<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934. FOR THE QUARTERLY PERIOD ENDING DECEMBER 31, 1999.
Or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from _____to_____.
Commission file number 000-25839
IMPLANT SCIENCES CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2837126
- --------------------------------- ----------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification number)
107 Audubon Road, #5 Wakefield, MA 01880
- ---------------------------------------- ----------------------
(Address of principal executive offices)
781-246-0700
(Issuers telephone number)
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES _X_ NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class Outstanding at December 31, 1999
Common Stock, $.10 par value 5,207,320
Transitional small business disclosure format (check one):
YES ___ NO _X_
1
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IMPLANT SCIENCES CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Balance Sheets as of December 31, 1999 and June 30,1999 3
(unaudited)
Condensed Statement of Operations for the Three and Six Months Ended
December 31, 1999 and December 31, 1998 (unaudited) 4
Condensed Statement of Cash Flows for the Six Months Ended December 31,
1999 and December 31, 1998 (unaudited) 5
Notes to Condensed Financial Statements (including data applicable to
unaudited periods) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security-Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 16
</TABLE>
2
<PAGE> 3
IMPLANT SCIENCES CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1999 1999
------------ --------
<S> <C> <C>
Current assets:
Cash $ 4,344,929 $ 6,152,536
Accounts receivable, less allowances of $5,720 at December 31,
1999 and $2,000 at June 30, 1999 1,077,445 421,737
Inventories 52,989 367,386
Deferred income taxes 62,000 62,000
Refundable income taxes 24,785 24,785
Prepaid expenses 26,408 6,262
----------- -----------
Total current assets 5,588,556 7,034,706
Property and equipment, at cost:
Machinery and equipment 2,482,892 1,802,011
Leasehold improvements 152,720 71,356
Computers and software 186,244 47,757
Furniture and fixtures 134,913 60,509
Motor Vehicles 14,822 14,822
Leased property under capital lease 28,360 28,360
----------- -----------
2,999,951 2,024,815
Less accumulated depreciation (906,645) (811,240)
----------- -----------
Net property and equipment 2,093,306 1,213,575
Other assets:
Patent costs, net of accumulated amortization of $28,628 at
December 31, 1999 and $22,629 at June 30, 1999 180,265 177,194
Other noncurrent assets 119,345 37,921
----------- -----------
299,610 215,115
=========== ===========
Total Assets $ 7,981,472 $ 8,463,396
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 105,000 $ 155,000
Accounts payable 311,281 99,868
Accrued expenses 853,684 1,264,360
Current portion of long-term debt 200,082 185,376
Obligations under capital lease 5,672 5,672
----------- -----------
1,475,719 1,710,276
Long term liabilities:
Long-term debt, net of current portion 515,741 615,781
Obligations under capital lease 13,832 16,196
Deferred income taxes 29,000 29,000
----------- -----------
558,573 660,977
Stockholders' equity:
Common stock, $0.10 par value; 20,00,000 authorized 5,207,320
and 5,069,320 outstanding at December 31, 1999 and June 30, 1999 520,732 506,932
Additional paid in capital 6,963,462 6,242,194
Deferred compensation (90,865) (121,154)
Accumulated deficit (1,446,149) (535,829)
=========== ===========
Total Stockholders' Equity 5,947,180 6,092,143
----------- -----------
Total Liabilities and Stockholders' Equity $ 7,981,472 $ 8,463,396
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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IMPLANT SCIENCES CORPORATION
PART I. FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Product and contract research revenues
Medical $ 824,718 $ 576,486 $ 1,561,734 1,124,900
Semiconductor 136,245 75,675 273,657 225,172
Equipment 365,000 -- 365,000 --
----------- ----------- ----------- -----------
Total revenues 1,325,963 652,161 2,200,391 1,350,072
Costs and expenses:
Cost of product and contract research revenues 720,920 410,032 1,212,309 789,335
Cost of equipment 396,445 -- 396,445 --
Research and development 290,374 83,298 478,092 158,298
Selling, general and administrative 597,868 264,063 1,113,980 470,749
----------- ----------- ----------- -----------
Total costs and expenses 2,005,607 757,393 3,200,826 1,418,382
Operating loss (679,644) (105,232) (1,000,435) (68,310)
Other income (expense)
Interest income 69,732 2,692 136,464 5,316
Interest expense (21,832) (20,107) (42,271) (28,229)
Equity loss in Epsilon Medical (4,078) -- (4,078) --
----------- ----------- ----------- -----------
Loss before provision (benefit) for income Taxes (635,822) (122,647) (910,320) (91,223)
Provision (benefit) for income taxes -- (41,700) -- (36,701)
=========== =========== =========== ===========
Net loss $ (635,822) $ (80,947) $ (910,320) $ (54,522)
=========== =========== =========== ===========
Net loss per share - basic $ (0.12) $ (0.02) $ (0.17) $ (0.01)
=========== =========== =========== ===========
Net loss per share - diluted $ (0.12) $ (0.02) $ (0.17) $ (0.01)
=========== =========== =========== ===========
Weighted average common shares outstanding used
for basic earnings per share 5,207,320 3,747,678 5,195,964 3,747,678
=========== =========== =========== ===========
Weighted average common shares outstanding used
for diluted earnings per share 5,207,320 3,747,678 5,195,964 3,747,678
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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IMPLANT SCIENCES CORPORATION
PART 1. FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS OPERATING ACTIVITIES:
Net loss $ (910,320) $ (54,522)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 104,242 57,454
Amortization of deferred compensation 30,289 --
Equity in loss of Epsilon Medical 4,078
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (655,708) (109,020)
(Increase) decrease in inventories 314,397 (6,480)
(Increase) decrease in prepaid income taxes -- --
(Increase) decrease in prepaid expenses (20,146) 770
(Increase) decrease in other noncurrent assets (38,339) (387,502)
Increase (decrease) in accounts payable 211,413 (32,006)
Increase (decrease) in accrued expenses (410,676) 29,081
----------- -----------
Net cash used in operating activities (1,370,770) (502,225)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (975,136) (292,166)
Investment in Epsilon Medical (50,000) --
Capitalized patent costs (9,071) (21,132)
----------- -----------
Net cash used in investing activities (1,034,207) (313,298)
CASH FLOW USED IN FINANCING ACTIVITIES:
Proceeds from common stock 735,068 11,672
Proceeds from long-term debt -- 548,015
Repayments of long-term debt (87,698) (11,808)
Repayments of revolving credit line (50,000) 30,000
----------- -----------
Cash provided by financing activities 597,370 577,879
Net decrease in cash (1,807,607) (237,644)
Cash at beginning of year 6,152,536 311,189
=========== ===========
Cash at end of year $ 4,344,929 $ 73,545
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 46,073 $ 28,228
Income taxes paid $ 3,125 --
</TABLE>
See notes to unaudited condensed financial statements.
5
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IMPLANT SCIENCES CORPORATION
PART 1: FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Information for the six months ended December 31, 1999 is unaudited.)
1. Description of Business
Implant Sciences Corporation is a provider of products and processes for
the medical device and semiconductor industries. Ion implantation and thin film
coating techniques are utilized to enhance the surfaces for orthopedic implants
(hip and knee total joint replacements), to implant radioactive material into
prostate seeds and coronary stents, coatings on guidewires, stents and catheters
for interventional cardiology devices, and ion implantation of electronic
dopants for the semiconductor industry. The Company's principal markets are the
orthopedic, radiation oncology, interventional cardiology and semiconductor
markets.
2. Interim Financial Statements
The financial information for the six months ending December 31, 1999 is
unaudited but includes all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for a fair presentation of
the financial position at such date and of the operating results and cash flows
for these periods. The results of operations and cash flows for the six months
ended December 31, 1999 are not necessarily indicative of results that may be
expected for the entire year. The information contained in the Form 10QSB should
be read in conjunction with the Company's audited financial statements, included
it its Form 10KSB as of and for the year ending June 30, 1999 filed with the
Securities and Exchange Commission.
3. Earnings per Share
In 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, Earnings per Share. This Standard revises certain
methodology for computing earnings per common share (EPS) and requires the
reporting of two earnings per share figures: basic earnings per share and
diluted earnings per share. Basic earnings per common share are computed by
dividing net income by the weighted-average number of common shares outstanding.
Diluted earnings per share are computed by dividing net income by the sum of the
weighted-average number of common shares outstanding plus the dilutive effect of
shares issuable through the exercise of stock options (common stock equivalents)
unless their inclusion would be antidilutive.
4. Investment
On October 6, 1999 the Company entered into an agreement to acquire 38% of
the shares outstanding of Epsilon Medical, Inc. for $50,000. The Company has
accounted for this investment under the equity method and included the
investment in other assets. The carrying amount of the investment reflects the
Company's share of all losses as of December 31, 1999.
5. Accounts Receivable
Contract revenue under cost sharing research and development agreements is
recognized as eligible expenses are incurred. Invoicing of research and
development contracts occurs in accordance with the terms of the contact.
Revenue recognized but unbilled is recorded as unbilled accounts receivable. At
December 31, 1999 unbilled accounts receivable represented approximately 18% of
total accounts receivable.
6
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IMPLANT SCIENCES CORPORATION
PART 1: FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
CONDENSED NOTES TO FINANCIAL STATEMENTS
6. Credit Arrangements
On December 22, 1999 the Company renegotiated its commercial banking
arrangements. The Company increased its revolving line of credit from a $300,000
secured line of credit to a $750,000 unsecured line of credit and reduced the
interest rate to prime from prime plus one percent. This line of credit is
renewable annually. The Company also has available a $750,000 equipment purchase
facility of which zero was outstanding at December 31, 1999. The Company also
favorably renegotiated its covenants.
7. Subsequent Events
On January 26, 2000 the Company entered into a Distributorship Agreement
with MED-TEC Iowa, Inc., among other things, appointing MED-TEC as the exclusive
United States Distributor of its I-Plant(TM) Iodine-125 radioactive prostate
seed for the early stage treatment of prostate cancer.
7
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IMPLANT SCIENCES CORPORATION
PART 1: FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto as filed in the Company's Form 10K-KSB
for the year ended June 30, 1999. In addition to historical information, this
Quarterly Report on Form 10-QSB contains forward-looking statements. The
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those reflected in such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's opinions only as of
the date hereof. The Company undertakes no obligation to revise or publicly
release the results of any revision to these forward-looking statements. Readers
should carefully review documents that the Company files from time to time with
the Securities and Exchange Commission, including the Company's Registration
Statement on Form SB-2 (Registration Number 333-64499) and the Quarterly Reports
and Annual Report filed by the Company in fiscal 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
Revenues. Total revenues increased to approximately $1,326,000 in the three
months ended December 31, 1999 from $652,000 in the three months ended December
31, 1998. This 103.3% increase was primarily attributable to a 100% increase in
equipment revenue as the Company built and shipped a customized piece of
manufacturing equipment, a 404.1% increase in government contract and grant
revenue as the Company has recently been awarded three phase I and phase II
government contracts and a 80.0% increase in semiconductor revenues. Less than
5% of all revenues were derived from foreign sources.
The Company's two major customers, the Howmedica/Osteonics Division of
Stryker Corporation and Biomet Incorporated, accounted for 26.3% and .4%
respectively, of revenue for the three months ended December 31, 1999 and 61.1%
and 12.3% in the three months ended December 31, 1998. The Company's government
contract and grant revenue accounted for 24.8% and 10.0% of revenue for the
three months ended December 31, 1999 and 1998, respectively.
Cost of Product and Contract Research Revenues. Cost of product and
contract research revenue increased to approximately $721,000 from approximately
$410,000 for the three months ended December 31, 1999 and increased as a percent
of revenues to 54.4% from 62.9% in the same periods. This increase in cost is
primarily attributable to the increase in government contract and grant revenue
which are generally low margin, additional personnel and expenses to prepare for
product commercialization, increased depreciation expense and regulatory costs
and expenses associated with implementing quality systems and preparing for
ISO9001 and CE Mark certifications for the I-Plant seed.
8
<PAGE> 9
Research and Development. Research and development expenses increased to
approximately $290,000 from approximately $83,000 in the three months ended
December 31, 1999, a 249.4% increase, due to product development. The Company
anticipates in future periods its research and development expenses will
continue to increase in total dollars expended as a result of its new product
development plans.
Selling, General and Administrative. Selling, general and administrative
expenses increased to approximately $598,000 from approximately $264,000 in the
three months ended December 31, 1999. The 126.5% increase in selling, general
and administrative expenses is primarily attributable to increased audit and
legal costs, additional personnel and benefit costs and new investor relations
and shareholders services expenses. The Company anticipates that in future
periods its selling, general and administrative expenses will increase in total
dollars expended as a result of its plans to commercialize new products.
Other Income and Expense, Net. Other income and expense, net consists
primarily of interest earned on the Company's short-term investments and
interest expense on loans. Other income and expenses increased to approximately
$44,000 in the three months ended December 31, 1999 from approximately ($17,000)
in the three months ended December 31, 1998. This increase primarily reflects
interest income of approximately $70,000 on the Company's short term investments
offset by interest expense $22,000 on the Company's loans and $4,000 of equity
loss associated with the investment in Epsilon Medical, Inc.
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
Revenues. Total revenues increased to approximately $2,200,000 in the six
months ended December 31, 1999 from $1,350,000 in the six months ended December
31, 1998. This 63.0% increase was primarily attributable to a 100% increase in
equipment revenue as the Company built and shipped a customized piece of
manufacturing equipment, a 265.6% increase in government contract and grant
revenue as the Company has recently been awarded three phase I and phase II
government contracts, a 21.5% increase in semiconductor revenues and a 4.2%
increase in orthopedic medical revenues. Less than 5% of all revenues were
derived from foreign sources.
The Company's two major customers, the Howmedica/Osteonics Division of
Stryker Corporation and Biomet Incorporated, accounted for 33.7% and 5.8%
respectively, of revenue for the six months ended December 31, 1999 and 54.8%
and 7.4% in the six months ended December 31, 1998. The Company's government
contract and grant revenue accounted for 26.9% and 12.0% of revenue for the six
months ended December 31, 1999 and 1998, respectively.
Cost of Product and Contract Research Revenues. Cost of product and
contract research revenue increased to approximately $1,212,000 from
approximately $789,000 for the six months ended December 31, 1999 and increased
as a percent of revenues to 55.1% from 58.5% in the same periods. This increase
in cost is primarily attributable to the increase in government contract and
grant revenue which are generally low margin, additional personnel and expenses
to prepare for product commercialization, increased depreciation expense and
9
<PAGE> 10
regulatory costs and expenses associated with implementing quality systems and
preparing for ISO9001 and CE Mark certifications.
Research and Development. Research and development expenses increased to
approximately $478,000 from approximately $158,000 in the six months ended
December 31, 1999, a 202.5% increase, due to product development. The Company
anticipates in future periods its research and development expenses will
continue to increase in total dollars expended as a result of its new product
development plans.
Selling, General and Administrative. Selling, general and administrative
expenses increased to approximately $1,114,000 from approximately $471,000 in
the six months ended December 31, 1999. The 136.5% increase in selling, general
and administrative expenses is primarily attributable to increased audit and
legal costs, additional personnel and benefit costs and new investor relations
and shareholders services expenses. The Company anticipates that in future
periods its selling, general and administrative expenses will increase in total
dollars expended as a result of its plans to commercialize new products.
Other Income and Expense, Net. Other income and expense, net consists
primarily of interest earned on the Company's short-term investments and
interest expense on loans. Other income and expenses increased to approximately
$90,000 in the six months ended December 31, 1999 from approximately ($23,000)
in the six months ended December 31, 1998. This increase primarily reflects
interest income of approximately $136,000 on the Company's short term
investments offset by interest expense $42,000 on the Company's loans and $4,000
of expenses associated with the investment in Epsilon Medical, Inc.
Liquidity and Capital Resources. As of December 31, 1999 the Company had
approximately $4,345,000 in cash in the form of checking and short-term
investments. On December 22, 1999 the Company renegotiated its commercial
banking arrangements. The Company increased its revolving line of credit from a
$300,000 secured line of credit to a $750,000 unsecured line of credit at a
reduced rate of prime, of which $645,000 was available at December 31, 1999.
This line of credit is renewable on December 22, 2000. The Company also has a
term loan and an equipment purchase facility with a commercial bank, under which
approximately $39,000 and $676,000 respectively, were outstanding at December
31, 1999. The Company also has available a new $750,000 equipment purchase
facility of which zero was outstanding at December 31, 1999. Under the new
provisions of its Loan Agreement, the Company is required to maintain compliance
with two financial covenants, minimum levels of net worth and net loss limits.
At June 30, 1999 under the former covenants, the Company's debt service coverage
was less than the required amount. The Company's bank waived its rights under
the Loan Agreement with respect to compliance with this financial covenant for a
period of one year from June 30, 1999. Covenants are measured annually
consistent with the Company's fiscal year end.
During the six months ending December 31, 1999, operating activities used
cash of approximately $1,371,000 due principally to the payment of operating
expenses and offering costs and an increase in accounts receivable.
During the six months ending December 31, 1999, investing activities used
cash of
10
<PAGE> 11
approximately $1,034,000. Net cash used by investing activities included
approximately $975,000 in purchases of property and equipment, $50,000 equity
investment in Epsilon Medical and $9,000 of patent fees. The Company intends to
make significant investments over the next several years to support the
development and commercialization of its new products and the expansion of its
manufacturing equipment and capabilities.
During the six months ended December 31, 1999, financing activities
provided approximately $597,000 in cash. Net cash provided by financing
activities primarily includes approximately $735,000 in proceeds from the
exercise of the underwriter's over-allotment option of 138,000 units, offset by
payments on the Company's line of credit and equipment and term loans. The
Company plans to further increase its expenditures to complete development and
commercialize its new products, to increase its manufacturing capacity, to
ensure compliance with the FDA's Quality System Regulations and to broaden its
sales and marketing capabilities.
11
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters of a Vote to Security-Holders
On December 9, 1999 and in conjunctions with the Company's 1999 Annual
Meeting of Stockholders, stockholders were asked to elect five directors of the
Company to serve until the 2000 Annual Meeting and until their respective
successors are duly elected and qualified. The Board of Directors nominated
Anthony J. Armini, Stephen N. Bunker, Robert E. Hoisington, Shunkichi Shimizu
and Michael Szycher. The following votes were cast in favor of the five
nominees:
<TABLE>
<CAPTION>
Number of
Number of Shares for which
Shares Voted For Authority Withheld
---------------- ------------------
<S> <C> <C>
Anthony J. Armini 4,053,761 3,500
Stephen N. Bunker 4,053,761 3,500
Robert E. Hoisington 4,053,761 3,500
Shunkichi Shimizu 4,053,761 3,500
Michael Szycher 4,053,761 3,500
</TABLE>
Item 5. Other Information
Not Applicable
Item 6. List of Exhibits and Reports on Form 8-K
(a) The following exhibits, required by Item 601 of Regulation S-B, are
filed as part of this Quarterly Report on Form 10-QSB. Exhibit
numbers, where applicable, in the left column correspond to those of
Item 601 of Regulation S-B.
(b) The registrant has filed no reports on Form 8-K during the quarter
ended December 31,
12
<PAGE> 13
IMPLANT SCIENCES CORPORATION
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Implant Sciences Corporation
Date: February 14, 2000 /s/ Anthony J. Armini
----------------------------------
Anthony J. Armini
President and CEO, Director
Date: February 14, 2000 /s/ Darlene M. Deptula-Hicks
----------------------------------
Darlene M. Deptula-Hicks
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
Date: February 14, 2000 /s/ Stephen N. Bunker
----------------------------------
Stephen N. Bunker
Vice President and Chief
Scientist, Director
Date: February 14, 2000 /s/ Robert E. Hoisington
----------------------------------
Robert E. Hoisington
Director
Date: February 14, 2000 /s/ Shunkuchi Shimizu
----------------------------------
Shunkuchi Shimizu
Director
Date: February 14, 2000 /s/Michael Szycher
----------------------------------
Michael Szycher
Director
13
<PAGE> 14
EXHIBIT INDEX
-------------
The following exhibits are filed as part of this report.
Exhibit
No. Description
------- -----------
*3.2 By-Laws of the Company
*3.3 Articles of Amendment to the Articles of Organization of the
Company, dated June 9, 1999
*3.4 Restated Articles of Organization of the Company, dated June
9, 1999
**4.1 Specimen certificate for the Common Stock of the Company
**4.2 Specimen certificate for the Redeemable Warrants of the
Company
***4.3 Specimen certificate for the Units of the Company
**10.1 Employment Agreement with Anthony J. Armini, dated September
26, 1998
**10.2 Employment Agreement with Stephen N. Bunker, dated September
26, 1998
*10.3 Employment Offer Letter to Darlene Deptula-Hicks, dated June
15, 1998
*10.4 Employment Offer Letter to Alan Lucas, dated March 20, 1998
*10.5 Amendment to Employment Offer Letter to Alan Lucas, dated
September 24, 1998
*10.6 Form of Employee Agreement on Ideas, Inventions, and
Confidential Information used between 1993 and 1995
*10.7 Form of Employee Agreement on Ideas, Inventions, and
Confidential Information used in 1993
*10.8 Form of Employee Agreement on Ideas, Inventions, and
Confidential Information used between 1997 and 1998
*10.9 Loan Agreement between the Company and US Trust, dated May
1, 1996
*10.10 $100,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated May 1, 1996
*10.11 $300,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated May 1, 1996
*10.12 Guaranty of Loan Agreement between the Company and US Trust,
by Anthony J. Armini, dated May 1, 1996
*10.13 Security Agreement between the Company and US Trust, dated
May 1, 1996
*10.14 Lessor's Subordination and Consent between the Company and
Teacher's Insurance and Annuity Association of America,
dated May 1, 1996
*10.15 First Amendment to Loan Agreement between the Company and US
Trust, dated July 24, 1997
*10.16 $300,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated July 24, 1997
*10.17 $94,444.40 Commercial Promissory Note signed by the Company
in favor of US Trust, dated August 12, 1997
*10.18 Second Amendment to Loan Agreement between the Company and
US Trust, dated January 16, 1998
*10.19 $750,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated January 16, 1998
*10.20 Promissory Note signed by Anthony J. Armini in favor of the
Company, dated September 26, 1998
*10.21 Shareholders Agreement between NAR Holding Corporation and
Anthony J. Armini, dated July 15, 1987
*10.22 Lease between the Company and Teachers Insurance and Annuity
Association of America, dated September 29, 1995
*10.23 First Amendment to Lease and Expansion Agreement between the
Company and Teachers Insurance and Annuity Association of
America, dated July 29, 1998
*10.24 Standard Cooperative Research and Development Agreement
between the Company and the Naval Research Laboratory, dated
January 21, 1997+
<PAGE> 15
Exhibit
No. Description
------- -----------
*10.25 Cooperative Agreement between the Company and the United
States of America U.S. Army Tank-Automotive and Armaments
Command Armamanet Research, Development and Engineering
Center, dated September 30, 1997+
*10.26 Vendor Agreement Memorandum between the Company and
Osteonics, dated February 2, 1998+
*10.27 Sample Purchase Order between the Company and MicroSpring
Company, Inc., dated October 24, 1996+
*10.28 Asset Purchase Agreement between the Company and Falex
Corporation, dated November 17, 1995+
*10.29 Settlement between the Company and Erik Akhund, dated July
1, 1998
*10.30 1992 Stock Option Plan
*10.31 Form of Stock Option Agreement under the 1992 Stock Option
Plan
*10.32 1998 Incentive and Nonqualified Stock Option Plan
**10.33 Form of Incentive Stock Option under the 1998 Incentive and
Nonqualified Stock Option Plan
**10.34 Form of Nonqualified Stock Option under the 1998 Incentive
and Nonqualified Stock Option Plan
**10.35 Form of Nonqualified Stock Option for Non-Employee Directors
under the 1998 Incentive and Nonqualified Stock Option Plan
*10.36 Form of Lock-Up Agreement
**10.37 Agreement Appointing Transfer Agent and Registrar between
the Company and American Securities Transfer & Trust, Inc.,
dated October 19, 1998
**10.38 Certification of Corporate Secretary dated October 19, 1998
concerning Agreement Appointing Transfer Agent and Registrar
between the Company and American Securities Transfer &
Trust, Inc.
**10.39 Research and Development Agreement between the Company and
Guidant Corporation, dated May 20, 1998+
**10.40 Letter Agreement between the Company and Guidant
Corporation, dated September 29, 1998+
***10.41 Form of Medical Advisory Board Agreement
***10.42 Form of Loan Agreement, dated January 7, 1999, between the
Company and the following employees in the following
amounts: Donald J. Dench ($12,500), Diane J. Ryan ($12,500),
Mark and Kathleen Gadarowski ($12,500), Gregory Huntington,
Sr. ($12,500), Leonard DeMild ($25,000), Michael Nelson
($12,500), Richard Sahagian ($12,500), Darryl Huntington
($12,500), Dennis Gadarowski ($12,500) and David Santos
($12,500)
***10.43 Terms and Conditions from Sample Purchase Order between the
Company and Biomet, Incorporated
****10.44 Unit and Warrant Agreement between the Company and American
Securities Transfer & Trust, Inc., dated April 9, 1999
*10.45 Agreement between the Company and U.S. Army Space and
Missile Defense Command, dated May 27, 1999
++10.46 Second Amendment to Lease and Extension Agreement
++10.47 Sublease Agreement
++10.48 Consent to Sublease Agreement
10.49 SBIR: Coronary Stent with ion implanted radioactivity
10.50 First Amendment to Sublease
10.51 Commercial Term Loan, Revolving Loan and Security Agreement by and
between US Trust and Implant Sciences Corporation.
*21.1 Subsidiaries of the Company
*23.2 Consent of Foley, Hoag & Eliot LLP
*24.1 Power of Attorney
<PAGE> 16
Exhibit
No. Description
------- -----------
27.1 Financial Data Schedule
- -------------------------
* Previously filed in the Registration Statement on Form SB-2 (Registration
No. 333-64499) filed on September 29, 1998.
** Previously filed in Amendment No. 1 to the Registration Statement, filed on
December 21, 1998.
*** Previously filed in Amendment No. 2 to the Registration Statement, filed on
February 11, 1999.
**** Previously filed in Amendment No. 3 to the Registration Statement, filed on
April 30, 1999.
+ Filed under application for confidential treatment.
++ Previously filed in the quarterly report on Form 10-QSB for the period
ending September 30, 1999.
<PAGE> 1
EXHIBIT 10.49
***************************** NOTICE OF GRANT AWARD ****************************
SMALL BUSINESS INNOVATION RESEARCH PROG Issue Date: 12/10/1999
Department of Health and Human Services
National Institutes Of Health
NATIONAL HEART, LUNG, AND BLOOD INSTITUTE
********************************************************************************
Grant Number: 2 R44 HL59121-02A1 (Revised)
Principal Investigator: ARMINI, ANTHONY J PHD
Project Title: CORONARY STENTS WITH ION IMPLANTED RADIOACTIVITY
CONTRACTS MANAGER
IMPLANT SCIENCES CORPORATION
107 AUDUBON ROAD #5
WAKEFIELD, MA 01880
Budget Period: 09/30/1999 - 08/31/2000
Project Period: 12/01/1998 - 08/31/2001
Dear Business Official:
The National Institutes of Health hereby revises this award to reflect an
increase in the amount of $118,109 (see "Award Calculation" in Section I and
"Terms and Conditions" in Section III) to IMPLANT SCIENCES CORPORATION in
support of the above referenced project. This award is pursuant to the authority
of 42 USC 241 42 CFR PART 52 15 USC 638 and is subject to attached terms and
conditions.
Acceptance of this award including attached Terms and Conditions is acknowledged
by the grantee when funds are drawn down or otherwise obtained from the grant
payment system.
Award recipients are responsible for reporting inventions derived or reduced to
practice in the performance of work under this grant. Rights to inventions vest
with the grantee organization provided certain requirements are met and there is
acknowledgement of NIH support. In addition, recipients must ensure that patent
and license activities are consistent with their responsibility to make unique
research resources developed under this award available to the scientific
community, in accordance with NIH policy. For additional information, please
visit http://www.iedison.gov.
If you have any questions about this award, please contact the individual(s)
referenced in the attachments.
Sincerely yours,
/s/ Jane R. Davis
Grants Management Officer
NATIONAL HEART, LUNG, AND BLOOD INSTITUTE
Attachments
<PAGE> 2
SECTION I - AWARD DATA - 2 R44 HL59121-02A1 (Revised)
AWARD CALCULATION (U.S. Dollars):
Salaries and Wages $ 51,272
Personnel Costs $ 51,272
Supplies $ 9,100
Consortium/Contractual Cost $131,930
Direct Costs $192,302
F&A Costs $160,574
APPROVED BUDGET $352,876
Fee $ 24,701
TOTAL $377,577
AMOUNT OF THIS ACTION (FEDERAL SHARE) +$118,109
Recommended future year total cost support, subject to the availability of funds
and satisfactory progress of the project, is as follows.
03 $372,423
FISCAL INFORMATION:
CFDA Number: 93.837
EIN: 1042837126A1
Document Number: R4HL59121B
IC / FY1999 / FY2000
HL/8424277 / 377,577 / 372,423
NIH ADMINISTRATIVE DATA:
PCC: HHHEEN / OC: 41.4B /Processed: KEATINGK 991207 0214
SECTION II - PAYMENT/HOTLINE INFORMATION - 2 R44 HL59121-02A1 (Revised)
For Payment and HHS Office of Inspector General Hotline Information, see the NIH
Home Page at http://www.nih.gov/grants/policy/awardconditions.htm
SECTION III - TERMS AND CONDITIONS - 2 R44 HL59121-02A1 (Revised)
This award is based on the application submitted to, and as approved by, the NIH
on the above-titled project and is subject to the terms and conditions
incorporated either directly or by reference in the following:
a. The grant program legislation and program regulation cited in this Notice of
Grant Award.
b. The restrictions on the expenditure of federal funds in appropriations acts,
to the extent those restrictions are pertinent to the award.
c. 45 CFR Part 74 or 45 CFR Part 92 as applicable.
d. The NIH Grants Policy Statement, including addenda in effect as of the
beginning date of the budget period.
e. This award notice, INCLUDING THE TERMS AND CONDITIONS CITED BELOW.
(see NIH Home Page at http://www.nih.gov/grants/policy/awardconditions.htm for
certain references cited above.)
This grant is included under Expanded Authorities.
This grant is subject to Streamlined Noncompeting Award Procedures (SNAP).
<PAGE> 3
Treatment of Program Income:
Additional Costs
SECTION IV - ADDITIONAL TERMS AND CONDITIONS
Revision #1
2 R44 HL59121-02A1
Dr. Armini
FACILITIES AND ADMINISTRATIVE (F&A) COSTS
The purpose of this revision is to reflect appropriate Facilities and
Administrative costs in accordance with the current F&A cost rate agreement.
PREVIOUS FOOTNOTES AND TERMS
All other Footnotes and Terms and Conditions reflected on the Notice of Grant
Award issued 9/21/99 are still in effect.
STAFF CONTACTS
The Program Official is responsible for the scientific, programmatic and
technical aspects of this project. The Grants Management Specialist is
responsible for the negotiation, award and administration of this project and
for interpretation of Grants Administration policies and provisions. These
individuals work together in overall project administration. For up-to-date
information, you may access the NIH Home Page at http://www.nih.gov/ and the
NHLBI Home Page at http://www.nhlbi.nih.gov/nhlbi/nhlbi.htm.
Program: Dr. George Sopko (301) 435-0515
Fax Number (301) 480-1454
Grants Management: J. Kevin Keating (301) 435-0177
Fax Number (301) 480-0422
I. Kevin Keating, Grants Specialist
SPREADSHEET
GRANT NUMBER: 2 R44 HL59121-02A1 (Revised)
P.I.: ARMINI, ANTHONY J
INSTITUTION: IMPLANT SCIENCES CORPORATION
YEAR 02 YEAR 03
Salaries and Wages 51,272 51,272
Personnel Costs 51,272 51,272
Supplies 9,100 9,800
Consortium/Contractual Cost 131,930 131,930
T0TAL DC 192,302 193,002
TOTAL F&A 160,574 160,827
TOTAL COST 352,876 353,829
<PAGE> 4
YEAR 02 YEAR 03
F&A Cost Rate 1 131.00% 131.00%
F&A Cost Base 1 51,272 51,272
F&A Costs 1 67,166 67,166
F&A Cost Rate 2 36.00% 36.00%
F&A Cost Base 2 259,468 260,169
F&A Costs 2 93,408 93,661
24,701 18,594
<PAGE> 1
EXHIBIT 10.50
FIRST AMENDMENT TO SUBLEASE
This First Amendment to Sublease, made this 17th day of November, 1999
by and between CP Clare Corporation (hereinafter referred to as "Sublessor") and
Implant Sciences Corporation (hereinafter referred to as "Sublessee").
WITNESSETH
Whereas, the parties have previously entered into a Sublease Agreement
for 9,300 SF of space at Building 1, 107 Audubon Road, Wakefield, MA dated
October 1, 1999 (hereinafter referred to as the "Sublease") and
Whereas, the parties hereto do hereby agree as follows:
1. SUBLEASE PREMISES: Increased by 8,000 SF in accordance with plan attached as
Exhibit A.
2. OCCUPANCY: Upon completion ofsublessors work or no later than December 6,
1999.
3. RENT COMMENCEMENT: March 1, 2000
4. TERM: Remains the same
5. SECURITY DEPOSIT: Increased by $4833.00
6. RENTAL RATE: In accordance with Exhibit C of Sublease.
7. EXPEDITE FEE: Sublessee agrees to pay sublessor a $4,000.00 expedite fee to
ensure December 6, 1999 occupancy. Expedite fee payable upon completion of
sublessor's work as described in Item 8.
8. SUBLESSOR'S WORK: Sublessor shall provide a tile floor (VAT), new ceiling
tiles, painted walls, 2-3 opening cut in walls, and install all HVAC systems,
but otherwise broom clean.
9. The parties confirm, ratify and agree that all other terms and provisions and
conditions of the Sublease, except as heretofore noted, shall continue as
heretofore rented and as if they were printed at large herein and they are
hereby incorporated by reference.
In witness whereof, the parties hereto, intending to be legally bound, have
caused this instrument to be executed on the day written above.
Witness: Sublessor: CP Clare Corporation
By: /s/ Harry Andersen
---------------------------------
Its: CFO
--------------------------------
Sublessee: Implant Sciences Corporation
By: /s/ Darlene M. Deptula-Hicks
---------------------------------
Its: VP CFO
--------------------------------
<PAGE> 2
[LEGGAT MCCALL PROPERTIES LETTERHEAD]
February 2, 2000
VIA OVERNIGHT MAIL
Mr. Hank Cote
Facilities Manager
CP Clare Corporation
78 Cherry Hill Drive
Beverly, MA 01945-1048
Ms. Darlene M. Deptula-Hicks
Vice President and Chief Financial Officer
Implant Sciences Corporation
107 Audubon Road, Suite 15
Wakefield, MA 01880-1246
RE: 107 AUDUBON ROAD, BUILDING 1, WAKEFIELD, MASSACHUSETTS
Dear Hank and Darlene:
I have enclosed for your files, one (1) fully executed original sublease package
consisting of a fully executed original First Amendment to Sublease agreement
and a fully executed Consent to Amendment of Sublease agreement between CP Clare
Corporation and Implant Sciences Corporation for space at the above referenced
property.
If you have any further questions, please do not hesitate to call.
Sincerely,
/S/ Neil A. Schneider
Neil A. Schneider
Vice President
cc: Steven D. Werst, Leggat McCall Properties LLC
Steven Schaub, Leggat McCall Properties LLC
Paul David Machado, Esq., Carolan & Greeley
Greg Klemmer, Klemmer & Associates, Inc.
Lease File
<PAGE> 3
CONSENT TO AMENDMENT OF SUBLEASE
--------------------------------
PREAMBLE
--------
THIS CONSENT TO AMENDMENT OF SUBLEASE ("Consent") is dated as of January
31, 2000 and is made with reference to that certain Sublease Agreement (the
"Sublease Agreement") dated October 1, 1999 as amended by First Amendment to
Sublease ("First Amendment") dated as of November 17, 1999 (the Sublease
Agreement as amended by the First Amendment is hereafter collectively the
"Sublease") by and between C.P. Clare Corporation ("Sublandlord") and Implant
Sciences Corporation ("Subtenant"), and is entered into by and among TIAA
Realty, Inc. having an address c/o Leggat McCall Properties, LLC, 500 Edgewater
Drive, Wakefield, MA ("Overlandlord"), Sublandlord, and Subtenant, with respect
to the following facts:
A. Overlandlord and Sublandlord are the parties to that certain Lease
dated as of April 1, 1998 as amended by First Amendment to Lease
dated July 10, 1998 (said Lease as so amended is hereafter
collectively the "Ovedease") pertaining to certain space in a
Building known as and numbered Building 1,107 Audubon Road,
Wakefield, Massachusetts (the "Building");
B. Sublandlord and Subtenant have previously entered into the
Sublease Agreement and now wish to enter into the First Amendment;
C. Overlandlord consented to the original Sublease Agreement by
virtue of and upon the terms and conditions set forth in that
certain Consent to Sublease dated as of September 23, 1999 (the
"Original Consent")
D. The Overlease provides, inte.r alia, that Sublandlord may not
enter into any sublease nor amend the Sublease Agreement without
Overlandlord's prior written approval; and
E. Sublandlord and Subtenant have presented the fully executed
Sublease (a true copy of which is attached hereto as Exhibit A) to
Overlandlord for Overlandlord's review and approval.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Overlandlord hereby consents to the execution and delivery
of the First Amendment of the Sublease upon the terms and
conditions set forth in the General Conditions of Consent
to Sublease ("General Conditions") attached to the Odginal
Consent as if each were originally set forth herein.
<PAGE> 4
2. Sublandlord and Subtenant hereby acknowledge receipt of the
General Conditions and further acknowledge that
Overlandlord's consent is subject to such General
Conditions, and that in the event of a conflict between
this Consent and the General Conditions and the Sublease,
this Consent and the General Conditions shall control.
EXECUTED under seal as of the date first written above.
OVERLANDLORD: SUBLANDLORD:
TIAA Realty, Inc,.. C.P. Clare Corporation
By: Teachers Insurance and Annuity By: /s/ Harry Andersen
Association of Amedca, a New --------------------------------
York corporation.
Its: Authorized Representative Its: CFO
-------------------------------
By: /s/ Alan E. Lang
--------------------------------
Alan E. Lang
Its: Director
SUBTENANT:
Implant Sciences Corporation
By: /s/ Darlene M. Deptula-Hicks
--------------------------------
Its: VP and CFO
-------------------------------
hereunto duly authorized
-2-
<PAGE> 1
EXHIBIT 10.51
COMMERCIAL TERM LOAN, REVOLVING LOAN AND SECURITY AGREEMENT
DATED AS OF DECEMBER 22, 1999
BY AND BETWEEN
USTRUST
AND
IMPLANT SCIENCES CORPORATION
<PAGE> 2
COMMERCIAL TERM LOAN, REVOLVING LOAN AND SECURITY AGREEMENT
-----------------------------------------------------------
COMMERCIAL TERM LOAN, REVOLVING LOAN AND SECURITY AGREEMENT (as it may
be amended and supplemented from time to time, the "Agreement"), dated as of
December 22, 1999, by and between Implant Sciences Corporation, a Massachusetts
corporation with its principal place of business at 107 Audubon Road, Wakefield,
Massachusetts 01880-1246 ("Borrower") and USTrust, with its principal office at
30 Court Street, Boston, Massachusetts 02108 ("Lender").
WHEREAS, on May 1, 1996, Borrower executed and delivered to Lender a
certain Loan Agreement which established a $100,000 Line of Credit as evidenced
by a certain $100,000 Commercial Promissory Note, and a $300,000 Equipment/Term
Loan as evidenced by a certain $300,000 Commercial Promissory Note, both dated
May 1, 1996, the payment of which was secured, INTER ALIA, by a Security
Agreement also dated May 1, 1996 (the "Security Agreement").
Said Loan Agreement was amended by a First Amendment to Loan Agreement
dated July 24, 1997 which, inter alia, increased the amount of said Line of
Credit to Three Hundred Thousand ($300,000) Dollars (the "LINE OF CREDIT"), and
reduced said Equipment/Term Loan to One Hundred Five Thousand Five Hundred
Fifty-Five ($105,555) Dollars (the "1997 TERM LOAN") as evidenced by two
Commercial Promissory Notes dated July 24, 1997 (the "LINE OF CREDIT NOTE") and
August 12, 1997 (the "1997 TERM NOTE") respectively, which replaced the Notes
dated May 1, 1996.
Said Loan Agreement as amended, was further amended by a Second
Amendment to Loan Agreement dated January 16, 1998, which, inter alia, decreased
the 1997 Term Loan to Ninety-Four Thousand Four Hundred Forty-Four and 44/100
($94,444.44) Dollars, and extended a new term loan in the original principal
amount of Seven Hundred Fifty Thousand ($750,000) Dollars (the "1998 EQUIPMENT
LOAN") as evidenced by a Commercial Promissory Note dated January 16, 1998 (the
"1998 EQUIPMENT NOTE").
WHEREAS, Borrower has requested and Lender has agreed, subject to the
terms and conditions of this Agreement, and in reliance upon the representations
and warranties set forth herein, to establish for Borrower's benefit the
following: (i) to replace the Line of Credit with an unsecured Line of Credit in
the amount of Seven Hundred Fifty-Thousand and 00/100 ($750,000.00) Dollars (the
"REVOLVING LINE OF CREDIT"); and (ii) to extend an equipment/term loan in the
amount of Seven Hundred Fifty-Thousand and 00/100 ($750,000.00) Dollars (the
"1999 TERM LOAN") to the Borrower as set forth below.
The terms and conditions of this Agreement shall apply to the 1997 Term
Note and the 1998 Equipment Note and the loans evidenced thereby. The terms and
conditions of this Agreement shall supercede those of any prior loan agreement
entered into in connection with the 1997 Term Note and the 1998 Equipment Note
to the extent inconsistent with the terms hereof. The Security Agreement, as
amended shall be deemed to refer to this Agreement and shall remain in full
force and effect. All schedules and exhibits referred to in this Agreement are
annexed hereto and made a part hereof.
<PAGE> 3
In consideration of the foregoing and in further consideration of the
mutual covenants herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 GENERAL TERMS. As used in this Agreement, the following terms shall
have the following respective meanings:
"Accounts" shall have the meaning given to that term in
Section 4.1. hereof.
"Account Debtor" shall mean the Persons liable on an Account.
"Banking Day" means a day other than a Saturday, Sunday or
banking holiday in the Commonwealth of Massachusetts.
"Base Rate" means the Base Rate of interest announced by the
Bank from time to time as its "Base Rate". The Base Rate is a reference rate and
does not necessarily represent the lowest or best rate being charged to any
customer. Interest shall be calculated on the basis of actual days elapsed and a
360-day year.
"Borrower" shall have the meaning given to that term in the
preamble of this Agreement.
"Borrower's Account" means Borrower's main operating account
maintained with Lender bearing Borrower's name and in which all advances by
Lender to Borrower and all payments by Borrower to Lender pursuant to this
Agreement shall be recorded.
"Capital Expenditures" means, during the period being
measured, the total amount of Borrower's expenditures for the acquisition,
construction, improvement, replacement or purchase of property or plant assets
or any other assets that in accordance with GAAP is required or permitted to be
treated as a capital asset, including, expenditures under capital leases.
"Closing Date" means as of December 22, 1999.
"Code" means the Internal Revenue Code of 1986, as amended,
and all rules and regulations promulgated thereunder, in each case as in effect
from time to time.
"Collateral" means any and all assets of Borrower or any of
Borrower's Affiliates or any other Person with respect to which Lender is now or
hereafter granted a lien, security interest, mortgage or any other interest
pursuant to this Agreement or any other agreement entered into with respect to
the transactions contemplated by this Agreement, including the items described
in Section 4.1 hereof.
"Default" means an event that with the giving of notice or
lapse of time, or both, would constitute an Event of Default.
2
<PAGE> 4
"Equipment" shall be given that definition set forth in the
Uniform Commercial Code in effect in the Commonwealth of Massachusetts but shall
not include motor vehicles.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, and all
regulations and rulings promulgated thereunder, in each case as in effect from
time to time.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) that together with Borrower or any of Borrower's Affiliates would
be treated as a single employer under Section 414 of the Code for any purpose or
would be treated as a single employer under Section 4001 of ERISA.
"Event of Default" shall have the meaning given to that term
in Section 9.1.
"GAAP" means generally accepted accounting principles in
effect from time to time in the United States of America, consistently applied.
"General Account" means Borrower's disbursement account with
Lender.
"Indebtedness" means all items of borrowed money, guarantees
and capital lease obligations.
"Interest Expense" means for the period measured the total
interest expense paid or payable during such period.
"Inventory" shall have the meaning given to such term in
Section 3.1(D) hereof.
"Laws" means all ordinances, statutes, rules, regulations,
guidelines, orders, injunctions, writs or decrees of any governmental or
political subdivision or agency thereof, or any court or similar entity
established by any such governmental or political subdivision or agency thereof.
"Legal Rate" means, at any time, the maximum rate of interest
which may be charged on any Loan under applicable Law.
"Lender" shall have the meaning given to that term in the
preamble of this Agreement.
"Multiemployer Plan" means a Plan defined as such in Section
3(37) of ERISA to which Borrower or any ERISA Affiliate has or had any
obligation to contribute or has made contributions.
"Obligations" means all loans, advances, debts, liabilities,
obligations, Indebtedness, covenants and duties owing by Borrower to Lender of
every kind and description (whether or not evidenced by any note or other
instrument and whether or not for the payment of money), direct or indirect,
primary or secondary, absolute or contingent, fixed or otherwise (including
obligations of
3
<PAGE> 5
performance) due or to become due, now existing or hereafter arising, including
without limitation all principal, interest, charges, expenses, attorneys' fees
and other sums chargeable to Borrower by Lender pursuant to this Agreement, the
1999 Term Note, the Revolving Note or any Related Agreements, all reimbursement
obligations under letters of credit, all obligations under any and all interest
rate swap agreements or any agreement in the nature thereof, all obligations
under any foreign exchange agreements of any nature whatsoever, and the
performance and fulfillment by Borrower of all of the terms, conditions,
promises, covenants and provisions contained in this Agreement, the Revolving
Note, the 1999 Term Note or any Related Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation
established under Title IV of ERISA or any other governmental agency, department
or instrumentality succeeding to the functions of said corporation.
"Permitted Encumbrances" means (A) liens incurred or deposits
made in the ordinary course of Borrower's business in connection with worker's
compensation, unemployment insurance and other types of social security, or to
secure Borrower's performance of leases, utility contracts, franchises,
licenses, statutory obligations, surety and appeal bonds, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money) incurred in the ordinary course of Borrower's
business; (B) liens permitted pursuant to the provisions of Section 7.1; (C)
liens arising from judgments, attachments or decrees, provided however said
liens do not otherwise give rise to a breach of warranty, covenant, negative
covenant or other Event of Default hereunder; (D) inchoate liens which have not
ripened into liens otherwise not permitted hereunder; and (E) taxes not yet due
and payable.
"Person" means a corporation, association, general or limited
partnership, limited liability company, limited liability partnership,
organization, business, joint venture, individual, sole proprietorship,
government or political subdivision thereof or a governmental agency.
"Plan" means any employee pension or benefit plan (A) to which
Section 4021 of ERISA applies to Borrower or any ERISA Affiliate; or (B) to
which Borrower or any ERISA Affiliate made, or was required to make,
contributions at any time within the five (5) years preceding the Closing Date.
\ "Prohibited Transaction" means with respect to any Plan or Multiemployer Plan
any transaction described in Section 406 of ERISA which is not exempt by reason
of Section 408 of ERISA and any transaction described in Section 4975 of the
Code which is not exempt by reason of Section 4975(c)(2) or 4975(d) of the Code.
"Related Agreements" means those documents described on the
Index of Related Agreements attached hereto as SCHEDULE 1.1(b).
"Reportable Event" means (A) a reportable event described in
Section 4043 of ERISA; (B) a withdrawal by a substantial employer from any Plan
that has two or more contributing sponsors at least two of which are not under
common control, as referred to in Section 4063(b) of ERISA; or
4
<PAGE> 6
(C) a cessation of operations at a facility causing more than twenty percent
(20%) of any Plan's participants to be separated from employment, as referred to
in Section 4068(f) of ERISA.
"Revolving Line of Credit" shall have the meaning given to
that term in Section 2.1.
"Revolving Note" shall have the meaning given to that term in
Section 2.1.
"Senior Management" shall mean the Chief Financial Officer or
the Chief Executive Officer.
"Solvent" means, as to any Person, that such Person (A) has
capital sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage, (B) is able to pay its debts as
they mature, (C) owns property having both a fair salable value in the ordinary
course of such Person's business and a fair valuation that is greater than the
amount required to pay its Indebtedness (D) has not been dissolved, terminated
or ceased normal business operations, a receiver has not been appointed in
connection with such Person and no proceedings under bankruptcy, insolvency or
other similar laws have been commenced by or against such Person.
"Subsidiary" means, with respect to any Person, any
corporation or other entity of which capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other Persons performing similar functions is at the time in question directly
or indirectly owned or controlled by such Person.
"1999 Term Loan" shall have the meaning given to that term in
Section 2.6.
"1999 Term Note" shall have the meaning given to that term in
Section 2.6.
"Unfunded Vested Liabilities" means, with respect to any Plan,
the amount (if any) by which the present value of all vested benefits under the
Plan exceeds the fair market value of all Plan assets allocable to such
benefits, as determined on the most recent valuation date of the Plan and in
accordance with the provisions of ERISA for calculating the potential liability
of Borrower or any ERISA Affiliate to the PBGC or the Plan under Title IV of
ERISA.
1.2 ACCOUNTING TERMS. Subject to the provisions of Section 9.4, all
accounting terms not specifically defined herein shall be construed in
accordance with GAAP consistent with those applied in the preparation of the
financial statements required hereunder and in connection with the financial
covenants set forth herein.
SECTION 2. THE LOAN TRANSACTIONS
Lender shall make the Loans to Borrower upon the following terms and
conditions:
2.1 REVOLVING LINE OF CREDIT. Subject to the terms and conditions set
forth in this Agreement, Lender will make advances ("Revolving Loans") to
Borrower up to, but not exceeding, the principal amount of Seven Hundred Fifty
Thousand Dollars ($750,000) ("Revolving Line of
5
<PAGE> 7
Credit"). Within the foregoing limit, Borrower may borrow, repay and reborrow
Revolving Loans at any time or from time to time from the Closing Date until
demand is made. Upon DEMAND all principal, interest and other amounts
outstanding in respect of Revolving Loans shall immediately become due and
payable without any further action on the part of Lender. Borrower's obligation
to repay Revolving Loans and to pay interest, fees, costs and expenses in
connection therewith, shall be evidenced by Borrower's Revolving Line of Credit
Note of even date hereof (the "Revolving Note").
2.2 ADVANCES UNDER THE REVOLVING LINE OF CREDIT.
(I) If Borrower wishes to receive a Revolving Loan, Borrower
shall make a written, telecopy or telephonic request (subject to written
confirmation at Lender's request) for an advance no later than 2:00 p.m. Boston,
Massachusetts, on the Banking Day which precedes the Banking Day proposed for
such Loan. Each such request for a Revolving Loan shall be irrevocable and shall
specify the aggregate principal amount and the date of such requested Loan.
Lender shall not be obligated to honor any such request if at the time such
request is made any Default or any Event of Default shall exist.
(II) Lender shall make each Revolving Loan by depositing the
proceeds thereof in Borrower's Account. Each request by Borrower for a Revolving
Loan shall constitute, without more, a representation and warranty by Borrower
that no Default or Event of Default has occurred and is continuing.
2.3 PREPAYMENT REQUIRED UNDER THE REVOLVING LINE OF CREDIT/ZERO
BALANCE.
If at any time the aggregate outstanding balance of the Revolving Loans
shall exceed Seven Hundred Fifty Thousand Dollars ($750,000), the Borrower shall
immediately repay the Revolving Line of Credit in an amount equal to such
excess. Borrower shall maintain a zero (0) balance under the Revolving Line of
Credit for thirty (30) consecutive days during each loan year.
2.4 MANNER, TIME AND APPLICATION OF SCHEDULED PAYMENTS OF THE REVOLVING
LINE OF CREDIT.
(A) All scheduled payments made by Borrower hereunder on
account of principal, interest, fees, costs and expenses shall be made to Lender
on their respective due dates in immediately available funds not later than
11:00 a.m., Boston, Massachusetts, at Lender's address set forth herein or such
other address as Lender may from time to time specify in writing. Each payment
by Borrower with respect to the Revolving Line of Credit will be applied, FIRST,
on account of fees, costs and expenses that are due and payable by Borrower
hereunder, SECOND, on account of any interest on the Revolving Line of Credit
then due and owing, THIRD, to the principal balance of the Revolving Line of
Credit outstanding.
(B) Borrower hereby authorizes Lender to charge, from time to
time, against Borrower's General Account or any of Borrower's other accounts
with Lender any amount so due.
2.5 USE OF PROCEEDS UNDER THE REVOLVING LINE OF CREDIT. Borrower shall
use the proceeds of advances under the Revolving Line of Credit only for
Borrower's working capital purposes.
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2.6 1999 TERM LOAN/ADVANCES. Subject to the terms and conditions set
forth in this Agreement and the 1999 Term Note as defined below, Lender will
make advances to Borrower up to, but not exceeding the amount of $750,000.
Borrower's obligation to repay the 1999 Term Loan and to pay principal,
interest, fees, costs and expenses in connection therewith, shall be evidenced
by Borrower's Commercial Promissory Note of even date hereof (the "1999 Term
Note"). Advances shall be made upon Borrower's request in an amount not to
exceed the invoice cost of the equipment to be constructed, purchased or leased
from the proceeds of the advance. Borrower shall provide Lender such
documentation related to said advance and equipment being constructed, purchased
or leased as Lender may reasonably request. If said equipment is constructed by
Borrower, the invoice amount shall include the cost of materials and labor.
2.7 MANNER, TIME AND APPLICATION OF SCHEDULED PAYMENTS OF THE 1999 TERM
LOAN.
(A) All scheduled payments made by Borrower hereunder on
account of principal, interest, fees, costs and expenses shall be made to Lender
on their respective due dates in immediately available funds not later than
11:00 a.m., Boston, Massachusetts, at Lender's address set forth herein or such
other address as Lender may from time to time specify in writing. Each payment
by Borrower with respect to each 1999 Term Loan will be applied, FIRST, on
account of fees, costs and expenses that are due and payable by Borrower
hereunder, SECOND, on account of any interest on the 1999 Term Loan then due and
owing, THIRD, to the principal balance of the 1999 Term Loan outstanding.
(B) Borrower hereby authorizes Lender to charge, from time to
time, against Borrower's Account or any of Borrower's other accounts with Lender
any amount so due.
2.8 USE OF PROCEEDS UNDER THE 1999 TERM LOAN. Borrower shall use the
proceeds of the advance under the 1999 Term Loan to acquire, construct and/or
lease machinery and equipment.
SECTION 3. SECURITY INTERESTS
3.1 GRANT OF SECURITY INTEREST BY BORROWER. To secure Borrower's timely
payment and performance of all of the Obligations (other than those arising
under the Revolving Line of Credit until such time as Lender and Borrower agree,
if ever, that the Revolving Line of Credit shall be a secured loan), Borrower
hereby mortgages, pledges, transfers, conveys and delivers to Lender, and grants
to Lender an irrevocable, unconditional and continuing first and prior security
interest in and lien upon the following property of Borrower (the "Collateral"):
(A) All accounts and accounts receivable related to or arising
from the rendition of services by Borrower in the ordinary course of its
business or arising in any other manner and all other accounts, bank accounts,
contracts, contract rights, notes, documents, chattel paper, instruments,
acceptances, drafts or other forms of obligations and receivables (collectively,
the "Accounts"), whether or not the same are listed on any schedules,
assignments or reports furnished to Lender from time to time, and whether such
Accounts are now existing or are created at any time hereafter, together with
all goods, inventory and merchandise returned by or reclaimed by or repossessed
from customers wherever such goods, inventory and merchandise are located, and
all proceeds thereto including without limitation, proceeds of insurance thereon
and all guaranties, securities, and liens which
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Borrower may hold for the payment of any such Accounts, including without
limitation, all rights of stoppage in transit, replevin and reclamation and all
other rights and remedies of an unpaid vendor or lienor, and any liens held by
Borrower as a mechanic, contractor, subcontractor, processor, materialman,
machinist, manufacturer, artisan, or otherwise;
(B) All documents, instruments, securities, documents of
title, policies and certificates of insurance, guaranties, securities, chattel
paper, deposits, tax refunds, proceeds of insurance, proceeds of an eminent
domain or condemnation award, cash, liens or other property (other than real
property), which are now or may hereinafter be in the possession of the Borrower
or as to which the Borrower may now or hereafter control possession by documents
of title or otherwise, including, but not limited to, all property allocable to
unshipped orders relating to Accounts and Inventory (as herein defined);
(C) All books, records, customer lists, supplier lists,
ledgers, evidences of shipping, invoices, purchase orders, sales orders and all
other evidences of Borrower's business records, including all cabinets, drawers,
etc. that may hold the same; computer records, lists, software, programs,
wherever located, all whether now existing or hereafter arising or acquired;
(D) All Borrower's inventory, whether now owned or hereafter
acquired, including without limitation: (i) all goods manufactured or acquired
for sale or lease, and any piece goods, raw materials, work in process and
finished merchandise, findings or component materials, and all supplies, goods,
incidentals, office supplies, packaging materials, and any and all items
including machinery and equipment used or consumed in the operation of the
business of Borrower or which contribute to the finished product or to the sale,
promotion and shipment thereof, in which Borrower now or at any time hereafter
may have an interest, whether or not such inventory is listed in this agreement
on any reports furnished to Lender from time to time; (ii) all inventory whether
or not the same is in transit or in the constructive, actual or exclusive
occupancy or possession of Borrower or is held by Borrower or by others for the
Accounts, including without limitation, all goods covered by purchase orders and
contracts with suppliers and all goods billed and held by suppliers; (iii) all
inventory which may be located on premises of Borrower or of any carrier,
forwarding agents, truckers, warehousemen, vendors, selling agents or third
parties; (iv) all general intangibles relating to or arising out of inventory;
and (v) all proceeds and products of the foregoing resulting from the sale,
lease or other disposition of inventory, including cash, accounts receivable,
other non-cash proceeds and trade-ins (collectively, "Inventory");
(E) All general intangibles, including without limitation, tax
refunds, customer lists, proceeds of insurance, unearned insurance premium
refunds, eminent domain awards, condemnation proceeds, and copyrights,
tradenames, trademarks, applications therefor, and licenses to any copyright,
trademark, or tradename that Borrower now owns, has the right to use or may
hereafter own or acquire the right to use. Notwithstanding anything to the
contrary herein, any and all patents currently owned or hereafter acquired by
Borrower shall be specifically excluded from general intangibles.
(F) All equipment, machinery, appliances, and furniture and
fixtures, now existing or hereafter arising, wherever located, and all
contracts, contract rights and chattel paper arising out of
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any lease of any of the foregoing or otherwise (specifically excluding purchase
money security interests in leased equipment and machinery);
(G) All other collateral in which Borrower may hereafter grant
to Lender a security interest; and
(H) All renewals, substitutions, replacements, additions,
accessions, proceeds, and products of any and all of the foregoing.
(I) Specifically excluded from the Collateral are any and all
Government Contracts and Grants entered into by Borrower.
3.2 CONTINUOUS SECURITY INTEREST. Borrower and Lender expressly
acknowledge that the security interest granted hereunder shall remain as
security for payment and performance of the Obligations, whether now existing or
which may hereafter be incurred by future advances, or otherwise. The notice of
the continuing grant of this security interest therefore shall not be required
to be stated on the face of any document representing any such Obligations, nor
otherwise identify it as being secured hereby.
3.3 PRIORITY OF THE LIENS AND SECURITY INTERESTS. The liens and
security interests granted to Lender pursuant to Section 4.1 shall constitute
valid and enforceable first priority liens and security interests against the
Collateral, prior in right to all other liens, security interests, charges and
other encumbrances.
Borrower shall not take any action to impair or defeat the foregoing priority.
SECTION 4. CONDITIONS PRECEDENT TO THE LOANS
4.1 INITIAL LOANS. Lender's obligation to make any initial Revolving
Loan or to advance funds under the 1999 Term Loan on the Closing Date is subject
to delivery by Borrower, prior to or at the time of the making thereof of each
of the documents and items described on the Index of Related Agreements attached
as SCHEDULE 1.1(b) except to the extent said items are listed on said SCHEDULE
1.1(b) to be delivered post closing.
4.2 SUBSEQUENT LOANS. Lender's obligation to make any Revolving Loan or
to advance additional funds under the 1999 Term Loan subsequent to the Closing
Date shall be subject to the further conditions precedent that on the date on
which Lender makes such advance:
(A) Borrower shall have received and provided to Lender such
other approvals, opinions, consents or documents as Lender may reasonably
request; and
(B) the following statements shall be true, and each request
for a Revolving Loan or an advance under the 1999 Term Loan shall be deemed to
be a representation and warranty by Borrower to the effect that, at and as of
the date of such request:
(I) the representations and warranties contained in Section 5
are true and correct on and as of the date of such request as though made on and
as of such date; and
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(II) no Default or Event of Default has occurred and is
continuing, or would result from such advance.
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into this Agreement and to make the Loans,
Borrower represents and warrants to Lender as follows:
5.1 CORPORATE EXISTENCE, GOOD STANDING, ETC. Borrower is and will
continue to be a corporation duly organized, validly existing and in good
standing under the Laws of the Commonwealth of Massachusetts. Borrower is and
will continue to be duly qualified and licensed to transact business in all
states or jurisdictions except those jurisdictions in which Borrower's failure
to so qualify or be so licensed or in good standing would not, individually or
in the aggregate, have a material adverse effect on Borrower's business,
operations, affairs, condition, properties or prospects.
5.2 LICENSES, WAIVERS, MATERIAL CONTRACTS, ETC. Borrower possesses all
material licenses, waivers, consents, rights, permits, orders and other
governmental authorizations and approvals, and all material franchises,
contracts and agreements, necessary to carry on its business as presently
conducted. All of such licenses, waivers, consents, rights, permits, orders,
authorizations, approvals, franchises, contracts and agreements are in full
force and effect and there is no violation or failure of compliance or
allegation of such violation or failure of compliance on the part of Borrower
with respect to any of the foregoing.
5.3 BOOKS AND RECORDS. Borrower's principal place of business is
located at Borrower's address set forth in Section 10.8; all of Borrower's books
and records are kept at such principal and only place of business; and Borrower
does not invoice receivables from or maintain records relating to receivables at
any location other than such principal place of business. Borrower has not
changed its name, been the surviving corporation in any merger, acquired any
business, or changed its chief executive office within five (5) years prior to
the date of this Agreement.
5.4 POWER AND AUTHORITY. Borrower has the corporate power to execute,
deliver and carry out this Agreement, the 1999 Term Note, the Revolving Note and
the Related Agreements to which it is a party and to incur the Obligations, and
has taken all necessary corporate action to authorize its execution, delivery
and performance of this Agreement, the 1999 Term Note, the Revolving Note and
the Related Agreements to which it is a party and its incurring of the
Obligations.
5.5 NO VIOLATION. Borrower's execution and delivery of this Agreement,
the 1999 Term Note, the Revolving Note and the Related Agreements to which it is
a party and compliance by Borrower with all of the terms and provisions hereof
and thereof, will not violate any provision of any existing Law or any writ,
order, judgment, injunction, determination, award or decree of any court or
governmental instrumentality or of Borrower's certificate of incorporation or
bylaws or any agreement or instrument to which Borrower is a party or which is
binding upon Borrower or its assets, and will not result in, or require, the
creation or imposition of any lien, security interest, charge or encumbrance of
any nature whatsoever upon or in any of Borrower's assets except as contemplated
by this
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Agreement, and no consent or approval of any other party (including Borrower's
shareholders) and no consent, license, approval or authorization of, exemption
of or registration or declaration with, any governmental bureau or agency
(federal, state, municipal or otherwise) or any other Person is required in
connection with the execution, delivery, performance, validity and
enforceability of this Agreement, the 1999 Term Note, the Revolving Note and the
Related Agreements.
5.6 VALID AND BINDING AGREEMENT. This Agreement, the 1999 Term Note,
the Revolving Note and the Related Agreements delivered pursuant hereto will be
valid and binding upon and enforceable against Borrower in accordance with their
respective terms, subject to equitable exceptions.
5.7 LITIGATION; CLAIMS. Except as set forth in SCHEDULE 5.7, there is
not pending, nor to Borrower's knowledge is there threatened, against Borrower
any action, suit, order, notice, claim, investigation or proceeding at law or in
equity or by or before any governmental instrumentality or other agency which
could materially adversely affect Borrower or any of Borrower's properties or
rights, or which could have a material adverse effect upon Borrower's business
operations or financial condition, or which could involve in the aggregate the
payment by Borrower of $100,000 or more or singularly the payment by Borrower of
$50,000 or more (whether or not covered by insurance) if adversely determined.
5.8 EXISTING DEFAULTS. Except as set forth on SCHEDULE 5.8, Borrower is
not in default with respect to the payment or performance of any of its material
obligations or in the performance of any material covenants or material
conditions to be performed by Borrower pursuant to the terms and provisions of
any agreement or instrument to which Borrower is a party or by which it or its
property may be bound, which default has not been waived in writing, including
any leases of premises on which the Collateral is or may be located, and
Borrower has received no notice of default thereunder.
5.9 TITLE TO PROPERTIES. Borrower has good and marketable title to all
of its properties, real and personal and such properties are subject only to the
Permitted Encumbrances.
5.10 COMPLIANCE WITH LAWS. Borrower is in compliance in all material
respects with, and has not received any notice that it is not in compliance
with, all applicable Laws with respect to:
(A) Any restrictions, specifications or other requirements
pertaining to products which it sells or leases or to the services it performs;
(B) The conduct of its business operations; and
(C) The use, maintenance and operation of the property leased
or owned by it in the operation of its business.
5.11 GUARANTIES, ETC. There are no outstanding contracts or agreements
of guaranty or suretyship made by Borrower or to which Borrower is a party or to
which Borrower or any of its assets are subject, except the Related Agreements
and as set forth in SCHEDULE 5.11.
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5.12 FINANCIAL STATEMENTS. Except as previously disclosed to Lender,
Borrower's financial statements heretofore furnished to Lender, including any
schedules and notes pertaining thereto, have been prepared on a review basis,
and fully and fairly present Borrower's financial condition at the dates thereof
and the results of Borrower's operations for the periods covered thereby, and
there has been no material adverse change in Borrower's financial condition or
business from June 30, 1999, to the date of this Agreement. Said financial
statements shall be prepared in conformity with GAAP and shall fairly represent
in all material respects the financial condition of the Borrower.
5.13 EXISTING INDEBTEDNESS. Borrower has no material Indebtedness of
any nature, except as permitted by this Agreement and Borrower does not know of,
or have reasonable grounds to know of, any basis for the assertion against it of
any material Indebtedness of any nature.
5.14 TAX RETURNS. Except as set forth in SCHEDULE 5.14, Borrower has
filed or caused to be filed and will continue to file or cause to be filed all
tax returns required to be filed and has paid and will continue to pay all
federal, state and local taxes shown to be due and payable on said returns and
all assessments made against it (except such as are being contested in the
manner described in Section 5.7) and has made or caused to be made adequate
provision for the payment of such taxes, assessments or other charges accruing
but not yet payable, and no claims for any of such taxes are being asserted with
respect to such taxes. Except as set forth in SCHEDULE 5.14, Borrower's federal
tax returns have not been audited, or if audited have been accepted by the
Internal Revenue Service as filed or amended.
5.15 COMPLIANCE WITH THE CODE AND ERISA. Borrower is in compliance in
all material respects with all applicable provisions of the Code and ERISA with
respect to all Plans. Neither a Reportable Event nor a Prohibited Transaction
has occurred with respect to any Plan; no notice of intent to terminate a Plan
has been filed with any Person nor has any Plan been terminated; no circumstance
exists which constitutes grounds under Section 4042 of ERISA entitling the PBGC
to institute proceedings to terminate, or appoint a trustee to administer, a
Plan, nor has the PBGC instituted any such proceedings; and neither Borrower nor
any ERISA Affiliate has incurred any liability to the PBGC or the U.S.
Department of Labor under ERISA. Neither the PBGC nor the U.S. Department of
Labor has imposed a lien on the assets of Borrower or any ERISA Affiliate.
5.16 ENVIRONMENTAL MATTERS. To the best of its knowledge, Borrower:
(A) has obtained all permits, licenses and other
authorizations which are required under all environmental Laws, including Laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contamination, chemicals, or industrial, toxic or hazardous
substances or waste into the environment (including air, surface water, ground
water or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous substance
or wastes;
(B) is in material compliance with all terms and conditions of
all such required permits, licenses and authorizations, and also is in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
such Laws or contained in any Law, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder;
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(C) has never caused any oil, friable asbestos, hazardous
waste, hazardous material or other waste or material regulated or limited by
applicable federal, state or local environmental Law ("Hazardous Material") to
be spilled, placed, located or disposed of on, under or about, nor are any
Hazardous Materials now existing on, under or about, any premises owned or
leased by it (collectively, the "Premises") or into the atmosphere, any body of
water or any wetlands in excess of the maximum permitted regulatory levels;
(D) has no knowledge of any notice of any violation, or lien
or any other notice issued by any governmental agency or other Person with
respect to the environmental condition of the Premises.
(E) Borrower has not received any notice from any Person with
respect to any of the matters described in this Section 5.16.
5.17 SOLVENCY. After giving effect to the consummation of each
transaction contemplated by this Agreement and after the 1999 Term Loan and
Revolving Line of Credit, Borrower will be Solvent.
5.18 NO UNTRUE STATEMENTS, ETC. No representation or warranty by
Borrower contained in this Agreement and no statement contained in any
certificate or other document furnished or to be furnished by Borrower pursuant
to this Agreement, or in connection with the transactions contemplated hereby,
contains, or at the time of delivery will contain, any untrue statement of any
material fact or omits or will omit any statement of any material fact necessary
to make it not misleading.
5.19 ELIGIBLE ACCOUNTS. Each Eligible Account, at the time it comes
into existence, will be a true and correct statement of (i) the bona fide
indebtedness of the account debtor named thereon; and (ii) the amount of the
Account for such inventory sold and delivered to, or for services performed for
and accepted by, the account debtor, net of any charges, discounts, adjustments
or other reductions whatsoever.
5.20 SURVIVAL. Except to the extent the representation and warranty
relates to a prior date, all of Borrower's representations and warranties set
forth in this Section 6 shall survive until all Obligations are finally and
indefeasibly satisfied in full.
SECTION 6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as any of the Obligations
remain outstanding and unpaid, it will perform and observe each and all of the
following covenants and agreements:
6.1 ADDITIONAL INFORMATION. Borrower will furnish to Lender, with
reasonable promptness, such information regarding Borrower's business, affairs,
operations and financial condition as Lender may reasonably request and, upon
reasonable prior notice, give any representative of Lender (i) access during
normal business hours to, and permit Lender to examine and copy and make
extracts from, any
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and all books, records, accounts and documents in Borrower's possession relating
to Borrower's affairs; (ii) access during normal business hours to inspect any
of Borrower's properties; and (iii) access to discuss Borrower's affairs,
finances and accounts with any of Borrower's officers and/or any independent
certified public accountants of Borrower; provided that Lender's access to
Borrower's properties and officers and employees shall be scheduled so as not to
materially interfere with Borrower's business operations.
6.2 TAXES. Borrower will pay and discharge at or before the date any of
the same would become delinquent, all taxes including without limitation payroll
taxes, assessments, claims and charges, except where the same are being
contested in good faith by appropriate proceedings, and will maintain
appropriate reserves for the accrual of any of the same.
6.3 MAINTENANCE OF CORPORATE EXISTENCE; PROPERTIES. Borrower will do or
cause to be done all things necessary to: preserve and keep in full force and
effect its corporate existence, rights, franchises, privileges and contracts,
and comply, in all respects, with all Laws applicable thereto.
6.4 REPORTING REQUIREMENTS. Borrower will furnish or cause to be
furnished to Lender the following financial statements and other information:
(A) Within one hundred and twenty (120) calendar days after
the close of each fiscal year of Borrower the Annual Report of the Borrower on
Form 10-K as filed with the Securities and Exchange Commission.
(B) Within forty-five (45) calendar days of the close of each
quarter, the Quarterly Report of the Borrower on Form 10-Q as filed with the
Securities and Exchange Commission
(C) A Compliance Report prepared annually by Senior Management
on a Lender approved form showing whether the provisions of Section 8 have been
complied with and stating that to the best of Senior Management's knowledge
during the course of their review nothing came to their attention that caused
them to believe that Borrower failed to comply with the covenants, provisions or
conditions of Section 8.
(D) Promptly after the filing or receiving thereof, copies of
all reports, including annual reports, and notices which Borrower or any ERISA
Affiliate files with or receives from the Internal Revenue Service, the PBGC or
the U.S. Department of Labor under the Code or ERISA.
(E) Such other financial information as Lender may
periodically require from the Borrower.
6.5 NOTICES TO LENDER. Borrower will promptly give notice in writing to
Lender of: (i) the occurrence of any Default or Event of Default of which it
knows and (ii) all litigation and/or governmental proceedings affecting it in
which the amount involved is $250,000 or more, whether or not covered by
insurance.
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6.6 MAINTENANCE OF BANK ACCOUNTS. Borrower will maintain its main
operating account with Lender.
6.7 MAINTENANCE OF PROPERTY. Borrower will maintain its equipment, real
estate and other properties, including the Collateral, in good condition and
repair (normal wear and tear excepted), and will pay and discharge, or cause to
be paid and discharged when due the cost of repairs to or maintenance of the
same, and will pay or cause to be paid when due all rental or mortgage payments
due on such real estate.
6.8 LIABILITY INSURANCE. Borrower shall at its expense, keep and
maintain such public liability and third party property damage insurance in the
minimum amount of $1,000,000 and with such deductibles as are reasonably
acceptable to Lender and shall deliver to Lender the original (or a certified
copy) of each policy of insurance and evidence of the payment of all premiums
therefor. Such policies of insurance shall contain an endorsement showing Lender
as additional insured thereunder and shall provide that said policy cannot be
terminated or amended without the insurer providing thirty (30) days prior
written notice to Lender.
6.9 CASUALTY INSURANCE. Borrower shall at Borrower's expense, keep and
maintain its assets, including its buildings, machinery, equipment, Inventory
and all its other tangible personal property, insured against loss or damage by
fire, explosion and other hazards customarily insured under extended and unnamed
perils coverage and such other risks ordinarily insured against by other prudent
owners or users of such properties in similar businesses in an amount at least
equal to the full insurable value of all such property and with such deductibles
as are reasonably acceptable to Lender. Borrower shall deliver to Lender the
original (or a certified copy) of each policy of insurance and evidence of the
payment of all premiums therefor. All of the policies of insurance pertaining to
Borrower's personal property assets (excluding Borrower's real property) shall
contain an endorsement showing all losses payable to Lender as lender loss payee
and otherwise in form and substance reasonably satisfactory to Lender and shall
provide that such policy cannot be terminated or amended without the insurer
providing thirty (30) days prior written notice to Lender.
6.10 ATTORNEY-IN-FACT. Borrower hereby agrees to consult with Lender in
making, adjusting, settling and receiving proceeds of claims under policies of
insurance. If Borrower at any time or times hereafter shall fail to obtain or
maintain any of the policies of insurance required above or to pay any premium
in whole or in part relating thereto, then Lender, without waiving or releasing
any Obligation of or Default or Event of Default by Borrower hereunder, at any
time or times thereafter, shall have the right, but not the obligation, in
Lender's sole discretion, to obtain and maintain such policies of insurance and
pay such premiums and take any other action with respect thereto as Lender deems
advisable, and all sums so expended, together with interest thereon at the rate
prescribed in the 1999 Term Note shall be part of the Obligations, payable ON
DEMAND and otherwise repaid as provided herein and secured by the Collateral.
(A) Borrower hereby assigns any and all other sums which may
become payable under such property and casualty and liability insurance policies
to Lender as additional security for the Obligations. Notwithstanding any other
provision of this Agreement, provided no Default or Event of Default has
occurred and is continuing, Borrower shall have the right to use the proceeds of
insurance
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to replace any equipment or other personal property damaged by fire or other
hazard covered by Borrower's casualty insurance. Any such insurance proceeds
received by Lender shall be held as further security and Collateral hereunder,
and Lender shall distribute such proceeds to Borrower as the costs of repair or
replacement of the insured property or other expenses relating to such loss
become due and payable by Borrower and thereafter shall promptly distribute to
Borrower such amount of such proceeds as are not needed for repair or
replacement; PROVIDED that if at any time there is in existence an Event of
Default, any such insurance proceeds may, in Lender's sole discretion, be
applied, in whole or in part, to the payment of any of the Obligations.
(B) Borrower shall furnish Lender with certificates or other
evidence satisfactory to Lender of compliance with the provisions of Sections
6.8 and 6.9.
6.11 FURTHER ASSURANCES. At any time or from time to time upon Lender's
request, Borrower shall execute and deliver, or cause to be executed and
delivered, to Lender and/or such other Persons as Lender may reasonably request
such further documents and instruments and do such other acts and things and
provide such additional information as Lender may reasonably request in order
fully (i) to accomplish the purposes and carry out the terms of this Agreement,
(ii) to be informed of Borrower's status and affairs, and (iii) to vest more
completely in and assure to Lender its rights under this Agreement, the
Revolving Note, the 1999 Term Note, any Related Agreements and in and to any
Collateral.
6.12 LOSSES, ETC. Borrower shall promptly notify Lender in writing of
any loss, theft, damage, destruction, encumbrance, levy, seizure or attachment
of or on any of Borrower's assets if the asset is material to Borrower's
business and has not been promptly replaced.
6.13 PLAN FUNDING. Borrower shall fund all of its "Defined Benefit
Plans" (as defined in ERISA) in accordance with no less than the minimum funding
standards of ERISA.
6.14 COLLECTION OF ACCOUNTS. Borrower shall collect its Accounts and
sell its Inventory only in the ordinary course of business.
6.15 PAYMENT OF INDEBTEDNESS. Borrower will pay when due (or within
applicable grace periods) all Indebtedness due third persons, except when the
amount thereof is being contested in good faith by appropriate proceedings and
with adequate reserves therefor being set aside on Borrower's books.
6.16 CHANGES OF LOCATION. Borrower shall notify Lender at least thirty
(30) calendar days in advance of any change in the location of any of Borrower's
place of business or of the establishment of any new, or the discontinuance of
any existing, place of business.
6.17 FIELD AUDITS. Lender shall have the right to audit the Collateral
at such times (during normal business hours) as it reasonably deems appropriate.
The Borrower shall be responsible for the cost of one (1) audit per year
provided, however, Borrower shall be responsible for the cost of additional
audits (at the prevailing cost) if an Event of Default hereunder has occurred
and is continuing beyond applicable cure periods, if any).
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6.18 YEAR 2000. Borrower has reviewed its business operations which
could be adversely affected by, and has developed a program to address on a
timely basis, the "Year 2000 Problem" (i.e., the risk that computer applications
used by the Borrower, its suppliers and/or providers may be unable to recognize
and properly perform date-sensitive functions involving certain dates prior to
and after December 31, 1999). Borrower reasonably believes that the "Year 2000
Problem" will not have a material adverse impact on the business operations or
financial condition of Borrower. Borrower will provide Lender updates on the
progress of Borrower's Year 2000 Program and will provide promptly to Lender any
assessment of Borrower's Year 2000 efforts conducted by any third party.
SECTION 7. NEGATIVE COVENANTS
So long as any Obligations remain outstanding and unpaid, Borrower
shall not without Lender's prior written consent, which consent may be withheld
in Lender's sole discretion:
7.1 NO LIENS. Except for liens and encumbrances in favor of Lender and
Permitted Encumbrances, create, assume or suffer to exist, any mortgage, pledge,
encumbrance, lien, security interest or charge of any kind upon any of its
Accounts, Inventory, machinery or equipment (except for purchase money security
interests), real estate or other assets, whether now owned or hereafter acquired
by Borrower.
7.2 NO OTHER INDEBTEDNESS. Borrow funds from or otherwise incur or
permit to exist any other Senior Indebtedness to any Person other than Lender
without providing Lender with thirty (30) days prior written notice, except
Indebtedness incurred in connection with purchase money financings consented to
by Lender and Indebtedness described on SCHEDULE 5.13.
7.3 NO MERGERS, ETC. Merge or consolidate with or into any other
Person, dissolve or liquidate; materially amend its certificate of incorporation
or bylaws; change its name; enter into any reorganization or recapitalization;
or reclassify its capital stock as debt without providing Lender with prior
written notice.
7.4 NO SALES OF ASSETS. Except in the ordinary course of business,
sell, exchange or otherwise dispose of a material part of its assets, or any
part thereof, or any interest therein.
7.5 NO CONTINGENT LIABILITIES. Agree to purchase or repurchase or
assume, guaranty, endorse, agree to supply funds in excess of One Million
($1,000,000) Dollars in connection with, or otherwise become or remain liable in
connection with the obligations, stock or dividends of any Person, except for
endorsement of negotiable instruments for collection or discount in the regular
course of business.
7.6 NO PURCHASE OF MARGIN STOCK. Directly or indirectly apply any part
of the proceeds of the Loans to the purchase or carrying of any "margin stock"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, or any regulations, interpretations, or rulings thereunder.
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7.7 FISCAL YEAR. Change its fiscal year without Lender's consent which
shall not be unreasonably withheld.
7.8 NO PREPAYMENT OF INDEBTEDNESS. Make any prepayment on any
Indebtedness permitted by this Agreement, except Indebtedness to Lender and, in
such case, pursuant to the terms of this Agreement, the Revolving Note and the
1999 Term Note.
7.9 NO UNTRUE STATEMENTS. Furnish Lender any certificate or other
document that contains any untrue statement of material fact or that omits to
state a material fact necessary to make such certificate or other document not
misleading in light of the circumstances under which such certificate or other
document was furnished.
SECTION 8. FINANCIAL COVENANTS
The following financial covenants shall be measured annually at
Borrower's fiscal year end:
8.1. MINIMUM TANGIBLE NET WORTH COVENANT. Borrower shall maintain a
minimum Tangible Net Worth of Two Million Five Hundred Thousand Dollars
($2,500,000) at the end of fiscal year 2000, and shall increase said Tangible
Net Worth by One Hundred Thousand Dollars ($100,000) at each successive fiscal
year end thereafter, tested annually. The term "Tangible Net Worth" shall be
defined as net worth less intangible assets. Intangible assets shall be defined
as copyrights, patents, trademarks and goodwill.
8.2 NET LOSS COVENANT. The Borrower shall not incur any net loss in
excess of One Million ($1,000,000) Dollars in any four (4) consecutive quarters
or any portion thereof.
SECTION 9. DEFAULT
Sections 9.1 and 9.2 shall not apply to the Revolving Note until such
time, if ever, that the Revolving Note is converted from a demand to a term
instrument.
9.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an Event of Default under this Agreement, the
Revolving Note, 1999 Term Note, all Related Agreements and any other loan
document or agreement evidencing any of the Obligations:
(A) Borrower shall fail to pay when due any installment of
principal or interest or any fee payable hereunder, under the Revolving Note,
the 1999 Term Note or under any Related Agreement (whether due on a date fixed
for prepayment, by acceleration, demand or otherwise).
(B) Borrower shall fail to observe or perform any obligation
to be observed or performed by it under this Agreement or under any loan
document or agreement evidencing any of the Obligations;
(C) Borrower shall fail to provide Lender with prior or
concurrent written notice of any change in the Senior Management.
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(D) Any representation or warranty made in writing by or on
behalf of Borrower in this Agreement, in any Related Agreement, or in any
certificate or other document delivered pursuant hereto or thereto or otherwise
in connection with any of the transactions contemplated hereby, shall prove to
have been false, misleading or incorrect in any material respect when made or
deemed made.
(E) Borrower shall admit its inability to pay its debts as
they mature, shall fail generally to pay its debts as they become due, or shall
make an assignment for the benefit of its or any of its creditors.
(F) Proceedings in bankruptcy or for reorganization of
Borrower or for the readjustment, arrangement, composition or adjustment of any
of Borrower's debts under the federal bankruptcy act, as amended, or any part
thereof, or under any other Laws, whether state or federal, for the relief of
debtors, now or hereafter existing, (III) shall be commenced by Borrower, or
(IV) shall be commenced against Borrower and shall not be discharged, vacated,
dismissed, or stayed within sixty (60) calendar days of their commencement
against Borrower.
(G) A receiver, liquidator or trustee shall be appointed for
Borrower or for any substantial part of Borrower's assets, or any proceedings
shall be instituted for the dissolution or the full or partial liquidation of
Borrower and such receiver, liquidator or trustee shall not be discharged within
sixty (60) calendar days of his or her appointment, or such proceedings shall
not be dismissed or stayed within sixty (60) calendar days of their
commencement, or Borrower shall discontinue its business or materially change
the nature of its business.
(H) A receiver, liquidator or trustee shall be appointed by
Borrower or by Borrower for any substantial part of the assets of Borrower, or
any proceedings shall be instituted by Borrower for the dissolution or the full
or partial liquidation of Borrower, or Borrower shall discontinue its business
or materially change the nature of its business.
(I) Borrower shall suffer final judgments for payment of money
aggregating in excess of $250,000, and the same shall not be discharged within a
period of thirty (30) calendar days unless, pending further proceedings,
execution has not been commenced or if commenced has been effectively stayed or
bonded.
(J) A judgment creditor of Borrower shall obtain possession of
all or any material portion of the Collateral by any means, including
attachment, levy, distraint, replevin or self-help, which shall not be released
within thirty (30) calendar days of the date of such attachment, levy,
distraint, replevin or self-help.
(K) Any uninsured loss, theft, damage, destruction,
encumbrance, levy, seizure, or attachment of or on any of Borrower's assets in
violation of this Agreement, which event shall materially affect Borrower's
ability to continue to conduct its business in the normal course, and Borrower's
failure to remedy such event to Lender's satisfaction within sixty (60) calendar
days after the occurrence of such event.
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(L) The placing of any material lien generally on Borrower's
property by the United States of America, or any federal, state or local
governmental agency or authority.
(M) A payment default by Borrower or any other material
default resulting in acceleration, under any Indebtedness for borrowed money.
(N) The occurrence of an event of default under any other
agreement between Lender and Borrower.
9.2 ACCELERATION. Upon the occurrence of an Event of Default continuing
beyond any applicable notice and cure periods hereinafter set forth, Lender at
its option may declare all of the Obligations to be immediately due and payable.
Notwithstanding the foregoing, in the case of an Event of Default under Sections
9.1(E), (F), (G), (H) or (I), all of the Obligations, whether arising hereunder
or otherwise, automatically shall become due and payable without presentment,
demand, protest, notice of protest or dishonor, or other notice of any kind, all
of which are hereby expressly waived by Borrower, and without further action of
any kind by Lender.
9.3 REMEDIES. Upon the occurrence of an Event of Default continuing
beyond any applicable notice and cure periods hereinafter set forth, with or
without accelerating the Obligations under Section 9.1 and without notice,
Lender shall have, in addition to the rights and remedies given it by this
Agreement, the Revolving Note, the 1999 Term Note and the Related Agreements,
all those rights and remedies allowed by all applicable Laws, including the
Uniform Commercial Code as enacted in any jurisdiction in which any Collateral
may be located. Notwithstanding the foregoing, in the case of an Event of
Default under Sections 9.1(E), (F), (G), (H) or (I), all of the Obligations,
whether arising hereunder or otherwise, pursue its rights and remedies as
aforesaid without presentment, demand, protest, notice of protest or dishonor,
or other notice of any kind, all of which are hereby expressly waived by
Borrower, and without further action of any kind by Lender.
9.4 CURE PERIODS. Borrower shall have ten (10) days after a payment
default under any Note, without notice from Lender, to cure the same and with
respect to all other defaults except those arising under Section 9.1(E), (F),
(G), (H) or (I), Borrower shall have thirty (30) days after written notice from
Lender to cure said other defaults. There shall be no notice and cure with
respect to defaults arising under Section 9.1 (E), (F), (G), (H) or (I).
Notwithstanding the foregoing, Borrower shall have an additional sixty (60) days
to cure non-monetary defaults, but only to the extent the default is not
susceptible of cure within said thirty (30) day period and Borrower is
diligently pursuing same.
9.5 NOTICE TO ACCOUNT DEBTORS. Lender may, in its sole and absolute
discretion, at any time or times after the occurrence of a Default or an Event
of Default, and without prior notice to Borrower, send a notice to Borrower's
account debtors notifying the account debtors that Borrower's Accounts have been
assigned to Lender, that Lender has a lien thereon and, at Lender's option, that
all payments upon Borrower's Accounts be made directly to Lender.
9.6 ADDITIONAL RIGHTS OF LENDER. In addition to the foregoing but only
at such time as Lender may exercise those remedies set forth in Section 9.3,
Lender shall have the right: (a) to demand, collect, receive payment of, receipt
for, settle, compromise or adjust, and give discharges and releases
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<PAGE> 22
in respect of the Accounts or any of them; (b) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Accounts or any of them and to enforce any other
rights in respect thereof or in respect of the goods which have given rise
thereto; (c) to defend any suit, action or proceeding brought against the
Borrower in respect of any Account or the goods which have given rise thereto;
(d) to settle, compromise or adjust any suit, action or proceeding described in
clause (b) or (c) above and, in connection therewith, to give such discharges or
releases as the Lender may deem appropriate; (e) to endorse checks, notes,
drafts, acceptances, money orders, bills of lading, warehouse receipts or other
instruments or documents evidencing or securing the Accounts or any of them; (f)
to receive, open and dispose of all mail addressed to the Borrower and to notify
the post office authorities to change the address of delivery of mail addressed
to the Borrower to such address, care of the Lender, as the Lender may
designate; and (g) generally to sell, assign, transfer, pledge, make any
agreement in respect of or otherwise deal with any Account or the goods or
service which have given rise thereto, as fully and completely as though the
Lender were the absolute owner thereof for all purposes, including contacting
Account Debtors directly for verification or other purposes. The powers
conferred on the Lender by this Agreement are solely to protect the interest of
the Lender and shall not impose any duty upon the Lender to exercise any such
power, and if the Lender shall exercise any such power, it shall be accountable
only for amounts that it actually receives as a result thereof and shall not be
responsible to the Borrower except for gross negligence and willful misconduct.
The Lender shall be under no obligation to take steps necessary to preserve
rights in any other Collateral against prior parties but may do so at its
option. As its option the Lender may discharge any taxes, liens, security
interests or other encumbrances to which any Collateral is at any time subject
and may, upon the failure of the Borrower so to do, purchase insurance on any
Collateral and pay for the repair, maintenance or preservation thereof, and the
Borrower agrees to reimburse the Lender on demand for any payments made or
expenses incurred by the Lender pursuant to the foregoing authorization, and
authorizes the Lender to charge the Borrower for the amount of such payments or
expenses. The Lender may at any time take control of any proceeds of Collateral
to which the Lender is entitled hereunder or under applicable law. In addition,
the Lender may require the Borrower to assemble any tangible personal property
constituting Collateral and make it available to the Lender at a place to be
designated by the Lender and which is reasonably convenient to the Borrower. The
Borrower hereby grants to the Lender a nonexclusive irrevocable license in
connection with the Lender's exercise of its rights hereunder, to use, apply and
affix any trademark, tradename, logo or the like in which the Borrower now or
hereafter has rights, which license may be used upon the occurrence of any of
the Events of Default. The Lender may buy at any public sale, and if the
Collateral is of a type customarily sold on a recognized market or the subject
of widely distributed standard price quotations the Lender may buy at private
sale.
SECTION 10. MISCELLANEOUS
10.1 RIGHT OF SET-OFF. Borrower hereby grants to Lender a lien on and a
right of set-off (to be exercised pursuant to the sentence which follows this
sentence) against all monies, deposits, securities and other property and the
proceeds thereof, now or hereafter held or received by, or in transit to Lender
or any entity under the direct or indirect control of Lender from or for
Borrower, whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all deposits (general or special), balances, sums and credits
with and all of Borrower's claims against Lender at any time existing. Lender
may at any time following and during the continuance of an Event of Default
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apply the same or any part thereof to the Obligations or any part thereof,
whether or not the Obligations are matured at the time of such application.
10.2 CUSTODY AND PRESERVATION OF COLLATERAL. Lender shall have no duty
beyond the safe custody thereof as to: (i) the collection or protection of any
Collateral now or hereafter securing any Note or any Obligation or any income
thereon; (ii) the preservation of rights against prior parties; or (iii) the
preservation of any rights pertaining thereto. Lender may exercise its rights
with respect to any Collateral without resorting or regard to any other
Collateral or any other sources of reimbursement for any Obligation.
10.3 LENDER'S EXPENSES. Except as otherwise provided herein, Borrower
shall, on demand, reimburse Lender for all of Lender's reasonable expenses,
including reasonable fees and expenses of legal counsel for Lender, incurred in
connection with the preparation, administration, amendment, modification,
delivery or enforcement of this Agreement, the 1999 Term Note, the Revolving
Note and/or the Related Agreements or the collection or attempted collection of
the 1999 Term Note, the Revolving Note, including any such reasonable fees and
expenses related to any federal bankruptcy proceeding and whether incurred prior
or subsequent to any federal bankruptcy proceeding.
10.4 ENFORCEMENT AND WAIVER BY LENDER. Lender shall have the right at
all times to enforce the provisions of this Agreement, the 1999 Term Note, the
Revolving Note and the Related Agreements in strict accordance with the terms
hereof and thereof, notwithstanding any conduct or custom on the part of Lender
in refraining from so doing at any time or times. Lender's failure or delay at
any time or times to enforce its rights or remedies under such provisions
strictly in accordance with the same shall not be construed as having created a
custom in any way or manner contrary to the specific provisions of this
Agreement or as having in any way or manner modified or waived the same. No
waiver of any provision of, or any of Lender's rights under, this Agreement, any
Note, any Related Agreement or any other document or agreement now or hereafter
relating to any of the Obligations and/or the Collateral, and no consent to any
departure by any Person therefrom, shall be effective unless such waiver or
consent is in writing and signed by an authorized officer of Lender, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which such waiver or consent is given. All of Lender's
rights and remedies under this Agreement, any Note and/or any Related Agreement
are cumulative and concurrent, and may be exercised singularly or concurrently
and are not exclusive or in derogation of any other rights or remedies provided
by Law or otherwise. Lender's exercise or partial exercise of one right or
remedy shall not be deemed a waiver or release of and shall not preclude the
further exercise of such right or remedy or any other right or remedy.
10.5 WAIVERS AND RELEASE. To the maximum extent permitted by applicable
Laws, Borrower:
(A) ACKNOWLEDGES THAT EACH OF THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT, THE REVOLVING NOTE, THE 1999 TERM NOTE AND EACH OF THE RELATED
AGREEMENTS IS A COMMERCIAL TRANSACTION, AND HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW ITS RIGHTS TO NOTICE
AND HEARING BEFORE
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LENDER'S OR ANY OF LENDER'S SUCCESSORS' OR ASSIGNS' EXERCISE OF THE REMEDIES OF
SELF-HELP, SET-OFF OR ANY SUMMARY PROCEDURE OR ANY OTHER PREJUDGMENT REMEDY AND,
EXCEPT WHERE REQUIRED BY THIS AGREEMENT OR ANY APPLICABLE LAW, NOTICE OF ANY
OTHER ACTION TAKEN BY LENDER; and
10.6 APPLICABLE LAW. This Agreement, the 1999 Term Note, the Revolving
Note and each of the Related Agreements and the rights and remedies of the
parties hereto and thereto shall be governed by and construed and enforced in
accordance with the Laws and decisions of the Commonwealth of Massachusetts
without regard to conflict of laws principles.
10.7 JURISDICTION AND SERVICE OF PROCESS. Except to the extent
prohibited by applicable Laws:
(A) Borrower agrees that (i) the execution of this Agreement,
each Note and each Related Agreement and the performance of Borrower's
Obligations hereunder and thereunder shall be deemed to have a Massachusetts
situs; (ii) Borrower shall be subject to the personal jurisdiction of the courts
of record of the Commonwealth of Massachusetts with respect to any suit, action
or other legal proceeding arising out of this Agreement, any Note and/or any
Related Agreement and/or the enforcement of any of the foregoing and/or any of
the transactions contemplated by any of the foregoing; and (iii) any such suit,
action or legal proceeding shall be brought by Lender and shall be brought by
Borrower in the courts of record of the Commonwealth of Massachusetts or the
courts of the United States located in the Commonwealth of Massachusetts;
(B) Borrower hereby irrevocably consents to the jurisdiction
of each such court in any such suit, action or other legal proceeding; and
(C) Borrower hereby irrevocably waives any objection which it
may have to the laying of venue of any such suit, action or other legal
proceeding in any of such courts.
10.8 NOTICES. Any notices or consents required or permitted by this
Agreement shall be in writing (other than those which under the specific terms
of this Agreement may be given by telephone, which shall be effective when
received verbally) and shall be deemed delivered if hand-delivered or if sent by
(i) certified mail, postage prepaid, return receipt requested, (ii) telecopy, or
(iii) via a nationally-recognized overnight courier service (marked for next day
delivery), as follows, unless such address is changed by written notice to each
other party hereunder:
Borrower: Implant Sciences Corporation
107 Audubon Road
Wakefield, MA 01880-1246
Attn: Darlene Deptula-Hicks
With a Copy to: Foley, Hoag & Elliot LLP
One Post Office Square
Boston, MA 02109
Attn: David A. Broadwin, Esq.
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Lender: USTrust
30 Court Street
Boston, MA 02108
Attn: Frank L. Davis, III, Vice President
With a Copy to: Robinson & Cole LLP
One Boston Place
Boston, MA 02108
Attn: Matthew A. Kameron, Esq.
Fax: (617) 557-5999
10.9 BINDING EFFECT, ASSIGNMENT AND ENTIRE AGREEMENT. This Agreement,
each Note and each Related Agreement to which it is a party shall inure to the
benefit of, and shall be binding upon, each of Borrower and Lender and their
respective successors, permitted transferees and permitted assigns. Borrower
shall not assign any of its rights or delegate any of its Obligations hereunder
or under any Note or under any Related Agreement without Lender's prior written
consent, and any such assignment in contravention of this Section 10.9 shall be
null and void. This Agreement, the 1999 Term Note, the Revolving Note, the
Related Agreements and the documents executed and delivered pursuant hereto and
thereto, constitute the entire agreement between the parties with respect to the
transactions contemplated by this Agreement, and supersede all prior written or
oral understandings, agreements and commitments with respect to the subject
matter hereof and/or thereof, all of which prior understandings, agreements and
commitments are merged into this Agreement, the Revolving Note, the 1999 Term
Note and the Related Agreements. Except as specifically set forth in any Related
Agreement, no amendment, modification or termination of any provision of this
Agreement, any Note, any Related Agreement or any document or agreement now or
hereafter relating to any of the Obligations and/or the Collateral shall be
effective unless the same shall be contained in a writing signed by the parties
to this Agreement and any other Persons who are parties to such Note, Related
Agreement or other document or agreement. No notice to or demand on Borrower in
any case shall entitle Borrower to any other or further notice or demand in
similar or other circumstances.
10.10 PAYMENT DATES. Whenever any payment to be made hereunder or under
a Note shall be stated to be due on a calendar day other than a Banking Day,
such payment may be made on the next succeeding Banking Day and such extension
of time shall in such case be included in computing interest in connection with
such payment, any Note or any Related Agreement.
10.11 INSPECTION. Lender shall have the right upon reasonable notice to
inspect Borrower's premises and books and records.
10.12 SEVERABILITY. If any provision of this Agreement, any Note or any
Related Agreement shall be held invalid under any applicable Law, such
invalidity shall not affect any other provision of this Agreement, such Note or
such Related Agreement, as applicable, that can be given effect without the
invalid provision, and, to this end, the provisions of each of this Agreement,
each Note and each Related Document are severable.
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10.13 COUNTERPARTS. This Agreement and each Related Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute but one and the same
instrument, and this Agreement shall be effective when at least one counterpart
of this Agreement or such Related Agreement, as applicable, has been executed by
each party hereto or thereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
WITNESS IMPLANT SCIENCES CORPORATION
_________________________________ By:___________________________________
Darlene Deptula-Hicks
Its: Vice President & CFO
USTRUST
_________________________________ By:___________________________________
Frank L. Davis, III
Its: Vice President
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SCHEDULE 1.1(b)
TO COMMERCIAL TERM LOAN, REVOLVING LOAN AND SECURITY AGREEMENT
RELATED AGREEMENTS
1. 1997 Term Note
2. 1998 Equipment Note
3. Security Agreement effective May 1, 1996
4. Compliance Agreement
5. UCC-1 Financing Statements
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SCHEDULE 5.7
TO COMMERCIAL TERM LOAN, REVOLVING LOAN AND SECURITY AGREEMENT
LITIGATION
None.
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SCHEDULE 5.8
TO COMMERCIAL TERM LOAN, REVOLVING LOAN AND SECURITY AGREEMENT
EXISTING DEFAULTS
None.
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SCHEDULE 5.11
TO COMMERCIAL TERM LOAN, REVOLVING LOAN AND SECURITY AGREEMENT
GUARANTIES, ETC.
None.
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SCHEDULE 5.13
TO COMMERCIAL TERM LOAN, REVOLVING LOAN AND SECURITY AGREEMENT
MATERIAL INDEBTEDNESS
$750,000 1998 Equipment Loan (US Trust)
$750,000 Line of Credit (US Trust)
$750,000 1999 Term Loan (US Trust)
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SCHEDULE 5.14
TO COMMERCIAL TERM LOAN, REVOLVING LOAN AND SECURITY AGREEMENT
TAX RETURNS
None
31
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REVOLVING LINE OF CREDIT NOTE
-----------------------------
$750,000.00 December 22, 1999
Boston, Massachusetts
For value received, Implant Sciences Corporation (the "Borrower")
promises to pay to the order of USTrust ("Lender") at the office of Lender
located at 50 Court Street, Boston, MA 02108, or such other place as the holder
hereof shall designate, ON DEMAND, SEVEN HUNDRED FIFTY THOUSAND AND 00/100
($750,000) DOLLARS or, if less, the aggregate unpaid principal amount of all
loans made by the Lender to the Borrower pursuant to this Note. The Borrower
further promises to pay the order of the Lender interest only monthly in arrears
commencing January 22, 2000 and thereafter on the 22nd day of each calendar
month at a fluctuating interest rate per annum equal to Lender's Base Rate.
"Base Rate" shall mean the rate of interest announced by Lender at its principal
office in Boston from time to time as its "Base Rate." The Base Rate is a
reference rate and does not necessarily represent the lowest or best rate being
charged to any customer. Interest shall be calculated on the basis of actual
days elapsed and a 360-day year. At any time that Borrower is in default
hereunder or under any obligation to the Lender or in the event this Note is not
paid in full ON DEMAND, interest on unpaid balances shall thereafter be payable
at a fluctuating interest rate per annum equal to four (4%) percent above the
Interest Rate in effect from time to time. Borrower shall pay to Lender a late
charge in the amount of five (5%) percent of each periodic payment due hereunder
which is more than ten (10) days in arrears to offset the additional expenses
involved in processing delinquent payments. To the extent a payment due date
does not fall on a regular business day then the due date shall be deemed to be
the first business day which follows said payment date.
At Borrower's option, the entire principal amount shall bear interest
at a rate equal to Libor plus Two Hundred Fifty (250) Basis Points per annum
(the "LIBOR Rate"). The Libor Rate shall be set for periods of thirty (30),
sixty (60), ninety (90) or one hundred and eighty (180) days (the "Designated
Libor Rate Period"). Libor (the "London Interbank Offered Rate") means the rate
per annum at which deposits in U.S. Dollars are offered to the Lender by
first-class banks in the London Interbank Market at approximately 11:00 a.m.
(London time) no more than two (2) Business Days prior to the first day of the
applicable Designated Libor Rate Period and with a maturity comparable to such
Designated Libor Rate Period. Each Designated Libor Rate Period shall end on the
last day of the particular Designated Libor Rate Period unless the last day is
not a regular banking day in which event the Designated Libor Rate Period shall
end on the next succeeding day which is a regular banking day and any Designated
Libor Rate Period that would otherwise extend beyond the maturity date of this
Note shall end on the maturity date of this Note. The Base Rate based interest
rate shall be in effect whenever said Libor Rate based option has not been
elected by the Borrower, but only with respect to principal not earning interest
pursuant to the Fixed Rate Election as defined below. If at any time the Libor
Rate based option becomes unavailable for any reason then the Libor Rate based
option set forth above shall terminate.
Borrower shall have the right to make full or partial prepayments of
principal at any time. Prepayments of principal on which interest is accruing at
an interest rate based on the Base Rate may be made from time to time without a
fee or premium. In the event Borrower prepays Principal earning
<PAGE> 34
interest at a Libor based rate during a Designated Libor Rate Period whether
voluntarily or as a result of acceleration or otherwise, or in the event
Borrower elects a Libor Rate based interest rate and then cancels said election,
then Borrower shall pay a prepayment fee and/or a cancellation fee as the case
may be (the "Prepayment Fee") equal to the following: the then current rate for
United States Treasury securities (bills on a discounted basis shall be
converted to a bond equivalent) with a maturity date closest to the maturity
date of the Designated Libor Rate Period as to which the prepayment is made,
shall be subtracted from the "cost of funds" component of the Libor Rate in
effect at the time of prepayment. If the result is zero or a negative number,
there shall be no Prepayment Fee. If the result is a positive number, then the
resulting percentage shall be multiplied by the amount of the principal balance
being prepaid. The resulting amount shall be divided by 360 and multiplied by
the number of days remaining in the Designated Libor Rate Period as to which
prepayment is made. Said amount shall be reduced to present value calculated by
using the number of days remaining in the Designated Libor Rate Period using the
above-referenced United States Treasury security rate and the number of days
remaining in the term so chosen as to which the prepayment is made. The
resulting amount shall be the Prepayment Fee due to Lender upon prepayment of
Libor Principal. To the extent Borrower prepays Principal during the Fixed Rate
Election period, whether voluntarily or as a result of acceleration or otherwise
then Borrower shall pay a Prepayment Fee as calculated by the Lender in its
discretion.
If at any time the aggregate outstanding balance hereunder shall exceed
SEVEN HUNDRED FIFTY THOUSAND and 00/100 DOLLARS ($750,000), the Borrower shall
immediately repay this Note in an amount equal to such excess.
Borrower shall maintain a zero (0) balance hereunder for thirty (30)
consecutive days during each loan year.
Any deposits or other sums at any time credited by or due from the
holder to the Borrower and any securities or other property of the Borrower or
any such endorser at any time in the possession of the holder may at all times
be held and treated as collateral for the payment of this Note and any and all
other liabilities (direct or indirect, absolute or contingent, sole, joint or
several, secured or unsecured, due or to become due, now existing or hereafter
arising) of the Borrower to the holder. Regardless of the adequacy of
collateral, the holder may apply or set off such deposits or other sums against
such liabilities upon an event of default continuing beyond any applicable
notice and cure provisions in the case of the Borrower, but only with respect to
matured liabilities in the case of endorser.
The Borrower hereby waives the right to a jury trial, presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement hereof and consents
that no indulgence, and no substitution, release or surrender of collateral, and
no discharge or release of any other party primarily or secondarily liable
hereon, shall discharge or otherwise affect the liability of the Borrower or any
such endorser. No delay or omission on the part of the holder in exercising any
right hereunder shall operate as a waiver of such right or of any other right
hereunder, and a waiver of any such right on any one occasion shall not be
construed as a bar to or waiver of any such right on any future occasion.
2
<PAGE> 35
This Note is secured by any collateral at any time granted to Lender to
secure any obligations of any maker hereof.
The Lender may at any time pledge all or any portion of its rights
under the loan documents entered into in connection herewith and any portion of
this Note to any of the twelve (12) Federal Reserve Banks organized under
Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341.
Upon receipt of an affidavit, including an indemnification reasonably
satisfactory to Maker, of an officer of Lender as to the loss, theft,
destruction or mutilation of this Note or any other security document which is
not of public record, and, in the case of any such loss, theft, destruction or
mutilation, upon surrender and cancellation of such Note or other security
documents, Borrower will issue, in lieu thereof, a replacement Note or other
security document in the same principal amount hereof and otherwise of like
tenor.
The Borrower agrees to pay on demand all reasonable costs and expenses
(including legal costs and reasonable attorney's fees) incurred or paid by the
holder in enforcing this note on default.
The Note incorporates the terms and conditions set forth in the Loan
Agreement, which terms and conditions are incorporated by reference herein,
including without limitation, Borrower's warranties, covenants and negative
covenants contained therein.
This Note shall take effect as a sealed instrument and shall be
governed by the laws of the Commonwealth of Massachusetts.
BORROWER:
IMPLANT SCIENCES CORPORATION
_____________________________ By:___________________________
Darlene Deptula-Hicks
Its: Vice President and CFO
3
<PAGE> 36
SCHEDULE A
To secure Borrower's timely payment and performance of all of the Obligations,
Borrower hereby mortgages, pledges, transfers, conveys and delivers to Lender,
and grants to Lender an irrevocable, unconditional and continuing first and
prior security interest in and lien upon the following property of Borrower (the
"Collateral"):
(A) All accounts and accounts receivable related to or arising
from the rendition of services by Borrower in the ordinary course of its
business or arising in any other manner and all other accounts, bank accounts,
contracts, contract rights, notes, documents, chattel paper, instruments,
acceptances, drafts or other forms of obligations and receivables (collectively,
the "Accounts"), whether or not the same are listed on any schedules,
assignments or reports furnished to Lender from time to time, and whether such
Accounts are now existing or are created at any time hereafter, together with
all goods, inventory and merchandise returned by or reclaimed by or repossessed
from customers wherever such goods, inventory and merchandise are located, and
all proceeds thereto including without limitation, proceeds of insurance thereon
and all guaranties, securities, and liens which Borrower may hold for the
payment of any such Accounts, including without limitation, all rights of
stoppage in transit, replevin and reclamation and all other rights and remedies
of an unpaid vendor or lienor, and any liens held by Borrower as a mechanic,
contractor, subcontractor, processor, materialman, machinist, manufacturer,
artisan, or otherwise;
(B) All documents, instruments, securities, documents of
title, policies and certificates of insurance, guaranties, securities, chattel
paper, deposits, tax refunds, proceeds of insurance, proceeds of an eminent
domain or condemnation award, cash, liens or other property (other than real
property), which are now or may hereinafter be in the possession of the Borrower
or as to which the Borrower may now or hereafter control possession by documents
of title or otherwise, including, but not limited to, all property allocable to
unshipped orders relating to Accounts and Inventory (as herein defined);
(C) All books, records, customer lists, supplier lists,
ledgers, evidences of shipping, invoices, purchase orders, sales orders and all
other evidences of Borrower's business records, including all cabinets, drawers,
etc. that may hold the same; computer records, lists, software, programs,
wherever located, all whether now existing or hereafter arising or acquired;
(D) All Borrower's inventory, whether now owned or hereafter
acquired, including without limitation: (i) all goods manufactured or acquired
for sale or lease, and any piece goods, raw materials, work in process and
finished merchandise, findings or component materials, and all supplies, goods,
incidentals, office supplies, packaging materials, and any and all items
including machinery and equipment used or consumed in the operation of the
business of Borrower or which contribute to the finished product or to the sale,
promotion and shipment thereof, in which Borrower now or at any time hereafter
may have an interest, whether or not such inventory is listed in this agreement
on any reports furnished to Lender from time to time; (ii) all inventory whether
or not the same is in transit or in the constructive, actual or exclusive
occupancy or possession of Borrower or is held by Borrower or by others for the
Accounts, including without limitation, all goods covered by purchase orders and
<PAGE> 37
contracts with suppliers and all goods billed and held by suppliers; (iii) all
inventory which may be located on premises of Borrower or of any carrier,
forwarding agents, truckers, warehousemen, vendors, selling agents or third
parties; (iv) all general intangibles relating to or arising out of inventory;
and (v) all proceeds and products of the foregoing resulting from the sale,
lease or other disposition of inventory, including cash, accounts receivable,
other non-cash proceeds and trade-ins (collectively, "Inventory");
(E) All general intangibles, including without limitation, tax
refunds, customer lists, proceeds of insurance, unearned insurance premium
refunds, eminent domain awards, condemnation proceeds, and copyrights,
tradenames, trademarks, applications therefor, and licenses to any copyright,
trademark, or tradename that Borrower now owns, has the right to use or may
hereafter own or acquire the right to use. Notwithstanding anything to the
contrary herein, any and all patents currently owned or hereafter acquired by
Borrower shall be specifically excluded from general intangibles.
(F) All equipment, machinery, appliances, and furniture and
fixtures, now existing or hereafter arising, wherever located, and all
contracts, contract rights and chattel paper arising out of any lease of any of
the foregoing or otherwise (specifically excluding purchase money security
interests in leased equipment and machinery);
(G) All other collateral in which Borrower may hereafter grant
to Lender a security interest; and
(H) All renewals, substitutions, replacements, additions,
accessions, proceeds, and products of any and all of the foregoing.
(I) Specifically excluded from the Collateral are any and all
Government Contracts and Grants entered into by Borrower.
<PAGE> 38
COMPLIANCE AGREEMENT
--------------------
LENDER: USTrust
LOAN NUMBER:
BORROWER: IMPLANT SCIENCES CORPORATION
ADDRESS: 107 Audubon Road
Wakefield, Massachusetts 01880
CLOSING DATE: December 22, 1999
ORIGINAL LOAN AMOUNT: $750,000.00 Revolving Line of Credit
$750,000.00 1999 Term Loan
$750,000.00 Term Loan dated January 16, 1998
I/We the undersigned agree to sign, execute and/or resign and
re-execute any and all closing or ancillary documents to correct manifest error
in such documents, or as the Lender reasonably deems necessary.
Witness my/our hand and seal as of this 22nd day of December, 1999.
BORROWER:
IMPLANT SCIENCES CORPORATION
------------------------------------
Darlene Deptula-Hicks
Its: Vice President and CFO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INCOME
STATEMENTS, BALANCE SHEETS AND CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001068874
<NAME> IMPLANT SCIENCES
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 4,344,929
<SECURITIES> 0
<RECEIVABLES> 1,083,165
<ALLOWANCES> 5,720
<INVENTORY> 52,989
<CURRENT-ASSETS> 5,588,556
<PP&E> 2,999,951
<DEPRECIATION> 906,645
<TOTAL-ASSETS> 7,981,472
<CURRENT-LIABILITIES> 1,475,719
<BONDS> 0
520,732
0
<COMMON> 0
<OTHER-SE> 5,426,448
<TOTAL-LIABILITY-AND-EQUITY> 7,981,472
<SALES> 2,200,391
<TOTAL-REVENUES> 2,200,391
<CGS> 3,200,826
<TOTAL-COSTS> 3,200,826
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,193
<INCOME-PRETAX> (910,320)
<INCOME-TAX> 0
<INCOME-CONTINUING> (910,320)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (910,320)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
