----------- ----------- ----------
NET INCOME (LOSS).................................. $ 3,178,758 $ 342,682 $ (262,476)
=========== =========== ==========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE (Notes
1 and 15)........................................ $ 0.43 $ 0.05 $ (0.04)
=========== =========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note
1)............................................... 7,476,939 7,551,596 7,181,959
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 57
KENSEY NASH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL ACCUMULATED
COMMON STOCK IN EXCESS OTHER COMPREHENSIVE
------------------- OF PAR ACCUMULATED COMPREHENSIVE INCOME/
SHARES AMOUNT VALUE DEFICIT (LOSS) (LOSS) TOTAL
--------- ------ ----------- ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1996.... 7,156,493 $7,156 $33,815,216 $(21,821,583) $12,000,789
Exercise of stock
options (Note 14).... 41,758 42 388,591 388,633
Net Loss................ (262,476) $ (262,476) (262,476)
--------- ------ ----------- ------------ --------- ---------- -----------
BALANCE, JUNE 30, 1997.... 7,198,251 7,198 34,203,807 (22,084,059) 12,126,946
Exercise of stock
options (Note 14).... 61,021 61 556,174 556,235
Shares issued under
Patent Acquisition
Agreement (Note 5)... 200,000 200 2,837,400 2,837,600
Net income.............. 342,682 342,682 342,682
--------- ------ ----------- ------------ --------- ---------- -----------
BALANCE, JUNE 30, 1998.... 7,459,272 7,459 37,597,381 (21,741,377) 15,863,463
--------- ------ ----------- ------------ --------- ---------- -----------
Exercise of stock
options (Note 14).... 11,438 11 100,071 100,082
Net income (Note 1)..... 3,178,758 3,178,758 3,178,758
Comprehensive loss...... (241,402) (241,402) (241,402)
----------
Comprehensive income.... $2,937,356
--------- ------ ----------- ------------ --------- ========== -----------
BALANCE, JUNE 30, 1999.... 7,470,710 $7,470 $37,697,452 $(18,562,619) $(241,402) $18,900,901
========= ====== =========== ============ ========= ===========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 58
KENSEY NASH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................. $ 3,178,758 $ 342,682 $ (262,476)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization.............. 1,253,844 1,043,890 725,944
Gain on sale of property, plant and
equipment................................ (7,036)
Changes in assets and liabilities which (used)
provided cash:
Accounts receivable........................ (1,182,741) (557,390) 248,535
Prepaid expenses and other current
assets................................... (119,937) 95,063 (35,326)
Inventory.................................. 278,628 (291,404) (323,079)
Accounts payable and accrued expenses...... 1,119,080 345,017 (394,089)
Deferred revenue........................... (1,641,854) (972,300) 2,985,000
----------- ------------ ------------
Net cash provided by operating
activities............................ 2,885,778 5,558 2,937,473
----------- ------------ ------------
INVESTING ACTIVITIES:
Additions to property, plant and equipment.... (1,743,691) (1,823,311) (2,320,877)
Proceeds from sale of property, plant and
equipment.................................. 20,057
Patent acquisition costs capitalized.......... (69,539)
Sale of investments........................... 4,491,096 10,709,918 11,476,618
Purchase of investments....................... (6,886,937) (10,090,613) (10,277,424)
----------- ------------ ------------
Net cash used in investing activities.... (4,139,532) (1,273,545) (1,101,626)
----------- ------------ ------------
FINANCING ACTIVITIES:
Principal payments under capital leases....... (37,814) (42,702) (49,183)
Proceeds from Term Loan and Financing
Agreement.................................. 5,000,000 1,500,000 500,000
Repayments of long-term debt and Patent
Acquisition Obligation..................... (1,300,776) (206,042) (6,356,824)
Purchase of restricted investments............ (4,075,000)
Sale of restricted investments................ 1,348,661
Proceeds from exercise of stock options....... 100,082 556,235 388,633
----------- ------------ ------------
Net cash provided by (used in) financing
activities............................ 1,035,153 1,807,491 (5,517,374)
----------- ------------ ------------
(DECREASE) INCREASE IN CASH..................... (218,601) 539,504 (3,681,527)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.... 1,407,684 868,180 4,549,707
----------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR.......... $ 1,189,083 $ 1,407,684 $ 868,180
=========== ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest........................ $ 310,762 $ 139,411 $ 1,549,635
=========== ============ ============
Cash paid for income taxes.................... $ $ $
=========== ============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Capital lease obligations of $39,353 were incurred during the year ended
June 30, 1997 when the Company entered into new equipment leases (see Note 3).
During the year ended June 30, 1998, the Company issued 200,000 shares of
common stock in conjunction with the Patent Acquisition Agreement and incurred a
related obligation in the amount of $1,085,270 (see Note 5).
See notes to consolidated financial statements.
F-12
<PAGE> 59
KENSEY NASH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- Kensey Nash Corporation (the "Company") designs, develops and
manufactures, both individually and in conjunction with third parties, medical
devices for use primarily in the cardiovascular and orthopedic markets. The
Company is a leader in the cardiac catheterization puncture closure market with
its Angio-Seal device. The Angio-Seal is an absorbable medical device for the
sealing of arterial punctures created during cardiovascular procedures such as
angiography, angioplasty, atherectomy and the placement of stents. The Company's
next product in the cardiovascular market is a revascularization device, the
Aegis Vortex System ("AVS"), which is currently in clinical trials. The AVS is a
device designed to open blocked saphenous vein grafts while minimizing the risk
of embolization, a common problem with current treatment alternatives. The
Company also has leading technology in the area of absorbable biomaterials,
including applications in orthopedics, cardiovascular, tissue regeneration, drug
delivery and many others. The Company was incorporated in Delaware on August 6,
1984.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION -- The consolidated
financial statements include the accounts of Kensey Nash Corporation and Kensey
Nash Holding Company. All intercompany transactions and balances have been
eliminated. Kensey Nash Holding Company, incorporated in Delaware on January 8,
1992, was formed to hold title to certain Company patents and has no operations.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles necessarily requires management to make
estimates and assumptions. These estimates and assumptions, which may differ
from actual results, will affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenue and expense during the
period.
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents represent cash in
banks and short-term investments having an original maturity of less than three
months.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying amounts of financial
instruments including cash and cash equivalents, short-term investments,
accounts receivable, accounts payable and debt approximated fair value as of
June 30, 1999 and 1998. The fair value of short-term investments is based on
quoted market prices.
INVESTMENTS -- Investments at June 30, 1999 consist of short-term
Certificates of Deposit and Government Bonds. In accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities, the Company has classified its entire
investment portfolio as available-for-sale securities, except for those pledged
as collateral or restricted as to use which are included as restricted
investments (see Note 9). Available-for-sale securities are reported at fair
value with unrealized gains and losses included in stockholders' equity (see
"Comprehensive Income"). Realized gains and losses are included in interest
income.
COMPREHENSIVE INCOME -- Effective July 1, 1998 the Company adopted SFAS No.
130, Reporting Comprehensive Income ("SFAS 130"), which establishes new rules
for the reporting and display of comprehensive income and its components.
Accumulated other comprehensive loss, shown in the consolidated statements of
shareholders' equity at June 30, 1999, 1998 and 1997, is solely comprised of
unrealized losses on the Company's available-for-sale securities. There were no
unrealized gains or losses in the years ended June 30, 1998 and 1997. The tax
effect for 1999 other comprehensive income was not significant.
F-13
<PAGE> 60
INVENTORY -- Inventory is stated at the lower of cost (determined by the
average cost method, which approximates first-in, first-out) or market.
Inventory primarily includes the cost of material utilized in the processing of
the Company's products and is as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1999 1998
-------- ----------
<S> <C> <C>
Raw Materials................................... $666,271 $ 971,357
Work in process................................. 82,427 55,969
-------- ----------
Total........................................... $748,698 $1,027,326
======== ==========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment consists
primarily of machinery and equipment and leasehold improvements and is recorded
at cost. Maintenance and repairs are expensed as incurred. Machinery, furniture
and equipment is depreciated using the straight-line method over its useful life
ranging from five to seven years. Leasehold improvements are amortized using the
straight-line method over the lesser of the term of the lease or useful life of
the asset.
IMPAIRMENT OF LONG-LIVED ASSETS -- Long-lived assets are reviewed for
impairment whenever events or circumstances indicate that the carrying amount of
an asset may not be recoverable. If the undiscounted expected future cash flows
to be generated by the related asset are less than the carrying value of the
asset, the Company measures the amount of the impairment by comparing the
carrying amount of the asset to its fair value. The estimation of fair value is
generally measured by discounting expected future cash flows at the rate the
Company borrows.
ACCOUNTS RECEIVABLE ALLOWANCE -- The Company has a trade receivable
allowance of $19,000 at June 30, 1999. During the year, the Company established
trade receivable allowances of $59,376 and wrote off amounts totaling $40,376.
This amount is included in selling, general and administrative expense for the
year ended June 30, 1999.
PATENTS -- The costs of internally developed patents are expensed when
incurred due to the long development cycle for patents and the Company's
inability to measure the recoverability of these costs when incurred. The cost
of acquired patents is being amortized over the remaining period of economic
benefit, ranging from 14 to 15 years at June 30, 1999.
REVENUE RECOGNITION -- Revenue under research and development contracts is
recognized as the related costs are incurred; licensing fees and milestone
payments under the Strategic Alliance Agreements (see Note 2) are recognized
when the earnings process is complete; and sales revenue is recognized when the
related product is shipped.
INCOME TAXES -- The Company accounts for income taxes under the provisions
of SFAS No. 109, Accounting for Income Taxes (see Note 8).
EARNINGS PER SHARE -- Earnings per share are calculated in accordance with
SFAS No. 128, Earnings per Share which requires the Company to report both basic
and diluted earnings per share ("EPS"). Basic and diluted EPS are computed using
the weighted average number of shares of common stock outstanding, with common
equivalent shares from options included in the diluted computation when their
effect is dilutive (see Note 15).
STOCK-BASED COMPENSATION -- Stock-based compensation cost is accounted for
under SFAS No. 123, Accounting for Stock-Based Compensation, which permits
continued application of the intrinsic value method of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees. Under the
intrinsic value method, compensation cost represents the excess, if any, of the
quoted market price of the Company's common stock at the grant date over the
amount the grantee must pay for the stock. The Company's policy is to grant
stock options at the fair market value at the date of grant (see Note 14).
F-14
<PAGE> 61
NEW ACCOUNTING PRONOUNCEMENTS -- In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company is not
required to adopt this standard until fiscal 2001 (as deferred by SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133). At this time, the Company has not
determined the impact this standard will have on the Company's financial
statements.
PRESENTATION -- Certain items in the 1998 and 1997 consolidated financial
statements have been reclassified to conform with the presentation in the 1999
consolidated financial statements.
2. STRATEGIC ALLIANCE AGREEMENTS
The Company has a strategic alliance with St. Jude Medical, Inc. ("St.
Jude") which incorporates United States and foreign license agreements
(together, the "License Agreements"), a research and development agreement and a
collagen supply agreement (collectively, the "Strategic Alliance Agreements").
The Strategic Alliance Agreements were formerly with The Kendall Company
("Kendall"), a subsidiary of Tyco International, Ltd. ("Tyco"). In November
1998, Kendall announced the sale of the Angio-Seal License Agreements to St.
Jude. Under the terms of the sale, the Company's Strategic Alliance Agreements
with Kendall were transferred to St. Jude. Prior to Kendall, the Strategic
Alliance Agreements had been with American Home Products. The Company's current
or previous alliance partners will be referred to as the Strategic Alliance
Partner throughout.
THE LICENSE AGREEMENTS -- Under the License Agreements, St. Jude has
exclusive rights to manufacture and market all current and future sizes of the
Angio-Seal worldwide. Also under the License Agreements, the Company receives
royalty payments based upon a percentage of the revenues generated from the sale
of the Angio-Seal. The License Agreements also provide for certain minimum
royalty payments ("Minimum Royalty") during the first five years after receiving
US Food and Drug Administration ("FDA") approval.
The Company has received "licensing and milestone fees," totaling $11.0
million, as set forth in the License Agreements. The final milestone payment of
$1.05 million was received upon receipt of pre-market approval by the FDA to
produce and market the Angio-Seal in the United States on September 30, 1996. In
addition, a $3.0 million advance was received on future royalties, which, as
stipulated in the License Agreements, will be reduced in each royalty year (the
period beginning on October 1st and ending on September 30th) by 50% of
royalties earned in excess of the Minimum Royalty in that year. The remainder of
royalties earned will be received as cash proceeds by the Company. At June 30,
1999, the Company had exceeded the first, second and third royalty year (periods
ended September 30, 1997, 1998 and 1999) Minimum Royalties by $352,310,
$3,058,970 and $1,812,529, respectively. The deferred revenue balance has been
reduced by 50% of such total excess, to $388,096. The Company anticipates the
remainder of the deferred royalty balance will be repaid during the fiscal year
ended June 30, 2000. As such, the entire balance has been classified as
short-term at June 30, 1999.
During 1999, the Company received additional royalty payments (the
"Supplemental Royalty") from the previous owner of the Angio-Seal License
Agreements, TYCO, in the amount of $1.5 million. The Supplemental Royalty was to
compensate the Company for lost Angio-Seal sales and expenses incurred during
the ongoing transition of corporate ownership of the Angio-Seal License
Agreements to St. Jude. The payments were made in two equal installments on
March 29, 1999 and April 5, 1999. As such, the Company has recorded the $1.5
million as royalty income for the year ending June 30, 1999.
THE RESEARCH AND DEVELOPMENT AGREEMENT -- The Company and its Strategic
Alliance Partner had an agreement whereby such partner funded certain ongoing
research and development costs incurred by the Company. The Company contributed
one-third of such research and development costs while the Strategic Alliance
Partner contributed the remaining two-thirds. This agreement has expired and the
Company's Strategic Alliance Partner will be performing any remaining
development work on the Angio-Seal product line.
F-15
<PAGE> 62
THE COLLAGEN SUPPLY AGREEMENT -- Pursuant to an agreement with the
Strategic Alliance Partner, the Company manufactures collagen to be used in the
Angio-Seal. The agreement contains a minimum purchase requirement from the
Company, the price of which fluctuates based on size and cumulative quantities
sold, for five years beginning May 31, 1995.
3. LEASES
At June 30, 1999, future minimum annual rental commitments under
non-cancelable lease obligations are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<S> <C> <C>
YEAR ENDING JUNE 30:
2000........................................................ $ 25,078 $ 382,530
2001........................................................ 11,055 387,446
2002........................................................ 1,947 394,328
2003........................................................ 166,352
-------- ----------
Total minimum lease payments................................ 38,080 $1,330,656
==========
Amount representing interest (at rates ranging from 7.25% to
10.25%)................................................... (3,272)
--------
Present value of net minimum lease payments................. 34,808
Current portion............................................. (22,498)
--------
Long-term portion........................................... $ 12,310
========
</TABLE>
Rent expense for operating leases consists solely of rent for the Company's
facility in Exton, Pennsylvania. Rent expense for the fiscal years ended June
30, 1999, 1998 and 1997 was approximately $360,341, $326,000 and $275,000,
respectively.
Capital leases are for various types of equipment, as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
CLASSES OF PROPERTY
Office equipment............................... $ 17,420 $ 38,280
Computer equipment............................. 9,600 9,600
Manufacturing and other equipment.............. 105,230 118,980
Accumulated amortization....................... (103,882) (105,679)
--------- ---------
Total.......................................... $ 28,368 $ 61,181
========= =========
</TABLE>
Such assets are amortized over periods ranging from three to five years,
which represent the lesser of the term of the lease or useful life of the asset.
4. OFFICER LOANS
The Company has loans to a current officer of the Company totaling $250,000
which are collateralized by the officer's stock. Interest on the loans ranges
from 7% to 8.75% and was based on the prime rate of interest at the time the
advances were made. Total interest income earned by the Company on these loans
was $9,174, $4,750 and $611 for the years ended June 30, 1999, 1998 and 1997,
respectively. Interest and principal on the loans are due at the sooner of the
sale of a portion of the officers' common stock or June 22, 2000.
5. PATENT ACQUISITION AGREEMENT
On November 10, 1997, the Company entered into an agreement (the "Patent
Acquisition Agreement") to acquire a portfolio of puncture closure patents and
patent applications as well as the rights of the seller under a pre-existing
licensing agreement. As a result of the Patent Acquisition Agreement, beginning
F-16
<PAGE> 63
January 1, 1998, the Company earns royalty fees, formerly paid to the sellers,
for each Angio-Seal device sold. These royalties are in addition to the
royalties already earned by the Company under its own License Agreement with its
Strategic Alliance Partner.
Under the terms of the Patent Acquisition Agreement, the Company issued
200,000 shares of common stock and will make cash payments totaling $1.2 million
for the transfer of ownership of the patents. The cash portion is payable in
eight quarterly installments (four $125,000 payments followed by four $175,000
payments), beginning on March 31, 1998. Accordingly, them present value of the
cash payments (discounted based upon the Company's available borrowing rate at
the time of the transaction of 8.5%) was recorded as a liability on the
Company's financial statements, with a remaining balance of $503,453 at June 30,
1999 (see Note 6). The remaining unamortized discount under the agreement based
on imputed interest was $21,547 and $70,771 at June 30, 1999 and 1998,
respectively. The remaining quarterly payments are due by December 31, 1999 and,
as such, have been classified as short term at June 30, 1999. The acquired
patents are valued at the share price on the date of the Patent Acquisition
Agreement plus the present value of the cash payments and the legal and related
costs incurred to acquire the patents.
6. DEBT
TERM LOAN -- The Company had a $2 million revolving credit and term loan
agreement (the "Term Loan"). The Term Loan bore interest at the prime rate (8.5%
at June 30, 1998) and called for interest only payments until August 1, 1998
(the "Term Date") at which time it converted to a term loan due in 60 monthly
installments of principal and interest. At June 30, 1998, the Company had
borrowed $2.0 million under the Term Loan. In January 1999, the Company
refinanced $925,000 of the outstanding balance under the Term Loan with a $5.0
million financing agreement with a bank (the "Financing Agreement"). The
interest rate on the remaining $1,075,000 under the Term Loan was modified to a
fixed 8.0% and the Term Date was extended to February 1, 2000. Accordingly,
$74,447 has been classified as short term at June 30, 1999.
FINANCING AGREEMENT -- In January 1999, the Company entered into a $5
million financing agreement with a bank (the "Financing Agreement"). Under the
terms of the Financing Agreement, the bank purchased the Company's $5 million
tax-exempt bond issue (the "Bond Issue"), which was provided through the local
development authority. The Financing Agreement bears interest at the five year
Treasury rate plus 1%, adjusted quarterly (6.25% at June 30, 1999) and calls for
twenty-four interest only payments followed by sixty monthly installments of
principal and interest. The Financing Agreement is collateralized by the assets
of the Company.
The Company used $925,000 of the proceeds of the Bond Issue to pay down the
balance under its existing Term Loan. The remaining proceeds of the Bond Issue
were placed into a certificate of deposit (the "CD") from which withdrawals are
restricted for capital expenditure purposes only. The balance of the CD at June
30, 1999 is $2,726,339 and is included in restricted investments due to the
capital expenditure restriction placed on its use.
Amounts outstanding under the Company's Term Loan, Financing Agreement and
Patent Acquisition Agreement (see Note 5) are shown in the following table.
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Term Loan..................................... $1,075,000 $2,000,000
Financing Agreement........................... 5,000,000
Patent Acquisition Agreement.................. 503,453 879,228
---------- ----------
Total......................................... 6,578,453 2,879,228
Current portion............................... (577,900) (540,077)
---------- ----------
Long-term..................................... $6,000,553 $2,339,151
========== ==========
</TABLE>
F-17
<PAGE> 64
The annual debt maturities are approximately $577,900, $548,848,
$1,107,293, $1,182,342 and $1,262,534 for the years 2000 through 2004,
respectively.
7. RETIREMENT PLAN
The Company has a 401(k) Salary Reduction Plan and Trust (the "401(k)
Plan") in which all employees that are at least 21 years of age are eligible to
participate. Contributions to the 401(k) Plan are made by employees through an
employee salary reduction election. Company contributions are discretionary. The
Company has not made any contributions to the 401(k) Plan to date.
8. INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, which generally
provides that deferred tax assets and liabilities be recognized for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss ("NOL") carryforwards. The impact on deferred taxes of changes in
tax rates and laws, if any, applied to the years during which temporary
differences are expected to be settled are reflected in the financial statements
in the period of enactment.
For 1999 the Company has not provided for current income taxes due to the
utilization of NOLs for tax purposes. The differences between the Company's
income tax expense (benefit) and the income tax expense (benefit) computed using
the US federal income tax rate were as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------
1999 1998 1997
----------- -------- ---------
<S> <C> <C> <C>
Net income (loss) before income taxes................. $ 3,178,758 $342,682 $(262,476)
=========== ======== =========
Tax provision at U.S. statutory rate.................. 1,080,729 123,121 (94,491)
State income tax provision, net of federal benefit.... 17,066 (13,098)
Reconciliation to actual tax rate:
Non-deductible meals and entertainment.............. 13,062 13,328 9,158
Timing differences.................................. (80,880) 2,696
Utilization of net operating loss carryforwards..... (1,093,791) (72,635)
Creation of net operating loss carryforwards........ 95,735
----------- -------- ---------
$ $ $
=========== ======== =========
</TABLE>
F-18
<PAGE> 65
Significant components of the Company's deferred taxes are as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Accrual for:
Vacation.................................................. $ 92,536 $ 102,958
Bonuses...................................................
Basis difference-patents.................................... 316,965 381,627
Basis difference-fixed assets............................... 167,730 (50,520)
Prepaid insurance........................................... (76,345) (46,884)
Inventory................................................... 193,145 170,870
Other....................................................... 22,486 7,491
----------- -----------
716,517 565,542
Effective tax rate.......................................... 40.59% 40.59%
----------- -----------
Deferred tax asset.......................................... 290,834 229,553
NOL carryforwards (expiring between 2000 and 2012).......... 5,417,799 6,322,911
----------- -----------
5,708,633 6,552,464
Less valuation allowance.................................... (5,708,633) (6,552,464)
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
The Company's entire deferred tax asset is offset by a valuation allowance
due to the uncertainty surrounding future earnings. At June 30, 1999, the
Company had NOL carryforwards for federal and state tax purposes totaling $14.8
and $3 million, respectively. A portion of the NOL may be subject to various
statutory limitations as to its usage.
9. COMMITMENTS AND CONTINGENCIES
The Company has pledged $1,949,386 in investments as collateral to secure
certain bank loans to employees which were used by such employees for the
payment of taxes incurred as the result of the receipt of Common Stock at the
Company's Initial Public Offering in December 1995. In exchange for the Company
pledging collateral for such loans, each affected employee has pledged their
Common Stock as collateral to the Company. The balance outstanding on such
employee loans was $1,879,286 at June 30, 1999.
10. INSURANCE SETTLEMENT
On January 8, 1996, the Company's facility sustained significant damage
from a roof collapse resulting from a major snowstorm. The production of the
Company's products was halted until the destroyed facilities could be
reconstructed. Construction was completed in late March 1996 and production
resumed at such time. The Company maintains both property damage and business
interruption insurance.
The Company recovered $1,309,882 as final settlement for business
interruption as a result of this event in December 1996. Of this amount $968,761
(net of adjuster fees) was recorded as a component of other income for the year
ended June 30, 1997.
11. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
short-term investments and accounts receivable. The Company places its cash,
cash equivalents and short-term investments with high quality financial
institutions and has established guidelines relative to diversification and
maturities that maintain safety and high liquidity. With respect to trade and
royalty receivables, such receivables are primarily with the Company's Strategic
Alliance Partner (67% and 100% of trade and royalty receivables, respectively,
at June 30, 1999) (see Note 2). The
F-19
<PAGE> 66
Company performs ongoing credit evaluations on the remainder of its customers'
financial conditions but does not require collateral to support customer
receivables.
12. CERTAIN COMPENSATION AND EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain of its
officers which provide for aggregate annual base salaries of $748,662 through
June 2000.
13. PREFERRED STOCK
The Company has an authorized class of undesignated Preferred Stock
consisting of 100,000 shares with a $.001 par value. The Board of Directors may
authorize the issuance of Preferred Stock which ranks senior to the common stock
with respect to the payment of dividends and the distribution of assets on
liquidation. In addition, the Board of Directors is authorized to fix the
limitations and restrictions, if any, upon the payment of dividends on Common
Stock to be effective while any shares of Preferred Stock are outstanding. The
Board of Directors, without stockholder approval, can issue Preferred Stock with
voting and conversion rights, which could adversely affect the voting power of
the holders of Common Stock. At June 30, 1999 and 1998 no shares of Preferred
Stock were outstanding. The Company has no present intention to issue shares of
Preferred Stock.
14. STOCK OPTION PLANS
During 1995, the Company adopted the Employee Incentive Compensation Plan
(the "Employee Plan"), a flexible plan that provides the Employee Plan Committee
(the "Committee") broad discretion to award eligible participants with
stock-based and performance-related incentives as the Committee deems
appropriate. The persons eligible to participate in the Employee Plan are
officers, employees and consultants of the Company who, in the opinion of the
Committee, contribute to the growth and success of the Company.
The Compensation Committee of the Board of Directors oversees the Committee
and may grant nonqualified stock options, incentive stock options or a
combination thereof to the participants. The Employee Plan provides for a total
of 2.2 million shares available for option grants. Options granted will provide
for the purchase of Common Stock at prices determined by the Compensation
Committee, but in no event less than fair market value on the date of grant. As
of June 30, 1999, awards consist solely of stock options as summarized in the
table below.
During 1995, the Company adopted the Non-employee Directors' Stock Option
Plan (the "Directors' Plan"). The Directors' Plan grants nonqualified stock
options for the purchase of Common Stock to directors who are not employees. The
Directors' Plan provides for a total number of 60,000 shares available for
option grants.
Each non-employee director was granted an option to purchase 5,000 shares
of Common Stock on the Directors' Plan's effective date. In addition, the
Director's plan provides for the grant of an option to purchase 5,000 shares of
Common Stock on the date of each regular annual stockholder meeting after the
effective date to each participant upon such date. The participant must either
be continuing as a non-employee director subsequent to the meeting or have been
elected at such meeting to serve as a non-employee director. Options granted
under the Directors' Plan must provide for the purchase of Common Stock at fair
market value on the date of grant.
Under both plans, the options are exercisable over a maximum term of ten
years from the date of grant and vest over periods of zero to four years based
on the grant date.
F-20
<PAGE> 67
A summary of the stock option activity under both plans for the years ended
June 30, 1999, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
EMPLOYEE PLAN DIRECTORS' PLAN
---------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- -------- ------- --------
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1996....................... 803,600 $ 9.66 15,000 $12.00
Granted...................................... 2,000 14.88 7,500 14.88
Cancelled.................................... (11,349) 12.53
Exercised.................................... (41,758) 9.31 --
---------- -------
BALANCE AT JUNE 30, 1997....................... 752,493 9.64 22,500 12.96
Granted...................................... 201,100 11.69 15,000 16.25
Cancelled.................................... (13,030) 11.84
Exercised.................................... (61,021) 9.12 --
---------- -------
BALANCE AT JUNE 30, 1998....................... 879,542 10.12 37,500 14.28
Granted...................................... 816,650 8.56 15,000 8.88
Cancelled.................................... (40,924) 10.47
Exercised.................................... (11,438) 9.59 --
---------- -------
BALANCE AT JUNE 30, 1999....................... 1,643,830 9.34 52,500 12.73
========== =======
Exercisable portion............................ 724,802 9.79 25,002 13.43
========== =======
Available for future grant..................... 441,953 7,500
========== =======
Weighted-average fair value of options granted
during the year ended June 30,
1997......................................... $ 9.80 $ 11.08
========== =======
1998......................................... $ 8.24 $ 11.53
========== =======
1999......................................... $ 5.78 $ 6.00
========== =======
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Dividend yield.......................................... 0% 0% 0%
Expected volatility..................................... 50%-81% 65%-70% 68%-75%
Risk-free interest rate................................. 5.77% 5.7% 6.4%
Expected lives:
Employee Plan......................................... 7.61 7.75 5
Directors Plan........................................ 7.61 7.75 7
</TABLE>
F-21
<PAGE> 68
The following table summarizes significant option groups outstanding at
June 30, 1999 and related weighted average exercise price and remaining
contractual life information as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------------
NUMBER AT REMAINING WGHTD AVG NUMBER AT WGHTD AVG
RANGE OF JUNE 30, CONTRACTUAL EXERCISE JUNE 30, EXERCISE
EXERCISE PRICES 1999 LIFE PRICE 1999 PRICE
- --------------- ------------- ----------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$7.625-$9.375.......................... 1,342,036 8.15 $ 8.57 526,736 $ 8.58
$11.75-$13.375......................... 318,294 7.56 12.42 201,441 12.80
$14.875-$16.25......................... 36,000 7.57 15.77 21,627 15.66
--------- -------
1,696,330 749,804
========= =======
</TABLE>
The Company has adopted the disclosure only provisions of SFAS No. 123,
Accounting for Stock Based Compensation. Accordingly, no compensation cost has
been recognized for the Company's two stock option plans. Had compensation cost
for the plans been determined based on the fair market value at the grant date
for awards, consistent with the provisions of SFAS No. 123, the Company's net
loss and earnings per share would have been reduced to the proforma amounts
below:
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
------------------------ ----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)........... $3,178,758 $1,698,182 $342,682 $(664,398) $(262,476) $(818,363)
Income (loss) per share..... $ 0.43 $ 0.23 $ 0.05 $ (0.09) $ (0.04) $ (0.11)
</TABLE>
15. EARNINGS PER SHARE
The following table shows the reconciliation between the numerators and
denominators for the basic and diluted EPS calculations, where income is the
numerator and the weighted average number of shares is the denominator. The
reconciliation is not shown for the year ended June 30, 1997, as any common
share equivalents are antidilutive.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1999 YEAR ENDED JUNE 30, 1998
---------------------------------- --------------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to common
shareholders......................... $3,178,758 7,462,723 $0.43 $342,682 7,342,683 $0.05
===== =====
EFFECT OF DILUTIVE SECURITIES
Options................................ -- 14,216 -- 208,913
---------- --------- -------- ---------
DILUTED EPS
Income available to common shareholders
including assumed conversions........ $3,178,758 7,476,939 $0.43 $342,682 7,551,596 $0.05
========== ========= ===== ======== ========= =====
</TABLE>
16. SEGMENT REPORTING
Effective July 1, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131 requires the
Company to use the "management approach" for identifying operating segments and
establishes annual and interim reporting standards for these operating segments.
The statement also establishes standards for related disclosures about products
and services and geographic areas. The Company's operations and products have
been aggregated into a single reportable segment, as permitted under SFAS No.
131, since they have similar economic characteristics, production processes,
types of customers and distribution methods.
F-22
<PAGE> 69
The Company's primary products include Puncture Closure (the Angio-Seal)
and Biomaterials. Puncture Closure products primarily represents Angio-Seal
device sales to the Company's Strategic Alliance Partner. Under Biomaterials
products, the Company designs and/or manufactures and markets various absorbable
polymer and collagen products for use in numerous applications including
orthopedics, cardiovascular, tissue regeneration, drug delivery and many others.
The Company also receives royalty revenue from the sale of Angio-Seal units by
its Strategic Alliance Partner and research and development revenue reimbursed
for certain research and development expenses. Revenue by product line is as
follows:
<TABLE>
<CAPTION>
REVENUE FOR THE YEAR ENDED JUNE 30,
----------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Puncture Closure................................... $ 1,127,641 $ 1,248,293 $2,544,062
Biomaterials....................................... 6,040,462 3,420,620 1,117,261
----------- ----------- ----------
Net sales.......................................... 7,168,103 4,668,913 3,661,323
Research and development........................... 1,894,350 3,641,492 2,842,433
Royalty income..................................... 7,182,969 3,008,327 353,239
Milestone fees..................................... 1,050,000
----------- ----------- ----------
Total Revenue................................. $16,245,422 $11,318,732 $7,906,995
=========== =========== ==========
</TABLE>
For the years ended June 30, 1999, 1998 and 1997, revenues from the
Strategic Alliance Partner represented the following percentages of total
revenues of the Company:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE
FOR THE YEAR ENDED JUNE 30,
---------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net Sales................................................... 66% 86% 91%
Research and development (see Note 2)....................... 100% 96% 98%
Milestone Fees (see Note 2)................................. 100%
Royalty Income (see Note 2)................................. 100% 100% 100%
</TABLE>
The Company's sales to external customers are summarized below. Net sales
are attributed to a country based on the location of the customer. No one
country other than the US represented more than 10% of the Company's revenues.
In addition, all of the Company's long-lived assets are located in the US.
<TABLE>
<CAPTION>
REVENUE FOR THE YEAR ENDED JUNE 30,
----------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
United States...................................... $15,911,292 $11,246,697 $6,269,412
Other foreign countries............................ 334,130 72,035 1,637,583
----------- ----------- ----------
Total......................................... $16,245,422 $11,318,732 $7,906,995
=========== =========== ==========
</TABLE>
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
The summarized quarterly results of operations of the Company for the years
ended June 30, 1999 and June 30, 1998 are presented below:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1999
----------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues...................... $3,551,497 $3,714,312 $4,368,369 $4,611,244
Operating costs and expenses............ $3,249,673 $3,131,134 $3,494,695 $3,512,243
Net income.............................. $ 370,579 $ 654,128 $ 958,931 $1,195,120
Basic and diluted earnings per share.... $ 0.05 $ 0.09 $ 0.13 $ 0.16
</TABLE>
F-23
<PAGE> 70
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1998
----------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues...................... $1,565,290 $2,762,081 $3,606,955 $3,384,406
Operating costs and expenses............ $2,365,692 $2,878,737 $2,902,788 $3,222,838
Net (loss) income....................... $ (679,680) $ 492 $ 809,722 $ 212,148
Basic and diluted (loss) earnings per
share................................. $ (0.09) $ -- $ 0.11 $ 0.03
</TABLE>
Quarterly and total year earnings per share are calculated independently
based on the weighted average number of shares outstanding during each period.
18. LITIGATION
In March 1998, the Company, together with its Strategic Alliance Partner,
filed a patent infringement claim against Perclose, Inc. of Menlo Park,
California ("Perclose"), a competitor in the puncture closure market. In 1999,
the Company amended the claim to add a second patent to the infringement suit.
The original and amended suits, filed in the Eastern District of Pennsylvania,
claim that Perclose infringes the Company's US Patent Nos. 5,676,689 and
5,861,004 (together, the "Patents"). The Patents cover a system and method for
sealing a puncture in a blood vessel (e.g. the femoral artery). The Company
seeks damages and an order to permanently enjoin Perclose from making, using or
selling product that infringes the Patents.
Perclose filed four counterclaims in answer to the complaint. The first
counterclaim seeks to declare the Patent invalid and not infringed; the second
and third counterclaims maintain that the Company committed antitrust
violations; and the fourth counterclaim asserts that the Company committed
unfair competition. Management is unable to predict the final outcome of the
suit or whether the resolution of the matter could materially affect the
Company's results of operations, cash flows, or financial position. The Company
has expensed legal costs, as a component of selling, general and administrative
expenses, as services have been incurred.
F-24
<PAGE> 71
INSIDE BACK COVER:
[Three pictures descending down the middle of the page will demonstrate the
process of employing the Aegis Vortex on a blocked diseased graft.
The first picture located at the top of the page illustrates the tip of a
guide catheter being inserted through the aorta at the base of a diseased graft.
The tip of the guide catheter is shown attached to the base of a guide wire
which inserts a deflated balloon through the blocked portion of the diseased
graft.
The second picture located in the middle of the page depicts the balloon
being inflated through a rotating catheter held in place by a stationary guide
wire.
The third picture located near the bottom of the page demonstrates the
extraction procedure whereby the matter which previously blocked the diseased
graft is extracted through the guide catheter.]
WE HAVE NOT RECEIVED APPROVAL FROM THE FDA FOR SALE OF THE AEGIS VORTEX(TM)
SYSTEM IN THE UNITED STATES, AND WE CAN MAKE NO ASSURANCE OF WHEN, IF EVER, THE
AEGIS VORTEX SYSTEM WILL BE APPROVED BY THE FDA.
<PAGE> 72
- --------------------------------------------------------------------------------
[KENSEY NASH LOGO]
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
PAINEWEBBER INCORPORATED
WARBURG DILLON READ LLC
- --------------------------------------------------------------------------------
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of fees and
expenses, other than underwriting commissions and discounts, payable by the
registrant in connection with the issuance and distribution of its common stock
pursuant to the prospectus contained in this Registration Statement. The
registrant will pay all of these expenses.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
-----------
<S> <C>
SEC registration fee........................................ $ 13,237
NASD filing fee............................................. 5,514]
Nasdaq listing fee.......................................... 17,500
Accountants' fees and expenses.............................. 70,000
Legal fees and expenses..................................... 150,000
Transfer agent and registrar fees and expenses.............. 1,250
Printing expenses........................................... 100,000
Miscellaneous expenses...................................... 2,499
--------
Total................................................ $360,000
========
</TABLE>
All expenses other than the SEC registration fee, NASD filing fee and
Nasdaq listing fee are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The registrant's Second Amended and Restated Certificate of Incorporation
provides that the registrant shall indemnify its directors to the full extent
permitted by the General Corporation Law of the State of Delaware and may
indemnify its officers and employees to such extent, except that the registrant
shall not be obligated to indemnify any such person (1) with respect to
proceedings, claims or actions initiated or brought voluntarily by any such
person and not by way of defense, or (2) for any amounts paid in settlement of
an action indemnified against by the registrant without the prior written
consent of the registrant. In addition, the registrant's Second Amended and
Restated Certificate of Incorporation provides that a director of the registrant
shall not be personally liable to the registrant or its stockholders for
monetary damages for breach of his or her fiduciary duty as a director, except
for liability (1) for any breach of the director's duty of loyalty to the
registrant or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3) for
willful or negligent conduct in paying dividends or repurchasing stock out of
other than lawfully available funds or (4) for any transaction from which the
director derives an improper personal benefit.
The registrant has entered into indemnity agreements with each of its
directors. These agreements require the registrant, among other things, to
indemnify such directors against certain liabilities that may arise by reason of
their status or service as directors, as well as to advance expenses to them as
they are incurred, provided that they undertake to repay the amount advanced if
it is ultimately determined by a court that they are not entitled to
indemnification. The indemnity agreements with each of the directors also
provides the following indemnification rights and limitations in addition to the
indemnification in the registrant's Second Amended and Restated Certificate of
Incorporation:
(1) if the registrant does not pay a claim within ninety days after written
notice has been received by the registrant, the indemnified director
may bring suit against the registrant to recover the unpaid amount of
the claim and, if successful in whole or in part, shall also be
entitled to be paid the expense of prosecuting such claim;
(2) the registrant is not liable for a claim against an indemnified
director, for which payment is made to the indemnified director, under
an insurance policy, except in respect of any excess beyond the amount
of payment under such insurance;
II-1
<PAGE> 74
(3) the registrant is not liable for a claim against an indemnified
director based upon or attributable to the indemnified director gaining
personal profit or advantage, or brought about by the dishonesty of the
indemnified director. However, the indemnified director shall be
indemnified against such claims unless a judgement or final
adjudication establishes that the indemnified director gained personal
profit or advantage to which he was not legally entitled, or committed
acts of active and deliberate dishonesty with actual dishonest purpose,
which dishonest acts were material to the cause of action,
respectively; and
(4) the registrant is not liable for an accounting of profits made from the
purchase or sale by the indemnified director of securities of the
registrant within the meaning of Section 16(b) of the Securities
Exchange Act of 1934 or similar state laws.
Reference is made to Section 145 of the General Corporation Law of the
State of Delaware which provides for indemnification of directors and officers
in certain circumstances.
The registrant has a directors' and officers' liability insurance policy.
Under the terms of the Underwriting Agreement, the underwriters have agreed
to indemnify, under certain conditions, the registrant, its directors, certain
of its officers and persons who control the registrant within the meaning of the
Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
1.2 Form of Irrevocable Power of Attorney of Selling Stockholder
1.3 Form of Letter of Transmittal and Custody Agreement
3.1** Amended and Restated Certificate of Incorporation of Kensey
Nash
3.2** Amended and Restated Bylaws of Kensey Nash
4.1** Specimen stock certificate representing Kensey Nash common
stock
5.1 Opinion of Katten Muchin Zavis
10.1** Kensey Nash Corporation Second Amended and Restated Employee
Incentive Compensation Plan and form of Stock Option
Agreement
10.2*** Kensey Nash Corporation Third Amended and Restated
Nonemployee Directors' Stock Option Plan and form of Stock
Option Agreement
10.3** Form of Directors' Indemnification Agreement
10.4 Employment Agreement dated July 1, 1998, by and between
Kensey Nash and Joseph W. Kaufmann
10.5 Employment Agreement dated April 1, 1999, by and between
Kensey Nash and Wendy F. DiCicco
10.6 Employment Agreement dated December 1, 1998, by and between
Kensey Nash and John E. Nash, P.E.
10.7 Employment Agreement dated July 16, 1998, by and between
Kensey Nash and Douglas G. Evans, P.E.
10.8** Collagen Component Supply Agreement dated May 31, 1995, by
and between Kensey Nash and Quinton Instrument Company
10.9 Employment Agreement dated April 1, 1999, by and between
Kensey Nash and Julie N. Broderick
10.10** License Agreement (United States) dated September 4, 1991,
by and between Kensey Nash and American Home Products
Corporation
10.11** License Agreement (Foreign) dated September 4, 1991, by and
between Kensey Nash and American Home Products Corporation
10.12 Tenant Lease dated November 19, 1996, by and between Kensey
Nash and Marsh Creek Associates One and Lease Amendment
dated January 3, 2000
</TABLE>
II-2
<PAGE> 75
<TABLE>
<C> <S>
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Katten Muchin Zavis (included in opinion filed as
Exhibit 5.1)
24.1 Form of Power of Attorney
27.1+ Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
** This exhibit is incorporated by reference to the exhibit with the same
Exhibit Number in our Registration Statement on Form S-1, Registration
Statement No. 33-98722.
*** This exhibit is incorporated by reference to Exhibit A of our definitive
Proxy Statement filed with the SEC on November 4, 1999.
+ This exhibit is incorporated by reference to Exhibit 27.1 of our Annual
Report on Form 10-K and Form 10-K/A for the year ended June 30, 1999 and
Exhibit C of our Quarterly Report on Form 10-Q for the quarter ended on
March 31, 2000.
All other schedules are omitted because they are not required, are not
applicable or the information is scheduled in our financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(2) To provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
(3) Insofar as indemnification for liabilities arising under the 1933
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(4) That for purposes of determining any liability under the Securities
Act, (a) the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective and (b) each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bonafide offering thereof.
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<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Exton, and State of Pennsylvania, on the 24th day of
April 2000.
KENSEY NASH CORPORATION
By: /s/ JOSEPH W. KAUFMANN
------------------------------------
Joseph W. Kaufmann
Chief Executive Officer, Secretary
and Director (Principal Executive
Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on April 24th, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JOSEPH W. KAUFMANN Chief Executive Officer, Secretary and
- -------------------------------------------------------- Director (Principal Executive Officer)
Joseph W. Kaufmann
/s/ DOUGLAS G. EVANS, P.E. Chief Operating Officer, Assistant
- -------------------------------------------------------- Secretary and Director
Douglas G. Evans, P.E.
/s/ WENDY F. DICICCO, CPA Chief Financial Officer (Principal
- -------------------------------------------------------- Financial and Accounting Officer)
Wendy F. DiCicco, CPA
/s/ JOHN E. NASH, P.E. Vice President of New Technologies and
- -------------------------------------------------------- Director
John E. Nash, P.E.
/s/ KENNETH R. KENSEY, M.D. Director
- --------------------------------------------------------
Kenneth R. Kensey, M.D.
/s/ ROBERT J. BOBB Director
- --------------------------------------------------------
Robert J. Bobb
Director
/s/ HAROLD N. CHEFITZ
- --------------------------------------------------------
Harold N. Chefitz
Director
/s/ WALTER R. MAUPAY, JR.
- --------------------------------------------------------
Walter R. Maupay, Jr.
</TABLE>
II-4
<PAGE> 1
EXHIBIT 1.1
Kensey Nash Corporation
3,200,000 Shares(1)
Common Stock
UNDERWRITING AGREEMENT
April __, 2000
PRUDENTIAL SECURITIES INCORPORATED
PAINEWEBBER INCORPORATED
WARBURG DILLON READ LLC
As Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Ladies and Gentlemen:
Kensey Nash Corporation, a Delaware corporation (the "Company"), and
the Selling Stockholders (as defined herein) hereby confirm their respective
agreements with the several underwriters named in Schedule 1 hereto (the
"Underwriters"), for whom you have been duly authorized to act as
representatives (in such capacity, the "Representatives"), as set forth below.
If you are the only Underwriters, all references herein to the Representatives
shall be deemed to be to the Underwriters.
1. Securities. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell to the several Underwriters an aggregate
of 2,500,000 shares of the Company's common stock, par value $0.001 per share
("Common Stock"). Certain stockholders of the Company named in Schedule 2 hereto
(each, a "Selling Stockholder" and together, the "Selling Stockholders") propose
to sell to the several Underwriters an aggregate of 700,000 shares of Common
Stock, with each Selling Stockholder selling the number of shares of Common
Stock set forth opposite such Selling Stockholder's name in Column (1) of
Schedule 2 hereto. The shares to be sold by the Company and the shares to be
sold by the Selling Stockholders are referred to herein as the "Firm
Securities." In addition, solely for the purpose of covering over-allotments,
the Company and certain of the Selling Stockholders propose to sell to the
several Underwriters, if requested by the Representatives as provided in Section
4 of this Agreement, up to an additional 280,000 shares of Common Stock from the
Company and up to an aggregate of 200,000 shares of
- --------
1 Plus an option to purchase from the Company up to 280,000 additional shares
to cover over-allotments from the Company and an option to purchase from
certain Selling Stockholders identified on Schedule 2 up to 200,000
additional shares to cover over-allotments.
<PAGE> 2
Common Stock from certain of the Selling Stockholders. Any and all shares of
Common Stock to be purchased by the Underwriters pursuant to such option are
referred to herein as the "Option Securities," and the Firm Securities and any
Option Securities are collectively referred to herein as the "Securities."
2A. Representations and Warranties of the Company and the Selling
Stockholders. The Company and the Selling Stockholders jointly and severally
represent and warrant to, and agree with, the several Underwriters that:
(a) A registration statement on Form S-3 (File No. 333-_________)
with respect to the Securities, including a prospectus subject to completion,
has been filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), and one
or more amendments to such registration statement may have been so filed. After
the execution of this Agreement, the Company will file with the Commission
either (i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, either (A) if the
Company relies on Rule 434 under the Act, a Term Sheet (as hereinafter defined)
relating to the Securities, that shall identify the Preliminary Prospectus (as
hereinafter defined) that it supplements containing such information as is
required or permitted by Rules 434, 430A and 424(b) under the Act or (B) if the
Company does not rely on Rule 434 under the Act, a prospectus in the form most
recently included in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement), with such
changes or insertions as are required by Rule 430A under the Act or permitted by
Rule 424(b) under the Act, and in the case of either clause (i)(A) or (i)(B) of
this sentence as have been provided to and approved by the Representatives prior
to the execution of this Agreement, or (ii) if such registration statement, as
it may have been amended, has not been declared by the Commission to be
effective under the Act, an amendment to such registration statement, including
a form of prospectus, a copy of which amendment has been furnished to and
approved by the Representatives prior to the execution of this Agreement. The
Company may also file a related registration statement with the Commission
pursuant to Rule 462(b) under the Act for the purpose of registering certain
additional Securities, which registration shall be effective upon filing with
the Commission. As used in this Agreement, the term "Original Registration
Statement" means the registration statement initially filed relating to the
Securities, as amended at the time when it was or is declared effective,
including all financial schedules and exhibits thereto and including any
information omitted therefrom pursuant to Rule 430A under the Act and included
in the Prospectus (as hereinafter defined); the term "Rule 462(b) Registration
Statement" means any registration statement filed with the Commission pursuant
to Rule 462(b) under the Act (including the Registration Statement and any
Preliminary Prospectus or Prospectus incorporated therein at the time such
Registration Statement becomes effective); the term "Registration Statement"
includes both the Original Registration Statement and any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); the term "Prospectus" means:
-2-
<PAGE> 3
(A) if the Company relies on Rule 434 under the Act, the Term Sheet
relating to the Securities that is first filed pursuant to Rule
424(b)(7) under the Act, together with the Preliminary Prospectus
identified therein that such Term Sheet supplements;
(B) if the Company does not rely on Rule 434 under the Act, the
prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act; or
(C) if the Company does not rely on Rule 434 under the Act and if
no prospectus is required to be filed pursuant to Rule 424(b) under
the Act, the prospectus included in the Registration Statement;
and the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Act. Any reference herein to the "date" of a Prospectus
that includes a Term Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order preventing or
suspending use of any Preliminary Prospectus. When any Preliminary Prospectus
was filed with the Commission it (a) contained all statements required to be
stated therein in accordance with, and complied in all material respects with
the requirements of, the Act and the rules and regulations of the Commission
thereunder and (b) did not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. When the Registration Statement or any amendment thereto was or is
declared effective, it (a) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (b) did not or will not include any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading. When the Prospectus or any Term
Sheet that is a part thereof or any amendment or supplement to the Prospectus is
filed with the Commission pursuant to Rule 424(b) (or, if the Prospectus or part
thereof or such amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such amendment or
supplement to the Prospectus was or is declared effective) and on the Firm
Closing Date and any Option Closing Date (both as hereinafter defined), the
Prospectus, as amended or supplemented at any such time, (i) contained or will
contain all statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements of, the
Act and the rules and regulations of the Commission thereunder and (ii) did not
or will not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The documents
which are incorporated by reference in any Preliminary Prospectus, the
Prospectus or any Term Sheet or from which information is so incorporated by
reference, when they became effective or were filed (or, if any amendment with
respect to any such document was filed, when such amendment was filed) with the
Commission, as the case may be, complied in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and
-3-
<PAGE> 4
regulations thereunder, and did not, when such documents became effective or
were so filed, as the case may be, include any untrue statement of a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. The foregoing provisions of this paragraph (b) do not
apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein.
(c) If the Company has elected to rely on Rule 462(b) and the Rule
462(b) Registration Statement has not been declared effective (i) the Company
has filed a Rule 462(b) Registration Statement in compliance with and that is
effective upon filing pursuant to Rule 462(b) and has received confirmation of
its receipt and (ii) the Company has given irrevocable instructions for
transmission of the applicable filing fee in connection with the filing of the
Rule 462(b) Registration Statement, in compliance with Rule 111 promulgated
under the Act or the Commission has received payment of such filing fee.
(d) The Company and each of its subsidiaries have been duly
organized and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation and are duly qualified
to transact business as foreign corporations and are in good standing under the
laws of all other jurisdictions where the ownership or leasing of their
respective properties or the conduct of their respective businesses requires
such qualification, except where the failure to be so qualified does not amount
to a material liability or disability to the Company and its subsidiaries, taken
as a whole.
(e) The Company and each of its subsidiaries have full power
(corporate and other) to own or lease their respective properties and conduct
their respective businesses as described in the Registration Statement and the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus; and the Company has full power (corporate and other) to
enter into this Agreement and to carry out all the terms and provisions hereof
to be carried out by it.
(f) The issued shares of capital stock of each of the Company's
subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable and are owned beneficially by the Company free and clear of any
security interests, liens, encumbrances, equities or claims.
(g) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus. All of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable. The Firm Securities and the Option Securities
have been duly authorized and at the Firm Closing Date or the related Option
Closing Date (as the case may be), after payment therefor in accordance
herewith, will be validly issued, fully paid and nonassessable. No holders of
outstanding shares of capital stock of the Company are entitled as such to any
preemptive or other rights to subscribe for any of the Securities, and no holder
of securities of the Company has any right which has not been fully exercised or
waived to require the
-4-
<PAGE> 5
Company to register the offer or sale of any securities owned by such holder
under the Act in the public offering contemplated by this agreement.
(h) The capital stock of the Company conforms to the description
thereof contained in the Prospectus or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus.
(i) Except as disclosed in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), there are no
outstanding (A) securities or obligations of the Company or any of its
subsidiaries convertible into or exchangeable for any capital stock of the
Company or any such subsidiary, (B) warrants, rights or options to subscribe for
or purchase from the Company or any such subsidiary any such capital stock or
any such convertible or exchangeable securities or obligations, or (C)
obligations of the Company or any such subsidiary to issue any shares of capital
stock, any such convertible or exchangeable securities or obligations, or any
such warrants, rights or options.
(j) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present the financial position of the Company and
its consolidated subsidiaries and the results of operations and changes in
financial condition as of the dates and periods therein specified. Such
financial statements and schedules have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved (except as otherwise noted therein). The selected financial
data set forth under the caption "Selected Consolidated Financial Data" in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present, on the basis stated in the Prospectus
(or such Preliminary Prospectus), the information included therein.
(k) Deloitte & Touche LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries and delivered their
report with respect to the audited consolidated financial statements and
schedules included in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), are
independent public accountants as required by the Act and the applicable rules
and regulations thereunder.
(l) The execution and delivery of this Agreement have been duly
authorized by the Company and this Agreement has been duly executed and
delivered by the Company, and is the valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.
(m) No legal or governmental proceedings are pending to which the
Company or any of its subsidiaries is a party or to which the property of the
Company or any of its subsidiaries is subject that are required to be described
in the Registration Statement or the Prospectus and are not described therein
(or, if the Prospectus is not in existence, the most recent Preliminary
-5-
<PAGE> 6
Prospectus), and no such proceedings have been threatened against the Company or
any of its subsidiaries or with respect to any of their respective properties;
and no contract or other document is required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) or filed as required.
(n) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement and the consummation of the
other transactions herein contemplated do not (i) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained, such as may be required under
state securities or blue sky laws and, if the registration statement filed with
respect to the Securities (as amended) is not effective under the Act as of the
time of execution hereof, such as may be required (and shall be obtained as
provided in this Agreement) under the Act, or (ii) conflict with or result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, lease or other agreement
or instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or any of their respective
properties are bound, or the charter documents or by-laws of the Company or any
of its subsidiaries, or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any arbitrator
applicable to the Company or any of its subsidiaries.
(o) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus, neither the Company
nor any of its subsidiaries has sustained any material loss or interference with
their respective businesses or properties from fire, flood, hurricane, accident
or other calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding and there has not been any
material adverse change, or any development involving a prospective material
adverse change, in the condition (financial or otherwise), management, business
prospects, net worth, or results of the operations of the Company or any of its
subsidiaries, except in each case as described in or contemplated by the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus.
(p) The Company has not, directly or indirectly, (i) taken any
action designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting purchases of, the
Securities or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company (except for
the sale of Securities by the Selling Stockholders under this Agreement).
(q) The Company has not distributed and, prior to the later of (i)
the Closing Date and (ii) the completion of the distribution of the Securities,
will not distribute any offering material in connection with the offering and
sale of the Securities other than the Registration
-6-
<PAGE> 7
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or other materials, if any permitted by
the Act.
(r) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), (1) the Company and
its subsidiaries have not incurred any material liability or obligation, direct
or contingent, nor entered into any material transaction not in the ordinary
course of business; (2) the Company has not purchased any of its outstanding
capital stock, nor declared, paid or otherwise made any dividend or distribution
of any kind on its capital stock; and (3) there has not been any material change
in the capital stock, short-term debt or long-term debt of the Company and its
consolidated subsidiaries, except in each case as described in or contemplated
by the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(s) The Company and each of its subsidiaries have good and
marketable title in fee simple to all items of real property and marketable
title to all personal property owned by each of them, in each case free and
clear of any security interests, liens, encumbrances, equities, claims and other
defects, except such as do not materially and adversely affect the value of such
property and do not interfere with the use made or proposed to be made of such
property by the Company or such subsidiary, and any real property and buildings
held under lease by the Company or any such subsidiary are held under valid,
subsisting and enforceable leases, with such exceptions as are not material and
do not interfere with the use made or proposed to be made of such property and
buildings by the Company or such subsidiary, in each case except as described in
or contemplated by the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
(t) No labor dispute with the employees of the Company or any of
its subsidiaries exists or is threatened or imminent that could result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(u) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all material patents, patent applications, trademarks,
service marks, trade names, licenses, copyrights and proprietary or other
confidential information currently employed by them in connection with their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of infringement of or conflict with asserted rights of any
third party with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the condition (financial or otherwise),
business prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
-7-
<PAGE> 8
(v) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company and its subsidiaries, except as described in or contemplated by
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(w) No subsidiary of the Company is currently prohibited, directly
or indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(x) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and
neither the Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material adverse
change in the condition (financial or otherwise), business prospects, net worth
or results of operations of the Company and its subsidiaries.
(y) The Company will conduct its operations in a manner that will
not subject it to registration as an investment company under the Investment
Company Act of 1940, as amended, and this transaction will not cause the Company
to become an investment company subject to registration under such Act.
(z) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a material
adverse effect on the Company and its subsidiaries) and has paid all taxes
required to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable, except
for any such assessment, fine or penalty that is currently being contested in
good faith or as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(aa) Neither the Company nor any of its subsidiaries is in
violation of any federal or state law or regulation relating to occupational
safety and health or to the storage, handling or transportation of hazardous or
toxic materials and the Company and its subsidiaries have received all permits,
licenses or other approvals required of them under applicable federal and state
occupational safety and health and environmental laws and regulations to conduct
their respective
-8-
<PAGE> 9
businesses, and the Company and each such subsidiary is in compliance with all
terms and conditions of any such permit, license or approval, except any such
violation of law or regulation, failure to receive required permits, licenses or
other approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals which would not, singly or in the aggregate,
result in a material adverse change in the condition (financial or otherwise),
business prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(bb) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall be deemed
to be a representation and warranty by the Company to each Underwriter as to the
matters covered thereby.
(cc) Except for the shares of capital stock of each of the
subsidiaries owned by the Company and such subsidiaries, neither the Company nor
any such subsidiary owns any shares of stock or any other equity securities of
any corporation or has any equity interest in any firm, partnership, association
or other entity, except as described in or contemplated by the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus).
(dd) There are no holders of securities of the Company, who, by
reason of the filing of the Registration Statement, have the right (and have not
waived such right) to request the Company to register under the Act, or to
include in the Registration Statement, securities held by them.
(ee) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (1)
transactions are executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (3) access to assets is
permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(ff) No default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any indenture,
mortgage, deed of trust, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or any of their respective properties is bound or may be
affected in any material adverse respect with regard to property, business or
operations of the Company and its subsidiaries.
(gg) None of the Company or its subsidiaries is in violation of any
health care law, ordinance, administrative or governmental rule or regulation
applicable to the Company or its
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<PAGE> 10
subsidiaries, including, without limitation, those relating to product testing,
marketing approvals and reimbursement by government agencies or third-party
payors.
2B. Additional Representations and Warranties of the Selling
Stockholders. Each of the Selling Stockholders severally, and not jointly,
additionally represent and warrant to, and agree with, each of the several
Underwriters that:
(a) The Agreement has been duly authorized by such Selling
Stockholder, executed and delivered, and is the valid, binding agreement of such
Selling Stockholder, except (i) as enforceability hereof may be limited by
bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights generally and by general
equitable principles and (ii) that enforcement of rights to indemnity and
contribution hereunder may be limited by federal or state securities laws or
principles of public policy.
(b) Such Selling Stockholder has full power to enter into this
Agreement and to sell, assign, transfer and deliver to the Underwriters the
Securities to be sold by such Selling Stockholder hereunder in accordance with
the terms of this Agreement and this Agreement has been duly executed and
delivered by such Selling Stockholder.
(c) Such Selling Stockholder has duly executed and delivered a
power-of-attorney and custody agreement (with respect to such Selling
Stockholder, the "Power-of-Attorney" and the "Custody Agreement," respectively),
each in the form heretofore delivered to the Representatives, appointing
_________ and ________, and each of them, as such Selling Stockholder's
attorney-in-fact (the "Attorney-in-Fact") with authority to execute, deliver and
perform this Agreement on behalf of such Selling Stockholder and appointing
StockTrans, Inc., as custodian thereunder (the "Custodian"). Certificates in
negotiable form, endorsed in blank or accompanied by blank stock powers duly
executed, with signatures appropriately guaranteed, representing the Securities
to be sold by such Selling Stockholder have been deposited with the Custodian
pursuant to the Custody Agreement for the purpose of delivery under this
Agreement. Such Selling Stockholder specifically agrees that the Securities
represented by the certificates on deposit with the Custodian is subject to the
interests of the Underwriters hereunder, that the arrangements made for such
custody, the appointment of the Attorney-in-Fact and the right, power and
authority of the Attorney-in-Fact to execute and deliver this Agreement, to
agree on the price at which the Securities (including such Selling Stockholder's
Securities) are to be sold to the Underwriters, and to carry out the terms of
this Agreement, are to that extent irrevocable and that the obligations of such
Selling Stockholder hereunder shall not be terminated, except as provided in
this Agreement or the Custody Agreement, by any act of such Selling Stockholder,
by operation of law or otherwise, whether in the case of any individual Selling
Stockholder by the death or incapacity of such Selling Stockholder, in the case
of a trust or estate by the death of the trustee or trustees or the executor or
executors or the termination of such trust or estate, or, in the case of a
corporate or partnership Selling Stockholder, by its liquidation or dissolution,
or by the occurrence of any other event. If any individual Selling Stockholder,
trustee or executor should die or become incapacitated or any such trust should
be terminated, or if any corporate or partnership Selling Stockholder shall
liquidate or dissolve, or if any other event should occur, before the delivery
of such Securities hereunder, the certificates for such Securities deposited
with the Custodian shall be delivered by the Custodian in accordance with the
terms
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<PAGE> 11
and conditions of this Agreement as if such death, incapacity, termination,
liquidation or dissolution or other event had not occurred, regardless of
whether or not the Custodian or the Attorney-in-Fact shall have received notice
thereof.
(d) Such Selling Stockholder has not distributed, and prior to the
later of (i) the Closing Date and (ii) the completion of the distribution of the
Securities, will not distribute any offering material in connection with the
offering and sale of the Securities, other than the Registration Statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or other materials, if any permitted by the
Act.
(e) Any certificate signed by the Selling Stockholder and delivered
to the Representatives or to counsel for the Underwriters shall also be deemed a
representation and warranty made by such Selling Stockholder to each Underwriter
as to the matters covered thereby and shall also be deemed incorporated herein
in its entirety and shall be effective as if such representation and warranty
were made herein. No statement, representation, warranty or covenant made by
such Selling Stockholder in this Agreement or made in any certificate or
document required by this Agreement to be delivered to the Representatives was
or will be, when made, inaccurate, untrue or incorrect in any material respect.
(f) Other than pursuant to this Agreement, such Selling Stockholder
has not, directly or indirectly, (i) taken any action designed to cause or to
result in, or that has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities or (ii) since the
filing of the Registration Statement (A) sold, bid for, purchased, or paid
anyone any compensation for soliciting purchases of, the Securities or (B) paid
or agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(g) Such Selling Stockholder is the lawful owner of the Securities
to be sold by such Selling Stockholder hereunder and upon sale and delivery of,
and payment for, such Securities, as provided herein, such Selling Stockholder
will convey to the extent that the Underwriters are purchasing for value and
without notice of adverse claims, good, valid and marketable title to such
Securities, free and clear of any security interests, liens, encumbrances,
equities, claims or other defects.
(h) Such Selling Stockholder has reviewed the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus) and
the Registration Statement, and the information regarding such Selling
Stockholder set forth therein under the caption "Principal and Selling
Stockholders" is complete and accurate in all respects.
(i) There are no outstanding options, warrants, rights or other
agreements or arrangements requiring such Selling Stockholder at any time to
transfer any Securities to be sold hereunder by it.
(j) There are no pending actions, suits, arbitrations or other
proceedings or investigations (domestic or foreign, formal or informal) against
such Selling Stockholder which (A)
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<PAGE> 12
questions the validity of this Agreement or of any action taken or to be taken
by it pursuant to or in connection with this Agreement or (B) is required to be
disclosed in the Registration Statement which is not so disclosed.
(k) On the Firm Closing Date, all stock transfer or other taxes
(other than income taxes) which are required to be paid in connection with the
sale and transfer of the Securities to be sold by such Selling Stockholder to
the several Underwriters hereunder will have been fully paid or provided for by
such Selling Stockholder and all laws imposing such taxes will have been fully
complied with.
(l) The sale by such Selling Stockholder of Securities pursuant
hereto is not prompted by any adverse information concerning the Company that is
not set forth in the Registration Statement or the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(m) The sale of the Securities to the Underwriters by such Selling
Stockholder pursuant to this Agreement, the compliance by such Selling
Stockholder with the other provisions of this Agreement, the Custody Agreement
and the consummation of the other transactions herein contemplated do not (i)
require the consent, approval, authorization, registration or qualification of
or with any governmental authority, except such as have been obtained, such as
may be required under state securities or blue sky laws and, if the registration
statement filed with respect to the Securities (as amended) is not effective
under the Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this Agreement) under the Act, or (ii) conflict
with or result in a breach or violation of any of the terms and provisions of,
or constitute a default under any indenture, mortgage, deed of trust, lease or
other agreement or instrument to which such Selling Stockholder or any of its
subsidiaries is a party or by which such Selling Stockholder or any of its
subsidiaries or any of such Selling Stockholder's properties are bound, or any
statute or any judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator applicable to such Selling Stockholder.
3. Purchase, Sale and Delivery of the Securities. (a) On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, and at a purchase price of
$_____ per share of Common Stock, (A) the Company agrees to sell to the several
Underwriters, and the Underwriters severally and not jointly, agree to purchase
from the Company the number of Securities set forth opposite the respective
names of the Underwriters in Column (1) of Schedule 1 hereto and (B) each
Selling Stockholder, severally and not jointly, agrees to sell to the
Underwriters, a pro rata portion of the total number of Securities set forth
opposite the name of such Selling Stockholder in Column (1) of Schedule 2.
(b) One or more certificates in definitive form for the Firm
Securities that the several Underwriters have agreed to purchase hereunder, and
in such denomination or denominations and registered in such name or names as
the Representatives request upon notice to the Company at least 48 hours prior
to the Firm Closing Date, shall be delivered by or on behalf of the Company and
the Selling Stockholders to the Representatives for the respective accounts of
the
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<PAGE> 13
Underwriters, against payment by or on behalf of the Underwriters of the
purchase price therefor by wire transfer in same-day funds (the "Wired Funds")
to the account of the Company and the Custodian. Such delivery of and payment
for the Firm Securities shall be made at the offices of Stroock & Stroock &
Lavan LLP, 180 Maiden Lane, New York, New York 10038 at 9:30 A.M., New York
time, on ________ __, 2000, or at such other place, time or date as the
Representatives, the Company and the Selling Stockholders may agree upon or as
the Representatives may determine pursuant to Section 9 hereof, such time and
date of delivery against payment being herein referred to as the "Firm Closing
Date." The Company and the Custodian will make such certificate or certificates
for the Firm Securities available for checking and packaging by the
Representatives at the offices in New York, New York of the Company's transfer
agent or registrar or by Prudential Securities Incorporated, at least 24 hours
prior to the Firm Closing Date.
(c) For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company and certain of the Selling Stockholders designated on
Schedule 2 hereto grant to the several Underwriters an option to purchase,
severally and not jointly, the Option Securities. The purchase price to be paid
for any Option Securities shall be the same price per share as the price per
share for the Firm Securities set forth above in paragraph (a) of this Section
3. The option granted hereby may be exercised as to all or any part of the
Option Securities from time to time within (thirty) days after the date of the
Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday, on
the next business day thereafter when the New York Stock Exchange is open for
trading). The Underwriters shall not be under any obligation to purchase any of
the Option Securities prior to the exercise of such option. The Representatives
may from time to time exercise the option granted hereby by giving notice in
writing or by telephone (confirmed in writing) to the Company and to such
Selling Stockholders setting forth the aggregate number of Option Securities as
to which the several Underwriters are then exercising the option and the date
and time for delivery of and payment for such Option Securities. Any such date
of delivery shall be determined by the Representatives but shall not be earlier
than two business days or later than five business days after such exercise of
the option and, in any event, shall not be earlier than the Firm Closing Date.
The time and date set forth in such notice, or such other time on such other
date as the Representatives, the Company and such Selling Stockholders may agree
upon or as the Representatives may determine pursuant to Section 10 hereof, is
herein called the "Option Closing Date" with respect to such Option Securities.
Upon exercise of the option as provided herein, the Company and such Selling
Stockholders shall become obligated to sell to each of the several Underwriters,
and, subject to the terms and conditions herein set forth, each of the
Underwriters (severally and not jointly) shall become obligated to purchase from
the Company and such Selling Stockholders, the same percentage of the total
number of the Option Securities as to which the several Underwriters are then
exercising the option as such Underwriter is obligated to purchase of the
aggregate number of Firm Securities, calculated as set forth in (a) above, as
adjusted by the Representatives in such manner as they deem advisable to avoid
fractional shares. If the option is exercised as to all or any portion of the
Option Securities, one or more certificates in definitive form for such Option
Securities, and payment therefor, shall be delivered on the related Option
Closing Date in the manner, and upon the terms and conditions, set forth in
paragraph (a) of this Section 3, except that
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<PAGE> 14
reference therein to the Firm Securities and the Firm Closing Date shall be
deemed, for purposes of this paragraph (b), to refer to such Option Securities
and Option Closing Date, respectively.
(d) Each of the Company and each Selling Stockholder hereby
acknowledges that the wire transfer by or on behalf of the Underwriters of the
purchase price for any Securities does not constitute closing of a purchase and
sale of the Securities. Only execution and delivery of a receipt for Securities
by the Underwriters indicates completion of the closing of a purchase of the
Securities from the Company and the Selling Stockholders. Furthermore, in the
event that the Underwriters wire funds to the Company and to the Custodian prior
to the completion of the closing of a purchase of Securities, each of the
Company and each Selling Stockholder hereby acknowledges that until the
Underwriters execute and deliver a receipt for the Securities, by facsimile or
otherwise, the Company and the Selling Stockholder will not be entitled to the
Wired Funds and shall return the Wired Funds to the Underwriters as soon as
practicable (by wire transfer of same-day funds) upon demand. If the closing of
a purchase of Securities is not completed and the Wired Funds are not returned
by the Company and the Selling Stockholder to the Underwriters on the same day
the Wired Funds were received by the Company and the Selling Stockholder, each
of the Company and the Selling Stockholder agrees to pay to the Underwriters in
respect of each day the Wired Funds are not returned by it, in same-day funds,
interest on the amount of such Wired Funds in an amount representing the
Underwriters' cost of financing as reasonably determined by Prudential
Securities Incorporated.
(e) It is understood that any of you, individually and not as one
of the Representatives, may (but shall not be obligated to) make payment on
behalf of any Underwriter or Underwriters for any of the Securities to be
purchased by such Underwriter or Underwriters. No such payment shall relieve
such Underwriter or Underwriters from any of its or their obligations hereunder.
4. Offering by the Underwriters. Upon your authorization of the release
of the Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus.
5. Covenants of the Company and the Selling Stockholders. The Company
covenants and agrees with each of the Underwriters as to the matters set forth
in subparagraphs (a) through (m) below. Each of the Selling Stockholders,
severally and not jointly, covenants and agrees with each of the Underwriters as
to the matters set forth in subparagraphs (n) through (s) below.
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and any
amendments thereto to become effective as promptly as possible. If required, the
Company will file the Prospectus or any Term Sheet that constitutes a part
thereof and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 434 and 424(b) under the
Act. During any time when a prospectus relating to the Securities is required to
be delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the
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<PAGE> 15
continuance of sales of or dealings in the Securities in accordance with the
provisions hereof and of the Prospectus, as then amended or supplemented, and
(ii) will not file with the Commission the prospectus, Term Sheet or the
amendment referred to in the second sentence of Section 2A(a) hereof, any
amendment or supplement to such Prospectus, Term Sheet or any amendment to the
Registration Statement or any Rule 462(b) Registration Statement of which the
Representatives previously have been advised and furnished with a copy for a
reasonable period of time prior to the proposed filing and as to which filing
the Representatives shall not have given their consent. The Company will prepare
and file with the Commission, in accordance with the rules and regulations of
the Commission, promptly upon request by the Representatives or counsel for the
Underwriters, any amendments to the Registration Statement or amendments or
supplements to the Prospectus that may be necessary or advisable in connection
with the distribution of the Securities by the several Underwriters, and will
use its best efforts to cause any such amendment to the Registration Statement
to be declared effective by the Commission as promptly as possible. The Company
will advise the Representatives, promptly after receiving notice thereof, of the
time when the Registration Statement or any amendment thereto has been filed or
declared effective or the Prospectus or any amendment or supplement thereto has
been filed and will provide evidence satisfactory to the Representatives of each
such filing or effectiveness.
(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Original
Registration Statement or any Rule 462(b) Registration Statement or any
amendment thereto or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
(ii) the suspension of the qualification of the Securities for offering or sale
in any jurisdiction, (iii) the institution, threatening or contemplation of any
proceeding for any such purpose or (iv) any request made by the Commission for
amending the Original Registration Statement or any Rule 462(b) Registration
Statement, for amending or supplementing the Prospectus or for additional
information. The Company will use its best efforts to prevent the issuance of
any such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(c) The Company will arrange for the qualification of the
Securities for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representatives may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Securities, provided, however, that in connection therewith
the Company shall not be required to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction.
(d) If, at any time prior to the later of (i) the final date when a
prospectus relating to the Securities is required to be delivered under the Act
or (ii) the Option Closing Date, any event occurs as a result of which the
Prospectus, as then amended or supplemented, would include any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if for any other reason it is necessary at any time to
amend or supplement the Prospectus to comply with the Act or the rules or
regulations of the Commission thereunder, the
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<PAGE> 16
Company will promptly notify the Representatives thereof and, subject to Section
4(a) hereof, will prepare and file with the Commission, at the Company's
expense, an amendment to the Registration Statement or an amendment or
supplement to the Prospectus that corrects such statement or omission or effects
such compliance.
(e) The Company will, without charge, provide (i) to the
Representatives and to counsel for the Underwriters a signed copy of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto), (ii) to each other
Underwriter, a conformed copy of such registration statement or any Rule 462(b)
Registration Statement and each amendment thereto (in each case without exhibits
thereto) and (iii) so long as a prospectus relating to the Securities is
required to be delivered under the Act, as many copies of each Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request; without limiting the application of
clause (iii) of this sentence, the Company, not later than (A) 6:00 P.M., New
York City time, on the date of determination of the public offering price, if
such determination occurred at or prior to 10:00 A.M., New York City time, on
such date or (B) 2:00 P.M., New York City time, on the business day following
the date of determination of the public offering price, if such determination
occurred after 10:00 A.M., New York City time, on such date, will deliver to the
Underwriters, without charge, as many copies of the Prospectus and any amendment
or supplement thereto as the Representatives may reasonably request for purposes
of confirming orders that are expected to settle on the Firm Closing Date.
(f) The Company, as soon as practicable, will make generally
available to its securityholders and to the Representatives a consolidated
earnings statement of the Company and its subsidiaries that satisfies the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
(g) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.
(h) The Company will not, directly or indirectly, without the prior
written consent of by Prudential Securities Incorporated, on behalf of the
Underwriters, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock for
a period of 90 days after the date hereof, except pursuant to this Agreement and
except for issuances pursuant to the exercise of employee stock options
outstanding on the date hereof, pursuant to the Company's dividend reinvestment
plan or pursuant to the terms of convertible securities of the Company
outstanding on the date hereof.
(i) The Company will not, directly or indirectly, (i) take any
action designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) (A) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Securities or (B) pay or agree to pay to any
person any compensation
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<PAGE> 17
for soliciting another to purchase any other securities of the Company (except
for the sale of Securities by the Selling Stockholders under this Agreement).
(j) The Company will obtain the agreements described in Section
7(g) hereof prior to the Firm Closing Date.
(k) If at any time during the 25-day period after the Registration
Statement becomes effective or the period prior to the Option Closing Date, any
rumor, publication or event relating to or affecting the Company shall occur as
a result of which in your opinion the market price of the Common Stock has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after notice from you advising the Company to the
effect set forth above, forthwith prepare, consult with you concerning the
substance of, and disseminate a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
(l) If the Company elects to rely on Rule 462(b), the Company shall
both file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) and pay the applicable fees in accordance with Rule 111
promulgated under the Act by the earlier of (i) 10:00 P.M. Eastern time on the
date of this Agreement and (ii) the time confirmations are sent or given, as
specified by Rule 462(b)(2).
(m) The Company will cause the Securities to be duly included for
quotation on The Nasdaq Stock Market's National Market (the "Nasdaq National
Market") prior to the Firm Closing Date. The Company will ensure that the
Securities remain included for quotation on the Nasdaq National Market following
the Firm Closing Date.
(n) Such Selling Stockholder will not, directly or indirectly, (i)
take any action designed to cause or result in, or that will constitute or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of the
Securities, or (ii) from the filing of the Registration Statement (A) sell, bid
for, purchase, or pay anyone any compensation for soliciting purchases of the
Securities or (B) pay or agree to pay any person any compensation for soliciting
another to purchase any other securities of the Company (except for the sale of
Securities by such Selling Stockholder under this Agreement).
(o) Such Selling Stockholder will not at any time, directly or
indirectly (A) sell, bid for, purchase, or pay anyone any compensation for
soliciting purchases of, the Securities or the Additional Securities or (B) pay
or agree to pay to any person any compensation for soliciting another to
purchase any other securities of the Company (except for the sale of Securities
and the Additional Securities by the Selling Stockholders under this Agreement).
(p) During the period of 360 days from the date of the Prospectus,
such Selling Stockholder will not, without the prior written consent of by
Prudential Securities Incorporated, on behalf of the Underwriters, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant
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<PAGE> 18
any option to purchase, or otherwise sell or dispose (or announce any offer,
sale, offer of sale, contract of sale, pledge, grant of any option to purchase
or other sale or disposition) of any shares of Common Stock or other capital
stock of the Company (or any securities convertible into, or exchangeable or
exercisable for, any shares of Common Stock or other capital stock of the
Company).
(q) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 with respect to the transactions herein contemplated, such Selling
Stockholder will deliver to the Representatives prior to or at the Closing Date
a properly completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
6. Expenses. The Company will pay all costs and expenses incident to
the performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 11 hereof, including all costs and expenses incident to (i)
the printing or other production of documents with respect to the transactions,
including any costs of printing the Original Registration Statement with respect
to the Securities and any amendment thereto, any Rule 462(b) Registration
Statement, any Preliminary Prospectus and the Prospectus and any amendment or
supplement thereto, this Agreement and any blue sky memoranda, (ii) all
arrangements relating to the delivery to the Underwriters of copies of the
foregoing documents, (iii) the fees and disbursements of the counsel, the
accountants and any other experts or advisors retained by the Company, (iv)
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Securities, including transfer agent's and registrar's fees, (v)
the qualification of the Securities under state securities and blue sky laws,
including filing fees and fees and disbursements of counsel for the Underwriters
relating thereto, (vi) the filing fees of the Commission and the National
Association of Securities Dealers, Inc. relating to the Securities, (vii) any
quotation of the Securities in the Nasdaq National Market and, (viii) any
meetings with prospective investors in the Securities (other than as shall have
been specifically approved by the Representatives to be paid for by the
Underwriters) and (ix) advertising relating to the offering of the Securities
(other than as shall have been specifically approved by the Representatives to
be paid for by the Underwriters). If the sale of the Securities provided for
herein is not consummated because any condition to the obligations of the
Underwriters set forth in Section 7 hereof is not satisfied, because this
Agreement is terminated pursuant to Section 11 hereof or because of any failure,
refusal or inability on the part of the Company to perform all obligations and
satisfy all conditions on its part to be performed or satisfied hereunder other
than by reason of a default by any of the Underwriters, the Company will
reimburse the Underwriters severally upon demand for all out-of-pocket expenses
(including counsel fees and disbursements) that shall have been incurred by them
in connection with the proposed purchase and sale of the Securities. The Company
shall not in any event be liable to any of the Underwriters for the loss of
anticipated profits from the transactions covered by this Agreement.
7. Conditions of the Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company and the
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<PAGE> 19
Selling Stockholders contained herein as of the date hereof and as of the Firm
Closing Date, as if made on and as of the Firm Closing Date, to the accuracy of
the statements of the Company's officers and the Selling Stockholders made
pursuant to the provisions hereof, to the performance by the Company and the
Selling Stockholders of their respective covenants and agreements hereunder and
to the following additional conditions:
(a) If the Original Registration Statement or any amendment thereto
filed prior to the Firm Closing Date has not been declared effective as of the
time of execution hereof, the Original Registration Statement or such amendment
and, if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have been declared effective not later than the
earlier of (i) 11:00 A.M., New York time, on the date on which the amendment to
the registration statement originally filed with respect to the Securities or to
the Registration Statement, as the case may be, containing information regarding
the initial public offering price of the Securities has been filed with the
Commission and (ii) the time confirmations are sent or given as specified by
Rule 462(b)(2), or with respect to the Original Registration Statement, or such
later time and date as shall have been consented to by the Representatives; if
required, the Prospectus or any Term Sheet that constitutes a part thereof and
any amendment or supplement thereto shall have been filed with the Commission in
the manner and within the time period required by Rules 434 and 424(b) under the
Act; no stop order suspending the effectiveness of the Registration Statement or
any amendment thereto shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Representatives, shall be contemplated by the Commission; and the
Company shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
(b) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Katten Muchin Zavis, counsel for the Company and the
Selling Stockholders, to the effect that:
(i) the Company and each of its subsidiaries listed in
Schedule 3 hereto (the "Subsidiaries") have been duly organized and
are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation and are
duly qualified to transact business as foreign corporations and are
in good standing under the laws of all other jurisdictions where
the ownership or leasing of their respective properties or the
conduct of their respective businesses requires such qualification,
except where the failure to be so qualified does not amount to a
material liability or disability to the Company and the
Subsidiaries, taken as a whole;
(ii) the Company and each of the Subsidiaries have
corporate power to own or lease their respective properties and
conduct their respective businesses as described in the
Registration Statement and the Prospectus, and the Company has
corporate power to enter into this Agreement and to carry out all
the terms and provisions hereof to be carried out by it;
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<PAGE> 20
(iii) the issued shares of capital stock of each of
the Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable and are owned beneficially by the
Company free and clear of any perfected security interests or any
other security interests, liens, encumbrances, equities or claims;
(iv) the Company has an authorized, issued and
outstanding capitalization as set forth in the Prospectus; all of
the issued shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable,
have been issued in compliance with all applicable federal and
state securities laws and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for
or purchase securities; the Firm Securities have been duly
authorized by all necessary corporate action of the Company and,
when issued and delivered to and paid for by the Underwriters
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable; the Securities have been duly included for trading
on the Nasdaq National Market; no holders of outstanding shares of
capital stock of the Company are entitled as such to any preemptive
or other rights to subscribe for any of the Securities; and no
holders of securities of the Company are entitled to have such
securities registered under the Registration Statement;
(v) the statements set forth under the heading
"Description of Securities" in the Prospectus, insofar as such
statements purport to summarize certain provisions of the capital
stock of the Company, provide a fair summary of such provisions;
and the statements set forth under the headings
"Business--Government Regulation" and "Business--Legal Proceedings"
in the Prospectus, insofar as such statements constitute a summary
of the legal matters, documents or proceedings referred to therein,
provide a fair summary of such legal matters, documents and
proceedings;
(vi) the execution and delivery of this Agreement have
been duly authorized by all necessary corporate action of the
Company and this Agreement has been duly executed and delivered by
the Company;
(vii) (A) no legal or governmental proceedings are
pending to which the Company or any of the Subsidiaries is a party
or to which the property of the Company or any of the Subsidiaries
is subject that are required to be described in the Registration
Statement or the Prospectus and are not described therein, and, to
the best knowledge of such counsel, no such proceedings have been
threatened against the Company or any of the Subsidiaries or with
respect to any of their respective properties and (B) no contract
or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein or filed as
required;
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<PAGE> 21
(viii) the issuance, offering and sale of the
Securities to the Underwriters by the Company pursuant to this
Agreement, the compliance by the Company with the other provisions
of this Agreement and the consummation of the other transactions
herein contemplated do not (A) require the consent, approval,
authorization, registration or qualification of or with any
governmental authority, except such as have been obtained and such
as may be required under state securities or blue sky laws, or (B)
conflict with or result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, lease or other agreement or
instrument, known to such counsel, to which the Company or any of
the Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties are bound, or
the charter documents or by-laws of the Company or any of the
Subsidiaries, or any statute or any judgment, decree, order, rule
or regulation of any court or other governmental authority or any
arbitrator known to such counsel and applicable to the Company or
Subsidiaries;
(ix) the Registration Statement is effective under the
Act; any required filing of the Prospectus, or any Term Sheet that
constitutes a part thereof, pursuant to Rules 434 and 424(b) has
been made in the manner and within the time period required by
Rules 434 and 424(b); and no stop order suspending the
effectiveness of the Registration Statement or any amendment
thereto has been issued, and no proceedings for that purpose have
been instituted or threatened or, to the best knowledge of such
counsel, are contemplated by the Commission;
(x) the Registration Statement originally filed with
respect to the Securities and each amendment thereto, any Rule
462(b) Registration Statement and the Prospectus (in each case,
other than the financial statements and other financial information
contained therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
applicable requirements of the Act and the rules and regulations of
the Commission thereunder;
(xi) if the Company elects to rely on Rule 434, the
Prospectus is not "materially different", as such term is used in
Rule 434, from the prospectus included in the Registration
Statement at the time of its effectiveness or an effective
post-effective amendment thereto (including such information that
is permitted to be omitted pursuant to Rule 430A);
(xii) upon the delivery by each Selling Stockholder to
the several Underwriters of certificates for the Firm Securities or
Option Securities, as the case may be, being sold hereunder by such
Selling Stockholder against payment therefor as provided herein,
assuming that each of the Underwriters which has severally
purchased such Firm Securities or Option Securities, as the case
may be, acquires such Firm Securities or Option Securities, as the
case may be, in good faith and without notice of any adverse claim
(within
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<PAGE> 22
the meaning of the applicable Uniform Commercial Code), such
Underwriter will have acquired all of the rights of such Selling
Stockholder to the Firm Securities or Option Securities, as the
case may be, sold by such Selling Stockholder hereunder, and in
addition will have acquired title to such Firm Securities or Option
Securities, as the case may be, free and clear of any adverse
claim; and
(xiii) the sale of Firm Securities or Option
Securities, as the case may be, to the Underwriters by each Selling
Stockholder pursuant to this Agreement, the compliance by such
Selling Stockholder with the other provisions of this Agreement and
the consummation of the other transactions herein contemplated do
not (A) require the consent, approval, authorization, registration
or qualification of or with any governmental authority, except such
as have been obtained and such as may be required under state
securities or blue sky laws, or (B) conflict with or result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
lease or other agreement or instrument known to such counsel to
which such Selling Stockholders is a party or by which such Selling
Stockholder or any of such Selling Stockholder's properties are
bound, or, in the case of a Selling Stockholder that is a
corporation, the charter documents or bylaws of such Selling
Stockholder; and nothing has come to such counsel's attention which
causes such counsel to believe that the sale of Firm Securities or
Option Securities, as the case may be, to the Underwriters by each
Selling Stockholder pursuant to this Agreement, the compliance by
such Selling Stockholder with the other provisions of this
Agreement and the consummation of the other transactions herein
contemplated will result in a violation of any statute or any
judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator known to such counsel to
be applicable to such Selling Stockholder.
(xiv) the Company is not subject to registration as an
investment company under the Investment Company Act of 1940, as
amended.
(xv) neither the Company nor any of the Subsidiaries
is in violation of any federal or state law or regulation relating
to occupational safety and health or to the storage, handling or
transportation of hazardous or toxic materials and the Company and
each of the Subsidiaries has received all permits, licenses or
other approvals required of them under applicable federal and state
occupational safety and health and environmental laws and
regulations to conduct their respective businesses, and the Company
and each of the Subsidiaries is in compliance with all terms and
conditions of any such permit, license or approval, except any such
violation of law or regulation, failure to receive required
permits, licenses or
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<PAGE> 23
other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals which would not, singly or
in the aggregate, result in a material adverse change in the
condition (financial or otherwise), business prospects, net worth
or results of operations of the Company and the Subsidiaries,
except as described in the Prospectus.
(xvi) there are no holders of securities of the
Company, who, by reason of the filing of the Registration
Statement, have the right (and have not waived such right) to
request the Company to register under the Act, or to include in the
Registration Statement, securities held by them.
(xvii) neither the Company nor the Subsidiaries is in
violation of any healthcare law, ordinance, administrative or
governmental rule or regulation applicable to the Company or the
Subsidiaries, including, without limitation, those relating to
product testing, marketing approvals and reimbursement by
government agencies or third-party payors.
(xviii) each Selling Stockholder has duly executed and
delivered the Power-of-Attorney and the Custody Agreement,
appointing _________ and ________, and each of them, as such
Selling Stockholder's attorney-in-fact with authority to execute,
deliver and perform this Agreement on behalf of such Selling
Stockholder and appointing the Custodian.
Such counsel shall also state that they have no reason to believe that
the Registration Statement, as of its effective date, contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or the date of such opinion, included or
includes any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.
(c) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Stroock & Stroock & Lavan LLP, counsel for the
Underwriters, with respect to the issuance and sale of the Firm Securities, the
Registration Statement and the Prospectus, and such other related matters as the
Representatives may reasonably require, and the Company shall have furnished to
such counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.
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<PAGE> 24
(d) The Representatives shall have received an opinion, dated the
Firm Closing Date of Caesar, Rivise, Bernstein, Cohen & Pokotilow, special
counsel to the Company, relating to certain intellectual property matters to the
effect that:
(i) the statements in the Registration Statement,
insofar as such statements pertain to Intellectual Property
matters, accurately and fairly represent the information referred
to therein.
(ii) (A) there are no rights of parties other than the
Company to any of the patents, patent applications or trade secret
rights related to the technology described in the Registration
Statement, (B) other than as disclosed in the Registration
Statement, there are no pending or threatened actions, suits,
proceedings or claims by others challenging the Company's rights to
or in any such patents, patent applications or trade secret rights,
and (C) there are no pending or threatened actions, suits,
proceedings or claims by others that the Company is infringing or
otherwise violating any patent or trade secret rights of others.
(iii) there are no facts or circumstances which, if
asserted in litigation, would be likely to render any of the trade
secret rights reflected in the Company's filed patent applications
invalid or unenforceable except to the extent they have been or
will be disclosed upon publication of such patent applications or
upon the issuance of patents.
(iv) there are no agreements with third parties
relating to the acquisition, licensing and/or transfer of
intellectual property rights which have or are anticipated to have
a material impact on the Company's existing or future business,
including license agreements, joint venture agreements, marketing
and/or distribution agreements or other collaboration agreements,
that are not currently in effect or that will be expiring soon, nor
further has there been any notice of termination or other act
indicating a desire to terminate any of the aforesaid agreements.
(e) The Representatives shall have received from Deloitte & Touche
LLP a letter or letters dated, respectively, the date hereof and the Firm
Closing Date, in form and substance satisfactory to the Representatives, to the
effect that:
(i) they are independent accountants with respect to
the Company and its consolidated subsidiaries within the meaning of
the Act and the applicable rules and regulations thereunder;
(ii) in their opinion, the audited consolidated
financial statements and schedules examined by them and included in
the Registration Statement and the Prospectus comply in form in all
material respects with the applicable accounting requirements of
the Act and the related published rules and regulations;
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<PAGE> 25
(iii) on the basis of a reading of the latest
available interim unaudited consolidated condensed financial
statements of the Company and its consolidated subsidiaries,
carrying out certain specified procedures (which do not constitute
an examination made in accordance with generally accepted auditing
standards) that would not necessarily reveal matters of
significance with respect to the comments set forth in this
paragraph (iii), a reading of the minute books of the shareholders,
the board of directors and any committees thereof of the Company
and each of its consolidated subsidiaries, and inquiries of certain
officials of the Company and its consolidated subsidiaries who have
responsibility for financial and accounting matters, nothing came
to their attention that caused them to believe that:
(A) the unaudited consolidated condensed financial statements of
the Company and its consolidated subsidiaries included in the
Registration Statement and the Prospectus do not comply in form in
all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations
thereunder or are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent
with that of the audited consolidated financial statements included
in the Registration Statement and the Prospectus; and
(B) at a specific date not more than five business days prior to
the date of such letter, there were any changes in the capital
stock or long-term debt of the Company and its consolidated
subsidiaries or any decreases in net current assets or
stockholders' equity of the Company and its consolidated
subsidiaries, in each case compared with amounts shown on the
December 31, 1999 consolidated balance sheet included in the
Registration Statement and the Prospectus, or for the period from
January 1, 2000 to such specified date there were any decreases, as
compared with December 31, 1999 in sales, net revenues, net income
before income taxes or total or per share amounts of net income of
the Company and its consolidated subsidiaries except in all
instances for changes, decreases or increases set forth in such
letter; and
(iv) they have carried out certain specified
procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information that are derived
from the general accounting records of the Company and its
consolidated subsidiaries and are included in the Registration
Statement and the Prospectus under the captions "Summary
Consolidated Financial Data" and "Selected Consolidated Financial
Data" and have compared such amounts, percentages and financial
information with such records of the Company and its consolidated
subsidiaries and with information derived from such records and
have found them to be in agreement, excluding any questions of
legal interpretation.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless
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<PAGE> 26
the Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives, make
it impractical or inadvisable to proceed with the purchase and delivery of the
Securities as contemplated by the Registration Statement, as amended as of the
date hereof.
References to the Registration Statement and the Prospectus in this
paragraph (d) with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
(f) The Representatives shall have received a certificate, dated
the Firm Closing Date, of the chief Executive Officer and the Chief Financial
Officer of the Company to the effect that:
(i) the representations and warranties of the Company
in this Agreement are true and correct as if made on and as of the
Firm Closing Date; the Registration Statement, as amended as of the
Firm Closing Date, does not include any untrue statement of a
material fact or omit to state any material fact necessary to make
the statements therein not misleading, and the Prospectus, as
amended or supplemented as of the Firm Closing Date, does not
include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; and the Company has performed all covenants
and agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Firm Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued,
and no proceedings for that purpose have been instituted or
threatened or, to the best of the Company's knowledge, are
contemplated by the Commission; and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, neither the Company nor any of its subsidiaries has
sustained any material loss or interference with their respective
businesses or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any
labor dispute or any legal or governmental proceeding, and there
has not been any material adverse change, or any development
involving a prospective material adverse change, in the condition
(financial or otherwise), management, business prospects, net worth
or results of operations of the Company or any of its subsidiaries,
except in each case as described in or contemplated by the
Prospectus (exclusive of any amendment or supplement thereto).
(g) The Representatives shall have received from each person who is
a director or officer of the Company and from each Selling Stockholder an
agreement to the effect that such
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<PAGE> 27
person will not, directly or indirectly, without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of any option to purchase or other sale or disposition)
of any shares of Common Stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock for a period of 90 days
for each director or officer and 360 days for each Selling Stockholder after the
date of this Agreement.
(h) The Representatives shall have received a certificate, dated
the Firm Closing Date, executed by each Selling Stockholder to the effect that
the representations and warranties of such Selling Stockholder in this Agreement
are true and correct in all material respects on and as of the Firm Closing
Date; such Selling Stockholder has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to the Firm Closing Date; and the Registration Statement and the
Prospectus, as amended or supplemented as of the Firm Closing Date contain all
statements required to be included therein regarding such Selling Stockholder,
and none of the Registration Statement nor any amendment thereto includes any
untrue statement of a material fact regarding such Selling Stockholder or omits
to state any material fact regarding such Selling Stockholder required to be
stated therein or necessary to make the statements therein regarding such
Selling Stockholder not misleading, and neither the Prospectus (and any
supplements thereto) or any Preliminary Prospectus includes or included any
untrue statement of a material fact regarding such Selling Stockholder or omits
or omitted to state a material fact regarding such Selling Stockholder required
to be stated therein or necessary in order to make the statements therein
regarding such Selling Stockholder, in the light of the circumstances under
which they were made, not misleading.
(i) On or before the Firm Closing Date, the Representatives and
counsel for the Underwriters shall have received such further certificates,
documents or other information as they may have reasonably requested from the
Company.
(j) Prior to the commencement of the offering of the Securities,
the Securities shall have been included for trading on the Nasdaq National
Market.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company shall furnish to the Representatives
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representatives and counsel for the Underwriters shall
reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Option Securities shall be subject, in their discretion, to each of
the foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed to
refer to such Option Securities and the related Option Closing Date,
respectively.
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<PAGE> 28
8. Indemnification and Contribution. (a) The Company and the Selling
Stockholders, jointly and severally agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of, caused by, related to, based upon or arising out
of or in connection with:
(i) any untrue statement or alleged untrue statement
made by the Company or the Selling Stockholders in Section 2A or 2B
of this Agreement,
(ii) any untrue statement or alleged untrue statement
of any material fact contained in (A) the Registration Statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto or (B) any application or
other document, or any amendment or supplement thereto, executed by
the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify
the Securities under the securities or blue sky laws thereof or
filed with the Commission or any securities association or
securities exchange (each an "Application"),
(iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement
thereto, or any Application a material fact required to be stated
therein or necessary to make the statements therein not misleading;
or
(iv) any untrue statement or alleged untrue statement
of any material fact contained in any audio or visual materials,
including, without limitation, slides, videos, films and tape
recordings used in connection with the marketing of the Securities,
including, without limitation, statements communicated to
securities analysts employed by the Underwriters,
and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that neither the Company nor the
Selling Stockholders will be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto or any
Application in reliance upon and in conformity with written information
furnished to the Company and the Selling Stockholders by such Underwriter
through the Representatives specifically for use therein; and provided, further,
that neither the Company nor the Selling Stockholders will be liable to any
Underwriter or any person controlling such Underwriter with respect to any such
untrue
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<PAGE> 29
statement or omission made in any Preliminary Prospectus that is corrected in
the Prospectus (or any amendment or supplement thereto) if the person asserting
any such loss, claim, damage or liability purchased Securities from such
Underwriter but was not sent or given a copy of the Prospectus (as amended or
supplemented) at or prior to the written confirmation of the sale of such
Securities to such person in any case where such delivery of the Prospectus (as
amended or supplemented) is required by the Act, unless such failure to deliver
the Prospectus (as amended or supplemented) was a result of noncompliance by the
Company with Section 5(d) and (e) of this Agreement. This indemnity agreement
will be in addition to any liability which the Company and the Selling
Stockholders may otherwise have. Neither the Company nor the Selling
Stockholders will, without the prior written consent of the Underwriter or
Underwriters purchasing, in the aggregate, more than fifty percent (50%) of the
Securities, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not any such Underwriter or
any person who controls any such Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act is a party to such claim, action, suit
or proceeding), unless such settlement, compromise or consent includes an
unconditional release of all of the Underwriters and such controlling persons
from all liability arising out of such claim, action, suit or proceeding.
(b) Notwithstanding the other provisions of this Section 8, no
Selling Stockholder shall be liable for indemnification under this Section 8 for
an amount exceeding the total proceeds received by such Selling Stockholder from
the Underwriters for the Firm Securities and/or Option Securities sold by such
Selling Stockholders hereunder.
(c) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company, each Selling Stockholder, each of the Company's
directors, each of the Company's officers who signed the Registration Statement
and each person, if any, who controls the Company or each Selling Stockholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
against any losses, claims, damages or liabilities to which the Company, a
Selling Stockholder or any such director, officer or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or any Application or (ii) the omission or the alleged omission to state therein
a material fact required to be stated in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, or any Application or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company or the Selling Stockholder by such Underwriter through
the Representatives specifically for use therein; and, subject to the limitation
set forth immediately preceding this clause, will reimburse, as incurred, any
legal or other expenses reasonably incurred by the Company, a Selling
Stockholder or any such director, officer or controlling person in connection
with investigating or defending any such loss, claim, damage,
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<PAGE> 30
liability or any action in respect thereof. This indemnity agreement will be in
addition to any liability which such Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 8. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 8 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Representatives in the case of
paragraph (a) of this Section 8, representing the indemnified parties under such
paragraph (a) who are parties to such action or actions) or (ii) the
indemnifying party does not promptly retain counsel satisfactory to the
indemnified party or (iii) the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying party.
After such notice from the indemnifying party to such indemnified party, the
indemnifying party will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the consent
of the indemnifying party.
(e) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 8 is unavailable or insufficient,
for any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or (ii) if
the allocation provided
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<PAGE> 31
by the foregoing clause (i) is not permitted by applicable law, not only such
relative benefits but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party on the other in connection
with the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
(i) with respect to the Company, the total proceeds from the offering (before
deducting expenses) received by the Company and (ii) with respect to the Selling
Stockholders, the sum of the total proceeds from the Offering (before deducting
expenses) received by the Selling Stockholders, to the total underwriting
discounts and commissions received by the Underwriters. The relative fault of
the parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Selling Stockholders or the Underwriters, the parties' relative intents,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, and any other equitable considerations appropriate in the
circumstances. The Company, each Selling Stockholder and the Underwriters agree
that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take into account the equitable considerations referred to above
in this paragraph (e). Notwithstanding any other provision of this paragraph
(e), no Underwriter shall be obligated to make contributions hereunder that in
the aggregate exceed the total public offering price of the Securities purchased
by such Underwriter under this Agreement, less the aggregate amount of any
damages that such Underwriter has otherwise been required to pay in respect of
the same or any substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Prudential Securities Incorporated Master Agreement Among Underwriters.
For purposes of this paragraph (e), each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, each Selling Stockholder and each person, if any, who
controls the Company or a Selling Stockholder within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company and the Selling Stockholder.
9. Default of Underwriters. If one or more Underwriters default in
their obligations to purchase Firm Securities or Option Securities hereunder and
the aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no
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<PAGE> 32
such arrangements are made by the Firm Closing Date or the related Option
Closing Date, as the case may be, the other Underwriters shall be obligated
severally in proportion to their respective commitments hereunder to purchase
the Firm Securities or Option Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase. If one or more Underwriters so
default with respect to an aggregate number of Securities that is more than ten
percent of the aggregate number of Firm Securities or Option Securities, as the
case may be, to be purchased by all of the Underwriters at such time hereunder,
and if arrangements satisfactory to the Representatives are not made within 36
hours after such default for the purchase by other persons (who may include one
or more of the non-defaulting Underwriters, including the Representatives) of
the Securities with respect to which such default occurs, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company other than as provided in Section 10 hereof. In the event of any default
by one or more Underwriters as described in this Section 9, the Representatives
shall have the right to postpone the Firm Closing Date or the Option Closing
Date, as the case may be, established as provided in Section 3 hereof for not
more than seven business days in order that any necessary changes may be made in
the arrangements or documents for the purchase and delivery of the Firm
Securities or Option Securities, as the case may be. As used in this Agreement,
the term "Underwriter" includes any person substituted for an Underwriter under
this Section 9. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
10. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers, the
Selling Stockholders and the several Underwriters set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement shall
remain in full force and effect, regardless of (i) any investigation made by or
on behalf of the Company, any of its officers or directors, the Selling
Stockholders, any Underwriter or any controlling person referred to in Section 8
hereof and (ii) delivery of and payment for the Securities. The respective
agreements, covenants, indemnities and other statements set forth in Sections 6
and 8 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated with respect to
the Firm Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company and the Selling Stockholders given
prior to the Firm Closing Date or the related Option Closing Date, respectively,
if the Company or the Selling Stockholders shall have failed, refused or been
unable to perform all obligations and satisfy all conditions on their part to be
performed or satisfied hereunder at or prior thereto or, if at or prior to the
Firm Closing Date or such Option Closing Date, respectively,
(i) the Company or any of its subsidiaries shall have,
in the sole judgment of the Representatives, sustained any material
loss or interference with their respective businesses or properties
from fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or any legal or
governmental proceeding or there shall have been any material
adverse change, or any development involving a prospective material
adverse change (including without limitation a change in management
or control of the Company),
-32-
<PAGE> 33
in the condition (financial or otherwise), business prospects, net
worth or results of operations of the Company and its subsidiaries,
except in each case as described in or contemplated by the
Prospectus (exclusive of any amendment or supplement thereto);
(ii) trading in the Common Stock shall have been
suspended by the Commission or the Nasdaq National Market or
trading in securities generally on the New York Stock Exchange or
the Nasdaq National Market shall have been suspended or minimum or
maximum prices shall have been established on either such exchange;
(iii) a banking moratorium shall have been declared by
New York or United States authorities; or
(iv) there shall have been (A) an outbreak or
escalation of hostilities between the United States and any foreign
power, (B) an outbreak or escalation of any other insurrection or
armed conflict involving the United States or (C) any other
calamity or crisis or material adverse change in general economic,
political or financial conditions having an effect on the U.S.
financial markets that, in the sole judgment of the
Representatives, makes it impractical or inadvisable to proceed
with the public offering or the delivery of the Securities as
contemplated by the Registration Statement, as amended as of the
date hereof.
(b) Termination of this Agreement pursuant to this Section 11 shall
be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Information Supplied by Underwriters. The statements set forth
under the heading "Underwriting" in any Preliminary Prospectus or the Prospectus
(to the extent such statements relate to the Underwriters) constitute the only
information furnished by any Underwriter through the Representatives to the
Company for the purposes of Sections 2A(b) and 8 hereof. The Underwriters
confirm that such statements (to such extent) are correct.
13. Notices. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to Prudential Securities
Incorporated, One New York Plaza, New York, New York 10292, Attention: Equity
Transactions Group; and if sent to the Company, shall be delivered or sent by
mail, telex or facsimile transmission and confirmed in writing to the Company at
55 East Uwchlan Avenue, Exton, Pennsylvania 19341, Attention: Joseph W.
Kaufmann, and if sent to any of the Selling Stockholders, shall be delivered or
sent by mail, telex or facsimile transmission and confirmed in writing to the
Custodian at [Address],
14. Successors. This Agreement shall inure to the benefit of and shall
be binding upon the several Underwriters, the Company, the Selling Stockholders
and their respective successors and legal representatives, and nothing expressed
or mentioned in this Agreement is intended or shall
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<PAGE> 34
be construed to give any other person any legal or equitable right, remedy or
claim under or in respect of this Agreement, or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company and the Selling
Stockholders contained in Section 8 of this Agreement shall also be for the
benefit of any person or persons who control any Underwriter within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Underwriters contained in Section 8 of this Agreement shall
also be for the benefit of the directors of the Company, the officers of the
Company who have signed the Registration Statement, and any person or persons
who control the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act. No purchaser of Securities from any Underwriter shall be
deemed a successor because of such purchase.
15. Applicable Law. The validity and interpretation of this Agreement,
and the terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any provisions relating to conflicts of laws.
16. Consent to Jurisdiction and Service of Process. All judicial
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the State of New York, and
by execution and delivery of this Agreement, each Selling Stockholder accepts
for itself and in connection with its properties, generally and unconditionally,
the nonexclusive jurisdiction of the aforesaid courts and waives any defense of
forum non conveniens and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. The Selling Stockholders collectively
designate and appoint __________________, and such other persons as may
hereafter be selected by the Selling Stockholders acting together irrevocably
agreeing in writing to so serve, as its agent to receive on their behalf service
of all process in any such proceedings in any such court, such service being
hereby acknowledged by each Selling Stockholder to be effective and binding
service in every respect. A copy of any such process so served shall be mailed
by registered mail to each Selling Stockholder at its address provided in
Section 13 hereof; provided, however, that, unless otherwise provided by
applicable law, any failure to mail such copy shall not affect the validity of
service of such process. If any agent appointed by the Selling Stockholders
refuses to accept service, each Selling Stockholder hereby agrees that service
of process sufficient for personal jurisdiction in any action against the
Selling Stockholders in the State of New York may be made by registered or
certified mail, return receipt requested, to the Selling Stockholder at the
address provided in Section 13 hereof, and each Selling Stockholder hereby
acknowledges that such service shall be effective and binding in every respect.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of any Underwriter to bring
proceedings against the Selling Stockholders in the courts of any other
jurisdiction.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 35
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company, the
Selling Stockholders and each of the several Underwriters.
Very truly yours,
KENSEY NASH CORPORATION
By:
---------------------------------------
THE SELLING STOCKHOLDERS NAMED
IN SCHEDULE 2 HERETO
By:
---------------------------------------
Attorney-in-Fact
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
PRUDENTIAL SECURITIES INCORPORATED
PAINEWEBBER INCORPORATED
wARBURG DILLON READ LLC
By: PRUDENTIAL SECURITIES INCORPORATED
By:
-----------------------------------------
Name: Jean-Claude Canfin
Title: Managing Director
For itself and on behalf of the Representatives.
-35-
<PAGE> 36
SCHEDULE 1
UNDERWRITERS
<TABLE>
<CAPTION>
(1)
Number of
Securities to
Underwriter be Purchased
- ----------- -------------
<S> <C>
Prudential Securities Incorporated
PaineWebber Incorporated
Warburg Dillon Read LLC
Total.................
===============
</TABLE>
-36-
<PAGE> 37
SCHEDULE 2
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
(1) (2)
Number of Firm Maximum Number of
Securities Option Securities
Name to be Sold to be Sold
- ---- -------------- -----------------
<S> <C> <C>
Kenneth R. Kensey
John E. Nash
Joseph W. Kaufmann
Douglas G. Evans
-------------- -------------
Total
============== =============
</TABLE>
-37-
<PAGE> 38
SCHEDULE 3
SUBSIDIARIES
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
</TABLE>
-38-
<PAGE> 1
EXHIBIT 1.2
[Name of Selling Stockholder]
KENSEY NASH CORPORATION
Public Offering of Common Stock
Irrevocable Power of Attorney of Selling Stockholder
The undersigned stockholder of Kensey Nash Corporation, a Delaware
corporation (the "Company"), understands that it is contemplated that the
undersigned and certain other stockholders of the Company (the undersigned and
such other stockholders being hereinafter referred to as the "Selling
Stockholders") will sell shares of common stock, par value $.001 per share (the
"Common Stock"), of the Company to the underwriters named in the Underwriting
Agreement referred to below (hereinafter collectively referred to as the
"Underwriters"), and who propose to offer such shares to the public. The
undersigned also understands that, in connection with such offering, the Company
filed a registration statement on Form S-3 with the Securities and Exchange
Commission (the "Commission") and has filed or may file one or more amendments
thereto to register the shares to be offered under the Securities Act of 1933,
as amended (the "Securities Act").
Concurrently with the execution and delivery of this Power of Attorney, the
undersigned is also executing and delivering a Letter of Transmittal and Custody
Agreement pursuant to which certificates for at least the number of shares of
Common Stock of the Company set forth opposite the name of the undersigned at
the end of this instrument are being deposited with StockTrans, Inc., as
custodian (the "Custodian").
1. In connection with the foregoing, the undersigned hereby irrevocably
appoints [Joseph W. Kaufmann] and ___________ or, any of them, acting singly the
attorneys-in-fact (the "Attorneys-in-Fact") of the undersigned, with full power
and authority in the name of and for and on behalf of the undersigned:
(a) To sell to the Underwriters, pursuant to the Underwriting Agreement
referred to in subparagraph (b) below, up to the number of shares of
Common Stock of the Company set forth opposite the name of the
undersigned at the end of this instrument and represented by the
certificate(s) deposited by the undersigned with the Custodian, or
such lesser number as the Attorneys-in-Fact, or any of them, in their
sole discretion may determine, at a purchase price per share to be
paid by the Underwriters as the Attorneys-in-Fact, or any of them, in
their sole discretion shall determine; provided, however, that the
purchase price per share to be paid by the Underwriters for the
account of the undersigned shall equal the purchase price
<PAGE> 2
per share to be paid by the Underwriters for the account of the
Company and the other Selling Stockholders pursuant to the
Underwriting Agreement hereinafter referred to;
(b) For the purpose of effecting such sale, to execute and deliver an
underwriting agreement (the "Underwriting Agreement") among the
Company, the Selling Stockholders and the Underwriters containing such
terms and conditions as the Attorneys-in-Fact, or any of them, in
their sole discretion shall determine, including, but not limited to,
the purchase price per share to be paid by the Underwriters,
provisions concerning the public offering of such shares by the
Underwriters and provisions restricting the undersigned from selling
or otherwise disposing of any shares of Common Stock (other than those
sold pursuant to the Underwriting Agreement), or any securities
convertible into, or exchangeable or exercisable for, shares of Common
Stock for a period of _____ [90][360] days after the date of the
Prospectus, without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, and to endorse (in blank
or otherwise) on behalf of the undersigned the certificate or
certificates representing the shares to be sold by the undersigned, or
a stock power or powers attached to such certificate or certificates;
(c) To give such orders and instructions to the Custodian as the
Attorneys-in-Fact, or any of them, in their sole discretion may
determine, with respect to: (i) the transfer on the books of the
Company of the shares of Common Stock to be sold by the undersigned to
the Underwriters in order to effect such sale (including the names in
which new certificates for such shares are to be issued and the
denominations thereof); (ii) the delivery to or for the account of the
Underwriters of the certificates for such shares against receipt by
the Custodian of the purchase price to be paid therefor; (iii) the
remittance to the undersigned of the proceeds from the sale of the
shares to be sold by the undersigned; and (iv) the return to the
undersigned of new certificates representing the number of shares of
Common Stock, if any, represented by certificates deposited with the
Custodian that are in excess of the number of shares to be sold by the
undersigned to the Underwriters;
(d) To represent to the Commission that the undersigned is selling the
shares of Common Stock owned by him or it for the purpose of realizing
profit upon or diversifying the investment of the undersigned or for
both reasons; and
(e) To make, execute, acknowledge, and deliver all such other contracts,
orders, receipts, notices, requests, instructions, certificates,
letters and other writings, including communications to the Commission
and amendments to the Underwriting Agreement, and in general to do all
things and to take all action, which the Attorneys-in-Fact, or any of
them, in their sole discretion may consider necessary or desirable in
connection with or to carry out the aforesaid sale of shares to the
Underwriters as contemplated by the Underwriting Agreement; as
2
<PAGE> 3
fully as could the undersigned if personally present and acting.
2. This Power of Attorney and all authority conferred hereby are granted
and conferred subject to the interests of the Underwriters, the Company and the
other Selling Stockholders, and in consideration of those interests, and for the
purpose of completing the transactions contemplated by the Underwriting
Agreement and this Power of Attorney, this Power of Attorney and all authority
conferred hereby shall be irrevocable and shall not be terminated by the
undersigned or by operation of law, whether by the death or incapacity of the
undersigned or the occurrence of any other event (including, without limitation,
the termination of any trust or estate or custodianship for which the
undersigned is acting as fiduciary or the death or incapacity of any trustee or
trustees or any executor or executors or administrator or administrators or any
custodian or custodians, respectively, of such trust or estate or
custodianship). If the undersigned should die or become incapacitated, or if any
other such event shall occur, before the delivery of the shares to be sold by
the undersigned under the Underwriting Agreement, certificates for such shares
shall be delivered by or on behalf of the undersigned in accordance with the
terms and conditions of the Underwriting Agreement and the Letter of Transmittal
and Custody Agreement executed by the undersigned, and actions taken by the
Attorneys-in-Fact, or any of them, pursuant to this Power of Attorney shall be
as valid as if such death or incapacity or other event had not occurred,
regardless of whether or not the Custodian or the Attorneys-in-Fact, or any of
them, shall have received notice of such death, incapacity, or other event.
Notwithstanding the foregoing, if all of the transactions contemplated by
the Underwriting Agreement and this Power of Attorney are not completed prior to
[June 30], 2000, then from and after such date the undersigned shall have the
power, by giving written notice to the Attorneys-in-Fact, in care of the
Custodian, to terminate this Power of Attorney, subject, however, to all lawful
action done or performed by the Attorneys-in-Fact, or any of them, pursuant to
this Power of Attorney prior to the actual receipt of this notice.
3. The undersigned represents, warrants, covenants to, and agrees with
the Attorneys-in-Fact that:
(a) No consent, approval, authorization, registration or qualification of
or with any governmental authority is required for the execution and
delivery by the undersigned of the Underwriting Agreement, this Power
of Attorney and the Letter of Transmittal and Custody Agreement and
the consummation by the undersigned of the transactions contemplated
by the Underwriting Agreement in connection with the shares to be sold
by the undersigned, except such as have been obtained under the
Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the
shares by the Underwriters;
(b) The sale of the shares to be sold by the undersigned pursuant to the
Underwriting Agreement, this Power of Attorney, and the Letter of
Transmittal and Custody
3
<PAGE> 4
Agreement, and the consummation of the transactions contemplated
herein and therein, will not result in a breach or violation of any
terms or provisions of, or constitute a default under, any statute,
or any indenture, mortgage, deed of trust, lease or other agreement
or instrument to which the undersigned is a party or by which the
undersigned is bound, or any order, rule or regulation of any court
or governmental authority having jurisdiction over the undersigned
or the property of the undersigned;
(c) The undersigned has full right to enter into the Underwriting
Agreement, this Power of Attorney and the Letter of Transmittal and
Custody Agreement and to sell, assign, transfer and deliver the
shares to be sold by the undersigned pursuant to the Underwriting
Agreement; and
(d) The undersigned is the lawful owner of the shares to be sold by the
undersigned pursuant to the Underwriting Agreement and, upon sale and
delivery of, and payment for such shares pursuant to the Underwriting
Agreement, the undersigned will convey good, valid and marketable
title to such shares, free and clear of any security interests, liens,
encumbrances, equities, claims or other defects.
4. The undersigned ratifies all that the Attorneys-in-Fact, or any of
them, shall do by virtue of this Power of Attorney. Any of the
Attorneys-in-Fact may act on behalf of the Attorneys-in-Fact. Each
Attorney-in-Fact shall be entitled to act and rely upon any statement, request,
notice or instructions respecting this Power of Attorney given to it by the
undersigned, not only as to the authorization, validity and effectiveness
thereof, but also as to the truth and acceptability of any information therein
contained.
It is understood that each Attorney-in-Fact assumes no responsibility or
liability to any person other than in accordance with the provisions hereof.
Each Attorney-in-Fact makes no representations with respect to and shall have no
responsibility for the Registration Statement, the Prospectus or any preliminary
prospectus nor, except as herein expressly provided, for any aspect of the
offering of Common Stock, and shall not be liable for any error of judgment or
for any act done or omitted or for any mistake of fact or law except for his own
gross negligence, bad faith or willful misconduct. The undersigned agrees to
indemnify each Attorney-in-Fact for and to hold each Attorney-in-Fact harmless
against any loss, claim, damage or liability incurred on his part arising out of
or in connection with acting as the Attorney-in-Fact under this Power of
Attorney, as well as the cost and expense of investigating and defending against
any such loss, claim, damage or liability, except to the extent such loss,
claim, damage or liability is due to the gross negligence, bad faith or willful
misconduct of the Attorney-in-Fact seeking indemnification. The undersigned
agrees that each Attorney-in-Fact may consult with counsel of his own choice
(who may be counsel for the Company) and shall have full and complete
authorization and protection for any action taken or suffered by him hereunder
in good faith and in accordance with the opinion of such counsel.
4
<PAGE> 5
5. Counsel for the Selling Stockholders shall be entitled in connection
with rendering any legal opinions required under the Underwriting Agreement to
rely upon any representations, warranties or agreements made by the undersigned
in this Power of Attorney or made on behalf of the undersigned by any
Attorney-in-Fact in the Underwriting Agreement.
6. THIS POWER OF ATTORNEY SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
LAWS.
Dated: April __, 2000.
Number of shares of Common
Stock to be sold:
_________________________
[NAME OF SELLING STOCKHOLDER]
________________________________________
Signature of Selling Stockholder*
* You should sign in exactly the same manner as the shares of Common Stock
owned by you are registered.
5
<PAGE> 1
EXHIBIT 1.3
[Name of Selling Stockholder]
KENSEY NASH CORPORATION
Public Offering of Common Stock
Letter of Transmittal and Custody Agreement
StockTrans, Inc.
7 East Lancaster
Ardmore, Pennsylvania 19003
Ladies and Gentlemen:
There are delivered to you herewith certificates, in negotiable form (with
signatures guaranteed by a national bank or trust company or by a member firm of
the New York Stock Exchange), representing the number of issued and outstanding
shares of common stock, par value $.001 per share (the "Common Stock"), of
Kensey Nash Corporation, a Delaware corporation (the "Company"), set forth
immediately following the signature of the undersigned at the end of this
letter. These certificates are to be held by you as Custodian for the account
of the undersigned and are to be disposed of by you in accordance with this
Letter of Transmittal and Custody Agreement.
Concurrently with the execution and delivery of this Letter of Transmittal
and Custody Agreement, the undersigned has executed a Power of Attorney (the
"Power of Attorney") appointing [Joseph W. Kaufmann] and __________
(individually, an "Attorney-in-Fact" and collectively, the "Attorneys-in-Fact"),
authorizing the Attorneys-in-Fact, or any of them, to sell from the number of
shares represented by the certificates deposited that number of shares indicated
following the signature of the undersigned at the end of this letter, or such
lesser number as the Attorneys-in-Fact, or any of them, may determine, and for
that purpose to enter into an underwriting agreement (the "Underwriting
Agreement") among the Company, certain selling stockholders including the
undersigned (the "Selling Stockholders") and the underwriter or underwriters
named in the Underwriting Agreement (the "Underwriters").
You are authorized and directed to hold the certificates deposited in your
custody, and at the time of delivery specified in the Underwriting Agreement you
are (i) to cause the number of shares that are to be sold to be transferred on
the books of the Company into such names as the Attorneys-in-Fact, or any of
them, shall have instructed you pursuant to the Power of Attorney and to issue,
as Custodian for the shares of Common Stock, against surrender of the
certificates representing such shares, new certificates (free of any restrictive
legend) for such shares registered in such names and in such denominations as
the Attorneys-in-Fact, or any of them, shall have
<PAGE> 2
instructed you, and (ii) upon the instructions of the Attorneys-in-Fact, or
any of them, to deliver such new certificates to the Underwriters, against
payment for such shares, and to give receipt for such payment and to draw upon
such payment to pay such expenses, if any, as you may be instructed to pay by
the Attorneys-in-Fact, or any of them, and, when instructed by the
Attorneys-in-Fact, or any of them, to do so, but in any event within twenty-four
(24) hours of being so instructed, you are to remit the balance by wire
transfer, when collected, after deducting such expenses, of the amount received
by you as payment for such shares to the account of the undersigned designated
at the end of this letter or otherwise designated by the Attorney-in-Fact. With
such remittance you shall also return to the undersigned new certificates
representing the number of shares of Common Stock, if any, represented by the
certificates deposited that are in excess of the number of shares sold by the
undersigned to the Underwriters.
If the Underwriting Agreement shall not be entered into, or if all of the
transactions contemplated by the Underwriting Agreement and the Powers of
Attorney are not completed prior to [June 30], 2000, then, upon the written
request of the undersigned to you (accompanied by written notice of termination
of the Power of Attorney addressed to the Attorneys-in-Fact, in your care) or
upon written notice or request by the Attorneys-in-Fact, or any of them, on or
after that date, you are to return to the undersigned the certificates
deposited.
Under the terms of the Power of Attorney, the authority conferred thereby
is subject to the interests of the Underwriters, the Company and the other
Selling Stockholders, and, prior to the date set forth in the preceding
paragraph, is irrevocable and not subject to termination by the undersigned or
by operation of law, whether by death or incapacity or otherwise, and the
obligations of the undersigned under the Underwriting Agreement are to be
similarly not subject to termination. Accordingly, the certificates deposited
and this Letter of Transmittal and Custody Agreement and your authority are
subject to the interests of the Company, the Underwriters and the other Selling
Stockholders, and this Letter of Transmittal and Custody Agreement and your
authority hereunder shall be irrevocable and shall not be subject to termination
by the undersigned or by operation of law, whether by the death or incapacity of
the undersigned or the occurrence of any other event (including, without
limitation, the termination of any trust or estate or custodianship for which
the undersigned is acting as fiduciary or the death or incapacity of any trustee
or trustees or any executor or executors or administrator or administrators or
any custodian or custodians, respectively, of such trust or estate or
custodianship). If the undersigned should die or become incapacitated, or if
any other such event should occur, before the delivery of the shares to be sold
by the undersigned under the Underwriting Agreement, certificates for such
shares shall be delivered by or on behalf of the undersigned in accordance with
the terms and conditions of the Underwriting Agreement and this Letter of
Transmittal and Custody Agreement, and actions taken by the Attorneys-in-Fact,
or any of them, pursuant to the Power of Attorney executed by the undersigned
shall be as valid as if such death or incapacity or other event had not
occurred, regardless of whether or not you or the Attorneys-in-Fact, or any of
them, shall have received notice of such death, incapacity, or other event.
Until payment of the purchase price for the shares to be sold by the
undersigned to the Underwriters has been made to you by or for the account of
the Underwriters, the undersigned shall remain the owner of such shares and
shall have the right to vote such shares and all other
2
<PAGE> 3
shares, if any, represented by the certificates deposited and to receive all
dividends and distributions thereon.
You shall be entitled to act and rely upon any statement, request, notice,
or instructions respecting this Letter of Transmittal and Custody Agreement
given to you by the Attorneys-in-Fact, or any of them; provided, however, that
any statement or notice to you with respect to the time of delivery under the
Underwriting Agreement, or with respect to the non-effectiveness or termination
of the Underwriting Agreement, or advising that the Underwriting Agreement has
not been executed and delivered shall have been confirmed in writing to you by
the Representatives named in the Underwriting Agreement (or the Underwriters,
if there are no Representatives).
It is understood that you assume no responsibility or liability to any
person other than to deal with the certificates deposited and the proceeds from
the sale of the shares represented thereby in accordance with the provisions of
this Letter of Transmittal and Custody Agreement, and the undersigned agrees to
indemnify you, jointly and severally, along with other persons entering into a
Letter of Transmittal and Custody Agreement, and hold you harmless for any
loss, damage or liability (including reasonable attorneys' fees) with respect
to any action, claim, litigation or other proceeding or any allegation relating
to this Letter of Transmittal and Custody Agreement, except to the extent
caused by your gross negligence, bad faith or willful misconduct.
This instrument constitutes a representation of the authority of the
undersigned to execute and deliver this Letter of Transmittal and Custody
Agreement, the Power of Attorney, and the Underwriting Agreement and to sell
the shares represented by the certificates deposited and that good, valid and
marketable title to such shares, free and clear of any security interests,
liens, encumbrances, equities, claims or other defects, will be passed to the
Underwriters.
THIS LETTER OF TRANSMITTAL AND CUSTODY AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAWS.
Please acknowledge your acceptance hereof as Custodian and receipt of the
certificates deposited by executing and returning the enclosed copy hereof to
the undersigned.
Dated: April __, 2000.
Very truly yours,
[NAME OF SELLING STOCKHOLDER]
_____________________________
Signature of Selling Stockholder*
Address: ______________________
*You should sign in exactly the same manner as the shares of Common Stock owned
by you are registered.
3
<PAGE> 4
Account of Selling Stockholder to which net proceeds are to be remitted:
________________________________
Name(s) in which Account is Held
________________________________
Number of Account
________________________________
Name of Bank or Other
Institution
________________________________
Address of Bank or Other
Institution
Number of Shares of Common
Stock Represented by
Certificates Deposited ____________________ Shares
Number of Shares to
be Sold ____________________ Shares
Number of Shares
to be returned ____________________ Shares
Number of Shares to be Sold
Number of Shares from Certificates if Less
Serial Numbers Represented by Than All Shares Represented
Of Certificates Each Certificate Thereby Are to be Sold*
*If no indication is made, selection to be at the Custodian's discretion.
4
<PAGE> 5
ACKNOWLEDGMENT AND RECEIPT
StockTrans, Inc., as Custodian, acknowledges acceptance of the duties of
Custodian under the foregoing Letter of Transmittal and Custody Agreement and
receipt of the certificates referred to therein.
Dated: April __, 2000.
STOCKTRANS, INC.
By:________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 5.1
April __, 2000
Kensey Nash Corporation
Marsh Creek Corporate Center
55 East Uwchlan Avenue
Exton, Pennsylvania 19341
Re: Kensey Nash Corporation - Registration on Form S-3
Dear Ladies and Gentlemen:
We have acted as counsel to Kensey Nash Corporation, a Delaware corporation
(the "Company"), in connection with the public offering by the Company of up to
2,150,000 shares and the offering by selling stockholders of up to 1,300,000
shares including up to 450,000 shares subject to an over-allotment option (the
"Shares") of the Company's common stock, par value $0.001 per share (the "Common
Stock"). The over-allotment option is for the purchase of up to 150,000
additional shares from the Company and 300,000 additional shares from the
selling stockholders.
This opinion is being furnished in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the
"Act").
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and upon
affidavits, certificates and written statements of directors, officers and
employees of, and the accountants for, the Company. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such instruments, documents and records as we have deemed relevant and necessary
to examine for the purpose of this opinion, including (i) the Registration
Statement on Form S-3 (File No. 333-________) as filed with the Securities and
Exchange Commission (the "Commission") on April __, 2000 under the Act (the
"Registration Statement"); (ii) the form of the Underwriting Agreement (the
"Underwriting Agreement") proposed to be entered into between the Company, as
issuer, and Prudential Securities Incorporated, PaineWebber Incorporated and
Warburg Dillon Read LLC (the "Underwriters"), filed as an exhibit to the
Registration Statement; (iii) a specimen certificate representing the Common
Stock; (iv) certain resolutions of the Board of Directors of the Company, and
drafts of certain resolutions (the "Draft Resolutions") of the Pricing Committee
of the Board of Directors of the Company (the "Pricing Committee") in each case
relating to the issuance and sale of the Shares and related matters. In
connection with this opinion, we have assumed the legal capacity of all natural
persons, the accuracy and completeness of all documents and records that we have
reviewed,
<PAGE> 2
Kensey Nash Corporation
April 5, 2000
Page 2
the genuineness of all signatures, the due authority of the parties signing
such documents, the authenticity of the documents submitted to us as originals
and the conformity to authentic original documents of all documents submitted
to us as certified, conformed or reproduced copies. In making our examination
of documents executed or to be executed by parties other than the Company, we
have assumed that such parties had or will have the power, corporate or other,
to enter into and perform all obligations thereunder and have also assumed the
due authorization by all requisite action, corporate or other, and execution
and delivery by such parties of such documents and the validity and binding
effect thereof.
Based upon and subject to the foregoing, it is our opinion that when (i)
the Registration Statement becomes effective; (ii) the Draft Resolutions have
been adopted by the Pricing Committee of the Board of Directors; (iii) the price
at which the Shares are to be sold to the Underwriters pursuant to the
Underwriting Agreement and other matters relating to the issuance and sale of
the Shares have been approved by the Pricing Committee of the Board of Directors
in accordance with the Draft Resolutions; (iv) the Underwriting Agreement has
been duly executed and delivered; and (v) certificates representing the Shares
in the form of the specimen certificates examined by us have been manually
signed by an authorized officer of the transfer agent and registrar for the
Common Stock and registered by such transfer agent and registrar, and delivered
to and paid for by the Underwriters at a price per share not less than the per
share par value of the Common Stock as contemplated by the Underwriting
Agreement, the issuance and sale of the Shares will have been duly authorized,
and the Shares will be validly issued, fully paid and nonassessable.
Our opinion expressed above is limited to the General Corporation Law of
the State of Delaware, and we do not express any opinion concerning any other
laws. This opinion is given as of the date hereof and we assume no obligation
to advise you of changes that may hereafter be brought to our attention.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement. We also consent to the reference to our
firm under the caption "Legal Matters" in the Registration Statement. In giving
this consent, we do not thereby admit that we are included in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
Very truly yours,
KATTEN MUCHIN ZAVIS
1106057
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made and entered into as of the
1st day of June, 1998, by and between Kensey Nash Corporation, a Delaware
corporation (the "Company"), and Joseph W. Kaufmann ("Executive").
WHEREAS, the Company wishes to retain Executive as an executive employee,
and Executive wishes to be employed by the Company in such capacity, all upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants of parties
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. EMPLOYMENT OF EXECUTIVE. The Company engages and employs Executive in an
executive capacity and Executive accepts such employment and agrees to act as an
employee of the Company in accordance with the terms of employment hereinafter
specified. Executive shall hold the office of President and Chief Executive
Officer and shall, subject to the direction and supervision of the Company's of
Board of Directors, (a) have the responsibilities and authority customarily
associated with such office, and (b) perform such other duties and
responsibilities as the Company's Board of Directors shall from time to time
assign to him. Executive agrees diligently and faithfully to serve the Company
and to devote his best efforts, his full business time and his highest talents
and skills to the furtherance and success of the Company's business.
2. COMPENSATION. As full and complete compensation to Executive for all services
to be rendered by Executive hereunder, the Company shall pay Executive as
follows:
(a) The Company shall, during the term of Executive's employment, pay or
cause to be paid to Executive a base salary at the rate of $200,000 per annum.
Such base salary shall be paid in periodic installments at the discretion of the
Company (but not less frequently than monthly) in accordance with the Company's
normal mode of executive salary payment.
(b) The Company may, during the term of Executive's employment, pay or
cause to be paid to Executive an annual bonus of cash, stock or other property
in such amounts as the Company's Board of Directors may determine in their sole
discretion, but not to exceed 75% of Executive's base salary.
3. TERM OF EMPLOYMENT; SEVERANCE.
(a) The term of Executive's employment hereunder (the "Employment Term")
shall commence on the date hereof and shall expire three (3) years after such
date.
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<PAGE> 2
(b) Termination of Executive's employment pursuant to this Agreement or
voluntary termination of employment shall not constitute a waiver of any of
Executive's obligations hereunder which survive termination hereof, including
without limitation those arising under paragraphs 5 through 9 inclusive hereof.
(c) In the event Executive's employment is terminated by the Company
without cause (as hereinafter determined), Executive shall continue to be
entitled to receive those fringe benefits enumerated in paragraph 4 hereof until
the expiration of the original Employment Term and the Company shall pay to
Executive a severance fee equal to the greater of (i) any amount of base salary
remaining until the expiration of the original Employment Term and bonus for
each remaining year of the original Employment Term, which bonus shall be based
on an average of the bonuses received by Executive during the last two fiscal
years prior to such termination without cause (the "Estimated Bonus"), to which
Executive would otherwise be entitled but for such termination, or (ii) twelve
(12) months of Executive's salary and Estimated Bonus; provided, however, that
Executive shall not be entitled to receive any fringe benefits or such severance
fee if Executive breaches any of his obligations arising under paragraphs 7
through 9 hereof. The continuance of Executive's fringe benefits and the payment
by the Company of any severance fee to Executive pursuant to this Agreement
shall be in complete satisfaction and settlement of, and as liquidated damages
for, any and all of Executive's claims, damages or causes of action arising
directly or indirectly from this Agreement. In addition, upon the termination of
Executive's employment by the Company without cause, all options to purchase
shares of common stock of the Company ("Options") that were granted to Executive
and have vested prior to the date of such termination without cause shall remain
exercisable for a period of one (1) year from the date of such termination
without cause.
(d) In the event Executive's employment is terminated with cause, the
Company shall have no further obligations hereunder or otherwise with respect to
Executive's employment from and after the date of such termination, except for
the payment of Executive's base salary accrued through the date of such
termination. For purposes of this Agreement, "cause" for termination shall be
deemed to exist upon (i) a determination by the Company's Board of Directors
that Executive has committed an act of fraud, embezzlement or other act of
dishonesty which would reflect adversely on the integrity of the Company or if
Executive is convicted of any criminal statute involving breach of fiduciary
duty or moral turpitude; (ii) a reasonable determination by the Company's Board
of Directors that Executive has failed to discharge his duties in a reasonably
satisfactory manner which failure is not cured by Executive within thirty (30)
days after delivery of written notice to Executive specifying the nature of such
failure; (iii) the death of Executive; (iv) a mental or physical disability of
Executive which renders Executive, in the reasonable opinion of the Company's
Board of Directors, unable to effectively perform his duties hereunder for a
substantially continuous period of one hundred eighty (180) days; or (v) the
voluntary termination of Executive's employment hereunder other than as a result
of a breach of the Company's obligations hereunder.
(e) In the event Executive's employment is terminated by the Company
pursuant to a Change in Control (as that term is defined in that certain
Termination and Change in Control Agreement dated of even date herewith between
the Company and Executive (the "Change in
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<PAGE> 3
Control Agreement")), the Company shall pay to Executive a severance fee equal
to the greater of (i) the amount Executive would be entitled to receive under
paragraph 3(c) of this Agreement for a termination without cause, or (ii) the
amount Executive would be entitled to receive pursuant to a Change in Control
under the Change in Control Agreement.
(f) In the event Executive's employment is not renewed by the Company upon
the expiration of the Employment Term for a term (the "Renewal Term") of at
least two (2) years, Executive shall, upon (i) the expiration of the Renewal
Term, if any, or (ii) the Employment Term in the event there is no Renewal Term,
or (iii) upon Executive's voluntary termination within 60 days of the Company's
failure to renew his employment on substantially the same terms as set forth
herein for at least two (2) years, continue to receive those fringe benefits
enumerated in paragraph 4 hereof for a period of twelve (12) months, and the
Company shall pay to Executive a severance fee equal to twelve (12) months of
Executive's salary and the Estimated Bonus; provided, however, that Executive
shall not be entitled to receive any fringe benefits or such severance fee if
Executive breaches any of his obligations arising under paragraphs 7 through 9
hereof. In addition, all Options that were granted to Executive and have vested
prior to the expiration of the Renewal Term shall remain exercisable for a
period of one (1) year from the expiration of the Renewal Term.
(g) In the event any payments or benefits received by the Executive upon
his termination of employment (which payments shall include, without limitation,
the vesting of an option or other non-cash benefit or property), whether
pursuant to the terms of this Agreement or any other plan, arrangement, or
agreement with the Company or any affiliated company (collectively, the "Total
Payments") would be subject (in whole or in part) to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any similar tax as may hereafter be imposed (the "Excise Tax"), the following
provisions shall apply:
(i) In the event that the Total Payments cause the Executive's
"parachute payments" within the meaning of Section 280G(b)(2) of the Code
to equal or to exceed three times the Executive's "base amount" within the
meaning of Section 280G(b)(3) of the Code (the "Trebled Base Amount") by an
amount which is not greater than 10% of the Trebled Base Amount, the Total
Payments shall be reduced (or eliminated) such that no portion of the Total
Payments is subject to the Excise Tax. Reductions shall be made first to
those Total Payments arising under the terms of this Agreement.
(ii) In the event that the Total Payments cause the parachute payments
to exceed 110% of the Trebled Base Amount, the Company shall pay to the
Executive at the time specified below, an additional amount determined as
set forth below (the "Gross-up Payment"). The Gross-up Payment shall be
made with respect to the amount which equals 100% of the Executive's
"excess parachute payments" subject to the Excise Tax. The Gross-up Payment
shall be an amount such that the net amount retained by Executive with
respect to the Total Payments after reduction for any Excise Tax on the
Total Payments and any federal, state and local income or employment tax
and Excise Tax payable by the Executive on the Gross-up Payment hereunder
(provided that such amount is actually paid
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<PAGE> 4
when due) shall be equal to the amount of the Total Payments that the
Executive would retain if the Total Payments did not constitute parachute
payments.
(iii) For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of any Excise Tax:
(a) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code,
and all "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the Excise
Tax, unless, and except that to the extent that, in the written
opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and reasonably acceptable to
Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the
meaning of Section 280G(b)(3) of the Code or are otherwise not
subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated
as subject to the Excise Tax shall be equal to the lesser of (i)
the total amount of the Total Payments or (ii) the total amount
of excess parachute payments within the meaning of Section
280G(b)(1) of the Code (after applying Section 3(g)(iii)(a)
above); and
(c) The value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Independent
Advisors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
In the event that the Excise Tax is subsequently determined
to be less than the amount taken into account hereunder at the
time the Gross-up Payment is made, Executive shall repay to the
Company at the time that the amount of such reduction in Excise
Tax is finally determined (but, if previously paid to the taxing
authorities, not prior to the time the amount of such reduction
is refunded to Executive or otherwise realized as a benefit by
Executive) the portion of the Gross-up Payment that would not
have been paid if such Excise Tax had been applied to initially
calculating the Gross-up Payment, plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time the
Gross-up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of
the Gross-up Payment), the Company shall make an additional
Gross-up Payment and shall indemnify and hold Executive harmless
in
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<PAGE> 5
respect of such excess (plus any interest and penalties payable
with respect to such excess) at the time that the amount of such
excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to
the taxing authorities) after it has been determined that the Total
Payments (or any other portion thereof) are subject to the Excise Tax;
provided, however, that if the amount of such Gross-up Payment or
portion thereof cannot be finally determined on or before such day,
the Company shall pay to Executive on such day an estimate, as
determined by the Independent Advisors, of the minimum amount of such
payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code),
as soon as the amount thereof can be determined. In the event that the
amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by
the Company to Executive, payable on the fifth day after demand by the
Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code). If more than one Gross-up Payment is made,
the amount of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment.
Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-up Payment. Such notification
shall be given as soon as practicable but no later than ten (10)
business days after Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. Executive shall not pay such
claim prior to the expiration of the 30-day period following the date
on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies Executive in writing prior to
the expiration of such period that it desires to contest such claim,
Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company;
(iii) cooperate with the Company in good faith in order effectively to
contest such claim; and
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<PAGE> 6
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold Executive
harmless, on an after-tax basis, for any Excise Tax or income or employment
tax (including interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 3(g), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs Executive
to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to Executive, on an interest-free basis, and shall
indemnify and hold Executive harmless, on an after-tax basis, from any
Excise Tax or income or employment (including income or employment or
interest or penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of Executive with respect
to which such contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-up Payment would
be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority. If, after the receipt by Executive
of an amount advanced by the Company pursuant to this Section 3(g),
Executive becomes entitled to receive any refund with respect to such
claim, Executive shall (subject to the Company's complying with the
requirements of this Section 3(g)) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by Executive of an amount
advanced by the Company pursuant to this Section 3(g), a determination is
made that Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify Executive in writing of its
intent to contest such denial of refund prior to the expiration of thirty
(30) days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-up Payment required to
be paid.
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4. FRINGE BENEFITS.
(a) During the Employment Term, Executive shall be entitled to participate
in all health insurance and retirement benefit programs normally available to
other executives of the Company holding positions similar to that of Executive
hereunder (subject to all applicable eligibility rules thereof), as from time to
time in effect. During the Employment Term, Executive shall be entitled to a car
allowance in the amount of $750 per month, payable monthly. Executive shall also
receive the benefits listed on Exhibit A hereto.
(b) Executive shall be entitled to paid vacation according to the normal
vacation schedule for other executive employees. Executive shall make good faith
efforts to schedule such vacations so as to least conflict with the conduct of
the Company's business and shall give the Company adequate advance notice of his
planned absences.
(c) The Company shall reimburse Executive for all business-related expenses
incurred by Executive at the Company's direction. Executive shall submit to the
Company expense reports in compliance with established Company guidelines.
5. INVENTIONS. Executive agrees, on behalf of himself, his heirs and personal
representatives, that he will promptly communicate, disclose and transfer to the
Company free of all encumbrances and restrictions (and will execute and deliver
any papers and take any action at any time deemed necessary by the Company to
further establish such transfer) all inventions and improvements relating to
Company's business originated or developed by Executive solely or jointly with
others during the term of his employment hereunder. Such inventions and
improvements shall belong to the Company whether or not they are patentable and
whether or not patent applications are filed thereon. Such transfer shall
include all patent rights (if any) to such inventions or improvements in the
United States and in all foreign countries. Executive further agrees, at the
request of Company, to execute and deliver, at any time during the term of his
employment hereunder or after termination thereof, all assignments and other
lawful papers (which will be prepared at the Company's expense) relating to any
aspect of the prosecution of such patent applications and rights in the United
States and foreign countries.
6. EXPOSURE TO PROPRIETARY INFORMATION.
(a) Executive acknowledges and agrees that during the course of his
employment by Company, he will be in continuous contact with customers,
suppliers and others doing business with the Company throughout the world.
Executive further acknowledges that the performance of his duties hereunder will
expose him to data and information concerning the business and affairs of the
Company, including but not limited to information relative to the Company's
proprietary rights and technology, patents, financial statements, sales
programs, pricing programs, profitability analyses and profit margin
information, customer buying patterns, needs and inventory levels, supplier
identities and other related matters, and that all of such data and information
(collectively "the Proprietary Information") is vital, sensitive, confidential
and proprietary to Company.
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(b) In recognition of the special nature of his employment hereunder,
including but not limited to his special access to the Proprietary Information,
and in consideration of his employment, Executive agrees to the covenants and
restrictions set forth in paragraphs 7 through 9 inclusive hereof. As used in
this Agreement, the term "Company" shall include, where applicable, any parent,
subsidiary, sub-subsidiary, or affiliate of Company.
7. USE OF PROPRIETARY INFORMATION. Executive acknowledges that the Proprietary
Information constitutes a protectible business interest of Company, and
covenants and agrees that during the term of his employment hereunder and after
the termination of such employment, he shall not, directly or indirectly,
whether individually, as a director, stockholder, owner, partner, employee or
agent of any business, or in any other capacity, make known, disclose, furnish,
make available or utilize any of the Proprietary Information, other than in the
proper performance of his duties during the term of his employment hereunder.
Executive's obligations under this paragraph with respect to particular
Proprietary Information shall terminate only at such time (if any) as the
Proprietary Information in question becomes generally known to the public other
than through a breach of Executive's obligations hereunder.
8. RESTRICTION AGAINST COMPETITION AND EMPLOYING OR SOLICITING COMPANY
EMPLOYEES, CUSTOMERS OR SUPPLIERS. Executive covenants and agrees that during
the term hereof and for the one (1) year period immediately following the
effective date of any termination of his employment hereunder (the "Termination
Date"), he shall not, directly or indirectly, whether individually, as a
director, stockholder, partner, owner, employee or agent of any business, or in
any other capacity, (i) engage in a business substantially similar to that which
is conducted by the Company in any market area in which such business is
operated; (ii) solicit any party who is or was a customer or supplier of the
Company on the Termination Date or at any time during the six month period
immediately prior thereto for the sale or purchase of any type or quantity of
products sold by or used in the business of the Company on the Termination Date
or at any time within such six month period; or (iii) solicit for employment any
person who was or is an employee of the Company on the Termination Date or at
any time during the twelve month period immediately prior thereto.
9. RETURN OF COMPANY MATERIALS UPON TERMINATION. Executive acknowledges that
all price lists, sales manuals, catalogs, binders, customer lists and other
customer information, supplier lists, financial information, and other records
or documents containing Proprietary Information prepared by Executive or coming
into his possession by virtue of his employment by the Company is and shall
remain the property of the Company and that upon termination of his employment
hereunder, Executive shall return immediately to the Company all such items in
his possession, together with all copies thereof.
10. EQUITABLE REMEDIES.
(a) Executive acknowledges and agrees that the covenants set forth in
paragraphs 5 through 9 inclusive hereof are reasonable and necessary for the
protection of the Company's business interests, that irreparable injury will
result to the Company if Executive breaches any of the terms of said covenants,
and that in the event of Executive's actual or threatened breach of any
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such covenants, the Company will have no adequate remedy at law. Executive
accordingly agrees that in the event of any actual or threatened breach by him
of any of said covenants, the Company shall be entitled to immediate injunctive
and other equitable relief, without bond and without the necessity of showing
actual monetary damages. Nothing contained herein shall be construed as
prohibiting the Company from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of any damages which it
is able to prove.
(b) Each of the covenants in paragraphs 5 through 9 inclusive hereof shall
be construed as independent of any other covenants or other provisions of this
Agreement.
(c) In the event of any judicial determination that any of the covenants
set forth in paragraphs 5 through 9 inclusive hereof is not fully enforceable,
it is the intention and desire of the parties that the court treat said
covenants as having been modified to the extent deemed necessary by the court to
render them reasonable and enforceable, and that the court enforce them to such
extent.
11. LIFE INSURANCE. The Company may at its discretion and at any time apply for
and procure as owner and for its own benefit and at its own expense, insurance
on the life of Executive in such amounts and in such form or forms as the
Company may choose. Executive shall cooperate with the Company in procuring such
insurance and shall, at the request of Company, submit to such medical
examinations, supply such information and execute such documents as may be
required by the insurance company or companies to whom the Company has applied
for such insurance. Executive shall have no interest whatsoever in any such
policy or policies, except that, upon the termination of Executive's employment
hereunder, Executive shall have the privilege of purchasing any such insurance
from the Company for an amount equal to the actual premiums thereon previously
paid by Company.
12. NOTICES. Any notice required or permitted pursuant to the provisions of this
Agreement shall be deemed to have been properly given if in writing and when
sent by United States mail, certified or registered, postage prepaid, when sent
by facsimile or when personally delivered, addressed as follows:
If to Company:
Kensey Nash Corporation
Marsh Creek Corporate Center
55 East Uwchlan Avenue, Suite 204
Exton, Pennsylvania 19341
Attention: Kenneth Kensey
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With a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attention: David R. Shevitz, Esq.
If to Executive:
Joseph W. Kaufmann
233 Lindenwood Drive
Exton, PA 19341
Each party shall be entitled to specify a different address for the receipt
of subsequent notices by giving written notice thereof to the other party in
accordance with this paragraph.
13. WAIVER OF BREACHES. No waiver of any breach of any of the terms, provisions
or conditions of this Agreement shall be construed or held to be a waiver of any
other breach, or a waiver of, acquiescence in or consent to any further or
succeeding breach thereof.
14. ASSIGNMENT. This Agreement shall not be assignable by either party without
the written consent of the other; provided, however, that this Agreement shall
be assignable to any corpora tion or entity which purchases the assets of or
succeeds to the business of the Company (a "Successor Employer"), and the
Company agrees to cause this Agreement to be assumed by any Successor Employer
as a condition to such purchase or succession. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, personal representatives, successors and assigns.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with laws and judicial decisions of the State of Pennsylvania.
16. SEVERABILITY. If any term or provision of this Agreement shall be held to be
invalid or unenforceable, the remaining terms and provisions hereof shall not be
affected thereby.
17. MISCELLANEOUS. Paragraph headings herein are for convenience only and shall
not affect the meaning or interpretation of the contents hereof. This Agreement
contains the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
between the parties and all prior obligations of the Company with respect to the
employment of Executive by the Company or the payment to Executive of
compensation of any kind whatsoever. No supplement or modification of this
Agreement shall be binding unless in writing and signed by both parties hereto.
This agreement may be executed in multiple counterparts, each of which shall be
deemed enforceable without production of the others.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first hereinabove set forth.
/s/ Joseph W. Kaufmann
-------------------------------
Joseph W. Kaufmann
KENSEY NASH CORPORATION
By: /s/ Robert Bobb
-------------------------------
Title:
-------------------------
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made and entered into as of the
1st day of April, 1999, by and between Kensey Nash Corporation, a Delaware
corporation (the "Company"), and Wendy F. DiCicco ("Executive").
WHEREAS, the Company wishes to retain Executive as an executive employee,
and Executive wishes to be employed by the Company in such capacity, all upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants of parties
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. EMPLOYMENT OF EXECUTIVE. The Company engages and employs Executive in an
executive capacity and Executive accepts such employment and agrees to act as an
employee of the Company in accordance with the terms of employment hereinafter
specified. Executive shall hold the office of Chief Financial Officer and shall,
subject to the direction and supervision of the Company's of Board of Directors,
(a) have the responsibilities and authority customarily associated with such
office, and (b) perform such other duties and responsibilities as the Company's
Board of Directors shall from time to time assign to him/her. Executive agrees
diligently and faithfully to serve the Company and to devote his/her best
efforts, his/her full business time and his/her highest talents and skills to
the furtherance and success of the Company's business.
2. COMPENSATION. As full and complete compensation to Executive for all services
to be rendered by Executive hereunder, the Company shall pay Executive as
follows:
(a) The Company shall, during the term of Executive's employment, pay or
cause to be paid to Executive a base salary at the rate of $88,150 per annum, or
Executive's most recent per annum base salary, whichever is greater. Such base
salary shall be paid in periodic install ments at the discretion of the Company
(but not less frequently than monthly) in accordance with the Company's normal
mode of executive salary payment.
(b) The Company may, during the term of Executive's employment, pay or
cause to be paid to Executive an annual bonus of cash, stock or other property
in such amounts as the Company's Board of Directors may determine in their sole
discretion, but not to exceed 75% of Executive's base salary.
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3. TERM OF EMPLOYMENT; SEVERANCE.
(a) The term of Executive's employment hereunder (the "Employment Term")
shall commence on the date hereof and shall expire two (2) years after such
date.
(b) Termination of Executive's employment pursuant to this Agreement or
voluntary termination of employment shall not constitute a waiver of any of
Executive's obligations hereunder which survive termination hereof, including
without limitation those arising under paragraphs 5 through 9 inclusive hereof.
(c) In the event Executive's employment is terminated by the Company
without cause (as hereinafter determined), Executive shall continue to be
entitled to receive those fringe benefits enumerated in paragraph 4 hereof until
the expiration of the original Employment Term and the Company shall pay to
Executive a severance fee equal to the greater of (i) any amount of base salary
remaining until the expiration of the original Employment Term and bonus for
each remaining year of the original Employment Term, which bonus shall be based
on an average of the bonuses received by Executive during the last two fiscal
years prior to such termination without cause (the "Estimated Bonus"), to which
Executive would otherwise be entitled but for such termination, or (ii) twelve
(12) months of Executive's salary and Estimated Bonus; provided, however, that
Executive shall not be entitled to receive any fringe benefits or such severance
fee if Executive breaches any of his obligations arising under paragraphs 7
through 9 hereof. The continuance of Executive's fringe benefits and the payment
by the Company of any severance fee to Executive pursuant to this Agreement
shall be in complete satisfaction and settlement of, and as liquidated damages
for, any and all of Executive's claims, damages or causes of action arising
directly or indirectly from this Agreement. In addition, upon the termination of
Executive's employment by the Company without cause, all options to purchase
shares of common stock of the Company ("Options") that were granted to Executive
and have vested prior to the date of such termination without cause shall remain
exercisable for a period of one (1) year from the date of such termination
without cause.
(d) In the event Executive's employment is terminated with cause, the
Company shall have no further obligations hereunder or otherwise with respect to
Executive's employment from and after the date of such termination, except for
the payment of Executive's base salary accrued through the date of such
termination. For purposes of this Agreement, "cause" for termination shall be
deemed to exist upon (i) a determination by the Company's Board of Directors
that Executive has committed an act of fraud, embezzlement or other act of
dishonesty which would reflect adversely on the integrity of the Company or if
Executive is convicted of any criminal statute involving breach of fiduciary
duty or moral turpitude; (ii) a reasonable determination by the Company's Board
of Directors that Executive has failed to discharge his duties in a reasonably
satisfactory manner which failure is not cured by Executive within thirty (30)
days after delivery of written notice to Executive specifying the nature of such
failure; (iii) the death of Executive; (iv) a mental or physical disability of
Executive which renders Executive, in the reasonable opinion of the Company's
Board of Directors, unable to effectively perform his duties hereunder for a
substantially continuous period of one hundred eighty (180) days; or (v) the
voluntary
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termination of Executive's employment hereunder other than as a result of a
breach of the Company's obligations hereunder.
(e) In the event Executive's employment is terminated by the Company
pursuant to a Change in Control (as that term is defined in that certain
Termination and Change in Control Agreement dated of even date herewith between
the Company and Executive (the "Change in Control Agreement")), the Company
shall pay to Executive a severance fee equal to the greater of (i) the amount
Executive would be entitled to receive under paragraph 3(c) of this Agreement
for a termination without cause, or (ii) the amount Executive would be entitled
to receive pursuant to a Change in Control under the Change in Control
Agreement.
(f) In the event Executive's employment is not renewed by the Company upon
the expiration of the Employment Term for a term (the "Renewal Term") of at
least two (2) years, Executive shall, upon (i) the expiration of the Renewal
Term, if any, or (ii) the Employment Term in the event there is no Renewal Term,
or (iii) upon Executive's voluntary termination within 60 days of the Company's
failure to renew his employment on substantially the same terms as set forth
herein for at least two (2) years, continue to receive those fringe benefits
enumerated in paragraph 4 hereof for a period of twelve (12) months, and the
Company shall pay to Executive a severance fee equal to twelve (12) months of
Executive's salary and the Estimated Bonus; provided, however, that Executive
shall not be entitled to receive any fringe benefits or such severance fee if
Executive breaches any of his obligations arising under paragraphs 7 through 9
hereof. In addition, all Options that were granted to Executive and have vested
prior to the expiration of the Renewal Term shall remain exercisable for a
period of one (1) year from the expiration of the Renewal Term.
(g) In the event any payments or benefits received by the Executive upon
his termination of employment (which payments shall include, without limitation,
the vesting of an option or other non-cash benefit or property), whether
pursuant to the terms of this Agreement or any other plan, arrangement, or
agreement with the Company or any affiliated company (collectively, the "Total
Payments") would be subject (in whole or in part) to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any similar tax as may hereafter be imposed (the "Excise Tax"), the following
provisions shall apply:
(i) In the event that the Total Payments cause the Executive's
"parachute payments" within the meaning of Section 280G(b)(2) of the Code
to equal or to exceed three times the Executive's "base amount" within the
meaning of Section 280G(b)(3) of the Code (the "Trebled Base Amount") by an
amount which is not greater than 10% of the Trebled Base Amount, the Total
Payments shall be reduced (or eliminated) such that no portion of the Total
Payments is subject to the Excise Tax. Reductions shall be made first to
those Total Payments arising under the terms of this Agreement.
(ii) In the event that the Total Payments cause the parachute payments
to exceed 110% of the Trebled Base Amount, the Company shall pay to the
Executive at the time specified below, an additional amount determined as
set forth below (the "Gross-up Payment"). The Gross-up Payment shall be
made with respect to the amount which equals
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100% of the Executive's "excess parachute payments" subject to the Excise
Tax. The Gross-up Payment shall be an amount such that the net amount
retained by Executive with respect to the Total Payments after reduction
for any Excise Tax on the Total Payments and any federal, state and local
income or employment tax and Excise Tax payable by the Executive on the
Gross-up Payment hereunder (provided that such amount is actually paid when
due) shall be equal to the amount of the Total Payments that the Executive
would retain if the Total Payments did not constitute parachute payments.
(iii) For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of any Excise Tax:
(a) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code,
and all "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the Excise
Tax, unless, and except that to the extent that, in the written
opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and reasonably acceptable to
Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the
meaning of Section 280G(b)(3) of the Code or are otherwise not
subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated
as subject to the Excise Tax shall be equal to the lesser of (i)
the total amount of the Total Payments or (ii) the total amount
of excess parachute payments within the meaning of Section
280G(b)(1) of the Code (after applying Section 3(g)(iii)(a)
above); and
(c) The value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Independent
Advisors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
In the event that the Excise Tax is subsequently determined
to be less than the amount taken into account hereunder at the
time the Gross-up Payment is made, Executive shall repay to the
Company at the time that the amount of such reduction in Excise
Tax is finally determined (but, if previously paid to the taxing
authorities, not prior to the time the amount of such reduction
is refunded to Executive or otherwise realized as a benefit by
Executive) the portion of the Gross-up Payment that would not
have been paid if such Excise Tax had been applied to initially
calculating the Gross-up Payment, plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code. In the event that the
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Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by
reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-up Payment), the Company
shall make an additional Gross-up Payment and shall indemnify and
hold Executive harmless in respect of such excess (plus any
interest and penalties payable with respect to such excess) at
the time that the amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to
the taxing authorities) after it has been determined that the Total
Payments (or any other portion thereof) are subject to the Excise Tax;
provided, however, that if the amount of such Gross-up Payment or
portion thereof cannot be finally determined on or before such day,
the Company shall pay to Executive on such day an estimate, as
determined by the Independent Advisors, of the minimum amount of such
payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code),
as soon as the amount thereof can be determined. In the event that the
amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by
the Company to Executive, payable on the fifth day after demand by the
Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code). If more than one Gross-up Payment is made,
the amount of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment.
Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-up Payment. Such notification
shall be given as soon as practicable but no later than ten (10)
business days after Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. Executive shall not pay such
claim prior to the expiration of the 30-day period following the date
on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies Executive in writing prior to
the expiration of such period that it desires to contest such claim,
Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with
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respect to such claim by an attorney reasonably selected by
the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income or employment tax (including interest and penalties with
respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 3(g), the Company shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole
option, either direct Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and Executive
agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as the Company shall determine; provided,
however, that if the Company directs Executive to pay such claim and
sue for a refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or
income or employment (including income or employment or interest or
penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of Executive with
respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a
Gross-up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
If, after the receipt by Executive of an amount advanced by the
Company pursuant to this Section 3(g), Executive becomes entitled to
receive any refund with respect to such claim, Executive shall
(subject to the Company's complying with the requirements of this
Section 3(g)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Executive of an amount
advanced by the Company pursuant to this Section 3(g), a determination
is made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify Executive
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in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the
amount of Gross-up Payment required to be paid.
4. FRINGE BENEFITS.
(a) During the Employment Term, Executive shall be entitled to participate
in all health insurance and retirement benefit programs normally available to
other executives of the Company holding positions similar to that of Executive
hereunder (subject to all applicable eligibility rules thereof), as from time to
time in effect. During the Employment Term, Executive shall be entitled to a car
allowance in the amount of $750 per month, payable monthly. Executive shall also
receive the benefits listed on Exhibit A hereto.
(b) Executive shall be entitled to paid vacation according to the normal
vacation schedule for other executive employees. Executive shall make good faith
efforts to schedule such vacations so as to least conflict with the conduct of
the Company's business and shall give the Company adequate advance notice of his
planned absences.
(c) The Company shall reimburse Executive for all business-related expenses
incurred by Executive at the Company's direction. Executive shall submit to the
Company expense reports in compliance with established Company guidelines.
5. INVENTIONS. Executive agrees, on behalf of himself, his heirs and personal
representatives, that he will promptly communicate, disclose and transfer to the
Company free of all encumbrances and restrictions (and will execute and deliver
any papers and take any action at any time deemed necessary by the Company to
further establish such transfer) all inventions and improvements relating to
Company's business originated or developed by Executive solely or jointly with
others during the term of his employment hereunder. Such inventions and
improvements shall belong to the Company whether or not they are patentable and
whether or not patent applications are filed thereon. Such transfer shall
include all patent rights (if any) to such inventions or improvements in the
United States and in all foreign countries. Executive further agrees, at the
request of Company, to execute and deliver, at any time during the term of his
employment hereunder or after termination thereof, all assignments and other
lawful papers (which will be prepared at the Company's expense) relating to any
aspect of the prosecution of such patent applications and rights in the United
States and foreign countries.
6. EXPOSURE TO PROPRIETARY INFORMATION.
(a) Executive acknowledges and agrees that during the course of his
employment by Company, he will be in continuous contact with customers,
suppliers and others doing business with the Company throughout the world.
Executive further acknowledges that the performance of his duties hereunder will
expose him to data and information concerning the business and affairs of the
Company, including but not limited to information relative to the Company's
proprietary rights and technology, patents, financial statements, sales
programs, pricing programs,
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profitability analyses and profit margin information, customer buying patterns,
needs and inventory levels, supplier identities and other related matters, and
that all of such data and information (collectively "the Proprietary
Information") is vital, sensitive, confidential and proprietary to Company.
(b) In recognition of the special nature of his employment hereunder,
including but not limited to his special access to the Proprietary Information,
and in consideration of his employment, Executive agrees to the covenants and
restrictions set forth in paragraphs 7 through 9 inclusive hereof. As used in
this Agreement, the term "Company" shall include, where applicable, any parent,
subsidiary, sub-subsidiary, or affiliate of Company.
7. USE OF PROPRIETARY INFORMATION. Executive acknowledges that the Proprietary
Information constitutes a protectible business interest of Company, and
covenants and agrees that during the term of his employment hereunder and after
the termination of such employment, he shall not, directly or indirectly,
whether individually, as a director, stockholder, owner, partner, employee or
agent of any business, or in any other capacity, make known, disclose, furnish,
make available or utilize any of the Proprietary Information, other than in the
proper performance of his duties during the term of his employment hereunder.
Executive's obligations under this paragraph with respect to particular
Proprietary Information shall terminate only at such time (if any) as the
Proprietary Information in question becomes generally known to the public other
than through a breach of Executive's obligations hereunder.
8. RESTRICTION AGAINST COMPETITION AND EMPLOYING OR SOLICITING COMPANY
EMPLOYEES, CUSTOMERS OR SUPPLIERS. Executive covenants and agrees that during
the term hereof and for the one (1) year period immediately following the
effective date of any termination of his employment hereunder (the "Termination
Date"), he shall not, directly or indirectly, whether individually, as a
director, stockholder, partner, owner, employee or agent of any business, or in
any other capacity, (i) engage in a business substantially similar to that which
is conducted by the Company in any market area in which such business is
operated; (ii) solicit any party who is or was a customer or supplier of the
Company on the Termination Date or at any time during the six month period
immediately prior thereto for the sale or purchase of any type or quantity of
products sold by or used in the business of the Company on the Termination Date
or at any time within such six month period; or (iii) solicit for employment any
person who was or is an employee of the Company on the Termination Date or at
any time during the twelve month period immediately prior thereto.
9. RETURN OF COMPANY MATERIALS UPON TERMINATION. Executive acknowledges that all
price lists, sales manuals, catalogs, binders, customer lists and other customer
information, supplier lists, financial information, and other records or
documents containing Proprietary Information prepared by Executive or coming
into his possession by virtue of his employment by the Company is and shall
remain the property of the Company and that upon termination of his employment
hereunder, Executive shall return immediately to the Company all such items in
his possession, together with all copies thereof.
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10. EQUITABLE REMEDIES.
(a) Executive acknowledges and agrees that the covenants set forth in
paragraphs 5 through 9 inclusive hereof are reasonable and necessary for the
protection of the Company's business interests, that irreparable injury will
result to the Company if Executive breaches any of the terms of said covenants,
and that in the event of Executive's actual or threatened breach of any such
covenants, the Company will have no adequate remedy at law. Executive
accordingly agrees that in the event of any actual or threatened breach by him
of any of said covenants, the Company shall be entitled to immediate injunctive
and other equitable relief, without bond and without the necessity of showing
actual monetary damages. Nothing contained herein shall be construed as
prohibiting the Company from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of any damages which it
is able to prove.
(b) Each of the covenants in paragraphs 5 through 9 inclusive hereof shall
be construed as independent of any other covenants or other provisions of this
Agreement.
(c) In the event of any judicial determination that any of the covenants
set forth in paragraphs 5 through 9 inclusive hereof is not fully enforceable,
it is the intention and desire of the parties that the court treat said
covenants as having been modified to the extent deemed necessary by the court to
render them reasonable and enforceable, and that the court enforce them to such
extent.
11. LIFE INSURANCE. The Company may at its discretion and at any time apply for
and procure as owner and for its own benefit and at its own expense, insurance
on the life of Executive in such amounts and in such form or forms as the
Company may choose. Executive shall cooperate with the Company in procuring such
insurance and shall, at the request of Company, submit to such medical
examinations, supply such information and execute such documents as may be
required by the insurance company or companies to whom the Company has applied
for such insurance. Executive shall have no interest whatsoever in any such
policy or policies, except that, upon the termination of Executive's employment
hereunder, Executive shall have the privilege of purchasing any such insurance
from the Company for an amount equal to the actual premiums thereon previously
paid by Company.
12. NOTICES. Any notice required or permitted pursuant to the provisions of this
Agreement shall be deemed to have been properly given if in writing and when
sent by United States mail, certified or registered, postage prepaid, when sent
by facsimile or when personally delivered, addressed as follows:
If to Company:
Kensey Nash Corporation
Marsh Creek Corporate Center
55 East Uwchlan Avenue, Suite 204
Exton, Pennsylvania 19341
Attention: Kenneth Kensey
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With a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attention: David R. Shevitz, Esq.
If to Executive:
Wendy F. DiCicco
205 Roberts Road
Ardmore, PA 19003
Each party shall be entitled to specify a different address for the receipt
of subsequent notices by giving written notice thereof to the other party in
accordance with this paragraph.
13. WAIVER OF BREACHES. No waiver of any breach of any of the terms, provisions
or conditions of this Agreement shall be construed or held to be a waiver of any
other breach, or a waiver of, acquiescence in or consent to any further or
succeeding breach thereof.
14. ASSIGNMENT. This Agreement shall not be assignable by either party without
the written consent of the other; provided, however, that this Agreement shall
be assignable to any corpora tion or entity which purchases the assets of or
succeeds to the business of the Company (a "Successor Employer"), and the
Company agrees to cause this Agreement to be assumed by any Successor Employer
as a condition to such purchase or succession. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, personal representatives, successors and assigns.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with laws and judicial decisions of the State of Pennsylvania.
16. SEVERABILITY. If any term or provision of this Agreement shall be held to be
invalid or unenforceable, the remaining terms and provisions hereof shall not be
affected thereby.
17. MISCELLANEOUS. Paragraph headings herein are for convenience only and shall
not affect the meaning or interpretation of the contents hereof. This Agreement
contains the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
between the parties and all prior obligations of the Company with respect to the
employment of Executive by the Company or the payment to Executive of
compensation of any kind whatsoever. No supplement or modification of this
Agreement shall be binding unless in writing and signed by both parties hereto.
This agreement may be executed in multiple counterparts, each of which shall be
deemed enforceable without production of the others.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first hereinabove set forth.
/s/ Wendy F. DiCicco
------------------------------
Wendy F. DiCicco
KENSEY NASH CORPORATION
By: /s/ Joseph W. Kaufmann
------------------------------
Title: President and CEO
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made and entered into as of the
1st day of December, 1998, by and between Kensey Nash Corporation, a Delaware
corporation (the "Company"), and John E. Nash ("Executive").
WHEREAS, the Company wishes to retain Executive as an executive employee,
and Executive wishes to be employed by the Company in such capacity, all upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants of parties
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. EMPLOYMENT OF EXECUTIVE. The Company engages and employs Executive in an
executive capacity and Executive accepts such employment and agrees to act as an
employee of the Company in accordance with the terms of employment hereinafter
specified. Executive shall hold the office of Vice President of New Technologies
and shall, subject to the direction and supervision of the Company's of Board of
Directors, (a) have the responsibilities and authority customarily associated
with such office, and (b) perform such other duties and responsibilities as the
Company's Board of Directors shall from time to time assign to him. Executive
agrees diligently and faithfully to serve the Company and to devote his best
efforts, his full business time and his highest talents and skills to the
furtherance and success of the Company's business. Executive may at his
discretion, and upon notice to the Company, reduce his level of employment from
a full-time to a specified level which is less than full-time, in which case his
base salary shall be reduced as stated in 2(a) below.
2. COMPENSATION. As full and complete compensation to Executive for all services
to be rendered by Executive hereunder, the Company shall pay Executive as
follows:
(a) The Company shall, during the term of Executive's employment, pay or
cause to be paid to Executive a base salary at the rate of $200,000 per annum.
Such base salary shall be paid in periodic installments at the discretion of the
Company (but not less frequently than monthly) in accordance with the Company's
normal mode of executive salary payment. If Executive reduces his level of
employment from full-time to less than full-time, Executive's base salary shall
be proportionately reduced.
(b) The Company may, during the term of Executive's employment, pay or
cause to be paid to Executive an annual bonus of cash, stock or other property
in such amounts as the Company's Board of Directors may determine in their sole
discretion, but not to exceed 75% of Executive's base salary.
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3. TERM OF EMPLOYMENT; SEVERANCE.
(a) The term of Executive's employment hereunder (the "Employment Term")
shall commence on the date hereof and shall expire three (3) years after such
date.
(b) Termination of Executive's employment pursuant to this Agreement or
voluntary termination of employment shall not constitute a waiver of any of
Executive's obligations hereunder which survive termination hereof, including
without limitation those arising under paragraphs 5 through 9 inclusive hereof.
(c) In the event Executive's employment is terminated by the Company
without cause (as hereinafter determined), Executive shall continue to be
entitled to receive those fringe benefits enumerated in paragraph 4 hereof until
the expiration of the original Employment Term and the Company shall pay to
Executive a severance fee equal to the greater of (i) any amount of base salary
remaining until the expiration of the original Employment Term and bonus for
each remaining year of the original Employment Term, which bonus shall be based
on an average of the bonuses received by Executive during the last two fiscal
years prior to such termination without cause (the "Estimated Bonus"), to which
Executive would otherwise be entitled but for such termination, or (ii) twelve
(12) months of Executive's salary and Estimated Bonus; provided, however, that
Executive shall not be entitled to receive any fringe benefits or such severance
fee if Executive breaches any of his obligations arising under paragraphs 7
through 9 hereof. The continuance of Executive's fringe benefits and the payment
by the Company of any severance fee to Executive pursuant to this Agreement
shall be in complete satisfaction and settlement of, and as liquidated damages
for, any and all of Executive's claims, damages or causes of action arising
directly or indirectly from this Agreement. In addition, upon the termination of
Executive's employment by the Company without cause, all options to purchase
shares of common stock of the Company ("Options") that were granted to Executive
and have vested prior to the date of such termination without cause shall remain
exercisable for a period of one (1) year from the date of such termination
without cause.
(d) In the event Executive's employment is terminated with cause, the
Company shall have no further obligations hereunder or otherwise with respect to
Executive's employment from and after the date of such termination, except for
the payment of Executive's base salary accrued through the date of such
termination. For purposes of this Agreement, "cause" for termination shall be
deemed to exist upon (i) a determination by the Company's Board of Directors
that Executive has committed an act of fraud, embezzlement or other act of
dishonesty which would reflect adversely on the integrity of the Company or if
Executive is convicted of any criminal statute involving breach of fiduciary
duty or moral turpitude; (ii) a reasonable determination by the Company's Board
of Directors that Executive has failed to discharge his duties in a reasonably
satisfactory manner which failure is not cured by Executive within thirty (30)
days after delivery of written notice to Executive specifying the nature of such
failure; (iii) the death of Executive; (iv) a mental or physical disability of
Executive which renders Executive, in the reasonable opinion of the Company's
Board of Directors, unable to effectively perform his duties hereunder for a
substantially continuous period of one hundred eighty (180) days; or (v) the
voluntary
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termination of Executive's employment hereunder other than as a result of a
breach of the Company's obligations hereunder.
(e) In the event Executive's employment is terminated by the Company
pursuant to a Change in Control (as that term is defined in that certain
Termination and Change in Control Agreement dated of even date herewith between
the Company and Executive (the "Change in Control Agreement")), the Company
shall pay to Executive a severance fee equal to the greater of (i) the amount
Executive would be entitled to receive under paragraph 3(c) of this Agreement
for a termination without cause, or (ii) the amount Executive would be entitled
to receive pursuant to a Change in Control under the Change in Control
Agreement.
(f) In the event Executive's employment is not renewed by the Company upon
the expiration of the Employment Term for a term (the "Renewal Term") of at
least two (2) years, Executive shall, upon (i) the expiration of the Renewal
Term, if any, or (ii) the Employment Term in the event there is no Renewal Term,
or (iii) upon Executive's voluntary termination within 60 days of the Company's
failure to renew his employment on substantially the same terms as set forth
herein for at least two (2) years, continue to receive those fringe benefits
enumerated in paragraph 4 hereof for a period of twelve (12) months, and the
Company shall pay to Executive a severance fee equal to twelve (12) months of
Executive's salary and the Estimated Bonus; provided, however, that Executive
shall not be entitled to receive any fringe benefits or such severance fee if
Executive breaches any of his obligations arising under paragraphs 7 through 9
hereof. In addition, all Options that were granted to Executive and have vested
prior to the expiration of the Renewal Term shall remain exercisable for a
period of one (1) year from the expiration of the Renewal Term.
(g) In the event any payments or benefits received by the Executive upon
his termination of employment (which payments shall include, without limitation,
the vesting of an option or other non-cash benefit or property), whether
pursuant to the terms of this Agreement or any other plan, arrangement, or
agreement with the Company or any affiliated company (collectively, the "Total
Payments") would be subject (in whole or in part) to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any similar tax as may hereafter be imposed (the "Excise Tax"), the following
provisions shall apply:
(i) In the event that the Total Payments cause the Executive's
"parachute payments" within the meaning of Section 280G(b)(2) of the Code
to equal or to exceed three times the Executive's "base amount" within the
meaning of Section 280G(b)(3) of the Code (the "Trebled Base Amount") by an
amount which is not greater than 10% of the Trebled Base Amount, the Total
Payments shall be reduced (or eliminated) such that no portion of the Total
Payments is subject to the Excise Tax. Reductions shall be made first to
those Total Payments arising under the terms of this Agreement.
(ii) In the event that the Total Payments cause the parachute payments
to exceed 110% of the Trebled Base Amount, the Company shall pay to the
Executive at the time specified below, an additional amount determined as
set forth below (the "Gross-up Payment"). The Gross-up Payment shall be
made with respect to the amount which equals
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100% of the Executive's "excess parachute payments" subject to the Excise
Tax. The Gross-up Payment shall be an amount such that the net amount
retained by Executive with respect to the Total Payments after reduction
for any Excise Tax on the Total Payments and any federal, state and local
income or employment tax and Excise Tax payable by the Executive on the
Gross-up Payment hereunder (provided that such amount is actually paid when
due) shall be equal to the amount of the Total Payments that the Executive
would retain if the Total Payments did not constitute parachute payments.
(iii) For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of any Excise Tax:
(a) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code,
and all "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the Excise
Tax, unless, and except that to the extent that, in the written
opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and reasonably acceptable to
Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the
meaning of Section 280G(b)(3) of the Code or are otherwise not
subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated
as subject to the Excise Tax shall be equal to the lesser of (i)
the total amount of the Total Payments or (ii) the total amount
of excess parachute payments within the meaning of Section
280G(b)(1) of the Code (after applying Section 3(g)(iii)(a)
above); and
(c) The value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Independent
Advisors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
In the event that the Excise Tax is subsequently determined
to be less than the amount taken into account hereunder at the
time the Gross-up Payment is made, Executive shall repay to the
Company at the time that the amount of such reduction in Excise
Tax is finally determined (but, if previously paid to the taxing
authorities, not prior to the time the amount of such reduction
is refunded to Executive or otherwise realized as a benefit by
Executive) the portion of the Gross-up Payment that would not
have been paid if such Excise Tax had been applied to initially
calculating the Gross-up Payment, plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code. In the event that the
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Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by
reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-up Payment), the Company
shall make an additional Gross-up Payment and shall indemnify and
hold Executive harmless in respect of such excess (plus any
interest and penalties payable with respect to such excess) at
the time that the amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to
the taxing authorities) after it has been determined that the Total
Payments (or any other portion thereof) are subject to the Excise Tax;
provided, however, that if the amount of such Gross-up Payment or
portion thereof cannot be finally determined on or before such day,
the Company shall pay to Executive on such day an estimate, as
determined by the Independent Advisors, of the minimum amount of such
payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code),
as soon as the amount thereof can be determined. In the event that the
amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by
the Company to Executive, payable on the fifth day after demand by the
Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code). If more than one Gross-up Payment is made,
the amount of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment.
Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-up Payment. Such notification
shall be given as soon as practicable but no later than ten (10)
business days after Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. Executive shall not pay such
claim prior to the expiration of the 30-day period following the date
on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies Executive in writing prior to
the expiration of such period that it desires to contest such claim,
Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with
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respect to such claim by an attorney reasonably selected
by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income or employment tax (including interest and penalties with
respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 3(g), the Company shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole
option, either direct Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and Executive
agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as the Company shall determine; provided,
however, that if the Company directs Executive to pay such claim and
sue for a refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or
income or employment (including income or employment or interest or
penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of Executive with
respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a
Gross-up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
If, after the receipt by Executive of an amount advanced by the
Company pursuant to this Section 3(g), Executive becomes entitled to
receive any refund with respect to such claim, Executive shall
(subject to the Company's complying with the requirements of this
Section 3(g)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Executive of an amount
advanced by the Company pursuant to this Section 3(g), a determination
is made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify Executive
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in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the
amount of Gross-up Payment required to be paid.
4. FRINGE BENEFITS.
(a) During the Employment Term, Executive shall be entitled to participate
in all health insurance and retirement benefit programs normally available to
other executives of the Company holding positions similar to that of Executive
hereunder (subject to all applicable eligibility rules thereof), as from time to
time in effect. During the Employment Term, Executive shall be entitled to a car
allowance in the amount of $750 per month, payable monthly. Executive shall also
receive the benefits listed on Exhibit A hereto.
(b) Executive shall be entitled to paid vacation according to the normal
vacation schedule for other executive employees. Executive shall make good faith
efforts to schedule such vacations so as to least conflict with the conduct of
the Company's business and shall give the Company adequate advance notice of his
planned absences.
(c) The Company shall reimburse Executive for all business-related expenses
incurred by Executive at the Company's direction. Executive shall submit to the
Company expense reports in compliance with established Company guidelines.
5. INVENTIONS. Executive agrees, on behalf of himself, his heirs and personal
representatives, that he will promptly communicate, disclose and transfer to the
Company free of all encumbrances and restrictions (and will execute and deliver
any papers and take any action at any time deemed necessary by the Company to
further establish such transfer) all inventions and improvements relating to
Company's business originated or developed by Executive solely or jointly with
others during the term of his employment hereunder. Such inventions and
improvements shall belong to the Company whether or not they are patentable and
whether or not patent applications are filed thereon. Such transfer shall
include all patent rights (if any) to such inventions or improvements in the
United States and in all foreign countries. Executive further agrees, at the
request of Company, to execute and deliver, at any time during the term of his
employment hereunder or after termination thereof, all assignments and other
lawful papers (which will be prepared at the Company's expense) relating to any
aspect of the prosecution of such patent applications and rights in the United
States and foreign countries.
6. EXPOSURE TO PROPRIETARY INFORMATION.
(a) Executive acknowledges and agrees that during the course of his
employment by Company, he will be in continuous contact with customers,
suppliers and others doing business with the Company throughout the world.
Executive further acknowledges that the performance of his duties hereunder will
expose him to data and information concerning the business and affairs of the
Company, including but not limited to information relative to the Company's
proprietary rights and technology, patents, financial statements, sales
programs, pricing programs,
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profitability analyses and profit margin information, customer buying patterns,
needs and inventory levels, supplier identities and other related matters, and
that all of such data and information (collectively "the Proprietary
Information") is vital, sensitive, confidential and proprietary to Company.
(b) In recognition of the special nature of his employment hereunder,
including but not limited to his special access to the Proprietary Information,
and in consideration of his employment, Executive agrees to the covenants and
restrictions set forth in paragraphs 7 through 9 inclusive hereof. As used in
this Agreement, the term "Company" shall include, where applicable, any parent,
subsidiary, sub-subsidiary, or affiliate of Company.
7. USE OF PROPRIETARY INFORMATION. Executive acknowledges that the Proprietary
Information constitutes a protectible business interest of Company, and
covenants and agrees that during the term of his employment hereunder and after
the termination of such employment, he shall not, directly or indirectly,
whether individually, as a director, stockholder, owner, partner, employee or
agent of any business, or in any other capacity, make known, disclose, furnish,
make available or utilize any of the Proprietary Information, other than in the
proper performance of his duties during the term of his employment hereunder.
Executive's obligations under this paragraph with respect to particular
Proprietary Information shall terminate only at such time (if any) as the
Proprietary Information in question becomes generally known to the public other
than through a breach of Executive's obligations hereunder.
8. RESTRICTION AGAINST COMPETITION AND EMPLOYING OR SOLICITING COMPANY
EMPLOYEES, CUSTOMERS OR SUPPLIERS. Executive covenants and agrees that during
the term hereof and for the one (1) year period immediately following the
effective date of any termination of his employment hereunder (the "Termination
Date"), he shall not, directly or indirectly, whether individually, as a
director, stockholder, partner, owner, employee or agent of any business, or in
any other capacity, (i) engage in a business substantially similar to that which
is conducted by the Company in any market area in which such business is
operated; (ii) solicit any party who is or was a customer or supplier of the
Company on the Termination Date or at any time during the six month period
immediately prior thereto for the sale or purchase of any type or quantity of
products sold by or used in the business of the Company on the Termination Date
or at any time within such six month period; or (iii) solicit for employment any
person who was or is an employee of the Company on the Termination Date or at
any time during the twelve month period immediately prior thereto.
9. RETURN OF COMPANY MATERIALS UPON TERMINATION. Executive acknowledges that all
price lists, sales manuals, catalogs, binders, customer lists and other customer
information, supplier lists, financial information, and other records or
documents containing Proprietary Information prepared by Executive or coming
into his possession by virtue of his employment by the Company is and shall
remain the property of the Company and that upon termination of his employment
hereunder, Executive shall return immediately to the Company all such items in
his possession, together with all copies thereof.
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10. EQUITABLE REMEDIES.
(a) Executive acknowledges and agrees that the covenants set forth in
paragraphs 5 through 9 inclusive hereof are reasonable and necessary for the
protection of the Company's business interests, that irreparable injury will
result to the Company if Executive breaches any of the terms of said covenants,
and that in the event of Executive's actual or threatened breach of any such
covenants, the Company will have no adequate remedy at law. Executive
accordingly agrees that in the event of any actual or threatened breach by him
of any of said covenants, the Company shall be entitled to immediate injunctive
and other equitable relief, without bond and without the necessity of showing
actual monetary damages. Nothing contained herein shall be construed as
prohibiting the Company from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of any damages which it
is able to prove.
(b) Each of the covenants in paragraphs 5 through 9 inclusive hereof shall
be construed as independent of any other covenants or other provisions of this
Agreement.
(c) In the event of any judicial determination that any of the covenants
set forth in paragraphs 5 through 9 inclusive hereof is not fully enforceable,
it is the intention and desire of the parties that the court treat said
covenants as having been modified to the extent deemed necessary by the court to
render them reasonable and enforceable, and that the court enforce them to such
extent.
11. LIFE INSURANCE. The Company may at its discretion and at any time apply for
and procure as owner and for its own benefit and at its own expense, insurance
on the life of Executive in such amounts and in such form or forms as the
Company may choose. Executive shall cooperate with the Company in procuring such
insurance and shall, at the request of Company, submit to such medical
examinations, supply such information and execute such documents as may be
required by the insurance company or companies to whom the Company has applied
for such insurance. Executive shall have no interest whatsoever in any such
policy or policies, except that, upon the termination of Executive's employment
hereunder, Executive shall have the privilege of purchasing any such insurance
from the Company for an amount equal to the actual premiums thereon previously
paid by Company.
12. NOTICES. Any notice required or permitted pursuant to the provisions of this
Agreement shall be deemed to have been properly given if in writing and when
sent by United States mail, certified or registered, postage prepaid, when sent
by facsimile or when personally delivered, addressed as follows:
If to Company:
Kensey Nash Corporation
Marsh Creek Corporate Center
55 East Uwchlan Avenue, Suite 204
Exton, Pennsylvania 19341
Attention: Kenneth Kensey
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With a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attention: David R. Shevitz, Esq.
If to Executive:
John E. Nash
1201 N. Chester Springs Road, Box 348
Chester Springs, PA 19425
Each party shall be entitled to specify a different address for the receipt
of subsequent notices by giving written notice thereof to the other party in
accordance with this paragraph.
13. WAIVER OF BREACHES. No waiver of any breach of any of the terms, provisions
or conditions of this Agreement shall be construed or held to be a waiver of any
other breach, or a waiver of, acquiescence in or consent to any further or
succeeding breach thereof.
14. ASSIGNMENT. This Agreement shall not be assignable by either party without
the written consent of the other; provided, however, that this Agreement shall
be assignable to any corpora tion or entity which purchases the assets of or
succeeds to the business of the Company (a "Successor Employer"), and the
Company agrees to cause this Agreement to be assumed by any Successor Employer
as a condition to such purchase or succession. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, personal representatives, successors and assigns.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with laws and judicial decisions of the State of Pennsylvania.
16. SEVERABILITY. If any term or provision of this Agreement shall be held to be
invalid or unenforceable, the remaining terms and provisions hereof shall not be
affected thereby.
17. MISCELLANEOUS. Paragraph headings herein are for convenience only and shall
not affect the meaning or interpretation of the contents hereof. This Agreement
contains the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
between the parties and all prior obligations of the Company with respect to the
employment of Executive by the Company or the payment to Executive of
compensation of any kind whatsoever. No supplement or modification of this
Agreement shall be binding unless in writing and signed by both parties hereto.
This agreement may be executed in multiple counterparts, each of which shall be
deemed enforceable without production of the others.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first hereinabove set forth.
/s/ John E. Nash
-----------------------------
John E. Nash
KENSEY NASH CORPORATION
By: /s/ Joseph W. Kaufmann
-----------------------------
Title: President and CEO
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made and entered into as of the
16th day of July, 1998, by and between Kensey Nash Corporation, a Delaware
corporation (the "Company"), and Douglas G. Evans (Executive").
WHEREAS, the Company wishes to retain Executive as an executive employee,
and Executive wishes to be employed by the Company in such capacity, all upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants of parties
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. EMPLOYMENT OF EXECUTIVE. The Company engages and employs Executive in an
executive capacity and Executive accepts such employment and agrees to act as an
employee of the Company in accordance with the terms of employment hereinafter
specified. Executive shall hold the office of Chief Operating Officer and shall,
subject to the direction and supervision of the Company's of Board of Directors,
(a) have the responsibilities and authority customarily associated with such
office, and (b) perform such other duties and responsibilities as the Company's
Board of Directors shall from time to time assign to him. Executive agrees
diligently and faithfully to serve the Company and to devote his best efforts,
his full business time and his highest talents and skills to the furtherance and
success of the Company's business.
2. COMPENSATION. As full and complete compensation to Executive for all services
to be rendered by Executive hereunder, the Company shall pay Executive as
follows:
(a) The Company shall, during the term of Executive's employment, pay or
cause to be paid to Executive a base salary at the rate of $160,000 per annum.
Such base salary shall be paid in periodic installments at the discretion of the
Company (but not less frequently than monthly) in accordance with the Company's
normal mode of executive salary payment.
(b) The Company may, during the term of Executive's employment, pay or
cause to be paid to Executive an annual bonus of cash, stock or other property
in such amounts as the Company's Board of Directors may determine in their sole
discretion, but not to exceed 75% of Executive's base salary.
3. TERM OF EMPLOYMENT; SEVERANCE.
(a) The term of Executive's employment hereunder (the "Employment Term")
shall commence on the date hereof and shall expire three (3) years after such
date.
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(b) Termination of Executive's employment pursuant to this Agreement or
voluntary termination of employment shall not constitute a waiver of any of
Executive's obligations hereunder which survive termination hereof, including
without limitation those arising under paragraphs 5 through 9 inclusive hereof.
(c) In the event Executive's employment is terminated by the Company
without cause (as hereinafter determined), Executive shall continue to be
entitled to receive those fringe benefits enumerated in paragraph 4 hereof until
the expiration of the original Employment Term and the Company shall pay to
Executive a severance fee equal to the greater of (i) any amount of base salary
remaining until the expiration of the original Employment Term and bonus for
each remaining year of the original Employment Term, which bonus shall be based
on an average of the bonuses received by Executive during the last two fiscal
years prior to such termination without cause (the "Estimated Bonus"), to which
Executive would otherwise be entitled but for such termination, or (ii) twelve
(12) months of Executive's salary and Estimated Bonus; provided, however, that
Executive shall not be entitled to receive any fringe benefits or such severance
fee if Executive breaches any of his obligations arising under paragraphs 7
through 9 hereof. The continuance of Executive's fringe benefits and the payment
by the Company of any severance fee to Executive pursuant to this Agreement
shall be in complete satisfaction and settlement of, and as liquidated damages
for, any and all of Executive's claims, damages or causes of action arising
directly or indirectly from this Agreement. In addition, upon the termination of
Executive's employment by the Company without cause, all options to purchase
shares of common stock of the Company ("Options") that were granted to Executive
and have vested prior to the date of such termination without cause shall remain
exercisable for a period of one (1) year from the date of such termination
without cause.
(d) In the event Executive's employment is terminated with cause, the
Company shall have no further obligations hereunder or otherwise with respect to
Executive's employment from and after the date of such termination, except for
the payment of Executive's base salary accrued through the date of such
termination. For purposes of this Agreement, "cause" for termination shall be
deemed to exist upon (i) a determination by the Company's Board of Directors
that Executive has committed an act of fraud, embezzlement or other act of
dishonesty which would reflect adversely on the integrity of the Company or if
Executive is convicted of any criminal statute involving breach of fiduciary
duty or moral turpitude; (ii) a reasonable determination by the Company's Board
of Directors that Executive has failed to discharge his duties in a reasonably
satisfactory manner which failure is not cured by Executive within thirty (30)
days after delivery of written notice to Executive specifying the nature of such
failure; (iii) the death of Executive; (iv) a mental or physical disability of
Executive which renders Executive, in the reasonable opinion of the Company's
Board of Directors, unable to effectively perform his duties hereunder for a
substantially continuous period of one hundred eighty (180) days; or (v) the
voluntary termination of Executive's employment hereunder other than as a result
of a breach of the Company's obligations hereunder.
(e) In the event Executive's employment is terminated by the Company
pursuant to a Change in Control (as that term is defined in that certain
Termination and Change in Control Agreement dated of even date herewith between
the Company and Executive (the "Change in
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<PAGE> 3
Control Agreement")), the Company shall pay to Executive a severance fee equal
to the greater of (i) the amount Executive would be entitled to receive under
paragraph 3(c) of this Agreement for a termination without cause, or (ii) the
amount Executive would be entitled to receive pursuant to a Change in Control
under the Change in Control Agreement.
(f) In the event Executive's employment is not renewed by the Company upon
the expiration of the Employment Term for a term (the "Renewal Term") of at
least two (2) years, Executive shall, upon (i) the expiration of the Renewal
Term, if any, or (ii) the Employment Term in the event there is no Renewal Term,
or (iii) upon Executive's voluntary termination within 60 days of the Company's
failure to renew his employment on substantially the same terms as set forth
herein for at least two (2) years, continue to receive those fringe benefits
enumerated in paragraph 4 hereof for a period of twelve (12) months, and the
Company shall pay to Executive a severance fee equal to twelve (12) months of
Executive's salary and the Estimated Bonus; provided, however, that Executive
shall not be entitled to receive any fringe benefits or such severance fee if
Executive breaches any of his obligations arising under paragraphs 7 through 9
hereof. In addition, all Options that were granted to Executive and have vested
prior to the expiration of the Renewal Term shall remain exercisable for a
period of one (1) year from the expiration of the Renewal Term.
(g) In the event any payments or benefits received by the Executive upon
his termination of employment (which payments shall include, without limitation,
the vesting of an option or other non-cash benefit or property), whether
pursuant to the terms of this Agreement or any other plan, arrangement, or
agreement with the Company or any affiliated company (collectively, the "Total
Payments") would be subject (in whole or in part) to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any similar tax as may hereafter be imposed (the "Excise Tax"), the following
provisions shall apply:
(i) In the event that the Total Payments cause the Executive's
"parachute payments" within the meaning of Section 280G(b)(2) of the Code
to equal or to exceed three times the Executive's "base amount" within the
meaning of Section 280G(b)(3) of the Code (the "Trebled Base Amount") by an
amount which is not greater than 10% of the Trebled Base Amount, the Total
Payments shall be reduced (or eliminated) such that no portion of the Total
Payments is subject to the Excise Tax. Reductions shall be made first to
those Total Payments arising under the terms of this Agreement.
(ii) In the event that the Total Payments cause the parachute payments
to exceed 110% of the Trebled Base Amount, the Company shall pay to the
Executive at the time specified below, an additional amount determined as
set forth below (the "Gross-up Payment"). The Gross-up Payment shall be
made with respect to the amount which equals 100% of the Executive's
"excess parachute payments" subject to the Excise Tax. The Gross-up Payment
shall be an amount such that the net amount retained by Executive with
respect to the Total Payments after reduction for any Excise Tax on the
Total Payments and any federal, state and local income or employment tax
and Excise Tax payable by the Executive on the Gross-up Payment hereunder
(provided that such amount is actually paid
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<PAGE> 4
when due) shall be equal to the amount of the Total Payments that the
Executive would retain if the Total Payments did not constitute parachute
payments.
(iii) For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of any Excise Tax:
(a) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code,
and all "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the Excise
Tax, unless, and except that to the extent that, in the written
opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and reasonably acceptable to
Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the
meaning of Section 280G(b)(3) of the Code or are otherwise not
subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated
as subject to the Excise Tax shall be equal to the lesser of (i)
the total amount of the Total Payments or (ii) the total amount
of excess parachute payments within the meaning of Section
280G(b)(1) of the Code (after applying Section 3(g)(iii)(a)
above); and
(c) The value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Independent
Advisors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
In the event that the Excise Tax is subsequently determined
to be less than the amount taken into account hereunder at the
time the Gross-up Payment is made, Executive shall repay to the
Company at the time that the amount of such reduction in Excise
Tax is finally determined (but, if previously paid to the taxing
authorities, not prior to the time the amount of such reduction
is refunded to Executive or otherwise realized as a benefit by
Executive) the portion of the Gross-up Payment that would not
have been paid if such Excise Tax had been applied to initially
calculating the Gross-up Payment, plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time the
Gross-up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of
the Gross-up Payment), the Company shall make an additional
Gross-up Payment and shall indemnify and hold Executive harmless
in
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respect of such excess (plus any interest and penalties payable
with respect to such excess) at the time that the amount of such
excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to
the taxing authorities) after it has been determined that the Total
Payments (or any other portion thereof) are subject to the Excise Tax;
provided, however, that if the amount of such Gross-up Payment or
portion thereof cannot be finally determined on or before such day,
the Company shall pay to Executive on such day an estimate, as
determined by the Independent Advisors, of the minimum amount of such
payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code),
as soon as the amount thereof can be determined. In the event that the
amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by
the Company to Executive, payable on the fifth day after demand by the
Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code). If more than one Gross-up Payment is made,
the amount of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment.
Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-up Payment. Such notification
shall be given as soon as practicable but no later than ten (10)
business days after Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. Executive shall not pay such
claim prior to the expiration of the 30-day period following the date
on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies Executive in writing prior to
the expiration of such period that it desires to contest such claim,
Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
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(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income or employment tax (including interest and penalties with
respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 3(g), the Company shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole
option, either direct Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and Executive
agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as the Company shall determine; provided,
however, that if the Company directs Executive to pay such claim and
sue for a refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or
income or employment (including income or employment or interest or
penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of Executive with
respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a
Gross-up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
If, after the receipt by Executive of an amount advanced by the
Company pursuant to this Section 3(g), Executive becomes entitled to
receive any refund with respect to such claim, Executive shall
(subject to the Company's complying with the requirements of this
Section 3(g)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Executive of an amount
advanced by the Company pursuant to this Section 3(g), a determination
is made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify Executive in
writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the
amount of Gross-up Payment required to be paid.
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4. FRINGE BENEFITS.
(a) During the Employment Term, Executive shall be entitled to participate
in all health insurance and retirement benefit programs normally available to
other executives of the Company holding positions similar to that of Executive
hereunder (subject to all applicable eligibility rules thereof), as from time to
time in effect. During the Employment Term, Executive shall be entitled to a car
allowance in the amount of $750 per month, payable monthly. Executive shall also
receive the benefits listed on Exhibit A hereto.
(b) Executive shall be entitled to paid vacation according to the normal
vacation schedule for other executive employees. Executive shall make good faith
efforts to schedule such vacations so as to least conflict with the conduct of
the Company's business and shall give the Company adequate advance notice of his
planned absences.
(c) The Company shall reimburse Executive for all business-related expenses
incurred by Executive at the Company's direction. Executive shall submit to the
Company expense reports in compliance with established Company guidelines.
5. INVENTIONS. Executive agrees, on behalf of himself, his heirs and personal
representatives, that he will promptly communicate, disclose and transfer to the
Company free of all encumbrances and restrictions (and will execute and deliver
any papers and take any action at any time deemed necessary by the Company to
further establish such transfer) all inventions and improvements relating to
Company's business originated or developed by Executive solely or jointly with
others during the term of his employment hereunder. Such inventions and
improvements shall belong to the Company whether or not they are patentable and
whether or not patent applications are filed thereon. Such transfer shall
include all patent rights (if any) to such inventions or improvements in the
United States and in all foreign countries. Executive further agrees, at the
request of Company, to execute and deliver, at any time during the term of his
employment hereunder or after termination thereof, all assignments and other
lawful papers (which will be prepared at the Company's expense) relating to any
aspect of the prosecution of such patent applications and rights in the United
States and foreign countries.
6. EXPOSURE TO PROPRIETARY INFORMATION.
(a) Executive acknowledges and agrees that during the course of his
employment by Company, he will be in continuous contact with customers,
suppliers and others doing business with the Company throughout the world.
Executive further acknowledges that the performance of his duties hereunder will
expose him to data and information concerning the business and affairs of the
Company, including but not limited to information relative to the Company's
proprietary rights and technology, patents, financial statements, sales
programs, pricing programs, profitability analyses and profit margin
information, customer buying patterns, needs and inventory levels, supplier
identities and other related matters, and that all of such data and information
(collectively "the Proprietary Information") is vital, sensitive, confidential
and proprietary to Company.
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(b) In recognition of the special nature of his employment hereunder,
including but not limited to his special access to the Proprietary Information,
and in consideration of his employment, Executive agrees to the covenants and
restrictions set forth in paragraphs 7 through 9 inclusive hereof. As used in
this Agreement, the term "Company" shall include, where applicable, any parent,
subsidiary, sub-subsidiary, or affiliate of Company.
7. USE OF PROPRIETARY INFORMATION. Executive acknowledges that the Proprietary
Information constitutes a protectible business interest of Company, and
covenants and agrees that during the term of his employment hereunder and after
the termination of such employment, he shall not, directly or indirectly,
whether individually, as a director, stockholder, owner, partner, employee or
agent of any business, or in any other capacity, make known, disclose, furnish,
make available or utilize any of the Proprietary Information, other than in the
proper performance of his duties during the term of his employment hereunder.
Executive's obligations under this paragraph with respect to particular
Proprietary Information shall terminate only at such time (if any) as the
Proprietary Information in question becomes generally known to the public other
than through a breach of Executive's obligations hereunder.
8. RESTRICTION AGAINST COMPETITION AND EMPLOYING OR SOLICITING COMPANY
EMPLOYEES, CUSTOMERS OR SUPPLIERS. Executive covenants and agrees that during
the term hereof and for the one (1) year period immediately following the
effective date of any termination of his employment hereunder (the "Termination
Date"), he shall not, directly or indirectly, whether individually, as a
director, stockholder, partner, owner, employee or agent of any business, or in
any other capacity, (i) engage in a business substantially similar to that which
is conducted by the Company in any market area in which such business is
operated; (ii) solicit any party who is or was a customer or supplier of the
Company on the Termination Date or at any time during the six month period
immediately prior thereto for the sale or purchase of any type or quantity of
products sold by or used in the business of the Company on the Termination Date
or at any time within such six month period; or (iii) solicit for employment any
person who was or is an employee of the Company on the Termination Date or at
any time during the twelve month period immediately prior thereto.
9. RETURN OF COMPANY MATERIALS UPON TERMINATION. Executive acknowledges that all
price lists, sales manuals, catalogs, binders, customer lists and other customer
information, supplier lists, financial information, and other records or
documents containing Proprietary Information prepared by Executive or coming
into his possession by virtue of his employment by the Company is and shall
remain the property of the Company and that upon termination of his employment
hereunder, Executive shall return immediately to the Company all such items in
his possession, together with all copies thereof.
10. EQUITABLE REMEDIES.
(a) Executive acknowledges and agrees that the covenants set forth in
paragraphs 5 through 9 inclusive hereof are reasonable and necessary for the
protection of the Company's business interests, that irreparable injury will
result to the Company if Executive breaches any of the terms of said covenants,
and that in the event of Executive's actual or threatened breach of any
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such covenants, the Company will have no adequate remedy at law. Executive
accordingly agrees that in the event of any actual or threatened breach by him
of any of said covenants, the Company shall be entitled to immediate injunctive
and other equitable relief, without bond and without the necessity of showing
actual monetary damages. Nothing contained herein shall be construed as
prohibiting the Company from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of any damages which it
is able to prove.
(b) Each of the covenants in paragraphs 5 through 9 inclusive hereof shall
be construed as independent of any other covenants or other provisions of this
Agreement.
(c) In the event of any judicial determination that any of the covenants
set forth in paragraphs 5 through 9 inclusive hereof is not fully enforceable,
it is the intention and desire of the parties that the court treat said
covenants as having been modified to the extent deemed necessary by the court to
render them reasonable and enforceable, and that the court enforce them to such
extent.
11. LIFE INSURANCE. The Company may at its discretion and at any time apply for
and procure as owner and for its own benefit and at its own expense, insurance
on the life of Executive in such amounts and in such form or forms as the
Company may choose. Executive shall cooperate with the Company in procuring such
insurance and shall, at the request of Company, submit to such medical
examinations, supply such information and execute such documents as may be
required by the insurance company or companies to whom the Company has applied
for such insurance. Executive shall have no interest whatsoever in any such
policy or policies, except that, upon the termination of Executive's employment
hereunder, Executive shall have the privilege of purchasing any such insurance
from the Company for an amount equal to the actual premiums thereon previously
paid by Company.
12. NOTICES. Any notice required or permitted pursuant to the provisions of this
Agreement shall be deemed to have been properly given if in writing and when
sent by United States mail, certified or registered, postage prepaid, when sent
by facsimile or when personally delivered, addressed as follows:
If to Company:
Kensey Nash Corporation
Marsh Creek Corporate Center
55 East Uwchlan Avenue, Suite 204
Exton, Pennsylvania 19341
Attention: Kenneth Kensey
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With a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attention: David R. Shevitz, Esq.
If to Executive:
Douglas G. Evans
202 Foxtail Lane
Dowington, PA 19335
Each party shall be entitled to specify a different address for the receipt
of subsequent notices by giving written notice thereof to the other party in
accordance with this paragraph.
13. WAIVER OF BREACHES. No waiver of any breach of any of the terms, provisions
or conditions of this Agreement shall be construed or held to be a waiver of any
other breach, or a waiver of, acquiescence in or consent to any further or
succeeding breach thereof.
14. ASSIGNMENT. This Agreement shall not be assignable by either party without
the written consent of the other; provided, however, that this Agreement shall
be assignable to any corpora tion or entity which purchases the assets of or
succeeds to the business of the Company (a "Successor Employer"), and the
Company agrees to cause this Agreement to be assumed by any Successor Employer
as a condition to such purchase or succession. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, personal representatives, successors and assigns.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with laws and judicial decisions of the State of Pennsylvania.
16. SEVERABILITY. If any term or provision of this Agreement shall be held to be
invalid or unenforceable, the remaining terms and provisions hereof shall not be
affected thereby.
17. MISCELLANEOUS. Paragraph headings herein are for convenience only and shall
not affect the meaning or interpretation of the contents hereof. This Agreement
contains the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
between the parties and all prior obligations of the Company with respect to the
employment of Executive by the Company or the payment to Executive of
compensation of any kind whatsoever. No supplement or modification of this
Agreement shall be binding unless in writing and signed by both parties hereto.
This agreement may be executed in multiple counterparts, each of which shall be
deemed enforceable without production of the others.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first hereinabove set forth.
/s/ Douglas G. Evans
----------------------------
Douglas G. Evans
KENSEY NASH CORPORATION
By: /s/ Robert Bobb
----------------------------
Title:
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<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made and entered into as of the
1st day of April, 1999, by and between Kensey Nash Corporation, a Delaware
corporation (the "Company"), and Julie N. Broderick ("Executive").
WHEREAS, the Company wishes to retain Executive as an executive employee,
and Executive wishes to be employed by the Company in such capacity, all upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants of parties
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. EMPLOYMENT OF EXECUTIVE. The Company engages and employs Executive in an
executive capacity and Executive accepts such employment and agrees to act as an
employee of the Company in accordance with the terms of employment hereinafter
specified. Executive shall hold the office of Vice President of Clinical and
Regulatory Affairs and shall, subject to the direction and supervision of the
Company's of Board of Directors, (a) have the responsibilities and authority
customarily associated with such office, and (b) perform such other duties and
responsibilities as the Company's Board of Directors shall from time to time
assign to him/her. Executive agrees diligently and faithfully to serve the
Company and to devote his/her best efforts, his/her full business time and
his/her highest talents and skills to the furtherance and success of the
Company's business.
2. COMPENSATION. As full and complete compensation to Executive for all services
to be rendered by Executive hereunder, the Company shall pay Executive as
follows:
(a) The Company shall, during the term of Executive's employment, pay or
cause to be paid to Executive a base salary at the rate of $100,512 per annum.
Such base salary shall be paid in periodic installments at the discretion of the
Company (but not less frequently than monthly) in accordance with the Company's
normal mode of executive salary payment.
(b) The Company may, during the term of Executive's employment, pay or
cause to be paid to Executive an annual bonus of cash, stock or other property
in such amounts as the Company's Board of Directors may determine in their sole
discretion, but not to exceed 75% of Executive's base salary.
3. TERM OF EMPLOYMENT; SEVERANCE.
(a) The term of Executive's employment hereunder (the "Employment Term")
shall commence on the date hereof and shall expire two (2) years after such
date.
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(b) Termination of Executive's employment pursuant to this Agreement or
voluntary termination of employment shall not constitute a waiver of any of
Executive's obligations hereunder which survive termination hereof, including
without limitation those arising under paragraphs 5 through 9 inclusive hereof.
(c) In the event Executive's employment is terminated by the Company
without cause (as hereinafter determined), Executive shall continue to be
entitled to receive those fringe benefits enumerated in paragraph 4 hereof until
the expiration of the original Employment Term and the Company shall pay to
Executive a severance fee equal to the greater of (i) any amount of base salary
remaining until the expiration of the original Employment Term and bonus for
each remaining year of the original Employment Term, which bonus shall be based
on an average of the bonuses received by Executive during the last two fiscal
years prior to such termination without cause (the "Estimated Bonus"), to which
Executive would otherwise be entitled but for such termination, or (ii) twelve
(12) months of Executive's salary and Estimated Bonus; provided, however, that
Executive shall not be entitled to receive any fringe benefits or such severance
fee if Executive breaches any of his obligations arising under paragraphs 7
through 9 hereof. The continuance of Executive's fringe benefits and the payment
by the Company of any severance fee to Executive pursuant to this Agreement
shall be in complete satisfaction and settlement of, and as liquidated damages
for, any and all of Executive's claims, damages or causes of action arising
directly or indirectly from this Agreement. In addition, upon the termination of
Executive's employment by the Company without cause, all options to purchase
shares of common stock of the Company ("Options") that were granted to Executive
and have vested prior to the date of such termination without cause shall remain
exercisable for a period of one (1) year from the date of such termination
without cause.
(d) In the event Executive's employment is terminated with cause, the
Company shall have no further obligations hereunder or otherwise with respect to
Executive's employment from and after the date of such termination, except for
the payment of Executive's base salary accrued through the date of such
termination. For purposes of this Agreement, "cause" for termination shall be
deemed to exist upon (i) a determination by the Company's Board of Directors
that Executive has committed an act of fraud, embezzlement or other act of
dishonesty which would reflect adversely on the integrity of the Company or if
Executive is convicted of any criminal statute involving breach of fiduciary
duty or moral turpitude; (ii) a reasonable determination by the Company's Board
of Directors that Executive has failed to discharge his duties in a reasonably
satisfactory manner which failure is not cured by Executive within thirty (30)
days after delivery of written notice to Executive specifying the nature of such
failure; (iii) the death of Executive; (iv) a mental or physical disability of
Executive which renders Executive, in the reasonable opinion of the Company's
Board of Directors, unable to effectively perform his duties hereunder for a
substantially continuous period of one hundred eighty (180) days; or (v) the
voluntary termination of Executive's employment hereunder other than as a result
of a breach of the Company's obligations hereunder.
(e) In the event Executive's employment is terminated by the Company
pursuant to a Change in Control (as that term is defined in that certain
Termination and Change in Control Agreement dated of even date herewith between
the Company and Executive (the "Change in
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Control Agreement")), the Company shall pay to Executive a severance fee equal
to the greater of (i) the amount Executive would be entitled to receive under
paragraph 3(c) of this Agreement for a termination without cause, or (ii) the
amount Executive would be entitled to receive pursuant to a Change in Control
under the Change in Control Agreement.
(f) In the event Executive's employment is not renewed by the Company upon
the expiration of the Employment Term for a term (the "Renewal Term") of at
least two (2) years, Executive shall, upon (i) the expiration of the Renewal
Term, if any, or (ii) the Employment Term in the event there is no Renewal Term,
or (iii) upon Executive's voluntary termination within 60 days of the Company's
failure to renew his employment on substantially the same terms as set forth
herein for at least two (2) years, continue to receive those fringe benefits
enumerated in paragraph 4 hereof for a period of twelve (12) months, and the
Company shall pay to Executive a severance fee equal to twelve (12) months of
Executive's salary and the Estimated Bonus; provided, however, that Executive
shall not be entitled to receive any fringe benefits or such severance fee if
Executive breaches any of his obligations arising under paragraphs 7 through 9
hereof. In addition, all Options that were granted to Executive and have vested
prior to the expiration of the Renewal Term shall remain exercisable for a
period of one (1) year from the expiration of the Renewal Term.
(g) In the event any payments or benefits received by the Executive upon
his termination of employment (which payments shall include, without limitation,
the vesting of an option or other non-cash benefit or property), whether
pursuant to the terms of this Agreement or any other plan, arrangement, or
agreement with the Company or any affiliated company (collectively, the "Total
Payments") would be subject (in whole or in part) to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any similar tax as may hereafter be imposed (the "Excise Tax"), the following
provisions shall apply:
(i) In the event that the Total Payments cause the Executive's
"parachute payments" within the meaning of Section 280G(b)(2) of the Code
to equal or to exceed three times the Executive's "base amount" within the
meaning of Section 280G(b)(3) of the Code (the "Trebled Base Amount") by an
amount which is not greater than 10% of the Trebled Base Amount, the Total
Payments shall be reduced (or eliminated) such that no portion of the Total
Payments is subject to the Excise Tax. Reductions shall be made first to
those Total Payments arising under the terms of this Agreement.
(ii) In the event that the Total Payments cause the parachute payments
to exceed 110% of the Trebled Base Amount, the Company shall pay to the
Executive at the time specified below, an additional amount determined as
set forth below (the "Gross-up Payment"). The Gross-up Payment shall be
made with respect to the amount which equals 100% of the Executive's
"excess parachute payments" subject to the Excise Tax. The Gross-up Payment
shall be an amount such that the net amount retained by Executive with
respect to the Total Payments after reduction for any Excise Tax on the
Total Payments and any federal, state and local income or employment tax
and Excise Tax payable by the Executive on the Gross-up Payment hereunder
(provided that such amount is actually paid
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when due) shall be equal to the amount of the Total Payments that the
Executive would retain if the Total Payments did not constitute parachute
payments.
(iii) For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of any Excise Tax:
(a) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code,
and all "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the Excise
Tax, unless, and except that to the extent that, in the written
opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and reasonably acceptable to
Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the
meaning of Section 280G(b)(3) of the Code or are otherwise not
subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated
as subject to the Excise Tax shall be equal to the lesser of (i)
the total amount of the Total Payments or (ii) the total amount
of excess parachute payments within the meaning of Section
280G(b)(1) of the Code (after applying Section 3(g)(iii)(a)
above); and
(c) The value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Independent
Advisors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
In the event that the Excise Tax is subsequently determined
to be less than the amount taken into account hereunder at the
time the Gross-up Payment is made, Executive shall repay to the
Company at the time that the amount of such reduction in Excise
Tax is finally determined (but, if previously paid to the taxing
authorities, not prior to the time the amount of such reduction
is refunded to Executive or otherwise realized as a benefit by
Executive) the portion of the Gross-up Payment that would not
have been paid if such Excise Tax had been applied to initially
calculating the Gross-up Payment, plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time the
Gross-up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of
the Gross-up Payment), the Company shall make an additional
Gross-up Payment and shall indemnify and hold Executive harmless
in
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respect of such excess (plus any interest and penalties payable
with respect to such excess) at the time that the amount of such
excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to
the taxing authorities) after it has been determined that the Total
Payments (or any other portion thereof) are subject to the Excise Tax;
provided, however, that if the amount of such Gross-up Payment or
portion thereof cannot be finally determined on or before such day,
the Company shall pay to Executive on such day an estimate, as
determined by the Independent Advisors, of the minimum amount of such
payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code),
as soon as the amount thereof can be determined. In the event that the
amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by
the Company to Executive, payable on the fifth day after demand by the
Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code). If more than one Gross-up Payment is made,
the amount of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment.
Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-up Payment. Such notification
shall be given as soon as practicable but no later than ten (10)
business days after Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. Executive shall not pay such
claim prior to the expiration of the 30-day period following the date
on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies Executive in writing prior to
the expiration of such period that it desires to contest such claim,
Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
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(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income or employment tax (including interest and penalties with
respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 3(g), the Company shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole
option, either direct Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and Executive
agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as the Company shall determine; provided,
however, that if the Company directs Executive to pay such claim and
sue for a refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or
income or employment (including income or employment or interest or
penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of Executive with
respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a
Gross-up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
If, after the receipt by Executive of an amount advanced by the
Company pursuant to this Section 3(g), Executive becomes entitled to
receive any refund with respect to such claim, Executive shall
(subject to the Company's complying with the requirements of this
Section 3(g)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Executive of an amount
advanced by the Company pursuant to this Section 3(g), a determination
is made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify Executive in
writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the
amount of Gross-up Payment required to be paid.
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4. FRINGE BENEFITS.
(a) During the Employment Term, Executive shall be entitled to participate
in all health insurance and retirement benefit programs normally available to
other executives of the Company holding positions similar to that of Executive
hereunder (subject to all applicable eligibility rules thereof), as from time to
time in effect. During the Employment Term, Executive shall be entitled to a car
allowance in the amount of $750 per month, payable monthly. Executive shall also
receive the benefits listed on Exhibit A hereto.
(b) Executive shall be entitled to paid vacation according to the normal
vacation schedule for other executive employees. Executive shall make good faith
efforts to schedule such vacations so as to least conflict with the conduct of
the Company's business and shall give the Company adequate advance notice of his
planned absences.
(c) The Company shall reimburse Executive for all business-related expenses
incurred by Executive at the Company's direction. Executive shall submit to the
Company expense reports in compliance with established Company guidelines.
5. INVENTIONS. Executive agrees, on behalf of himself, his heirs and personal
representatives, that he will promptly communicate, disclose and transfer to the
Company free of all encumbrances and restrictions (and will execute and deliver
any papers and take any action at any time deemed necessary by the Company to
further establish such transfer) all inventions and improvements relating to
Company's business originated or developed by Executive solely or jointly with
others during the term of his employment hereunder. Such inventions and
improvements shall belong to the Company whether or not they are patentable and
whether or not patent applications are filed thereon. Such transfer shall
include all patent rights (if any) to such inventions or improvements in the
United States and in all foreign countries. Executive further agrees, at the
request of Company, to execute and deliver, at any time during the term of his
employment hereunder or after termination thereof, all assignments and other
lawful papers (which will be prepared at the Company's expense) relating to any
aspect of the prosecution of such patent applications and rights in the United
States and foreign countries.
6. EXPOSURE TO PROPRIETARY INFORMATION.
(a) Executive acknowledges and agrees that during the course of his
employment by Company, he will be in continuous contact with customers,
suppliers and others doing business with the Company throughout the world.
Executive further acknowledges that the performance of his duties hereunder will
expose him to data and information concerning the business and affairs of the
Company, including but not limited to information relative to the Company's
proprietary rights and technology, patents, financial statements, sales
programs, pricing programs, profitability analyses and profit margin
information, customer buying patterns, needs and inventory levels, supplier
identities and other related matters, and that all of such data and information
(collectively "the Proprietary Information") is vital, sensitive, confidential
and proprietary to Company.
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(b) In recognition of the special nature of his employment hereunder,
including but not limited to his special access to the Proprietary Information,
and in consideration of his employment, Executive agrees to the covenants and
restrictions set forth in paragraphs 7 through 9 inclusive hereof. As used in
this Agreement, the term "Company" shall include, where applicable, any parent,
subsidiary, sub-subsidiary, or affiliate of Company.
7. USE OF PROPRIETARY INFORMATION. Executive acknowledges that the Proprietary
Information constitutes a protectible business interest of Company, and
covenants and agrees that during the term of his employment hereunder and after
the termination of such employment, he shall not, directly or indirectly,
whether individually, as a director, stockholder, owner, partner, employee or
agent of any business, or in any other capacity, make known, disclose, furnish,
make available or utilize any of the Proprietary Information, other than in the
proper performance of his duties during the term of his employment hereunder.
Executive's obligations under this paragraph with respect to particular
Proprietary Information shall terminate only at such time (if any) as the
Proprietary Information in question becomes generally known to the public other
than through a breach of Executive's obligations hereunder.
8. RESTRICTION AGAINST COMPETITION AND EMPLOYING OR SOLICITING COMPANY
EMPLOYEES, CUSTOMERS OR SUPPLIERS. Executive covenants and agrees that during
the term hereof and for the one (1) year period immediately following the
effective date of any termination of his employment hereunder (the "Termination
Date"), he shall not, directly or indirectly, whether individually, as a
director, stockholder, partner, owner, employee or agent of any business, or in
any other capacity, (i) engage in a business substantially similar to that which
is conducted by the Company in any market area in which such business is
operated; (ii) solicit any party who is or was a customer or supplier of the
Company on the Termination Date or at any time during the six month period
immediately prior thereto for the sale or purchase of any type or quantity of
products sold by or used in the business of the Company on the Termination Date
or at any time within such six month period; or (iii) solicit for employment any
person who was or is an employee of the Company on the Termination Date or at
any time during the twelve month period immediately prior thereto.
9. RETURN OF COMPANY MATERIALS UPON TERMINATION. Executive acknowledges that all
price lists, sales manuals, catalogs, binders, customer lists and other customer
information, supplier lists, financial information, and other records or
documents containing Proprietary Information prepared by Executive or coming
into his possession by virtue of his employment by the Company is and shall
remain the property of the Company and that upon termination of his employment
hereunder, Executive shall return immediately to the Company all such items in
his possession, together with all copies thereof.
10. EQUITABLE REMEDIES.
(a) Executive acknowledges and agrees that the covenants set forth in
paragraphs 5 through 9 inclusive hereof are reasonable and necessary for the
protection of the Company's business interests, that irreparable injury will
result to the Company if Executive breaches any of the terms of said covenants,
and that in the event of Executive's actual or threatened breach of any
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such covenants, the Company will have no adequate remedy at law. Executive
accordingly agrees that in the event of any actual or threatened breach by him
of any of said covenants, the Company shall be entitled to immediate injunctive
and other equitable relief, without bond and without the necessity of showing
actual monetary damages. Nothing contained herein shall be construed as
prohibiting the Company from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of any damages which it
is able to prove.
(b) Each of the covenants in paragraphs 5 through 9 inclusive hereof shall
be construed as independent of any other covenants or other provisions of this
Agreement.
(c) In the event of any judicial determination that any of the covenants
set forth in paragraphs 5 through 9 inclusive hereof is not fully enforceable,
it is the intention and desire of the parties that the court treat said
covenants as having been modified to the extent deemed necessary by the court to
render them reasonable and enforceable, and that the court enforce them to such
extent.
11. LIFE INSURANCE. The Company may at its discretion and at any time apply for
and procure as owner and for its own benefit and at its own expense, insurance
on the life of Executive in such amounts and in such form or forms as the
Company may choose. Executive shall cooperate with the Company in procuring such
insurance and shall, at the request of Company, submit to such medical
examinations, supply such information and execute such documents as may be
required by the insurance company or companies to whom the Company has applied
for such insurance. Executive shall have no interest whatsoever in any such
policy or policies, except that, upon the termination of Executive's employment
hereunder, Executive shall have the privilege of purchasing any such insurance
from the Company for an amount equal to the actual premiums thereon previously
paid by Company.
12. NOTICES. Any notice required or permitted pursuant to the provisions of this
Agreement shall be deemed to have been properly given if in writing and when
sent by United States mail, certified or registered, postage prepaid, when sent
by facsimile or when personally delivered, addressed as follows:
If to Company:
Kensey Nash Corporation
Marsh Creek Corporate Center
55 East Uwchlan Avenue, Suite 204
Exton, Pennsylvania 19341
Attention: Kenneth Kensey
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With a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attention: David R. Shevitz, Esq.
If to Executive:
Julie N. Broderick
207 N. Matlack Street
West Chester, PA 19380
Each party shall be entitled to specify a different address for the receipt
of subsequent notices by giving written notice thereof to the other party in
accordance with this paragraph.
13. WAIVER OF BREACHES. No waiver of any breach of any of the terms, provisions
or conditions of this Agreement shall be construed or held to be a waiver of any
other breach, or a waiver of, acquiescence in or consent to any further or
succeeding breach thereof.
14. ASSIGNMENT. This Agreement shall not be assignable by either party without
the written consent of the other; provided, however, that this Agreement shall
be assignable to any corpora tion or entity which purchases the assets of or
succeeds to the business of the Company (a "Successor Employer"), and the
Company agrees to cause this Agreement to be assumed by any Successor Employer
as a condition to such purchase or succession. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, personal representatives, successors and assigns.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with laws and judicial decisions of the State of Pennsylvania.
16. SEVERABILITY. If any term or provision of this Agreement shall be held to be
invalid or unenforceable, the remaining terms and provisions hereof shall not be
affected thereby.
17. MISCELLANEOUS. Paragraph headings herein are for convenience only and shall
not affect the meaning or interpretation of the contents hereof. This Agreement
contains the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
between the parties and all prior obligations of the Company with respect to the
employment of Executive by the Company or the payment to Executive of
compensation of any kind whatsoever. No supplement or modification of this
Agreement shall be binding unless in writing and signed by both parties hereto.
This agreement may be executed in multiple counterparts, each of which shall be
deemed enforceable without production of the others.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first hereinabove set forth.
/s/ Julie N. Broderick
------------------------------
Julie N. Broderick
KENSEY NASH CORPORATION
By: /s/ Joseph W. Kaufmann
------------------------------
Title: President and CEO
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EXHIBIT 10.12
TENANT LEASE
MARSH CREEK ASSOCIATES ONE
TABLE OF CONTENTS
-----------------
Paragraph Title Page
- --------- ----- ----
1. Parties 5
2. Premises, Parking and Common Areas 5
2.1 Premises 5
2.2 Vehicle Parking 5
2.2.1 Rights of Lessee 5
2.2.2 Rights of Lessor 5
2.3 Common Areas - Definition 5
2.4 Common Areas - Lessee's Rights 6
2.5 Common Areas - Rules and Regulations 6
2.6 Common Areas - Changes 6
3. Term of Lease 6
3.1 Term 6
3.2 Possession and Improvements to Premises 6
4. Rent 7
4.1 Base Rent 7
4.2 Operating Expenses 7
4.2 (a) Lessee's Share (Percentage of) 8
(b) Operating Expenses Defined 8
(c) Improvements, Facilities and Services 8
(d) Operating Expenses Payable 8
5. Security Deposit 9
6. Use 9
6.1 Compliance with Law 9
6.2 Condition of Premises 10
7. Maintenance, Repairs, Alterations and
Common Area Services 10
7.1 Lessor's Obligations 10
7.2 Lessee's Obligations 11
7.3 Decoration, Fixtures, Alterations and
Additions 11
7.4 Utility Additions 12
8. Insurance; Indemnity 12
8.1 Liability Insurance - Lessee 12
8.2 Liability Insurance - Lessor 13
8.3 Property Insurance 13
(a) Property Insurance - Lessor 13
(b) Property Insurance - Lessee 13
8.4 Payment of Premium Increase 13
8.5 Insurance Policies 13
<PAGE> 2
8.6 Waiver of Subrogation 14
8.7 Indemnity 14
8.8 Exemption of Lessor from Liability 14
9. Damage or Destruction 14
9.1 Definitions 14
(a) "Premises Partial Damage" 15
(b) "Premises Total Destruction" 15
(c) "Premises Building Partial Damage" 14
(d) "Premises Building Total Destruction" 15
(e) "Corporate Center Buildings" 15
(f) "Corporate Center Buildings Total
Destruction" 15
(g) "Insured Loss" 15
(h) "Replacement Cost" 15
9.2 Premises Partial Damage; Premises
Building Partial Damage 15
(a) Insured Loss 15
(b) Uninsured Loss 15
9.3 Premises Total Destruction; Premises
Building Total Destruction;
Corporate Center Building
Total Destruction 15
9.4 Damage Near End of Term 16
9.5 Abatement of Rent: Lessee's Remedies 16
9.6 Termination - Advance Payments 16
9.7 Waiver 16
10. Real Property Taxes 16
10.1 Payment of Taxes 16
10.2 Time of Payment of Taxes 17
10.3 Definition of "Real Property Tax" 17
10.4 Joint Assessment 17
10.5 Personal Property Taxes 17
11. Utilities 17
12. Assignment and Subletting 17
12.1 Lessor's Consent Required 17
12.2 Lessee Affiliate 18
12.3 Terms and Conditions of Assignment 18
12.4 Terms and Conditions Applicable to
Subletting 18
12.5 Attorney's Fees 19
13. Default; Remedies 19
13.1 Default 20
13.2 Remedies 20/21
13.3 Late Charges 22
14. Condemnation 22
15. Broker's Fee 23
16. Estoppel Certificate 23
17. Lessor's Liability 24
18. Severability 24
19. Interest on Past-due Obligations 24
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20. Time of Essence 24
21. Additional Rent 24
22. Incorporation of Prior Agreements;
Amendments 24
23. Notices 24
24. Waivers 25
25. Holding Over 25
26. Cumulative Remedies 25
27. Covenants and Conditions 25
28. Binding Effect; Choice of Law 25
29. Subordination 25
30. Attorney's Fees 25
31. Lessor's Access 26
32. Auctions 26
33. Signs 26
34. Merger 26
35. Consents 26
36. Guarantor 26
37. Quiet Possession 26
38. Options 27
38.1 Definitions 27
38.2 Options Personal 27
38.3 Multiple Options 27
38.4 Effect of Default on Options 27
39. Security Measures 27
40. Easements 28
41. Performance Under Protest 28
42. Security Interest 28
43. Assignment of Rights 28
44. Covenants and Warranties 28
45. Authority 29
46. Conflict 29
47. Offer 29
48. Addenda 30
Signature Page 30
48.1 Addendum No. 1 - Table (1) 31
48.2 Addendum No. 2 - Rules and Regulations 32/33
48.3 Addendum No. 3 - Sanitary Waste Regulation 34
48.4 Addendum No. 4 - Option Terms 35
48.5 Addendum No. 5 - Miscellaneous Conditions 36
EXHIBIT "A" 37
EXHIBIT "B" 38
EXHIBIT "C" 39/42
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TENANT LEASE
MARSH CREEK ASSOCIATES ONE
EXTON, PENNSYLVANIA 19341
1. PARTIES. This Lease, dated for reference purposes only, November 19, 1996
is made by and between MARSH CREEK ASSOCIATES ONE a Pennsylvania Limited
Partnership, 75 East Uwchlan Avenue, Suite #110, Exton, PA 19341 (hereinafter
called "Lessor") and KENSEY NASH CORPORATION (hereinafter called "Lessee").
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, an upon all of the conditions set forth herein, the
real property situate in the County of Chester, Commonwealth commonly know as
Marsh Creek Corporate Center, Exton, Pennsylvania, and described as 41,142 s.f.
in Building Two, located at 55 East Uwchlan Avenue, Marsh Creek Corporate
Center, Uwchlan Township, Pennsylvania, 19341, herein referred to as the
"Premises", including rights to the Common Areas as hereinafter specified but
not including any rights to the roof of the Premises or to any other Building in
the Corporate Center. The Premises are all of a building herein referred to as
the "Building" and are located in red on EXHIBIT "A" attached hereto. The
Premises, the Building, the Common Areas, the land upon which the same are
located, along with all other buildings and improvements thereon, are herein
collectively referred to as the "Corporate Center".
2.2 VEHICLE PARKING. Lessee shall be entitled to vehicle parking spaces,
unreserved and unassigned, on those portions of the Common Areas designated by
Lessor for parking. Said parking spaces shall be used only for parking by
vehicles no larger than full size passenger automobiles or pick-up trucks,
herein called "Permitted Size Vehicles." Lessor herein retains the right to
issue parking stickers in the future to all Lessees. Notwithstanding the above,
Lessee shall have the exclusive right to park permitted size vehicles in the
rear of Building Two in an area designated by Lessor.
2.2.1 Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers
or invitees to be loaded, unloaded, or parked in areas other than those
designated by Lessor for such activities. Parking/Storage of unused vehicles
cannot be done without the specific written approval of Lessor.
2.2.2 If Lessee permits or allows any of the prohibited activities
described in Paragraph 2.2 of the Lease, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.3 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Corporate Center that are provided and designated by the Lessor from
time to time for the general nonexclusive use of Lessor, Lessee and of other
lessees of the Corporate Center and their
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respective employees, suppliers, shippers, customers and invitees, including
parking areas, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, driveways and landscaped areas.
2.4 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Corporate Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.5 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable rules and regulations with respect thereto. Lessee
agrees to abide by and conform to all such rules and regulations, and to cause
its employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the noncompliance with
said rules and regulations by other lessees of the Corporate Center.
2.6 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways;(b) To close
temporarily any of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains available;(c) To designate other land
outside the boundaries of the Corporate Center to be a part of the Common
Areas;(d) To add additional buildings and improvements to the Common Areas;(e)
To use the Common Areas while engaged in making additional improvements,
repairs or alterations to the Corporate Center, or any portion thereof;(f) To
do and perform such other acts and make such other charges in, to or with
respect to the Common Areas and Corporate Center as Lessor may, in the exercise
of sound business judgment, deem to be appropriate.
3. TERM OF LEASE.
3.1 TERM. The term of this Lease shall be for Six (6) years commencing on
December 1, 1996 and ending on November 30, 2002 unless sooner terminated
pursuant to any provision hereof.
3.2 POSSESSION AND IMPROVEMENTS TO THE PREMISES.
(a) Lessor shall, prior to the commencement of the Lease term, cause
the completion of renovations, improvements and additions to the Premises in
accordance with the terms of a Work Letter attached hereto as Exhibit "B", which
has been approved by Lessee. If, during the performance of Lessor's work,
Lessee desires to have additional work done by Lessor's contractors, Lessee may
make a written request to Lessor, including all necessary plans and
specifications. Lessor will use reasonable efforts to cause such contractors to
perform
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Lessee's additional work, provided that Lessee makes such arrangements for
payment as Lessor may request, including payment of the entire cost thereof in
advance.
(b) If lessor, for any reason whatsoever, cannot deliver possession
of the Premises to Lessee at the commencement of the Lease term, this Lease
shall not be void or voidable, nor shall Lessor be liable to Lessee for any loss
or damage resulting therefrom, but the time for commencement of the Lease term
shall be delayed until the day following the date on which the Premises are
available for possession by Lessee as designated in a notice by Lessor to Lessee
and the Lease term shall remain unchanged. During such period, the rights and
obligations of the parties shall be suspended; provided, however, that if Lessor
permits Lessee to occupy any portion of the Premises prior to the commencement
of the Lease term, such occupancy shall be under all of the terms, covenants,
and conditions of this Lease, except the covenant to pay Base Rent. In no event
shall Lessor be liable to Lessee for any loss or damage suffered or incurred by
Lessee on account of Lessor's failure or inability to complete any improvements
or otherwise deliver possession of the Premises to Lessee on the date herein
specified for the commencement of the Lease term.
(c) Lessor will permit Lessee and its agents to enter the Premises
prior to the commencement of the Lease term in order that Lessee may, subject to
all of the conditions and requirements contained in Paragraph 7.3 hereof,
perform, through its own contractors, such other work and decorations as Lessee
may desire at the same time that Lessor's contractors are working in the
Premises provided that Lessor shall first have approved Lessee's plans and
contractors. The foregoing license to enter prior to the commencement of the
Lease term, however, is conditional upon Lessee's workmen and mechanics working
in harmony and not interfering with the activities of or labor employed by
Lessor, Lessor's mechanics or contractors or by any other tenant or its
contractors. If at any time such entry shall cause disharmony or interference,
this license may be withdrawn by Lessor upon forty-eight (48) hours written
notice to Lessee. Lessee's entry onto the Premises prior to the commencement of
the Lease term shall be under all of the terms, covenants, provisions and
conditions of this Lease, except as to the covenant to pay Base Rent. Lessor
shall not be liable in any way for any injury, loss or damage which may occur to
any of the Lessee's decorations or installments so made prior to the date of
commencement of the term of this Lease. Lessor shall not have or assume any
liability or responsibility of any nature whatsoever, not shall it waive or
release any of its rights or remedies under this Lease or otherwise at law by
virtue of, or any manner on account of Lessor's approval of, or consent to,
Lessee's plans or contractors pursuant to this Paragraph or any other provision
of this Lease. For purposes of determining the date when the Premises are
available for possession by Lessee, there shall not be considered the duration
of any delay which is caused by the performance of any work or activity in the
Premises by Lessee or any of its employees, agents or contractors, and the
Premises shall be deemed ready for possession on the date the Premises would
have been ready but for such cause.
4. Rent
4.1 Base Rent. Lessee shall pay to Lessor, as Base Rent for the Premises,
without any offsets or deductions, on the first day of each month of the term
hereof; monthly payments in advance in accordance with the following schedule:
<TABLE>
<S> <C>
December 1, 1996 $18,264,40 which is $5.75 per sq. ft.
January 1, 1997 through Nov. 30 1999 $19,713.87 per month which is $5.75 per sq. ft.
December 1, 1999 through Nov. 30, 2001 $20,571.00 per month which is $6.00 per sq. ft.
December 1, 2001 through Nov. 30, 2002 $21,428,12 per month which is $6.25 per sq. ft.
</TABLE>
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the Base Rent. Rent shall be payable in lawful
money of the United States to Lessor at the address stated herein or to such
other persons or at such other places at Lessor may designate in writing.
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4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term hereof,
in addition to the Base Rent, Lessee's Share, as hereinafter defined, of all
Operating Expenses, as hereinafter defined, during each calender year of the
term of this Lease, in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as 47.83
percent.
(b) "Operating Expenses" is defined, for purposes of this Lease, as all
costs incurred by Lessor, if any, for:
(i) The operation, management, repair, replacement, and
maintenance, in neat, clean, good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities and fences and gates;
(bb) Trash disposal services;
(cc) Tenant directories;
(dd) Fire detection systems including sprinkler system
maintenance and repair;
(ee) Security services;
(ff) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense";
(gg) Roof and all penetrations thereof;
(hh) The cost of all other time which, under standard
accounting practices, constitute operating or maintenance costs attributable to
the Common Areas of the Corporate Center.
(ii) Any deductible portion of an insured loss concerning any of
the items or matters described in this Paragraph 4.2;
(iii) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under Paragraph 8 hereof;
(iv) The amount of the real property tax to be paid by Lessor
under Paragraph 10.1 hereof:
(v) The cost of water, gas and electricity to service the
Common Areas.
(c) The inclusion of the improvements, facilities and services set forth
in Paragraph 4.2(b)(i) of the definition of Operating Expenses shall not be
deemed to impose an obligation upon Lessor to either provide said improvements
or facilities or to provide those services unless the Corporate Center already
has the same, Lessor already provides the services, or Lessor has agreed
elsewhere in this Lease to provide the same or some of them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee within
ten (10) days after a reasonably detailed statement of actual expenses is
presented to Lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Operating
Expenses and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each twelve-month period of the Lease term, on the same day as
the Base Rent is due hereunder. In the event that Lessee pays Lessor's estimate
of Lessee's Share of Operating Expenses as aforesaid, Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Operating
Expenses incurred during the preceding year. If Lessee's payments under this
Paragraph 4.2(d) during said preceding year exceed Lessee's Share as indicated
on said statement, Lessee shall be entitled to credit the
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amount of such overpayment against Lessee's Share of Operating Expenses next
falling due. If Lessee's payment under this Paragraph during said preceding
year were less than Lessee's share as indicated on said statement, Lessee shall
pay to Lessor the amount of the deficiency within ten (10) days after delivery
by Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor $13,333.33 as security
for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee
fails to pay rent or other charges due hereunder, or otherwise defaults with
respect to any provision of this Lease, Lessor may use, apply or retain all or
any portion of said deposit for the payment of any rent or other charge in
default or for the payment of any other sum to which Lessor may become
obligated by reason of Lessee's default, or to compensate Lessor for any loss
or damage which Lessor may suffer thereby. If Lessor so uses or applies all or
any portion of said deposit, Lessee shall within ten (10) days after written
demand therefor deposit cash with Lessor in an amount sufficient to restore
said deposit to the full amount then required of Lessee. If the monthly rent
shall, from time to time, increase during the term of this Lease, Lessee shall,
at the time of such increase, deposit with Lessor additional money as a
security deposit so that the total amount of the security deposit held by
Lessor shall at all times bear the same proportion to the then current Base
Rent as the initial security deposit bears to the initial Base Rent set forth
in Paragraph 4. Lessor shall not be required to keep said security deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, or Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises, providing Lessee has advised Lessor
in writing of where and to whom said security deposit funds shall be forwarded.
No trust relationship is created herein between Lessor and Lessee with respect
to said Security Deposit.
6. Use. The Premises shall be used and occupied only for Offices,
Laboratories, and Warehousing for the business of the Development of Medical
Devices and related items and for no other purpose.
6.1 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will occupy the Premises, does not violate any covenants
or restrictions of record, or any applicable building code, regulation or
ordinance in effect on such Lease term commencement date. In the event it is
determined that this warranty has been violated, then it shall be the obligation
of the Lessor, after written notice from Lessee, to promptly, at Lessor's sole
cost and expense, rectify any such violation. In the event Lessee does not give
to Lessor written notice of the violation of this warranty within one month
from the date that the Lease term commences, the correction of same shall be
the obligation of the Lessee at Lessee's sole cost. The warranty contained in
this Paragraph 6.2(a) shall be of no force or effect if, prior to the date of
this Lease, Lessee was an owner or occupant of the Premises and, in such event,
Lessee shall correct any such violation at Lessee's sole cost.
(b) Except as provided in Paragraph, 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in
effect or which may hereafter come into effect, whether or not they reflect a
change in policy from that now existing, during the term or any part of the
term hereof, relating in any manner to the Premises and the occupation and use
by Lessee of the Premises and of the Common Areas. Lessee shall not use nor
permit the use of the Premises or the Common Areas in any manner that will tend
to create waste or a nuisance or shall tend to disturb other occupants of the
Corporate Center.
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6.2 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on the Lease commencement date (unless Lessee is already in possession)
and Lessor warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this Paragraph 6.3(a) shall be of no force or effect if, prior to
the date of this Lease, Lessee was an owner or occupant of the Premises.
Except for the 30 days warranty period noted above, Lessee, by taking
possession of the Premises, shall be deemed to have accepted the Premises in
their condition on the date of Lessee's possession, as being in good and
sanitary order, condition and repair, and to have agreed that Lessor has
completed all of the Lessor's work to be performed prior to the commencement of
the Lease term under Paragraph 3.2(b).
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. MAINTENANCE, REPAIRS, ALTERNATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Subject to the provision of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's
expense, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, and roof of the Premises, as well as the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations of the
Common Areas and all parts thereof, as well as providing the services for which
there is an Operating Expense pursuant to Paragraph 4.2. Lessor shall not,
however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair or replace windows,
doors or plate glass of the Premises. Lessor shall have no obligation to make
repairs under this Paragraph 7.1 until a reasonable time after receipt of
written notice from Lessee of the need for such repairs. Lessee expressly waives
the benefits of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Premises in good order, condition
and repair. Lessor shall not be liable for damages or loss of any kind or nature
by reason of Lessor's failure to furnish any Common Area Services when such
failure is caused by accident, breakage, repairs, strikes, lockout, or other
labor disturbances or disputes of any character, or by any other cause beyond
the reasonable control of Lessor.
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7.2 Lessee's Obligations.
(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense, shall
keep in good order, condition and repair the Premises and every part thereof
(whether or not the damaged portion of the Premises or the means of repairing
the same are reasonably or readily accessible to Lessee) including, without
limiting the generality of the foregoing, all plumbing, heating, ventilating
and air conditioning systems (Lessee shall procure and maintain, at Lessee's
expense, a heating and air conditioning system maintenance contract), electrical
and lighting facilities and equipment within the Premises, fixtures, interior
walls and interior surfaces of exterior walls, ceilings, windows, doors, plate
glass, and skylights located within the Premises.
(b) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.2 or under any other Paragraph of this Lease, Lessor may enter upon
the Premises after ten (10) days' prior written notice to Lessee (except in the
case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to Lessor
together with Lessee's next Base Rent installment.
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices. Lessee shall
repair any damage to the Premises occasioned by the installation or removal of
Lessee's trade fixtures, alterations, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the Premises in good
operating condition.
7.3 Decoration, Fixtures, Alterations and Additions.
(a) Lessee shall not decorate, paint, or in any other manner alter
the exterior of the Premises and shall not install or affix any device, fixture
or attachment on or to the exterior of the Premises or any part of the Building
without first obtaining Lessor's written consent, which consent shall not be
unreasonably withheld. Lessee will maintain any such decoration, lettering,
advertising matter or other thing as may be approved by Lessor in good condition
and repair at all times, and in compliance with all applicable governmental
requirements.
(b) All movable personal property and all trade fixtures installed
by Lessee in the Premises shall remain the property of Lessee and shall be
removable at the expiration or sooner termination of the term of this Lease or
any renewal or extension thereof, provided Lessee shall not at such time be in
default under any covenant or agreement contained in this Lease and that Lessee
shall promptly repair any damage to the premises cause by such removal. If
Lessee fails to remove any such movable personal property or trade fixtures upon
expiration or sooner termination of the term of this Lease, such personal
property and trade fixtures shall be deemed abandoned and shall become the
property of Lessor or, at the option of Lessor, may be removed from the Premises
and stored for the account of Lessee at the cost and expense of Lessee which
cost and expense shall constitute additional rent hereunder. Lighting fixtures,
heating and air conditioning equipment, plumbing and electrical systems and
fixtures and floor covering shall not be deemed to be personal property and
trade fixtures whether installed by Lessee or by anyone else and shall not be
removed from the Premises but shall, upon installation, become the property of
Lessor without any compensation to Lessee.
(c) Lessee shall not make any changes, alterations, additions or
improvements to the Premises, or any part thereof, without first obtaining the
written consent of
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Lessor which consent shall not be unreasonably withheld. Lessee shall submit to
Lessor plans and specifications for the proposed work and an estimate of the
anticipated cost thereof. Lessor may also impose such conditions as to permits,
insurance, bonds, and waivers and releases of mechanics' liens as Lessor, in its
sole discretion, deems advisable or necessary. Any changes, alterations,
additions or improvements made by Lessee with the consent of Lessor shall become
the property of Lessor and shall remain upon the Premises at the expiration or
sooner termination of this Lease. The construction of any such alterations by
Lessee shall be conducted so as not to Interfere with Lessor's activities or the
operation of the Building. Lessor shall have the right to order Lessee to
terminate Lessee's construction work; provided, however, that Lessor shall use
reasonable discretion in exercising such right. Upon notification from Lessor
to Lessee to cease work, Lessee shall remove forthwith from the Premises and the
Building all Lessee's agents, employees and contractors until Lessor shall have
given its written consent, and Lessee in connection therewith shall have no
claim for damages of any nature whatsoever against Lessor. Lessee shall, at its
expense, remove from the Premises and from the Building all construction trash
which may accumulate in connection with Lessee's activities. All repairs,
alterations, additions and improvements performed by Lessee shall be done in a
good and workmanlike manner in compliance with all applicable governmental
requirements and the reasonable requirements of the insurers of the Building.
During the performance of any such changes, alterations, additions, or
improvements by Lessee, Lessee shall obtain and maintain comprehensive general
public liability, property damage, builder's risk, workmen's compensation and
other insurance covering Lessor, Lessee, and each holder of a mortgage on the
Building in amounts, with coverage and with companies reasonably satisfactory to
Lessor.
(d) Before performing permitting the performance of any work within
the Premises, Lessee shall take such steps as Lessor may reasonably require in
order that no lien for labor or materials will attach to the Premises or all or
any part of the Building as a result of such work. Lessee shall not permit any
mechanic's or other lien or claim for lien or notice in respect thereto to be
filed against the Premises or any fixtures, equipment or furnishings contained
therein. If any such lien or claim be made or filed, Lessee shall, within ten
(10) days after notice of the filing thereof, cause said lien notice or claim
for lien to be effectively removed and discharged of record; provided, however,
that Lessee shall have the right to contest the amount or validity, in whole or
in part, of any such lien, notice or claim by appropriate proceedings, but in
such event Lessee shall promptly bond such lien, notice of claim with a surely
company, or by any other means satisfactory to Lessor and shall prosecute such
proceedings with all due diligence and dispatch. If Lessee fails so to discharge
or bond such lien, Lessor may, at its election, remove or discharge such lien,
notice or claim by paying the full amount thereof, or otherwise and without any
investigation or contest of the validity thereof, and Lessee shall pay to lessor
upon demand, as additional rent the amount paid by Lessor including Lessor's
costs, expenses and counsel fees.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas for
the benefit of Lessor or Lessee, or any other lessee of the Corporate Center,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. Insurance; Indemnity.
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Combined
Single Limit Bodily Injury and Property Damage insurance insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance of
the Premises and the Corporate Center. Such insurance shall be in an amount not
less than $1,000,000.00 per occurrence. The policy shall insure performance by
Lessee of the indemnity provisions of the Paragraph 8. The limits of said
insurance shall not, however, limit the liability of Lessee hereunder.
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8.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily injury
and property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use occupancy or maintenance of the
Corporate Center in an amount not less than $1,000,000.00 per occurrence.
8.3 PROPERTY INSURANCE.
(a) PROPERTY INSURANCE - LESSOR. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies of insurance covering
loss or damage to the Corporate Center improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in an amount not to
exceed the full replacement value thereof, as the same may exist from time to
time, providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief, flood
(in the event same is required by a lender having a lien on the Premises)
special extended perils ("all risk", as such term is used in the insurance
industry), and such other insurance as Lessor deems advisable. In addition,
Lessor shall obtain and keep in force, during the term of the Lease, a policy
of rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all Operating Expenses for said
period. In the event that the Premises shall suffer an insured loss as defined
in Paragraph 9.1(g) hereof, the deductible amount under the casualty insurance
policies relating to the Premises shall be paid by Lessee.
(b) PROPERTY INSURANCE AND BUSINESS INCOME - LESSEE. Lessee shall
obtain and keep in force during the term of this Lease a policy or policies of
insurance covering loss or damage to its personal property, fixtures,
equipment, Lessee made but Lessor owned improvements, inventory, etc. in an
amount equal to 100% of its current replacement value, as the same may exist
from time to time, providing protection against all perils, included within the
classification of fire, extended coverage, vandalism, malicious mischief,
special extended perils ("all risk" as such term is used in the insurance
industry) and plate glass insurance.
In addition, Lessee shall obtain and keep in force during the term of this
Lease, a business income insurance policy in an amount equal to one year's
expected gross income.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) After the term of this Lease has commenced, Lessee shall not be
responsible for paying Lessee's Share of any increase in the property insurance
premium for the Corporate Center specified by Lessor's insurance carrier as
being caused by the use, acts or omissions of any other lessee of the Corporate
Center, or by the nature of such other lessee's occupancy which create an
extraordinary or unusual risk.
(b) Lessee, however, shall pay the entirety of any increase in the
property insurance premium for the Corporate Center over what it was immediately
prior to the commencement of the term of this Lease if the increase is specified
by Lessor's insurance carrier as being caused by the nature of Lessee's
occupancy or any act or omission of Lessee.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises as
set forth in the most current issue of "Best's Insurance Guide." Lessee shall
not do or permit to be done anything which shall invalidate the insurance
policies carried by Lessor. Lessee shall deliver to Lessor copies of liability
insurance policies required under Paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
commencement date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior
to the expiration of such policies, furnish Lessor with renewals or "binders"
thereof Lessor and any lender having a
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lien or mortgage on the Premises, Building or the Corporate Center shall be
added as additional insureds, as their interests may appear, to all insurance
policies required to be kept by Lessee under the terms of this Lease.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their right of recovery against the other for loss
or damage arising out of or incident to the perils insured against which perils
occur in, on or about the Premises, whether due to the negligence of Lessor or
Lessee or their agents, employees, contractors and/or invitees. Lessee and
Lessor shall, upon obtaining the policies of insurance required, give notice to
the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in their Lease.
8.7. INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Corporate Center, or
from the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
act or omission of Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon, and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Corporate Center arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee. Lessee's employees, invitees, customers, or any other person in or
about the Premises or the Corporate Center, nor shall Lessor be liable for
injury to the person of Lessee, Lessee's employees, agents or contractors,
whether such damage or injury is caused by or results from fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether said damage
or injury results from conditions arising upon the Premises or upon other
portions of the Corporate Center, or from other sources or places and
regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible to Lessee. Lessor shall not be liable for
any damages arising from any act or neglect of any other lessee, occupant or
user of the Corporate Center, nor from the failure of Lessor to enforce the
provisions of any other lease of the Corporate Center.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean if the Premises are damaged
or destroyed to the extent that the cost of repair is less than fifty percent
of the then replacement cost of the Premises.
(b) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is fifty percent or
more of the then replacement cost of the Premises.
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(c) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent of the then replacement cost of the
Building.
(d) "Premises Building Total Destruction" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent or more of the then replacement cost of the
Building.
(e) "Corporate Center Buildings" shall mean all of the buildings on
the Corporate Center Site.
(f) "Corporate Center Buildings Total Destruction" shall mean if the
Corporate Center Buildings are damaged or destroyed to the extent that the cost
of repair is fifty percent or more of the then replacement cost of the
Corporate Center Buildings.
(g) "Insured Loss" shall mean damage or destruction which was caused
by an event required to be covered by the insurance described in Paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss
an uninsured loss.
(h) "Replacement Cost" shall mean the amount of money necessary to
be spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring including all improvements
made by lessees.
9.2 PREMISES PARTIAL DAMAGE: PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises Partial
Damage or Premises Building Partial Damage, then Lessor shall, at Lessor's
expense, repair such damage to the Premises, but not Lessee's fixtures or
equipment, as soon as reasonably possible, and this Lease shall continue in
full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from using the Premises, Lessor may at
Lessor's option either (i) repair such damage as soon as reasonably possible at
Lessor's expense in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after the
date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after
the receipt of such notice to give written notice to Lessor of Lessee's
intention to repair such damage at Lessee's expense, without reimbursement from
Lessor, in which event this Lease shall continue in full force and effect, and
Lessee shall proceed to make such repairs as soon as reasonably possible. If
Lessee does not give such notice within such 10-day period this Lease shall be
canceled and terminated as of the date of the occurrence of such damage.
9.3 PREMISES TOTAL DESTRUCTION: PREMISES BUILDING TOTAL DESTRUCTION,
CORPORATE CENTER BUILDINGS TOTAL DESTRUCTION. Subject to the provisions of
paragraphs 9.4 and 9.5, if at any time during the term of this Lease there is a
damage, whether or not it is an Insured Loss, and which falls into the
classification of either (a) Premises Total Destruction, or (b) Premises
Building Total Destruction, or (c) Corporate Center Buildings Total
Destruction, then
Lessor may at lessor's option either (i) repair such damage or destruction, but
not Lessee's fixtures or equipment, as soon as reasonably possible at Lessor's
expense, and this Lease shall
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continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of occurrence of such damage of Lessor's
intention to cancel and terminate this Lease, in which case this Lease shall be
canceled and terminated as of the date of the occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to Paragraph 9.4(b), if at any time during the last six
months of the term of this Lease there is substantial damage, whether or not an
Insured Loss, which falls within the classification of Premises Partial Damage,
Lessor may at Lessor's option cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding Paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling with the classification of Premises Partial Damage during
the last six months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense,
repair such damage, but not Lessee's fixtures or equipment, as soon as
reasonably possible and this Lease shall continue in full force and effect. If
Lessee fails to exercise such option during said twenty (20) day period, then
Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said twenty (20) day period by giving written notice to Lessee of
Lessor's election to do so within ten (10) days after the expiration of said
twenty (20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 ABATEMENT OF RENT: LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the premises pursuant to
the provisions of this Paragraph 9, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent, if any, Lessee shall have no claim against Lessor
for any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence such repair or
restoration within ninety (90) days after such obligation shall accrue, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate as of the
date of such notice.
9.6 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as defined
in Paragraph 10.3, applicable to the Corporate Center subject to reimbursement
by Lessee of
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Lessee's Share of such taxes in accordance with the provisions of Paragraph
4.2, except as otherwise provided in Paragraph 10.2.
10.2 TIME OF PAYMENT OF TAXES. Lessee shall pay to Lessor at the time that
Operating Expenses are payable under Paragraph 4.2(d) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements places upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Corporate Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agriculture, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Corporate Center or in any portion
thereof, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Corporate Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i)
in substitution of partially or totally, any tax, fee, levy, assessment or
charge hereinabove included within the definition of "real property tax," or
(ii) the nature of which has hereinbefore included within the definition of
"real property tax," or (iii) which is imposed as a result of a transfer,
either partial or total, of Lessor interest in the Corporate Center or which is
added to a tax or charge hereinbefore included within the definition of real
property tax by reason of such transfer or which is imposed by reason of this
transaction, any modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Corporate Center is not separately assessed,
Lessee's Share of the real property tax liability shall be an equitable
proportion of the real property taxes for all of the land and improvements
included within the tax parcel assessed, such proportion to be determined by
Lessor from the respective valuations assigned in the assessor's work sheets or
such other information as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting for
the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, including sprinkler line, gas,
heat, light, power, telephone, trash removal and other utilities and services
supplied to the Premises, together with any taxes thereon. If any such services
are not separately metered to the Premises, Lessee shall pay at Lessor's
option, either Lessee's share or a reasonable proportion, to be determined by
Lessor, of all charges jointly metered with other premises in the Building.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of
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Lessee's interest in the Lease or in the Premises, without Lessor's prior
written consent, which Lessor shall not unreasonably withhold. Lessor shall
respond to Lessee's request for consent hereunder in a timely manner and any
attempted assignment, transfer, mortgage, encumbrance or subletting without such
consent shall be void, and shall constitute a breach of this Lease without the
need for notice to Lessee under Paragraph 13.1.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of Paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquire
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to a "Lessee Affiliate,"
provided that before such assignment shall be effective said assignee shall
assume, in full, the obligations of Lessee under this Lease. Any such assignment
shall not, in any way, affect or limit the ability of Lessee under the terms of
this Lease even if after such assignment or subletting the terms of this Lease
are materially changed or altered without the consent of Lessee, the consent of
whom shall not be necessary.
12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's consent, no
assignment shall release Lessee of Lessee's obligations hereunder or alter the
primary liability of Lessee to pay the Base Rent and Lessee's Share of Operating
Expenses, and to perform all other obligations to be performed by Lessee
hereunder. Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of rent shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the breach of
any of the terms or conditions of this Paragraph 12 or this Lease. Consent to
one assignment shall not be deemed consent to any subsequent assignment. In the
event of default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms hereof, Lessee may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments of this Lease or amendments or
modifications to this Lease with assignees of Lessee, without notifying Lessee,
or any successor of Lessee, and without obtaining its or their consent thereto
and such action shall not relieve Lessee of liability under this Lease.
12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of Lessor's
consent, the following terms and conditions shall apply to any subletting by
Lessee of all or any part of the Premises and shall be included in subleases:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any Sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease, provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease may receive, collect and enjoy the rents accruing under such sublease,
lessor shall not, by reason of this or any other assignment of such sublease to
Lessor nor by reason of the collection of the rents from a Sublessee be deemed
liable to the sublessee for any failure of lessee to perform and comply with any
of Lessee's obligations to such Sublessee under such sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a written
notice from Lessor stating that a default exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents due and to become due
under the sublease. Lessee agrees that such sublessee shall have the right to
rely upon any such statement and request from Lessor, and that such sublessee
shall pay such rents to Lessor without any obligation or right to inquire as to
whether such default exists and notwithstanding any notice from or claim from
Lessee to the contrary. Lessee shall have no right or claim against such
Sublessee or Lessor for any such rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only
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such form of Sublease as is satisfactory to Lessor, and once approved by Lessor,
such sublease shall not be changed or modified without Lessor's prior written
consent. Any sublessee shall, by reason of entering into a sublease under this
Lease, be deemed, for the benefit of Lessor, to have assumed and agreed to
conform and comply with each and every obligation herein to be performed by
Lessee other than such obligations as are contrary to or inconsistent with
provisions contained in a Sublease to which Lessor has expressly consented in
writing.
(c) If Lessee's obligations under this Lease have been guaranteed by
third parties, then a Sublease, and Lessor's consent thereto, shall not be
effective unless said guarantors give their written consent to such sublease and
the terms thereof.
(d) The consent by Lessor to any subletting shall not release Lessee
from its obligations or alter the primary liability of Lessee to pay the rent
and perform and comply with all of the obligations of Lessee to be performed
under this Lease.
(e) The consent by Lessor to any subletting shall not constitute a
consent to any subsequent subletting by Lessee or to any assignment or
subletting by the sublessee.
However, Lessor may consent to subsequent subletting and assignments of the
Sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or Sublease and without obtaining their consent
and such action shall not relieve such persons from liability.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the Sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without any obligations
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such Sublease from the time of
the exercise of said option to the termination of such Sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such Sublessee or Lessee or for any other prior defaults of Lessee under
such Sublease.
(h) Each and every consent required of Lessee under a Sublease shall
also require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises by
Lessee shall not constitute an acknowledgment that no default then exists under
this Lease of the obligations to be performed by Lessee nor shall such consent
be deemed a waiver of any then existing default, except as may be otherwise
stated by Lessor at the time.
(k) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within ten (10) days after service of said notice of default upon such
Sublessee, and the Sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 Attorney's Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorney's fees incurred in connection
therewith.
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13. DEFAULT; REMEDIES.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee prior to
end of the Lease term.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due.
(c) Except as otherwise provided in this Lease, the failure by
Lessee to observe or perform any of the covenants, conditions or provisions of
this Lease to be observed or performed by Lessee, other than described in
Paragraph (b) above, where such failure shall continue for a period of thirty
(30) days after written notice thereof from Lessor to Lessee; provided,
however, that if the nature of Lessee's noncompliance is such that more than
thirty (30) days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure within said thirty (30)
day period and thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days after filing thereof); (iii) the appointment of a trustee or receiver
to take possession of all, or substantially all, of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution
or other judicial seizure of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days. In the event that any provision of this
Paragraph 13.1(d) is contrary to any applicable law, such provision shall be of
no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, was materially false.
13.2 Remedies. In the event of any such material default by Lessee,
Lessor may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default:
(a) Demand the balance of the Base Rent and all additional rent and
all other sums to which Lessor is entitled hereunder to be due, payable and in
arrears, as if payable in advance hereunder; or
(b) This Lease and the Lease term shall, without waiver of Lessor's
other rights and remedies, terminate without any right of Lessee to save the
forfeiture. Any acceleration of the rent by Lessor shall not constitute a
waiver of any right or remedy of Lessor and, if Lessee shall fail to pay the
accelerated rent upon Lessor's demand, then Lessor may thereafter terminate
this Lease, as aforesaid. Immediately upon such termination by Lessor, Lessor
shall have the right to recover possession of the Premises with or without
legal process, breaking locks and replacing locks, and removing Lessee's and
any third party's property therefrom, and making any disposition thereof as
Lessor may deem commercially reasonable.
Following such termination, Lessor shall have the unrestricted right to lease
the Premises or any part thereof to any person and pursuant to any terms as
Lessor may elect, but Lessor shall have no obligations to rent the Premises so
long as Lessor (or any related entity) has other comparable vacant space
available for leasing in the general geographical area of the Premises.
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For the purpose of such reletting. Landlord may decorate or make repairs,
changes, alterations or additions in or to the Leased Space to the extent
deemed by Landlord desirable or convenient; and the cost of such decoration,
repairs, changes, alterations or additions shall be charge to and be payable by
Lessee as Additional Rent hereunder, as well as any reasonable brokerage and
attorneys fees incurred by Landlord.
(c) In addition to the aforesaid, Lessor may also proceed as a
secured party under the provision of the Uniform Commercial Code against the
goods in which Lessor has been granted a security interest pursuant to
Paragraph 42 hereof.
(d) CONFESSION OF JUDGMENT FOR MONEY. LESSEE COVENANTS AND AGREES THAT
IF ANY CHARGE RESERVED IN THIS LEASE AS RENT (INCLUDING ALL ACCELERATIONS OF
RENT PERMISSIBLE UNDER THE PROVISIONS OF THIS LEASE) SHALL REMAIN UNPAID
FIVE (5) DAYS AFTER THE SAME IS REQUIRED TO BE PAID, THEN AND IN THAT EVENT,
LESSOR MAY CAUSE JUDGMENT TO BE ENTERED AGAINST LESSEE, AND FOR THAT PURPOSE
LESSEE HEREBY AUTHORIZES AND EMPOWERS LANDLORD OR ANY PROTHONOTARY, CLERK OF
COURT OR ATTORNEY OF ANY COURT OF RECORD TO APPEAR FOR AND CONFESS JUDGMENT
AGAINST LESSEE AND AGREES THAT LESSOR MAY COMMENCE AN ACTION PURSUANT TO
PENNSYLVANIA RULES OF CIVIL PROCEDURE NO. 2950 ET SEQ. FOR THE RECOVERY FROM
LESSEE OF ALL RENT HEREUNDER (INCLUDING ALL ACCELERATIONS OF RENT PERMISSIBLE
UNDER THE PROVISIONS OF THIS LEASE) AND/OR FOR ALL CHARGES RESERVED HEREUNDER AS
RENT, AS WELL AS FOR INTEREST AND COSTS AND ATTORNEY'S COMMISSION FOR WHICH
AUTHORIZATION TO CONFESS JUDGEMENT, THIS LEASE, OR A TRUE AND CORRECT COPY
THEREOF, SHALL BE SUFFICIENT WARRANT. SUCH JUDGMENT MAY BE CONFESSED AGAINST
LESSEE FOR THE AMOUNT OF RENT IN ARREARS (INCLUDING ALL ACCELERATIONS OF RENT
PERMISSIBLE UNDER THE PROVISIONS OF THIS LEASE) AND/OR FOR ALL CHARGES RESERVED
HEREUNDER AS RENT, AS WELL AS FOR INTEREST AND COSTS; TOGETHER WITH AN
ATTORNEY'S COMMISSION OF TEN PERCENT (10%) OF THE FULL AMOUNT OF LESSOR'S CLAIM
AGAINST LESSEE. NEITHER THE RIGHT TO INSTITUTE AN ACTION PURSUANT TO
PENNSYLVANIA RULES OF CIVIL PROCEDURE NO. 2950 ET SEQ. NOR THE AUTHORITY TO
CONFESS JUDGMENT GRANTED HEREIN SHALL BE EXHAUSTED BY ONE OR MORE EXERCISES
THEREOF, BUT SUCCESSIVE COMPLAINTS MAY BE FILED AND SUCCESSIVE JUDGMENTS MAY BE
ENTERED FOR THE AFOREDESCRIBED SUMS FIVE DAYS OR MORE AFTER THEY BECOME DUE AS
WELL AS AFTER THE EXPIRATION OF THE ORIGINAL TERM AND/OR DURING OR AFTER
EXPIRATION OF ANY EXTENSION OR RENEWAL OF THIS LEASE.
(e) CONFESSION OF JUDGMENT FOR POSSESSION OF REAL PROPERTY. LESSEE
CONVENANTS AND AGREES THAT IF THIS LEASE SHALL BE TERMINATED (EITHER BECAUSE OF
A CONDITION BROKEN DURING THE TERM OF THIS LEASE OR ANY RENEWAL OR EXTENSION
THEREOF AND/OR WHEN THE TERM HEREBY CREATED OR ANY EXTENSION THEREOF SHALL HAVE
EXPIRED) THEN, AND IN THAT EVENT, LESSOR MAY CAUSE A JUDGMENT IN EJECTMENT TO BE
ENTERED AGAINST LESSEE FOR POSSESSION OF THE PREMISES, AND FOR THAT PURPOSE
LESSEE HEREBY AUTHORIZES AND EMPOWERS ANY PROTHONOTARY, CLERK OF COURT OR
ATTORNEY OF ANY COURT OF RECORD TO APPEAR FOR AND TO CONFESS JUDGMENT AGAINST
LESSEE IN EJECTMENT FOR POSSESSION OF THE PREMISES, AND AGREES THAT LANDLORD MAY
COMMENCE AN ACTION PURSUANT TO PENNSYLVANIA RULES OF PROCEDURE NO. 2970 ET SEQ.
FOR THE ENTRY OF AN ORDER IN EJECTMENT FOR THE POSSESSION OF REAL PROPERTY AND
LESSEE FURTHER AGREES THAT A WRIT OF POSSESSION PURSUANT THERETO MAY ISSUE
FORTHWITH, FOR WHICH AUTHORIZATION TO CONFESS JUDGMENT AND FOR THE ISSUANCE OF A
WRIT OR WRITS OF POSSESSION PURSUANT THERETO, THIS LEASE, OR A TRUE AND CORRECT
COPY THEREOF, SHALL BE SUFFICIENT WARRANT. LESSEE FURTHER CONVENANTS AND AGREES,
THAT IF FOR ANY REASON WHATSOEVER, AFTER SAID ACTION SHALL HAVE COMMENCED THE
ACTION SHALL BE TERMINATED AND THE POSSESSION OF THE PREMISES DEMISED HEREUNDER
SHALL REMAIN IN OR BE RESTORED TO LESSEE, LESSOR SHALL HAVE THE RIGHT UPON ANY
SUBSEQUENT DEFAULT OR DEFAULTS, OR UPON THE TERMINATION OF THIS LEASE AS ABOVE
SET FORTH TO
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COMMENCE SUCCESSIVE ACTIONS FOR POSSESSION OF REAL PROPERTY AND TO CAUSE THE
ENTRY OF SUCCESSIVE JUDGMENTS BY CONFESSION IN EJECTMENT FOR POSSESSION OF THE
PREMISES.
(f) AFFIDAVIT OF DEFAULT. IN ANY PROCEDURE OR ACTION TO ENTER
JUDGMENT BY CONFESSION FOR MONEY PURSUANT TO SECTION 13.2 (d) HEREOF, OR TO
ENTER JUDGMENT BY CONFESSION IN EJECTMENT FOR POSSESSION OF REAL PROPERTY
PURSUANT TO SECTION 13.2 (e) HEREOF, IF LESSOR SHALL FIRST CAUSE TO BE FILED IN
SUCH ACTION AN AFFIDAVIT OR AVERMENT OF THE FACTS CONSTITUTING THE DEFAULT OR
OCCURRENCE OF THE CONDITION PRECEDENT, OR EVENT, THE HAPPENING OR WHICH
DEFAULT, OCCURRENCE, OR EVENT AUTHORIZES AND EMPOWERS LESSOR TO CAUSE THE ENTRY
OF JUDGMENT BY CONFESSION, SUCH AFFIDAVIT OR AVERMENT SHALL BE CONCLUSIVE
EVIDENCE OF SUCH FACTS, DEFAULTS, OCCURRENCES, CONDITIONS PRECEDENT, OR EVENTS;
AND IF A TRUE COPY OF THIS LEASE (AND OF THE TRUTH OF WHICH SUCH AFFIDAVIT OR
AVERMENT SHALL BE SUFFICIENT EVIDENCE) BE FILED IN SUCH PROCEDURE OR ACTION, IT
SHALL NOT BE NECESSARY TO FILE THE ORIGINAL AS A WARRANT OF ATTORNEY, ANY RULE
OF COURT, CUSTOM, OR PRACTICE TO THE CONTRARY NOTWITHSTANDING.
(g) No act or forbearance by Lessor shall be deemed a waiver or
election of any right or remedy by Lessor with respect to Lessee's obligations
hereunder, unless and to the extent that Lessor shall execute and deliver to
Lessee a written instrument to such effect, and any such written waiver by
Lessor shall not constitute a waiver of relinquishment for the future of any
obligation of Lessee. Lessor's acceptance of any payment from Lessee
(regardless of any endorsement on any check or any writing accompanying such
payment) may be applied by Lessor to Lessee's obligations then due hereunder,
in any priority as Lessor may elect, and such acceptance by Lessor shall not
operate as an accord and satisfaction or constitute a waiver of any right or
remedy of Lessor with regard to Lessee's obligations hereunder.
13.3 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expenses or other sums due
hereunder will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage covering
the Corporate Center. Accordingly, if any installment of Base Rent, Operating
Expenses, or any other sum due from Lessee shall not be received by Lessor or
Lessor's designee within five (5) days after such amount shall be due, then,
without any requirement for notice to Lessee, Lessee shall pay to Lessor a late
charge equal to 5% of such overdue amount for each month or part thereof that
said payment is overdue. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's default with respect to such
overdue amount, nor prevent Lessor from exercising any of the other rights and
remedies granted hereunder. In the event that a late charge is payable
hereunder, whether or not collected, for three (3) consecutive installments of
any of the aforesaid monetary obligations of Lessee, then Base Rent shall
automatically become due and payable quarterly in advance, rather than monthly,
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary.
14. CONDEMNATION. If the Premises or any portion thereof or the Corporate
Center are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"),
this Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than ten
percent of the floor area of the Premises, or more than twenty-five percent of
that portion of the Common Areas designated as parking for the Corporate Center
is taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing only within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this
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the date the condemning authority takes such possession if Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the rent shall be reduced in the proportion that the floor area of the
Premises taken bears to the total floor area of the Premises. No reduction of
rent shall occur if the only area taken is that which does not have the
Premises located thereon. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for a diminution in value of the leasehold or for
the taking of the fee, or as severance damage; provided, however, that Lessee
shall be entitled to any award for loss of or damages to lessee's trade
fixtures and removable personal property. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of
severance damages received by Lessor in connection with such condemnation,
repair any damage to the Premises caused by such condemnation except to the
extent that Lessee has been reimbursed therefor by the condemning authority.
Lessee shall pay any amount in excess of such severance damages required to
complete such repair.
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
Interland Real Estate Corp. Licensed real estate broker(s), a fee as set forth
in a separate agreement between Lessor and said broker(s), or in the event
there is not separate agreement between Lessor and said broker(s), the sum of
$-0-, for brokerage services rendered by said broker(s) to Lessor in this
transaction.
(b) Lessor and Lessee agree that broker(s) is (are) acting as agent only
and will in no case whatsoever be held liable to either part for the
performance of any terms or covenants of this Lease. Furthermore, Lessor and
Lessee represent and warrant to each other that, except as described in
Paragraph 15(a) hereof, it has not employed a broker or real estate agent in
connection with this transaction and each indemnifies and holds the other
harmless from and against all claims and actions, including legal and other
expenses in connection therewith, based on any such dealings by said party.
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and
the date to which the rent and other charges are paid in advance, if any, and
(ii) acknowledging that there are not, to the Lessee's knowledge, any uncured
defaults on the part of Lessor, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises or of the business of the Lessor.
(b) At the Lessor's option, the failure to deliver such statement within
such time shall be a material default of this Lease by Lessee, without any
further notice to such party, or it shall be conclusive upon such party that (i)
this Lease is in full force and effect, without modification except as may be
represented by Lessor, (ii) there are no uncured defaults in the Lessor's
performance, and (iii) not more than one month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the Corporate
Center, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposed herein set forth.
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17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Corporate Center, in the event of any transfer
of such title or interest, Lessor herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of such
transfer of all liability as respects Lessor's obligations thereafter to be
performed, provided that any funds in the hands of Lessor or the then grantor at
the time of such transfer, in which Lessee has an interest, shall be delivered
to the grantee. The obligations contained in the Lease to be performed by Lessor
shall, subject as aforesaid, be binding on Lessor's successors and assigns, only
during their respective periods of ownership. In any event, Lessor's liability
hereunder shall be unconditionally limited to Lessor's equity in the subject
property.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor and not paid when due (a "Delinquent Payment") shall bear
interest, from the date due, at the maximum rate then allowable by law. In
addition, a late fee equal to five (5%) percent of any Delinquent Payment shall
be added to each such Delinquent Payment on the day following the original
payment's due date.
Payment of such late fees and interest shall not excuse or cure any default by
Lessee under this Lease. Interest as aforesaid shall also be due and payable on
late fees properly charged to Lessee hereunder.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expenses and insurance and tax expenses payable shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of modification. Except as otherwise stated in
this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in Paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Corporate Center and Lessee acknowledges that
Lessee assumes all responsibility regarding the Occupational Safety Health Act,
the legal use and adaptability of the Premises and the compliance thereof will
all applicable laws and regulations in effect during the term of this Lease
except as otherwise specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, return
receipt requested, or by a reputable Private Overnight Courier Service, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. Either party may, by notice to the other, specify a
different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by notice to
Lessee.
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24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent
hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of
any provision hereof, other than the failure of Lessee to pay the particular
rent so accepted, regardless of Lessor's knowledge of such preceding breach at
the time of acceptance of such rent.
25. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy. During such holdover period, the Base
Rent hereunder shall automatically and immediately increase to one hundred fifty
(150%) percent of the Base Rent of the immediately previous expired Lease term.
26. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
27. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
28. BINDING EFFECT: CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
Paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the Commonwealth of Pennsylvania and any litigation concerning this
Lease between the parties hereto shall be initiated in Chester County.
29. SUBORDINATION.
(a) This Lease, and any Option granted hereby, at Lessor's option, shall
be subordinate to any ground lease, mortgage, or any of the hypothecation or
security now or hereafter placed upon the Corporate Center and to any and all
advances made on the security thereof and to all renewals, modifications,
consolidations, replacements and extensions thereof. If any mortgagee or ground
lessor shall elect to have this Lease and any Options granted hereby prior to
the lien of its mortgage, or ground lease, and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
mortgage or ground lease, whether this Lease or such Options are dated prior
or subsequent to the date of said mortgage, or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease or any Option granted herein
prior to the lien of any mortgage, or ground lease, as the case may be.
Lessee's failure to execute such documents within ten (10) days after written
demand shall constitute a material default by Lessee hereunder without further
notice to Lessee or, at Lessor's option, Lessor shall execute such documents on
behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make,
constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in
Lessee's name, place and stead, to execute such documents in accordance with
this Paragraph 29(b).
30. ATTORNEY'S FEES. If either party named herein brings an action to enforce
the terms hereof of declares right hereunder, the prevailing party in any such
action, or trial or appeal, shall be entitled to his reasonable attorney's fees
to be paid by the losing party as fixed by the court.
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31. ACCESS TO LEASED SPACE. Lessor, its employees and agents shall have the
right to enter the Leased Space at all reasonable times for the purpose of
examining or inspecting the same, showing the same to prospective purchasers or
tenants of the Building, or mortgagees, and making such alterations, repairs,
improvements or additions to the Leased Space or to the Building as Lessor may
deem necessary or desirable. Except in case of emergency, any such entry shall
be after reasonable notice to Lessee. If a representative of Tenant shall not
be present to open and permit entry into the Leased Space at any time when such
entry by Lessor is necessary or permitted hereunder, Lessor may enter by means
of a master key (or forcibly in the event of any emergency) without liability
to Lessee and without such entry constituting an eviction of Lessee or
termination of this Lease. No locks or similar devices shall be attached to
any doors or windows in the Leased Space without the prior written consent of
Lessor. No door keys shall be made, other than those provided by Landlord. If
more than two (2) keys for one lock are desire, Lessor will provide the same
upon payment by Lessee. All keys must be returned to Lessor at the expiration
or termination of the Lease.
Lessor and Lessor's agents shall have the right to enter the Premises at
reasonable times for the purpose of inspecting the same, showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building of which
they are a part as lessor may deem necessary or desirable. Lessor may at any
time place on or about the Premises or the Building any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All activities
of Lessor pursuant to this Paragraph shall be without abatement of rent, nor
shall Lessor have any liability to Lessee for the same.
32. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
33. SIGNS. Lease shall not place any signs upon the Premises or the Corporate
Center without Lessor's prior written consent. Under no circumstances shall
Lessee place a sign on any roof of the Corporate Center.
34. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
35. CONSENTS. Except for Paragraph 32 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent
shall not be unreasonably withheld or delayed.
36. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
37. QUIET POSSESSION. Upon Lessee payment the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding on ownership interest in the
Corporate Center.
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38. OPTIONS.
38.1 DEFINITION.
Lessee shall have the right to two, Three-Year Options to renew this
lease. Terms of the renewal (s) are further described in Addendum Number 4
"Option Terms".
38.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee, provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from the Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
38.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
38.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
and provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
Paragraphs 13.1(b) or 13.1(c) and continuing until the noncompliance alleged
in said notice of default is cured, or (ii) during the period of time
commencing on the date after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) and continuing
until the obligation is paid, or (iii) at any time after an event of default
described in Paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of
Lessor to give notice of such default to Lessee), nor (iv) in the event that
Lessee has defaulted three or more time unders Paragraph 13.1(b) or Paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period of
time immediately prior to the time that Lessee attempts to exercise the subject
Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 38.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstandng Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
the Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for
a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in Paragraph 13.1(c) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessee commits a default described in Paragraph 13.1(a), 13.1(d) or
13.1(e) (without any necessity of Lessor to give notice of such default to
Lessee), or (iv) Lessee defaults three or more times under Paragraph 13.1(b), or
Paragraph 13.1(c), whether or not the defaults are cured.
39. SECURITY MEASURES. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Corporate Center. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Corporate Center or any part
thereof, in which event the
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cost thereof shall be included within the definition of Operating Expenses, as
set forth in Paragraph 4.2(b).
40. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of easements, rights, dedications and restrictions,
so long as such easements, rights, dedications and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign
any of the aforementioned documents upon request of Lessor and failure to do so
shall constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
the Lease.
42. SECURITY INTEREST. Lessee hereby grants to Lessor a security interest under
the Uniform Commercial Code in all of Lessee's goods and property in, on, or
about the Premises. Said security interest shall secure unto Lessor the payment
of all rent (and charges collectible or reserved as rent) hereunder which shall
become due under the provisions of this Lease. Lessee hereby agrees to execute,
upon request of Lessor, such financing statements as may be required under the
provisions of the said Uniform Commercial Code to perfect a security interest in
Lessee's said goods and property.
43. ASSIGNMENT OF RIGHTS. Lessor may, at Lessor's option, assign all its
rights, interest and privileges under this Lease and any Option granted
hereunder, to any mortgagee, or the Chester County Industrial Development
Authority ("CCIDA"), for the benefit of said mortgagee or the CCIDA.
44. COVENANTS AND WARRANTIES.
(a) Lessee covenants and warrants with and to Lessor that:
(i) at no time within three years and six months from the date of
this Lease (or if shorter, the term of this Lease, together with all extensions
and renewals thereof) will Lessee or any "related person" to Lessee pay or
incur, or consent to or permit the paying or incurring by others (except
Lessor), of "capital expenditures" with respect to the Premises or any other
"facilities" within the Township of Uwchlan (the "Township"), County of Chester,
Commonwealth of Pennsylvania, the "principal user" of which is Lessee or any
related person to Lessee, or with respect to any "facilities" which are
contiguous to" or "integrated with" any "facilities" so located, without the
prior written consent of the Lessor and the holder of the mortgage on the
Corporate Center.
(ii) neither Lessee nor any "related person" is a "principal user" of
any "facilities" (other than the Premises) located within the Township, or which
are "contiguous to" or "integrated with" and "facilities" so located, except as
set forth in Table (1) attached hereto and made a part hereof, which Table (1)
contains a complete and accurate description of (A) the aggregate amount of all
capital expenditures" paid or incurred by any person with respect to each listed
facility since January 1, 1980, and (B) any obligation described in Internal
Revenue Code Section 103(b)(6), the proceeds of which were or will be used with
respect to each listed facility, together with an accounting of the face amount
of each such obligation outstanding on and after July 15, 1983; and
Initials:
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<PAGE> 28
(iii) at no time from the date of this Lease will Lessee and/or
"related person" become a "principal user" of any "facilities" (other than the
Premises and any "facilities" listed in Table (1)) located within the Township,
or which are "contiguous to" or "integrated with" any "facilities" so located,
without the prior written consent of the Lessor and the holder of the Mortgage
on the Corporate Center.
(b) (i) Lessee shall timely file, with the appropriate District Director
of the Internal Revenue Service, annual supplemental statements which shall list
by date and amount any subsequent Internal Revenue Code Section 103(b)(6)(D)
"capital expenditures", as required by Treasury Regulations 1-103-10(b)(2)
(vi)(c). Lessee shall send copies of such supplemental statements to Lessor
within three (3) days after filing them with the Internal Revenue Service.
(ii) Quoted terms in this Section 44 shall have the same meanings as
in Section 103 of the Internal Revenue Code of 1954, as amended, and in the
Regulations, as amended, promulgated pursuant thereto, and in published rulings
and other administrative pronouncements of the Internal Revenue Service, and
private rulings thereof made public.
(c) Breach of this Section 44 will constitute a default under this Lease
without notice, notwithstanding anything to the contrary contained in the Lease.
In addition to all other rights and remedies available to Lessor hereunder,
Lessee shall be responsible for and shall indemnify Lessor against any and all
increased costs or expenses of any nature whatsoever incurred in the event such
breach results in the interest payable under Lessor's financing for the
Corporate Center (obtained through CCIDA) being subject to Federal Income Tax,
including, but not limited to, payments of additional or increased interest
under such financing and reasonable attorney's fees.
45. DEFINITION OF "LESSOR". The word "Lessor" is used herein to include the
Lessor named above and any subsequent owner of such Lessor's interest in the
Corporate Center as well as their respective heirs, personal representatives,
successors and assigns, each of whom shall have the same rights, remedies,
powers, authorities and privileges as it would have had had it originally signed
this Lease as Lessor, including the right to proceed in its own name to enter
judgment by confession or otherwise, but any such person, whether or not named
herein, shall have no liability hereunder after it ceases to hold such interest.
Neither Lessor nor any partner in Lessor shall have any personal liability with
respect to any of the provisions of this Lease, and if Lessor shall default in
the performance of Landlord's obligations under this Lease or otherwise, Lessee
shall look solely to the equity of Landlord in its interest in the Property for
the satisfaction of Lessee's remedies. It is expressly understood and agreed
that Lessor's liability under the terms, covenants, conditions, warranties and
obligations of this Lease shall in no event exceed the loss of Lessor's equity
in its interest in the Property.
46. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
47. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
48. OFFER. preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease. This Lease shall become
binding upon Lessor and Lessee only when fully executed by Lessor and Lessee.
Initials:
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<PAGE> 29
49. Addenda. Attached hereto are addenda containing paragraphs 49.1 through
49.5 which constitute a part of this Lease.
49.1 Addendum No. 1 - Table(1).
49.2 Addendum No. 2 - Rules and Regulations.
49.3 Addendum No. 3 - Sanitary Waste Regulation.
49.4 Addendum No. 4 - Option Terms.
49.5 Addendum No. 5 - Miscellaneous.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
LESSOR
MARSH CREEK ASSOCIATES ONE
By: Trans Graphic Advertising Associates, Inc.,
-------------------------------------------
General Partner
By: /s/ George L. Guerra
---------------------------
George L. Guerra, President
Executed on November 21, 1997
LESSEE
KENSEY NASH CORPORATION
BY: /s/ Joseph W. Kaufmann
-----------------------------
Joseph W. Kaufmann, President
Executed on November 20, 1997
ADDRESS FOR NOTICES AND RENT
75 East Uwchian Avenue 55 East Uwchian Avenue
Suite #110 Suite #204
Exton, PA 19341 Exton, PA 19341
Initials:
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<PAGE> 30
LEASE AMENDMENT
Amendment date: January 3, 2000
Lessor: Marsh Creek Associates One
Lessee: Kensey Nash Corporation
Lease Date: November 19, 1996
Premises: Suites 200-230
55 East Uwchian Avenue,
Marsh Creek Corporate Center, Exton, PA
LESSOR AND LESSEE HEREBY FURTHER AGREE AS FOLLOWS:
Lessee agrees to exercise the first of it's two Options to Renew for a period
of three years effective January 15, 2000. The new Termination date of the
Lease Agreement will be November 30, 2005. Further, Lessor grants to Lessee,
one additional Option to Renew for a period of three years at the rate of
$10.00 per square foot for the three (3) year period.
Lessor agrees that upon signing of this Lease Amendment, Lessor will contract
to have the entire flat roof above Suites #200-230 overlaid with a waterproof
membrane. Lessor also will have the slopped roof portion repainted/refurbished.
Lessor agrees to provide not less than twenty (20) additional parking spaces in
the rear of Lessee's Leased Premises within sixty (60) days of signing this
Lease Amendment.
Lessor will have a sign contractor add the Kensey Nash Corporation name to the
Marsh Creek Corporate Center entry sign within thirty (30) days of signing this
Lease Amendment.
Paragraph 8.7 of the Lease Agreement shall be changed to read as follows:
Except in the case of a breach or default in the performance of any
obligation under this Lease, each party shall indemnify and hold harmless the
other party and nothing in this lease shall be construed as imposing any
liability on them for any loss, cost, expense (including reasonable attorney's
fees), or any claims, suits, actions or damages arising from the ownership,
use, control or occupancy of any portion of the Project including the Building,
Common Areas, and Premises unless such loss, cost expense, claim, suit or
action is a result of or caused by the negligent acts or omissions of such
other party or its agents, servants, employees, contractors, or invitees.
<PAGE> 31
All other terms and conditions of the subject Lease shall remain unchanged and
in full force and effect.
AGREED
------
LESSOR
- ------
MARSH CREEK ASSOCIATES ONE
By: Trans Graphic Advertising Associates, Inc., General Partner
By: /s/ George L. Guerra
------------------------------
George L. Guerra, President
Witness: /s/ Dorothy M. Wilkie Date: 2/22/00
--------------------------------------------------------
LESSEE:
- ------
KENSEY NASH CORPORATION
By: /s/ Joseph Kaufmann
------------------------------
Joseph Kaufmann, President
Witness: /s/ Amy H. Wetul Date: 1/26/00
--------------------------------------------------------
<PAGE> 32
[LETTERHEAD OF MARSH CREEK CORPORATE CENTER]
Date: February 12, 1999
TO: KENSEY-NASH CORP.
Address of Leased Premises: Suite #201-230, Bldg. #2 at 55 E. Uwchlan Avenue,
County of Chester, Exton, Pennsylvania, 19341
Pursuant to the terms and conditions of Lease under which you occupy space in
Marsh Creek Corporate Center, this communication represents Landlord/Lessor
Notice of change(s) in Monthly Rate(s) for rent on above referenced premises.
EFFECTIVE DATE OF CHANGE(S): JANUARY 1, 1999
Total Rentable Area
of Phase One: 91,484 (Buildings #1 & 2)
------------
Total Area of Leased Premises: 44,167 s.f.
-----------
<TABLE>
<CAPTION>
CURRENT EFFECTIVE
RATE NEW RATE RATE
---------- ---------- ----------
<S> <C> <C> <C>
MONTHLY BASE RENT: $21,163.35 $21,163.35 $21,163.35 /mo. (A)
---------- ---------- ----------
Additional Rent(s)
- ---------------
COMMON AREA MAINTENANCE (CAM) EXPENSES:
Insurance $0.07 s.f. $0.08 s.f.
Grounds Care $0.18 s.f. $0.27 s.f.
Bldg. Maintenance $0.26 s.f. $0.37 s.f.
Utilities $0.10 s.f. $0.09 s.f.
Management Fee $0.43 s.f. $0.47 s.f.
Parking Lot Maintenance $0.37 s.f. $0.04 s.f.
1998 Expense Overage $0.00 s.f. $0.09 s.f.
---------- ----------
TOTAL CAM: $1.41 s.f. $1.41 s.f. $ 5,189.62 /mo. (B)
REAL ESTATE TAXES: $0.76 s.f. $0.80 s.f. $ 2,944.47 /mo. (C)
---------- ---------- ----------
TOTAL ADDITIONAL RENTS (CAM & RET): $2.17 s.f. $2.21 s.f.
---------- ----------
TOTAL MONTHLY RENT DUE: $29,297.44 (A+B+C)
----------
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Kensey Nash Corporation on Form S-3 of our report dated August 11, 1999,
appearing in the Annual Report on Form 10-K and 10-K/A of Kensey Nash
Corporation for the year ended June 30, 1999, and to the use of our report dated
August 11, 1999, appearing in the Prospectus, which is part of this Registration
Statement. We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Philadelphia Pennsylvania
April 24, 2000
<PAGE> 1
EXHIBIT 24.1
FORM OF POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Joseph W. Kaufmann, Douglas
G. Evans and Wendy F. DiCicco, and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution, to sign on his or
her behalf, individually and in each capacity stated below, all amendments and
post-effective amendments to this Registration Statement on Form S-3 (including
any registration statement filed pursuant to Rule 462(b) under the Securities
Act of 1933, and all amendments thereto) and to file the same, with all exhibits
thereto and any other documents in connection therewith, with the Securities and
Exchange Commission under the Securities Act of 1933, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as each might or could do in
person, hereby ratifying and confirming each act that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue thereof.
