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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _________ TO ________
COMMISSION FILE NUMBER 1-8350
FRESENIUS USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2550576
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2637 SHADELANDS DRIVE, WALNUT CREEK, CALIFORNIA 94598
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 510-295-0200
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
Title of each class Name of each exchange on which registered
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<S> <C>
COMMON STOCK, PAR VALUE $0.01 PER SHARE AMERICAN STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of Common Stock of the registrant held by
nonaffiliates of the registrant was approximately $158 million at March 25,
1996. For purposes of the foregoing sentence, the term "affiliate" includes each
director and executive officer of the registrant.
21,536,172 shares of Common Stock were outstanding at March 25, 1996
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. BUSINESS.
INTRODUCTORY NOTE
Unless the context requires otherwise, all references in this Annual
Report to Fresenius USA, Inc. or the "Company" are to the combined operations of
Fresenius USA, Inc. and its subsidiaries. On December 31, 1991, the Company
acquired substantially all of the assets of a subsidiary of Fresenius
Aktiengesellschaft, a German corporation ("Fresenius AG"). Because of the
accounting treatment accorded this acquisition, the historical financial
statements of the Company presented in this Report reflect the results of the
Company as if the acquisition had occurred in 1987. See "Overview."
Optum(R), Delflex(R), Inpersol(R) and PD-Plus(R) are registered
trademarks of the Company. Safe-Lock(R) is a registered trademark of Fresenius
AG. Calcijex(R) is a registered trademark of Abbott Laboratories ("Abbott").
Critikon(R) is a registered trademark of Johnson & Johnson.
RECENT DEVELOPMENT
On February 4, 1996, W.R. Grace & Co. ("Grace") and Fresenius AG
entered into a definitive agreement to combine Grace's National Medical Care,
Inc. ("NMC") with Fresenius AG's worldwide dialysis business, including the
Company, to create a fully integrated dialysis company. Such combination is
referred to in this Report as the "Reorganization." Pursuant to this
agreement, Fresenius AG has agreed with Grace that the Company would become a
wholly-owned subsidiary of the new company, to be called Fresenius Medical Care
and organized as an aktiengesellschaft under the laws of Germany, and that, when
the economic terms on which the Company's shareholders, other than Fresenius AG
and its affiliates, will participate in this transaction, have been established,
Fresenius AG will vote its shares in the Company in favor of the transaction. An
Independent Committee of the Board of Directors of the Company has been
established, consisting of Messrs. Ehrlich (Chairman) and Baker and Dr. Marten,
to negotiate these terms with Fresenius AG. This Committee has retained Salomon
Brothers and Ropes & Gray to advise the Committee as investment bankers and
counsel, respectively.
OVERVIEW
Fresenius USA, Inc. manufactures and distributes equipment and
disposable products for the treatment of kidney failure by hemodialysis and by
peritoneal dialysis. The Company is one of only two companies in the United
States offering a full line of both hemodialysis and peritoneal dialysis
machines and disposable products. These machines and products are used to
cleanse a patient's blood of waste products and fluids normally eliminated by
properly functioning kidneys.
The Company comprises the combined operations of two businesses which,
since October 1987, have been owned or effectively controlled by Fresenius AG
and the assets of which were formally combined on December 31, 1991. One was the
Company itself which, immediately prior to this combination, operated under the
name Delmed, Inc. ("Delmed") and manufactured peritoneal dialysis systems for
sale to a single, exclusive distributor. The other was Fresenius U.S.A., Inc., a
California corporation ("Old FUSA") and a wholly-owned subsidiary of Fresenius
AG, which engaged in the manufacture and sale of hemodialysis machines and
related equipment and supplies.
In October 1987, Fresenius AG acquired effective control of Delmed by
purchasing Delmed's Series F Series Preferred Stock (the "Series F Preferred
Stock") and certain other securities of Delmed, such that Fresenius AG then
beneficially owned approximately 49% of Delmed's outstanding Common Stock.
Following this acquisition, Delmed continued to operate independently of Old
FUSA, with NMC as its exclusive distributor. The exclusive distribution
arrangement between Delmed and NMC expired in March 1990 and, in April 1990, Old
FUSA began to act as the
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exclusive distributor of Delmed's peritoneal dialysis products. During 1990 and
1991, Old FUSA made significant expenditures to establish a sales and
distribution network for Delmed's peritoneal dialysis products.
On December 30, 1991, Delmed changed its name to "Fresenius USA, Inc."
and effected a one-for-ten reverse split of its common stock. Effective December
31, 1991, Delmed acquired substantially all of Old FUSA's assets, which included
the exclusive North American distribution rights for certain Fresenius AG
products and the distribution network for Delmed's peritoneal dialysis products
established by Old FUSA, subject to substantially all of Old FUSA's liabilities.
These transactions increased Fresenius AG's beneficial ownership of the common
stock of the Company to approximately 80%. This combination of Delmed and Old
FUSA was accounted for as a transaction between entities under common control
using historical amounts in a manner similar to a pooling of interests.
On February 24, 1993, the Company acquired the renal dialysis business
(other than the Calcijex product line and certain other excluded assets) of
Abbott in the United States, Australia and New Zealand (the "Abbott
Acquisition"). The Abbott Acquisition was treated as a purchase for accounting
purposes. Among other things, this acquisition gave the Company rights in and
access to Abbott's patents, trademarks, know-how, manufacturing technology and
other intangible rights and property used by Abbott in this business. Abbott
also agreed to manufacture certain peritoneal dialysis products for the Company
for five years, after which time the Company intends to manufacture these
products itself. With this acquisition, the Company obtained rights to
peritoneal dialysis products which are interchangeable with those of its primary
competitor, thereby enhancing the breadth and marketability of the Company's
peritoneal dialysis product line and giving the Company a larger base of
potential peritoneal dialysis patients. See Note 23 of Notes to Consolidated
Financial Statements.
During the second quarter of 1995, the Company began producing
polysulfone dialyzers at its expanded Ogden, Utah manufacturing facility.
Although the Company continued to purchase dialyzers from Fresenius AG during
1995, it is currently producing most of the polysulfone dialyzers that it had,
in the past, purchased from Fresenius AG.
The products supplied by the Company to the hemodialysis and peritoneal
dialysis market include: hemodialysis and peritoneal dialysis machines and
related equipment, dialyzers, peritoneal dialysis solutions in flexible plastic
bags, hemodialysis concentrate solutions, granulate mixes and disposable tubing
assemblies. The Company's large installed base of hemodialysis machines, as well
as the significant number of patients using the Company's peritoneal dialysis
products, provides the Company with the opportunity to generate additional,
recurring revenues through the sale of its disposable products, including
dialyzers, solutions and disposable tubing assemblies.
ESRD AND THE DIALYSIS MARKET
Overview
The human kidney normally removes waste products and excess water from
the blood, preventing toxin build up, eventual poisoning of the body and water
overload. End-stage renal disease ("ESRD"), or chronic renal (kidney) failure,
is a slow, progressive loss of kidney function resulting from inherited
disorders or prolonged medical conditions. Unlike acute renal failure, which
stems from bleeding, injury, burns, poisoning, acute infection, blockage or
other causes which are generally temporary and permit the kidneys to return to
normal after the failure has been treated, ESRD cannot be reversed, and all
those affected eventually require artificial dialysis or kidney transplantation.
There are presently only three methods for the treatment of ESRD:
hemodialysis, peritoneal dialysis and kidney transplants. Transplants, while a
viable form of treatment for some patients, are limited by the scarcity of
compatible kidneys. Therefore most patients suffering from ESRD must rely on
artificial renal therapy in the form of either hemodialysis or peritoneal
dialysis.
The Company believes that, between 1984 and 1994 the total number of
persons in the United States suffering from ESRD grew at a compound annual rate
of approximately 9.1%, and that the number of patients on hemodialysis and
peritoneal dialysis grew, during this same period, at approximately 8.8% and
10.7% annually, respectively. The Company believes that, at December 31, 1994,
approximately 155,518 and 31,304 persons in the United States were receiving
hemodialysis and peritoneal dialysis treatments, respectively. The Company
believes that, over the next
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five to ten years, the number of patients suffering from ESRD will continue to
grow at approximately the same rate, and that the number of patients treated
using peritoneal dialysis will continue to grow more quickly than the number of
patients using hemodialysis because of cost and quality of life considerations.
Hemodialysis
Hemodialysis is the process by which waste products and excess fluid
are removed from the blood extracorporeally, or outside of the body.
In hemodialysis, the blood flows outside the body by means of plastic
tubes known as bloodlines through a specially designed filter -- a dialyzer --
which separates waste products from the blood by diffusion and osmosis or
ultrafiltration. In the dialyzer, which functions as an artificial kidney, the
patient's blood flows past a semipermeable membrane, which is in turn surrounded
by dialysate solution, the cleansing liquid. By diffusion, toxic substances pass
through the semi-permeable membrane. Through ultrafiltration, excess water and
dissolved electrolytes also pass from the blood through the membrane into the
dialysis solution. The dialysis solution carries away the waste products and
excess water and the cleansed blood is returned to the patient. The movement of
the blood and dialysis fluid is controlled by a hemodialysis machine, which
pumps blood, adds anti-coagulants, regulates the purification process and
controls the mixing of dialysis solution and the rate of its flow through the
system. This machine also monitors and records patient vital signs.
Hemodialysis treatments are generally administered to a patient three
times per week and can last from two and one-half to four hours. A hemodialysis
patient must follow a restricted diet and take a variety of medications and
vitamin supplements. Complications suffered by patients being treated by
hemodialysis include anemia, malnutrition, fluid imbalance and calcium
deficiency. In addition, because of the buildup of toxins in the blood and fluid
on days when no treatment occurs, a patient tends to feel worse on these days.
However, hemodialysis is the only form of treatment (other than transplantation)
currently available to patients who have very low residual or nonexistent renal
function and are inadequately dialyzed using peritoneal dialysis, as well as for
those who have difficulty making the connections and disconnections of tubes and
catheters required with self-administered peritoneal dialysis.
Peritoneal Dialysis
Peritoneal dialysis removes waste products from the blood by use of the
peritoneum, the membrane lining covering the internal organs located in the
abdominal area. Most peritoneal dialysis treatments are self-administered by
patients in their own homes and workplaces by a technique known as continuous
ambulatory peritoneal dialysis ("CAPD") or by a treatment introduced by the
Company in 1980 known as continuous cycling peritoneal dialysis ("CCPD").
In peritoneal dialysis, the patient has a catheter surgically implanted
to provide access to the peritoneal cavity. Using this catheter, a sterile
dialyzing solution is introduced into the peritoneal cavity and the peritoneum
operates as the dialyzing membrane.
A typical CAPD peritoneal dialysis program involves the daily
introduction and disposal of approximately eight liters of solution, two liters
at a time. A patient using CAPD drains, by use of gravity, the dialyzing
solution then contained in his or her peritoneum into a disposable drainage set
at several points during a day. A new solution bag is connected to the drainage
set and the new solution is filled into the peritoneum by gravity. The patient
then manually disconnects from the drainage tubing, caps the catheter and
discards the waste solution and drainage set.
With CCPD the patient connects the implanted catheter to a disposable
"cycler" tubing set that is attached to a prescribed amount of sterile dialysate
solution. A machine is used to "cycle" solution to and from the patient's
peritoneum during sleep.
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In both CAPD and CCPD, the patient undergoes dialysis daily, and
typically does not experience the build-up of toxins and fluids experienced by
hemodialysis patients on the days they are not treated. In addition, because the
patient is not required to make frequent visits to a hemodialysis clinic, and
because the solution exchanges can be accomplished at more convenient times, a
patient on peritoneal dialysis suffers much less disruption to his or her life
than does a patient on hemodialysis. Peritoneal dialysis patients also face less
severe dietary and fluid intake restrictions than hemodialysis patients.
Historically, two aspects of peritoneal dialysis have limited its use
as a long-term therapy. First, certain patients could not effect sterile
connections of the peritoneal dialysis tubing to the catheter, leading to
excessive episodes of peritonitis, a bacterial infection which can result in
serious adverse health consequences. Second, earlier forms of treatment by
peritoneal dialysis were not as effective as hemodialysis so that patients using
peritoneal dialysis needed some residual renal function (which deteriorates over
time) or the amount of therapy had to be increased. Recently, the Company has
introduced products which, the Company believes, may increase the use of
peritoneal dialysis as a long term treatment of ESRD. The Company believes that
its Safe-Lock connector, the Optum device, the Freedom Cycler PD+, and PD Plus
therapy all have the potential to increase the amount of time that a patient
will be able to benefit from peritoneal dialysis treatment. It is likely,
however, that the patients will require hemodialysis treatments at some period
during the term of their disease.
BUSINESS STRATEGY
The Company's business strategy is to continue to strengthen its market
position by: (i) offering the most complete hemodialysis and peritoneal dialysis
product line in the ESRD market; (ii) capitalizing on the expected gradual shift
in the United States of the preferred treatment modality from hemodialysis to
peritoneal dialysis, which provides the Company with a greater source of
recurring revenues per patient; (iii) expanding the Company's manufacturing
capability for its major product lines; (iv) continuing innovation in its
dialysis product line; and (v) introducing new products, particularly in the
blood processing and purification field, which build on technologies used by the
Company.
The Company is one of only two companies in the United States offering
a full line of both hemodialysis and peritoneal dialysis products, including
hemodialysis and peritoneal dialysis machines and related equipment, dialyzers,
peritoneal dialysis solutions in flexible plastic bags, hemodialysis concentrate
solutions and granulate mixes and disposable tubing assemblies. The Company
believes that the breadth of its product line is a competitive advantage. The
Company has used contacts it developed in the hemodialysis products field to
introduce physicians and clinics to the Company's peritoneal dialysis products,
thereby expanding the growth opportunities for its peritoneal dialysis products.
Beginning in 1990, the Company established a national sales and distribution
network for all of its peritoneal dialysis products, and in 1993 the Company
consummated the Abbott Acquisition. During 1994, the Company introduced PD-Plus,
a new form of CCPD treatment which the Company believes offers significantly
improved peritoneal dialysis therapy at a competitive cost. The Company intends
to expand sales of its Safe-Lock peritoneal dialysis products in Mexico and
Canada.
During 1995, the Company completed the expansion of its manufacturing
capacity at its plant in Ogden, Utah and began producing polysulfone dialyzers.
Although the Company continued to purchase polysulfone dialyzers from Fresenius
AG during 1995, and expects to continue to purchase certain types of dialyzers
from Fresenius AG in the future, the Company believes that polysulfone
dialyzer production at the Ogden facility is now fully operational. The Company
intends to further expand manufacturing capacity in Ogden to include the
production of certain additional peritoneal dialysis products (currently
manufactured for the Company by Abbott) and the plastic film used in the
manufacture of the Company's peritoneal dialysis solution plastic bags
(currently imported from the Netherlands). This expansion will enable the
Company to integrate its manufacturing processes vertically and thereby become
less dependent on other manufacturers, and, in the case of the polysulfone
dialyzers and the plastic film, significantly reduce the pricing, allocation
and currency risks to which the Company is currently subject.
The Company is seeking to expand into medical product markets other
than dialysis that will use the Company's expertise and manufacturing
capabilities. The Company plans to focus this expansion on markets relating to
blood processing and purification equipment and supplies. Such expansion is most
likely to be accomplished by distributing or licensing products developed by
Fresenius AG, although the Company may, in the future, consider the
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acquisition or licensing of product lines or businesses from unaffiliated third
parties. In 1994, the Company signed a distribution agreement with Fresenius AG
to distribute blood cell separators and related products for blood processing.
THE COMPANY'S PRODUCTS
Overview
The Company's products include machines and related disposables for
hemodialysis and peritoneal dialysis treatment of ESRD. The Company's product
catalogs contain over 2,500 different items, and the Company believes that it
offers the most complete ESRD product line in the United States. The following
table shows, for each of the past three years, total revenues related to
hemodialysis products and peritoneal dialysis products, as well as all other
products:
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YEAR ENDED DECEMBER 31,
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1993 1994 1995
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TOTAL PERCENT TOTAL PERCENT TOTAL PERCENT
REVENUES OF TOTAL REVENUES OF TOTAL REVENUES OF TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Hemodialysis $134,117 65% $170,579 67% $206,875 68%
Peritoneal Dialysis (1) 65,073 32 77,331 30 89,561 29
Other Products 6,770 3 6,434 3 8,528 3
-------- --- -------- --- -------- ---
Total $205,960 100% $254,344 100% $304,964 100%
======== === ======== === ======== ===
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(1) On February 24, 1993, the Company consummated the Abbott Acquisition
and this business is included in the above figures only on and after
this date. If the Abbott Acquisition had occurred on January 1, 1993,
the Company's pro forma total revenues from peritoneal dialysis in 1993
would have been $69.8 million.
Hemodialysis Products
The Company offers a complete package of products for hemodialysis,
consisting of: four different hemodialysis machines; 12 different dialyzers,
including high, medium and low flux dialyzers; bloodlines; dialysate solutions
and concentrates; needles, connectors and other similar supplies; and machines
and supplies for the reuse of dialyzers.
The Company assembles, tests and calibrates hemodialysis machines and
sells these machines in the United States, Canada and Mexico. Components for
these machines are purchased from Fresenius AG and other vendors. The
hemodialysis machines sold by the Company have a modular design, and may include
a blood pressure module, single-needle module, a special arterial and venous
level control module and a heparin pump module. The Company also offers a
computer interface module, which performs on-line data collection during
dialysis, entry of nursing records at the bedside and prescribed therapy
monitoring. This modular design allows the Company's machines to be upgraded by
substituting modules instead of replacing an entire machine. This modular design
also permits the Company to offer dialysis clinics a broad range of options when
machines are acquired. The Company's hemodialysis machines are capable of
operating with dialyzers manufactured by all manufacturers, and are compatible
with a wide variety of bloodlines and dialysate solutions.
All dialyzers produced by the Company use hollow fiber polysulfone
membranes (a synthetic material), which the Company believes have superior
performance characteristics compared to other materials used in dialyzers
because polysulfone dialyzers are highly biocompatible and have excellent
clearing capacities for uremic toxins. The
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Company's polysulfone dialyzer line consists of a complete range of permeability
(high, medium and low flux) to allow tailoring of the dialysis therapy to the
individual patient. While most of the Company's polysulfone dialyzers are
manufactured at its facility in Ogden, Utah pursuant to a license granted by
Fresenius AG, the Company plans to continue to purchase certain dialyzers from
Fresenius AG. See "Certain Relationships and Related Transactions."
The Company distributes disposable bloodlines which carry a
hemodialysis patient's blood to the hemodialysis machine and dialyzer and then
back to the patient. These bloodlines are manufactured abroad for the Company by
a third party.
The Company produces both liquid and dry dialysate concentrate. Liquid
dialysate concentrate is mixed with purified water by the hemodialysis machine
to produce dialysate solution, which is used in hemodialysis treatment to remove
the waste products and excess water from the patient's blood. Dry concentrate is
less labor intensive to use, requires less storage space and is less prone to
bacterial growth than liquid bicarbonate solutions.
The Company also sells dialyzer reuse and rinse machines manufactured
by the Company for Seratronics, Inc. ("Seratronics"). These machines cleanse
dialyzers after dialysis, permitting multiple usage for the same patient before
disposal of the dialyzer. The Seratronics machines facilitate the reuse of
disposable dialyzers and, therefore, permit hemodialysis providers to reduce
operating costs. The reuse business of Seratronics is managed by the Company.
See "Certain Relationships and Related Transactions."
Peritoneal Dialysis Products
The Company offers a full product line for peritoneal dialysis
patients. The Company's peritoneal dialysis products include peritoneal dialysis
cycling machines for CCPD and disposable products for both CAPD and CCPD, such
as tubing, sterile solutions and sterile kits to prepare patients for dialysis.
The Company offers four different CCPD machines and over 90 disposable products
for CCPD and CAPD.
The Company believes that its Delflex solution products with Safe-Lock
connectors offer significant advantages for CAPD and CCPD home patients
including ease of use and greater protection against touch contamination than
other peritoneal dialysis systems.
To use Safe-Lock products, the surgically-implanted catheter is fitted
with one part of the Safe-Lock connector and the peritoneal dialysis solution
bag and tubing are fitted with the other part of the Safe-Lock connector.
Patients using the Safe-Lock connector may not easily use products produced by
the Company's competitors, and to market its Safe-Lock peritoneal dialysis
products to patients fitted with other connectors the Company supplies an
adapter. The Inpersol line of peritoneal dialysis products acquired from Abbott
is interchangeable and competitive with the peritoneal dialysis products offered
by the Company's major competitor in this field. The addition of the Inpersol
product line to the Company's other products therefore enables the Company to
expand the potential customer base for which it competes, because the Company
now supplies peritoneal dialysis products usable by all peritoneal dialysis
patients in the United States.
Although CAPD is the predominant form of peritoneal dialysis therapy in
the United States, the Company believes that CCPD therapy offers patients
psychological benefits over CAPD therapy. In a typical CAPD program, a patient
undergoes four two-liter exchanges of peritoneal dialysis solution over a
twenty-four hour period, with treatment occurring seven days per week. While
CAPD must be performed by the patient when he or she is awake, the Company's
CCPD system cycles the solution throughout the night while the patient is
sleeping. The patient thus has complete daytime freedom, wearing only the
surgically-implanted catheter and capping device. In addition, the Company
believes that due to less frequent handling of the catheter, CCPD reduces the
risk of peritonitis.
The Company has been an innovator in peritoneal dialysis therapy since
1980 when it introduced the first CCPD machine. The Company's peritoneal
dialysis cycling equipment incorporates microprocessor technology that
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can be easily programmed by the patient or hospital or clinic staff to perform
specific, prescribed therapy for a given patient. These machines allow the
physician to prescribe any of a number of current therapy procedures including
CCPD, Intermittent Peritoneal Dialysis and Tidal Peritoneal Dialysis, since all
components are monitored and programmable.
During 1994, the Company introduced a new variant on CCPD therapy
called PD-Plus. Normally, a CCPD patient undergoes five or six two-liter
solution exchanges at night, and carries no solution during the day. PD-Plus
therapy provides a more tailored therapy using a simpler night-time cycler, and
where necessary, one exchange during the day (typically in the late afternoon or
early evening, after the patient has returned home). Compared with typical CCPD
therapy, the Company believes that PD-Plus therapy will be less costly and
easier to administer. Compared with CAPD therapy, the Company believes that
PD-Plus therapy will improve toxin removal by 43%, with a small percentage
increase in cost, and will therefore be attractive to patients and physicians
alike. By increasing the effectiveness of peritoneal dialysis treatments at an
acceptable increase in cost, PD-Plus therapy may also effectively prolong the
time period during which a patient will be able to remain on peritoneal
dialysis.
Other Products
The Company sells blood cell separation products designed for the
therapeutic removal of diseased blood components as well as collection of donor
blood components for transfusion. The key product in this line is the Fresenius
AS 104 Cell Separator, which is purchased from Fresenius AG pursuant to a
distribution and manufacturing agreement entered into in December 1994. See
"Certain Relationships and Related Transactions - Products from Fresenius AG."
The Company believes this product offers significant benefits over competing
products with respect to ease and speed of setup, automated operation,
protective systems and reduced extracorporeal volumes. The Company also sells
the associated disposable sets required for each use of the cell separator.
In 1992, the Company acquired from a subsidiary of Johnson & Johnson
the Critikon infusion pump business. The acquired products include the pump,
disposable tubing and related supplies for infusion of intravenous solutions.
Sales of these products were not material in 1995.
MARKETING, DISTRIBUTION AND SERVICE
The Company maintains a national direct sales force of trained
salespersons, organized on a regional basis and engaged in the sale of both
hemodialysis and peritoneal dialysis products. Each member of the Company's
sales force has extensive sales experience. This sales force engages in direct
promotional efforts, including visits to physicians, clinical specialists,
hospitals, clinics and dialysis centers, and represents the Company at industry
trade shows. The Company also maintains a clinical support group composed
primarily of registered nurses to train and assist its customers and facilitate
the introduction of new products. Technical support is also available to
customers on a 24-hour basis through a toll-free telephone number. The Company's
service department provides technical support, spare parts and field service on
a nationwide basis.
All of the Company's machines are shipped from its facilities in Walnut
Creek, California. The Company's hemodialysis disposable products are shipped
from the Company's facilities in Ogden, Utah and Maumee, Ohio to regional
distribution centers. The Company relocated its Maumee operations to
Lewisberry, Pennsylvania, and will close the Maumee facility at the end of the
first quarter of 1996. The Company's disposable peritoneal dialysis products
are shipped from its facility in Ogden, Utah or from Abbott facilities to
regional
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distribution centers, and from there the products are delivered directly to the
customer, in most cases the patient, by the Company's drivers. The Company's
drivers store deliveries in the location desired by the patient, rotate
disposable products so that the oldest products are used first, and generally
provide continuity of contact between the Company and patients using the
Company's peritoneal dialysis products. See "Properties."
At the time of the Abbott Acquisition, Abbott had agreements with
numerous hospitals pursuant to which these hospitals could order the full line
of Abbott products, including renal dialysis products, from Abbott. Abbott has
agreed to act as the Company's distributor for the continued sale of Inpersol
products to hospitals until 1998. Following the Abbott Acquisition, the Company
consolidated the distribution outlets used by Abbott with the Company's
distribution outlets, eliminating or consolidating certain locations and
introducing the Company's products into many of the public warehouses previously
used by Abbott.
The Company's products are distributed in Canada by a wholly-owned
Canadian subsidiary. The Company acquired the remaining interest in this
subsidiary held by an unaffiliated third party during 1993 for consideration of
a convertible note which was subsequently converted to 434,000 shares of the
Company's common stock. The Company currently distributes its products in Mexico
via independent distributors. Inpersol products are not distributed by the
Company in Canada or Mexico, where a subsidiary of Abbott retains exclusive
rights to these products.
MANUFACTURING OPERATIONS AND SOURCES OF SUPPLY
The Company assembles equipment, including hemodialysis machines,
dialyzer reuse devices and peritoneal dialysis cyclers, at its facility in
Walnut Creek, California. Components of the Company's hemodialysis machines are
supplied by Fresenius AG as well as other suppliers, and the Company has
experienced no difficulties in obtaining sufficient quantities of such
components. In connection with the sale and installation of the machines, the
Company's technicians and engineers calibrate the machines and add computer
software for record keeping and monitoring.
The Company owns a 344,000 square foot facility in Ogden, Utah for the
manufacture of disposable products, including polysulfone dialyzers, peritoneal
dialysis solutions, other sterile solutions, plastic tubing and medical devices.
This facility uses automated equipment for the production of sterile solutions
in flexible plastic containers. While the Company obtains the film used in the
manufacture of its plastic bags from one supplier located in the Netherlands,
the Company believes that there are readily-available alternative sources of
supply for which the Food and Drug Administration (the "FDA") could grant
expedited approval. The Company also intends to manufacture its own plastic film
for peritoneal dialysis solution bags.
Prior to 1995, all polysulfone dialyzers sold by the Company were
manufactured by Fresenius AG in Germany. During 1995, the Company completed the
expansion and equipping of its Ogden facility in order to produce these
polysulfone dialyzers. In April 1994, Fresenius AG granted the Company an
exclusive license in the United States, Canada, Mexico and Puerto Rico for the
proprietary technology for the manufacture of polysulfone dialyzers and agreed
to provide required technical support and assistance in return for a 4.5%
royalty on sales of Company- manufactured dialyzers for ten years beginning
January 1, 1996, at the conclusion of which the Company will have a paid-up
exclusive license in North America. While the Company began manufacturing
polysulfone dialyzers during the second quarter of 1995, the Company continued
to purchase dialyzers and bundles of polysulfone which were assembled into
dialyzers from Fresenius AG. The Company expects to continue to purchase
certain dialyzers from Fresenius AG in the future. The Company believes that
it is the principal manufacturer of polysulfone dialyzers in the United States.
Over the next two years, the Company intends to transfer the production
of the products acquired from Abbott to the Company's facility in Ogden. During
this period, the Company has agreed to purchase at contractually-established
prices, and Abbott has agreed to manufacture and sell to the Company, stated
quantities of Inpersol dialysis products. The Company's license agreement with
Abbott also provides the Company with access to Abbott's manufacturing
technology used in connection with Abbott's production of peritoneal dialysis
solution in plastic bags, related tubing assemblies and other products used in
the dialysis field (other than Abbott's Calcijex product line). Abbott will
assist the Company in establishing the Company's manufacturing capability for
these
- 8 -
<PAGE> 10
products. The Company intends to use this technology to develop the ability to
manufacture several components that it now purchases from third parties. See
Notes 4 and 12 of Notes to Consolidated Financial Statements.
Each step in the manufacture of the Company's products, from the
initial processing of raw materials through the final packaging of the completed
product, is carried out under controlled quality assurance procedures and under
Good Manufacturing Practices ("GMP") mandated by the FDA. Incoming raw materials
for solutions are subjected to infrared, ultraviolet and physical and chemical
analysis to assure quality and consistency. During the production cycle,
sampling and testing are done in accordance with established quality assurance
procedures. Pressure, temperatures and times for various processes are monitored
to assure consistency of semifinished goods. Environmental conditions are
monitored to assure that particulate and bacteriological levels do not exceed
specified maximums. Sampling and testing are done in accordance with physical
and chemical procedures required to insure sterility, safety and potency of
finished products. The Company maintains continuing quality control and GMP
education and training programs for its employees. See "Regulation -- FDA and
Other Regulatory Matters."
In 1992, the Company began producing liquid dialysate concentrate at a
facility in Maumee, Ohio. The Company moved this operation to a facility in
Lewisberry, Pennsylvania and will close the Maumee facility at the end of the
first quarter of 1996. On March 26, 1996, the Company entered into a
non-binding letter of intent with an unaffiliated third party to sell the
assets comprising the concentrate production facility in Lewisberry. The letter
of intent provides that any obligations of the Company to sell the assets are
contingent upon consummation of the Reorganization.
The Company obtains its bloodlines under an agreement with a supplier
whose principal source of bloodlines is a single FDA-approved plant located in
Thailand.
PATENTS, TRADEMARKS AND LICENSES
As a subsidiary of Fresenius AG, the Company uses the trade-name
Fresenius, which is material to its business, and additionally has obtained
rights to certain patents, trademarks, know-how and other intellectual property
owned by Fresenius AG. Fresenius AG has obtained patent protection in the
countries in which its dialysis products are sold, including the United States,
for the proprietary technology incorporated into its dialysis products. The
Company negotiates access to Fresenius AG's technology, proprietary processes
and know-how on a case by case basis. See "Certain Relationships and Related
Transactions."
In addition to the Fresenius AG intellectual property, the Company's
intellectual property includes the Inpersol trademark and rights to certain
manufacturing know-how the Company obtained from Abbott and a paid-up
non-exclusive worldwide sublicense from Baxter International, Inc. to certain
CAPD and connector technology.
RESEARCH AND DEVELOPMENT
The Company relies primarily on the research and development efforts of
Fresenius AG, negotiating distribution arrangements for new products from
Fresenius AG when Fresenius AG and the Company believe that there is market
potential for these products in the United States and when the products fit the
Company's business strategy. See "Certain Relationships and Related
Transactions."
During 1993, 1994 and 1995, the Company spent approximately $1.5
million, $1.8 million and $2.3 million, respectively, on research and
development activities. The Company believes that, in the absence of its access
to the research and development efforts of Fresenius AG, the Company would have
had to spend significantly more on research and development. The Company and
Fresenius AG from time to time negotiate the basis on which the Company will
have access to these efforts on an arms-length basis including, in some cases,
payment of royalties by the Company to Fresenius AG.
The Company maintains a product development group, composed of
engineers and other technical personnel. This group has created the operational
software for much of the equipment marketed by the Company, and currently
- 9 -
<PAGE> 11
has under development a variety of new products and improvements to existing
products including: new monitoring devices for hemodialysis machines, methods to
prevent recirculation during hemodialysis, software programs to monitor therapy
delivery, further development of both the Safe-Lock and the Inpersol product
lines in peritoneal dialysis, new peritoneal dialysis solution formulations, and
more environmentally compatible disposables and production procedures. It is
also conducting research on improved treatment delivery and treatment
modalities. The Company's product development staff works closely with Fresenius
AG's research and development group to coordinate the development of new
products and product modifications for the United States market. In addition,
the Company's research and development staff coordinates its efforts with the
sales force on an ongoing basis.
COMPETITION
The markets in which the Company sells its products are highly
competitive. Among the Company's competitors in the sale of hemodialysis
products are Baxter International, Inc., CGH Medical, NMC and Althin CD
Medical, Inc. The major competitor in the peritoneal dialysis field is Baxter
International, Inc. Many of the Company's competitors possess greater
financial, marketing and research and development resources than the Company.
See "Recent Developments."
The Company believes that competition in the ESRD market is based
primarily on product performance, cost-effectiveness, reliability, assurance of
supply and service and continued technological innovation. The Company believes
its products are competitive in all of these areas. Certain of the Company's
competitors own and operate dialysis centers and other medical facilities, and,
therefore, it is difficult for the Company to compete for the business of these
potential customers.
REGULATION
Health Care Reform
Demand for the Company's products is affected by governmental and other
third-party reimbursement programs. Until 1983, hospitals were reimbursed for
the reasonable cost of services. Under current legislation, hospitals are
reimbursed at a fixed rate based on the patient's diagnosis, regardless of
actual costs incurred. Many private health care payors are adopting similar
policies and are otherwise providing incentives for health care consumers to
seek lower cost health care. These developments have also encouraged the
concentration of ownership of dialysis centers and other medical facilities and
increased the number and importance of customers representing national accounts.
Such customers have a strong bargaining position and frequently award purchase
orders on the basis of competitive bidding.
Presently, Medicare reimbursement is available for dialysis equipment
and/or treatment for most ESRD patients, at approximately the same nominal
dollars-per-treatment level that prevailed in 1983 (representing a significant
decrease in real dollars-per-treatment). Because the demand for the Company's
products is affected by Medicare reimbursement, any significant changes or
spending decreases in the Medicare program could have a material adverse effect
on the Company. However, the Company believes that, because an increasing number
of its products are manufactured or assembled by the Company and not by third
parties, the Company will be able to control its production costs and compete
effectively in a more competitive and cost conscious health care environment.
- 10 -
<PAGE> 12
FDA and Other Regulatory Matters
The manufacturing and marketing of the Company's products are subject
to rigorous regulation by the FDA, pursuant to the United States Food Drug and
Cosmetic Act (the "FDC Act"), and by numerous other federal, state and foreign
governmental authorities. The Company believes it has filed all necessary
premarket submissions for the manufacture and sale of the products that the
Company currently produces and sells in the jurisdictions where these products
are currently sold. Products developed in the future are likely to require
approval by the FDA and other authorities before they may be sold in the
United States or elsewhere.
Many of the Company's products, including its hemodialysis and
peritoneal dialysis equipment, dialyzers, bloodlines and cell separators, are
regulated as medical devices by the FDA and classified on the basis of the
controls necessary to ensure reasonably their safety and effectiveness. Class I
devices are subject to general controls (e.g., labeling, premarket notification
and adherence to GMP) and class II devices are subject to special controls
(e.g., performance standards, postmarket surveillance, patient registries and
FDA guidelines). Generally, class III devices (e.g., life-sustaining,
life-supporting and implantable devices, or new devices which have been found
not to be substantially equivalent to devices in interstate commerce prior to
1976) are those which must receive premarket approval by the FDA to ensure their
safety and effectiveness.
Before a new medical device can be introduced into the United States
market, the manufacturer generally must file either a 510(k) premarket
notification or a premarket approval application ("PMA"). The FDA will grant
510(k) clearance if the submitted data establish that the proposed device is
"substantially equivalent" to a legally marketed class I or II medical device,
or to a class III medical device for which the FDA does not require PMAs. A
determination that a device is not substantially equivalent, or a request for
additional data, could delay the market introduction of new products and could
have a materially adverse effect on the Company's business, financial condition
and results of operation. There also can be no assurance that the Company will
obtain necessary regulatory approvals or clearances, including 510(k) premarket
clearances, within reasonable time frames, if at all.
The Company's peritoneal dialysis solutions have been designated as
drugs by the FDA and are thus subject to FDA regulation under the FDC Act. In
order for a new drug to receive marketing approval in the United States, the
Company must follow a series of steps which may include: (i) preclinical
laboratory and animal tests in accordance with Good Laboratory Practices, (ii)
an Investigational New Drug application which must become effective before human
clinical trials may begin, (iii) well-controlled human clinical trials to
establish the safety and efficacy of the new drug product, (iv) a New Drug
Application ("NDA") or an Abbreviated New Drug Application ("ANDA") and (v)
approval of the NDA or ANDA prior to any commercial sale or shipment of the
drug. FDA approval must be obtained for each product. Generally, approval of an
NDA takes one and a half or more years and may take longer should the FDA raise
questions or have concerns about a new drug.
Any products manufactured or distributed by the Company pursuant to
510(k) premarket clearance or an approved PMA, NDA or ANDA are subject to
pervasive and continuing regulation by the FDA. The FDC Act requires the Company
to manufacture its products in compliance with GMP. These regulations impose
certain procedural and documentation requirements upon the Company with respect
to manufacturing and quality assurance activities. Additionally, the Company
must comply with various FDA requirements regarding the design, safety,
advertising, labeling, record keeping and reporting of adverse events related to
the use of the Company's products.
The Company has completed a voluntary action with respect to the Optum
exchange device acquired from Abbott, which has been classified by the FDA as a
recall. The FDA reviewed the actions taken by the Company and determined that
they are adequate.
In 1994 and 1995, the FDA inspected Fresenius USA's manufacturing
facilities in Maumee, Ohio, Ogden, Utah and Walnut Creek, California. At each
location, violations of certain GMPs were found. At the Walnut Creek facility,
violations of pre-market notification filing requirements were also found,
although these devices were subsequently determined to be covered by
appropriate filings. The FDA
- 11 -
<PAGE> 13
issued warning letters with respect to each facility, as a result of which the
issuance of new 510(k) notices and new export clearances was placed on
administrative hold. The Company has responded to the inspection findings at
Maumee in a manner it believes addresses the FDA's findings, and is awaiting a
subsequent inspection of that facility. The Company undertook an exhaustive
review of the FDA's findings relating to Walnut Creek and submitted a detailed
response to those findings. The Walnut Creek facility was inspected again in
January and February of 1996 and the Company was advised that all GMP issues
raised by the FDA have been resolved. The Ogden plant was reinspected in 1995
and the administrative holds have been lifted from both the Ogden and Walnut
Creek facilities. The Company believes that the facilities in Walnut
Creek, California, Maumee, Ohio and Ogden, Utah are currently in compliance in
all material respects with the applicable local, state and federal
requirements. The Company is in the process of closing its Maumee facility and
moving the related manufacturing to a site in Lewisberry, Pennsylvania. The
Company believes that all FDA filings have been made in connection with this
move. See "Properties."
EMPLOYEES
At December 31, 1995, the Company employed approximately 1,600 people.
Management believes that the Company's relations with its employees are
generally good. During the third quarter of 1995, certain of the Company's
employees at the Maumee, Ohio facility voted in favor being represented by the
International Longshoremen's Association. Subsequent to that election, for
business reasons unrelated to the election, the Company decided to close the
Maumee facility and transfer its production of dialysate concentrate to a
facility under construction in Harrisburg, Pennsylvania. The Company entered
into a settlement agreement with union representatives with respect to the
effect of the closing on the 35 employees (of approximately 50 employees at the
facility) represented by the union. The amount of the settlement was not
material.
ITEM 2. PROPERTIES.
The following table describes the Company's principal facilities:
<TABLE>
<CAPTION>
FLOOR AREA
(APPROXIMATE OWNED OR
LOCATION SQUARE FEET) LEASED USE
-------- ------------ -------- ---
<S> <C> <C> <C>
Walnut Creek, California 85,000 Leased Corporate headquarters;
warehousing; machine manufacture
and assembly; and customer service.
Ogden, Utah 344,000 Owned Production of disposable products,
including solutions and dialyzers.
Maumee, Ohio 26,000 Leased Production and warehousing of
dialysate concentrate. This facility
was closed by the Company during the
first quarter of 1996.
Lewisberry, Pennsylvania 64,000 Leased To replace Maumee facility for
production and warehousing of
dialysate concentrate.
</TABLE>
The lease on the Company's Walnut Creek facility is scheduled to expire
in June 1996. During 1995, the Company exercised its option to extend this lease
for an additional six years with a rent adjustment. During 1995, the Company
renegotiated the lease for its manufacturing space in Maumee, Ohio which will
expire on March 31, 1996, at which time the facility will be closed. The
Company's lease for the Lewisberry facility expires in November, 2000. On March
26, 1996, the Company entered into a non-binding letter of intent with an
unaffiliated third party to sell the assets comprising the concentrate
production facility in Lewisberry. The letter of intent provides that any
obligations of the Company to sell the assets are contingent upon consummation
of the Reorganization. The Company owns one warehouse and also leases fourteen
warehouses in various locations throughout the United States. These warehouses
are used as regional distribution centers for the Company's peritoneal dialysis
products. All such warehouses are subject to leases with remaining terms not
exceeding four years. As a result of the Abbott Acquisition, the Company has
added distribution capacity at an additional twenty-two public warehouses,
substantially all of which were formerly used by Abbott.
- 12 -
<PAGE> 14
The Company's Ogden, Utah facility was subject to a mortgage securing
the Company's obligation under an industrial revenue bond which financed the
development of this facility. The Company prepaid this obligation in full during
1994 with a portion of the proceeds of a public offering of the Company's Common
Stock.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of business, the Company normally both asserts
claims and defends claims asserted by others against it. The Company believes
that its obligations, if any, with respect to all of such claims would have no
material adverse effect on the financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
- 13 -
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock was listed on the American Stock Exchange
("ASE") under the name Delmed, Inc. on June 25, 1982. Effective December 30,
1991, the Company effected a one-for-ten reverse stock split and changed its
name to Fresenius USA, Inc. In connection with this change of name, the
Company's ticker symbol was changed to FRN.
The following table sets forth the high and low sales prices on the ASE
during the indicated periods.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1994
First Quarter $ 8 1/4 $ 6 5/8
Second Quarter 7 1/2 5 3/8
Third Quarter 9 5 7/8
Fourth Quarter 8 7/8 7
1995
First Quarter $ 11 $ 8 5/8
Second Quarter 13 1/8 9 1/2
Third Quarter 16 1/2 12
Fourth Quarter 19 7/8 15 1/8
</TABLE>
As of March 25, 1996, there were approximately 4,000 holders of record
of the Company's Common Stock.
The Company's capital stock consists of 40,000,000 authorized shares of
common stock, par value $.01 per share, of which, as of March 25, 1996,
21,536,172 shares were issued and outstanding; and 600,000 authorized shares of
series preferred stock, par value $1.00 per share, of which, as of March 25,
1996, 200,000 shares of Series F Preferred Stock were issued and outstanding.
The Company has never declared a cash dividend on its common stock. The
Series F Preferred Stock is not entitled to receive any dividends, but instead
receives an adjustment in its conversion price to compensate for any dividends
paid on common stock. The Board of Directors of the Company has no present
intention to pay dividends on common stock and does not anticipate doing so
within the next several years. It is the present policy of the Company to retain
earnings, if any, to provide for growth and working capital needs.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain financial data with respect to
the Company and is qualified in its entirety by the Consolidated Financial
Statements of the Company contained elsewhere in this Report.
The Abbott Acquisition has been accounted for as a purchase. Because
this occurred on February 24, 1993, the statements below include the results of
operations, assets and liabilities of this acquired business only for periods
and dates occurring on or after February 24, 1993.
- 14 -
<PAGE> 16
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(dollars and shares in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $101,436 $128,607 $205,960 $254,344 $304,964
Cost of sales 71,812 92,575 140,960 175,766 212,102
-------- -------- -------- -------- --------
Gross profit 29,624 36,032 65,000 78,578 92,862
Selling, general and administrative
and research and development 28,865 32,964 55,713 66,489 74,836
Litigation settlements 1,300 (400) -- -- --
-------- -------- -------- -------- --------
Operating income (loss) (541) 3,468 9,287 12,089 18,026
Interest expense (net) (2,167) (2,447) (4,631) (4,195) (4,924)
Equity in earnings (loss) of Fresenius
Brent 84 70 86 -- --
Other income (expense), net (191) (341) (149) (17) 149
-------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary items (2,815) 750 4,593 7,877 12,953
Income tax expense (benefit) 15 111 900 723 (3,434)
-------- -------- -------- -------- --------
Income (loss) before extraordinary items (2,830) 639 3,693 7,154 16,387
Extraordinary items 255 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) $ (2,575) $ 639 $ 3,693 $ 7,154 $ 16,387
======== ======== ======== ======== ========
Net Income (Loss) Per Common and Common Equivalent Share:
Income (loss) before extraordinary items $ (.18) $ .03 $ .18 $ .32 $ .61
Extraordinary items .02 -- -- -- $ --
-------- -------- -------- -------- --------
Net income (loss) per common and
common equivalent share:
Primary $ (.16) $ .03 $ .18 $ 32 $ .61
======== ======== ======== ======== ========
Fully diluted $ (.16) $ .03 $ .18 $ 31 $ .59
======== ======== ======== ======== ========
Weighted average number of shares of common stock and common stock
equivalents:
Primary 15,543 18,692 20,660 23,926 26,647
Fully diluted 15,543 18,692 20,660 23,926 27,844
Pro Forma(1):
Net sales $154,694 $210,642
Gross profit 49,024 67,424
Operating income 6,838 10,162
Net income 1,617 4,160
Net income per common share $ .09 $ .20
Weighted average number of shares of
common stock and common stock
equivalents 18,692 20,660
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 22,604 $ 18,739 $ 15,525 4,579 12,991
Total assets 78,144 88,961 159,216 185,348 224,921
Total debt and capital lease obligations 29,039 21,905 65,421 64,117 73,597
Stockholders' equity 22,792 31,037 37,006 60,572 78,602
</TABLE>
- --------------
(1) Pro forma operating data give effect to the Abbot Acquisition as if
this acquisition were consummated on January 1, 1992. See Note 23 of
Notes to Consolidated Financial Statements.
- 15 -
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
Certain sections of this Report contain forward-looking statements.
These forward-looking statements are made based on management's expectations and
beliefs concerning future events impacting the Company, but no assurance can be
given that such events will occur or that the results will be as anticipated.
Such sections include, without limitation, discussions concerning the outlook of
the Company, future plans and management's expectations regarding future
performance.
There are certain important factors that could cause results to differ
materially from those anticipated. These factors include:
RECENT DEVELOPMENT: On February 4, 1996, Grace and Fresenius AG entered into a
definitive agreement to combine NMC with Fresenius AG's worldwide dialysis
business, including the Company. Pursuant to this agreement, Fresenius AG has
agreed with Grace that the Company would become a wholly-owned subsidiary of
the new company, and that, when the economic terms on which the Company's
shareholders, other than Fresenius AG and its affiliates, will participate in
this transaction, have been established, will vote its shares in the Company in
favor of the transaction. While the Independent Committee established by the
Company's Board of Directors is currently negotiating with Fresenius AG, there
can be no assurance that an agreement will be reached, or what the terms of any
such agreement will be. Fresenius AG, through the composition of the Company's
Board of Directors and Fresenius AG's ownership of all of the outstanding
shares of the Series F Preferred Stock and its direct and indirect ownership of
Common Stock, has the ability to consummate the Reorganization without the
agreement of the Independent Committee.
RELIANCE ON FRESENIUS AG: The Company is dependent on Fresenius AG in a variety
of ways for technology, products and, to some degree, financial support. The
provisions relating to the Series F Preferred Stock owned by Fresenius AG,
coupled with Fresenius AG's direct and indirect ownership of Common Stock, have
the practical effect of giving Fresenius AG an absolute majority of the voting
power attributable to each class of the Company's voting securities with respect
to all matters.
COMPETITION AND TECHNOLOGICAL CHANGE: The markets in which the Company sells its
products are highly competitive. The Company's principal competitor in the
hemodialysis and peritoneal dialysis fields possesses greater financial,
marketing and research and development resources than the Company. There can be
no assurance that competition, innovation or introduction of new products from
these or other sources will not materially adversely affect sales of the
Company's products or render one or more of the Company's present or proposed
products obsolete.
RELIANCE ON SUPPLIERS; PURCHASE COMMITMENTS: The supplies for certain of the
Company's products are purchased from single suppliers, including Fresenius AG,
located outside of the United States. If a particular source of supply becomes
unavailable, there can be no assurance that the Company would be able to find a
substitute supplier acceptable to the FDA in a timely fashion. The loss of such
a source of supply could have a material adverse effect on the Company's
revenues and profits, as well as its ability to supply its products to its
customers and retain its customer base.
FDA AND OTHER GOVERNMENT REGULATION: The manufacturing and marketing of the
Company's products are subject to rigorous regulation by the FDA, pursuant to
the FDC Act, and numerous other federal, state and foreign governmental
authorities. The Company believes it has obtained all necessary clearances for
the manufacture and sale of the products that the Company currently produces
and sells in the jurisdictions where these products are currently sold.
Products developed in the future are likely to require approval by the FDA and
other authorities before they may be sold in the United States or elsewhere.
While the Company believes that it is generally in compliance with applicable
FDA and other requirements, there can be no assurance that the Company will be
able to continue such compliance, that one or more of the Company's products
will not be the subject of a recall, or that changes in regulations or
interpretations made by the FDA or other regulatory bodies will not adversely
affect the Company.
POTENTIAL PRODUCT LIABILITY; LITIGATION: The Company faces an inherent business
risk of exposure to product liability claims. Although the Company maintains
product liability insurance at a level which it believes to be prudent, there
can be no assurance that such coverage will be adequate to cover claims, or that
adequate insurance coverage will continue to be available at acceptable costs.
Although the Company has not been subject to significant product liability
claims in the past, there can be no assurance that the Company can avoid a
significant product liability claim or recall in the future which could have a
material adverse affect on the business, financial condition or prospects of the
Company.
- 16 -
<PAGE> 18
HEALTH CARE REFORM: Presently, Medicare reimbursement is available for dialysis
equipment and/or treatment for most ESRD patients at approximately the same
nominal dollars-per-treatment level that prevailed in 1983 (representing a
significant decrease in real dollars-per-treatment). Because the demand for the
Company's products is affected by the availability and level of Medicare
reimbursement, any significant changes or spending decreases in the Medicare
program could have a material adverse effect on the Company.
CURRENCY RISK: Products and supplies purchased from Fresenius AG must be paid
for by the Company in German currency and, therefore, a decrease in the value of
the United States dollar relative to the German mark will increase the Company's
costs for these products and supplies. The Company attempts to protect itself
from short-term currency fluctuations using various hedging techniques, but
there can be no assurance that such techniques will continue to be available to
the Company or that, even if available, they will successfully protect the
Company from these currency fluctuations. The Company is unable to protect
itself from long-term changes in exchange rates. If there are long-term changes
in exchange rates, or if the Company is not successful in protecting itself
against short-term currency fluctuations, the Company's cost of sales could
increase substantially which could have a material adverse effect on the
Company's financial results.
The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof.
The Company's net sales have continued to grow over the last three
years, from $206.0 million in 1993 to $305.0 million in 1995. The Company's net
sales are derived from sales of machines, which accounted for approximately 29%
of 1995 net sales, and disposable products, which accounted for approximately
71% of 1995 net sales. The Company attributes the growth in net sales during
this period principally to increased penetration in both the hemodialysis and
peritoneal dialysis markets, growth in the number of people with ESRD and the
introduction of new products. Improved market penetration was partly
attributable to enhanced sales and marketing programs and, in the case of
peritoneal dialysis products, primarily to the Abbott Acquisition.
A significant portion of the Company's products and components used in
its products are manufactured outside of the United States by Fresenius AG and
other suppliers. As a result, fluctuations in exchange rates of the United
States dollar against foreign currencies, particularly the German mark, may
affect the Company's cost of sales. The Company engages in foreign currency
hedging arrangements as an effort to minimize the effect of short-term currency
fluctuations on its results of operations. In order to minimize the effect of
longer-term currency fluctuations, the Company is increasingly producing
components for the products it sells, or the products themselves, in the United
States. In 1995, the Company began producing polysulfone dialyzers at its
expanded facility in Ogden, Utah.
The following table sets forth certain items from the Consolidated
Statements of Operations as a percent of net sales and the percentage increase
(decrease) in the dollar amount of those items as compared to the prior period.
- 17 -
<PAGE> 19
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF NET SALES INCREASE (DECREASE)
----------------------- -------------------
1994 1995
VS. VS.
1993 1994 1995 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales 100 100 100 23 20
Cost of Sales 68 69 70 25 21
Gross Profit 32 31 30 21 18
Selling, general and admini-
strative expense 26 25 24 19 12
Research and development
expense 1 1 1 23 24
Operating income 5 5 6 30 49
Interest expense, net 2 2 2 (9) 17
Income before income taxes 2 3 4 72 64
Net income 2 3 5 94 129
</TABLE>
RESULTS OF OPERATIONS
1995 Compared to 1994
Net Sales. Net sales were $305.0 million in 1995, an increase of $50.7
million or 19.9% compared with net sales of $254.3 million in 1994. The increase
in 1995 net sales primarily reflects higher unit sales volumes in all major
product categories from 1994 levels. Average net sales price per unit in each
major product category did not change significantly during 1995 as compared with
1994.
Net sales of hemodialysis products were $206.9 million, an increase of
$36.3 million or 21.3% compared to 1994 net sales. The sales increase in
hemodialysis products was due to the continued acceptance of the Company's
products and the continuing trend of hemodialysis customers to utilize primary
suppliers which offer a full line of products. The sales increase is also
attributable to growth in the number of hemodialysis patients in the United
States.
Net sales of peritoneal products was $89.6 million, an increase of
$12.2 million or 15.8% compared to 1994 net sales. The increase in net sales of
peritoneal dialysis products was primarily attributable to growth in the number
of peritoneal dialysis patients in the United States, as well as market
acceptance of new peritoneal dialysis therapies introduced by the Company.
Gross Profit. Gross profit was $92.9 million in 1995, an increase of
$14.3 million or 18.2% compared with gross profit of $78.6 million in 1994.
Gross profit margin decreased from 30.9% in 1994 to 30.5% in 1995 primarily due
to a loss of efficiency at the Ogden manufacturing facility due to the start-up
of dialyzer production, and due to increased costs of products purchased from
Germany as a result of the continued weakness of the United States dollar.
Selling, General and Administrative Expense and Research and
Development Expense. Selling, general and administrative expense and research
and development expense were $74.8 million in 1995, an increase of $8.3 million
or 12.6% compared with 1994. Selling, general and administrative expense and
research and development expense as a percentage of sales decreased to 24.5% in
1995 from 26.1% in 1994. Research and development expense was $2.3 million in
1995 compared to $1.8 million in 1994, virtually unchanged as a percentage of
sales.
- 18 -
<PAGE> 20
Interest Expense (Net). Interest expense (net) was $4.9 million in
1995, an increase of $0.7 million or 17.4% over 1994. This increase is primarily
the result of the Company's increased short-term borrowings during 1995.
Income Tax Expense (Benefit). During 1995, the Company recognized a
portion of the Company's deferred tax asset related to the utilization of net
operating loss carry-forward from previous years and reduced the valuation
allowance on its deferred tax asset based on the Company's belief that it is
more likely than not to be realized through the results of future operations.
The net amount of this tax benefit recognized during 1995 was $3.4 million
compared to tax expense of $0.7 million in 1994. The Company's income tax
provisions for 1995 and 1994 were substantially lower than statutory rates.
See Note 17 of Notes to Consolidated Financial Statements.
Net Income. Net income was $16.4 million in 1995, an increase of $9.2
million or 129.1% from 1994. Net income in 1995 included a tax benefit of $4.6
million, which the Company recognized during 1995. Excluding the tax benefit,
net income was $11.8 million in 1995, an increase of $4.6 million or 64.8% from
1994.
1994 Compared to 1993
Net Sales. Net sales were $254.3 million in 1994, and increase of $48.3
million or 23.4% compared with net sales of $206.0 million in 1993. The
increase in 1994 net sales primarily reflects higher unit sales volumes in all
major product categories from 1993 levels. Average net sales price per unit in
each major product category did not change significantly during 1994 as compared
with 1993.
Net sales of hemodialysis products were $170.6 million, an increase of
$36.5 million or 27.2% compared to 1993 net sales. The sales increase in
hemodialysis products was due to the continued acceptance of the Company's
products and the continuing trend of hemodialysis customers to utilize primary
suppliers which offer a full line of products. The sales increase is also
attributable to growth in the number of hemodialysis patients in the United
States.
Net sales of peritoneal products was $77.3 million, an increase of
$12.3 million or 18.8% compared to 1993 net sales. The increase in net sales of
peritoneal dialysis products was primarily attributable to growth in the number
of peritoneal dialysis patients in the United States, as well as market
acceptance of new peritoneal dialysis therapies introduced by the Company.
Gross Profit. Gross profit was $78.6 million in 1994, an increase of
$13.6 million or 20.9% compared with gross profit of $65.0 million in 1993.
Gross profit margin decreased from 31.6% in 1993 to 30.9% in 1994. However,
gross margin in 1993 included a $3.9 million refund related to United States
import duties on dialyzers and hemodialysis machine components. Excluding this
refund, gross margin in 1993 was 29.7%, compared to 30.9% in 1994.
Selling, General and Administrative Expense and Research and
Development Expense. Selling, general and administrative expense and research
and development expense were $66.5 million in 1994, an increase of $10.8 million
or 19.3% compared with 1993. Selling, general and administrative expense and
research and development expense as a percentage of sales decreased to 26.1% in
1994 from 27.1% in 1993. Research and development expense was $1.8 million in
1994 compared to $1.5 million in 1993, virtually unchanged as a percentage of
sales.
Interest Expense (Net). Interest expense (net) was $4.2 million in
1994, a decrease of $0.4 million or 9.4% over 1993, primarily as a result of the
Company's full redemption of all of its 10 1/2% convertible debentures and the
payment of the outstanding principal balance of its industrial revenue bonds
issued in connection with its Ogden, Utah facility, all in June 1994.
Income Tax Expense. Income tax expense was $0.7 million, a decrease of
$0.2 million over 1993, primarily as a result of tax credits from the Company's
Canadian wholly-owned subsidiary. As a result of utilization of net operating
loss carryforwards for which no tax benefit had previously been recognized, the
Company's income tax provisions for 1994 and 1993 were substantially lower than
statutory rates. See Note 17 of Notes to Consolidated Financial Statements.
Net Income. Net income was $7.2 million in 1994, an increase of $3.5
million or 93.7% from 1993.
- 19 -
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations, working capital
and capital expenditures through bank borrowings obtained with credit support
from Fresenius AG, private placements of Preferred Stock and Common Stock to
Fresenius AG and internally generated funds. During 1995, the Company obtained a
$20.0 million line of credit from a commercial bank independent of support by
Fresenius AG and entered into a sale leaseback arrangement with a bank without
support from Fresenius AG. In addition, during 1994, the Company successfully
completed a public offering of 3,450,000 shares of its Common Stock, realizing
proceeds, after payment of expenses, of approximately $16.2 million. Since 1990,
the Company has realized $19.5 million in net proceeds from private placements
of Preferred and Common stock to Fresenius AG, all of which was utilized to
reduce outstanding obligations to Fresenius AG and affiliated companies.
During 1995, the Company had a negative cash flow from operations of
$1.9 million compared to a positive cash flow of $4.1 million in 1994 and $4.4
million in 1993. This change from prior years is primarily due to the increase
of current assets from operations over current liabilities from operations. As
of December 31, 1995, the Company had cash balances of $2.3 million, and working
capital of $13.0 million.
The consideration for the acquired assets in the Abbott Acquisition was
(i) $31.0 million cash paid at the closing, (ii) $12.5 million payable in
installments of $2.5 million each in the years 1994 through 1998 inclusive,
discounted to $10.6 million using an imputed interest rate of 5.68%, the first
of which was paid in the first quarter of 1994 and (iii) a ten-year warrant to
purchase 1,750,000 shares of the Company's Common stock at an exercise price of
$8.00 per share (the "Abbott Warrant") which was valued at $228,000. In
addition, the Company agreed to purchase from Abbott, and Abbott agreed to
supply, a stated amount of certain Abbott peritoneal dialysis products in each
twelve month period following the acquisition closing and ending in February
1998. Over the next two years, the minimum purchase commitments under the
agreement are approximately $22.0 million annually.
The Company obtained funds for the payment at closing of the Abbott
Acquisition by borrowing $6.0 million under existing short-term lines of credit
and by borrowing $25.0 million under a new, five-year term loan due February 17,
1998 with Dresdner Bank which carries an interest rate of 5.68% per annum.
Repayment is required under this loan at $6.25 million per annum commencing
February 15, 1995. The Company's future acquisition payment obligations to
Abbott, as well as additional amounts due for products supplied by Abbott to the
Company, are partially secured by a $10.0 million letter of credit (the "Abbott
Letter of Credit").
In 1995, the Company completed construction of a 104,000 square foot
addition to its manufacturing facility in Ogden, Utah for the manufacture of
polysulfone dialyzers. The Company expended $39.5 million for the construction
and equipping of the expanded facility as of December 31, 1995. On March 31,
1995, the Company entered into a sale leaseback arrangement with a bank which
covers the sale by the Company of approximately $19.0 million of certain new
equipment of the Company's dialyzer manufacturing facility at its Ogden, Utah
plant to the bank and the leaseback of the equipment under a four year operating
lease that has renewal options and a purchase option at fair market value.
Although the rent payments on the lease are variable based on the three-month
London Interbank Offered Rate (LIBOR), the Company has effectively fixed its
rent expense through the use of interest rate swap agreements. On December 29,
1995, an additional $8.0 million for similar new equipment was sold and leased
back under the above referenced four year renewable lease. If the Company
elects not to purchase the equipment or renew the lease at the end of the lease
term, the Company will be obligated to pay a termination fee of up to $20,250
to be offset by sales proceeds from the Company remarketing the equipment.
As of December 31, 1995, the Company had outstanding short-term
borrowings of $33.1 million under lines of credit with six commercial banks. In
March, 1995, the Company replaced a $15.0 million line of credit supported by
Fresenius AG with a $20.0 million line of credit is secured by the Company's
accounts receivable. As of December 31, 1995, the Company had outstanding $7.5
million under this $20.0 million line of credit. These lines of credit provide
for total credit availability of $47.0 million. Fresenius AG provided credit
support to enable the Company to obtain the five-year term loan, the short-term
lines of credit and the Abbott Letter of Credit. In addition, at December 31,
1995, the Company had fully drawn the amount available under a $3.6 million
short-term line of credit with Fresenius AG, the terms of which are similar to
- 20 -
<PAGE> 22
those of the lines of credit with the four commercial banks described above. At
December 31, 1995, the Company also had outstanding two interest rate swap
agreements with a commercial bank for an aggregate of $25.0 million. These
agreements effectively change the Company's rent expense on its variable
payment operating lease to fixed rates based on 8.02% and 5.60%, respectively.
The Company believes that its committed and possible future bank or
other commercial financing, combined with internally generated funds and the
sale of additional debt or equity securities, will be sufficient to fund the
Company's working capital requirements and other obligations.
For a discussion of recent accounting pronouncements not yet adopted
by the Company, see Note 3 of Notes to Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this item is indexed on page F-1 of this
Report and is contained on the pages following said page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
- 21 -
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Board of Directors of the Company consists of two classes of
directors, Preferred Directors who are elected by Fresenius AG as the holder of
the Series F Preferred Stock and Common Directors elected by vote of the holders
of the Common Stock. Each director has been elected to hold office until his
successor has been duly elected, and each officer has been elected to hold
office until he resigns or is removed by the Board of Directors.
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Ben Lipps (1) 55 President, Chief Executive Officer, Chief
Operating Officer and Director
Robert E. Farrell 46 Corporate Group Vice President -
Administration, General Counsel and Clerk
Heinz Schmidt 45 Corporate Group Vice President - Finance and
Treasurer
Scott Walker 47 Corporate Group Vice President - Regulatory
Affairs
Gerd Krick (1)(2) 57 Chairman of the Board, Director
Francis E. Baker (3)(4) 66 Director
Robert S. Ehrlich (1)(2)(4) 56 Director
Mathias Klingler (3) 43 Director
James F. Marten(4) 64 Director
Ulrich Wagner (2)(3) 52 Director
</TABLE>
- ------------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
(4) Member of the Independent Committee.
Dr. Ben Lipps has served as President, Chief Executive Officer, Chief
Operating Officer and a Preferred Director of the Company since October 1989.
Dr. Lipps also served as Chief Financial Officer of the Company until April
1991. Dr. Lipps has served as the President of Seratronics since 1982 and has
served as the President of Old FUSA since 1986; he continues to serve in both of
these offices. Prior to joining Old FUSA in 1985, Dr. Lipps held a position as a
Vice President of research and development for Cordis Dow Corporation and
founded Seratronics. Dr. Lipps joined Dow Chemical Company in 1966 and led the
research team that developed the first hollow fiber dialyzer between 1967 and
1969. Dr. Lipps holds a Bachelor of Science degree from Purdue University and a
masters degree and doctorate in chemical engineering from Massachusetts
Institute of Technology.
Mr. Robert Farrell joined the Company as Chief Financial Officer,
General Counsel, Treasurer and Clerk in April 1991. In March 1992, he became
Vice President -- Administration of the Company and ceased serving as Chief
Financial Officer and Treasurer. In October 1995, he was promoted to Corporate
Group Vice President -- Administration of the Company. From December 1985 until
joining the Company, he served as Vice President -- Corporate Finance of Genstar
Corporation, a Canadian corporation involved in the building products, food
service
- 22 -
<PAGE> 24
and financial services industries. He holds a Bachelor of Arts degree from the
University of Notre Dame and a Juris Doctor degree from Hastings College of Law,
University of California. Mr. Farrell is a member of the California bar.
Mr. Heinz Schmidt joined the Company as Vice President -- Finance and
Treasurer in March 1992. In October 1995, he was promoted to Corporate Group
Vice President -- Finance and continues to serve as Treasurer. Since March 1988,
he has served as Vice President -- Finance and Administration for Old FUSA (and
continues to serve in that office). Mr. Schmidt also served as Vice President --
Finance and Administration for Seratronics from August 1986 to February 1988.
Mr. Schmidt holds a Bachelor of Arts degree from California State University,
Dominguez Hills, and a Masters Degree in Finance from Loyola Marymount
University of California.
Mr. Scott Walker joined Old FUSA in 1988 as Director of Quality
Assurance, later served as Product Manager, Reuse Systems, became Vice President
- -- Regulatory Affairs of the Company in March 1992, and was promoted to
Corporate Group Vice President -- Regulatory Affairs in October 1995. Since
1982, Mr. Walker has also worked with Seratronics, and is currently Vice
President -- Technical Services for Seratronics. From 1970 to 1982, Mr. Walker
held various positions with Dow Chemical relating to research and production of
hollow fiber dialyzers and other medical products. Mr. Walker holds a Bachelor
of Science degree from the University of California at Berkeley.
Dr. Gerd Krick was elected a Preferred Director by the Board of
Directors of the Company in October 1987 in connection with the acquisition by
Fresenius AG of the Series F Preferred Stock. He became Chairman of the Board of
Directors in October 1989. Since 1992 he has been Chairman of the Managing Board
of Fresenius AG. Until August 1992, he was a Director of the Medical Systems
Division of Fresenius AG and Deputy Chairman of the Managing Board of Fresenius
AG. Dr. Krick is also a director of Gull Medical Laboratories, Inc., a
publicly-held manufacturer and distributor of diagnostic test products.
Mr. Francis Baker has been a Common Director of the Company since March
1992. He is currently President and a director of Andersen Group, Inc., the
owner of Seratronics, and a director of Seratronics and the Connecticut Water
Service, Inc., a public utility.
Mr. Robert Ehrlich has been a director of the Company since 1987, and
is a Common Director. He served as Chairman of the Board from May 1988 to
October 1989. In addition, he served as the President and Chief Executive
Officer of the Company from February 1987 to October 1989, except for the
four-month period from May to October 1988. Mr. Ehrlich is a senior partner in
Ehrlich & Co., a private merchant banking firm engaged in corporate finance and
corporate restructuring. He currently serves as a director and member of the
Executive Committee of Photographic Sciences Corp., a publicly-held manufacturer
of laser bar code scanners, and as the Chairman, Chief Financial Officer and a
director of Electric Fuel Corp., a publicly-held developer of batteries for
electric vehicles.
Mr. Mathias Klingler has been a Preferred Director of the Company since
June 1993. Since April 1993, Mr. Klingler has been President of the Dialysis
Systems Division of Fresenius AG. From 1992 to April 1993 he held the position
of Executive Vice President of Dialysis Systems International at Fresenius AG.
From 1987 to 1991 he was General Manager and Vice President -- Sales and
Marketing of Pacesetter Systems GmbH, and from 1991 to 1992 he was General
Manager of Siemens AG after it acquired Pacesetter Systems.
Dr. James Marten has been a director of the Company since 1974 and is a
Common Director. He served as Chairman of the Board of Directors of the Company
from April 1986 to May 1988. Dr. Marten served as President and Chief Executive
Officer of the Company from October 1986 until February 1987 and was a Vice
President of the Company from 1976 to 1984. From 1988 to 1994, Dr. Marten served
as Chief Executive Officer of UltraCision, Inc., a medical device manufacturing
company, and from 1988 to 1995 he served as Chairman of the Board of Directors
of that company. Dr. Marten served as Chairman of the Board of Directors of
Med-Chem Products, Inc., a
- 23 -
<PAGE> 25
publicly-held health care company from 1988 to 1995, when the company was
acquired, and is also a director of several privately-held health care
companies. Since 1993, Dr. Marten has served as a member of the Trustee Council
of Boston University Medical Center.
Dr. Ulrich Wagner has been a Preferred Director of the Company since
March 1992. He previously served as a director of the Company from October 1987
to October 1989. He is a partner of O'Melveny & Myers, a law firm which the
Company has retained from time to time, and which also represents Fresenius AG.
Dr. Wagner is also a director of Gull Medical Laboratories, Inc., a
publicly-held manufacturer and distributor of diagnostic test products.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes the total compensation paid or to be
paid by the Company for services rendered during 1993, 1994 and 1995 to the
Chief Executive Officer of the Company, Mr. Farrell, Mr. Schmidt and Mr. Walker,
the only executive officers of the Company who had 1995 compensation in excess
of $100,000 (the "Specified Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
UNDERLYING
SALARY BONUS OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) ($) (SHARES)(1)
- --------------------------- ---- ------ ----- -----------
<S> <C> <C> <C> <C>
Ben J. Lipps (2) 1995 225,000 200,000 450,000
President, Chief Executive Officer and 1994 202,500 200,000 -
Chief Operating Officer 1993 180,000 200,000 125,000
Robert E. Farrell 1995 119,203 41,665 -
Corporate Group Vice President -- Administration, 1994 113,597 55,900 -
General Counsel and Clerk 1993 104,230 67,039 40,000
Heinz Schmidt 1995 89,274 54,150 -
Corporate Group Vice President -- 1994 84,835 78,000 -
Finance and Treasurer 1993 78,075 65,961 40,000
Scott Walker 1995 102,890 70,772 -
Corporate Group Vice President 1994 90,729 57,600 -
Regulatory Affairs 1993 85,355 39,727 40,000
</TABLE>
- ------------------
(1) Options shown as granted in 1993 were granted in that year by the
Compensation Committee of the Company's Board of Directors, subject to
approval by the stockholders of the Company to an increase in the
number of shares issuable under the Company's 1987 Stock Option Plan.
This approval was received in June 1994. Options shown as granted to
Dr. Lipps in 1995 were granted in that year by the Compensation
Committee of the Company's Board of Directors, subject to approval by
the stockholders of the Company at the Company's next meeting of
stockholders of the maximum number of shares for which options may be
granted to any individual under the Company's 1987 Stock Option Plan.
- 24 -
<PAGE> 26
(2) Includes amounts paid to Dr. Lipps by Seratronics which decreased the
annual salary and bonus payable by the Company to Dr. Lipps. In each
year Seratronics paid $66,500 and $0 of salary and bonus, respectively,
to Dr. Lipps. See the description below of Dr. Lipps employment
arrangement with the Company.
During 1995, the Compensation Committee of the Board of Directors
granted options to Dr. Lipps contingent upon stockholder approval of the maximum
number of shares for which options may be granted to any individual under the
Company's 1987 Stock Option Plan. The Company intends to seek this approval at
its next meeting of stockholders. Fresenius AG has agreed to vote all shares of
Series F Preferred Stock and Common Stock owned by them to approve the
amendment to the 1987 Stock Option Plan.
During 1993, the Compensation Committee of the Board of Directors
granted options to the Specified Executives, together with other employees of
the Company, contingent upon stockholder approval of an increase in the number
of shares of Common Stock available under the Company's 1987 Stock Option Plan.
The Company obtained this approval by the stockholders at its 1994 Annual
Meeting of Stockholders. In January 1994, the Board of Directors voted to
increase this number of shares of Common Stock from 500,000 to 2,000,000, and
the stockholders approved the amendment at the 1994 Annual Meeting.
The following table summarizes the stock options granted by the
Company, subject to stockholder approval, during 1995 to the Specified
Executives:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realized Value
at Assumed Annual
Rates of Stock Price
Number of % of Total Appreciation
Securities Options for Option Term
Underlying Granted to Exercise --------------------
Options Granted Employees in Price Expiration 5% 10%
Name (Shares) Fiscal Year ($) Date ($) ($)
- ---- -------- ------------ -------- ---------- --- ---
<S> <C> <C> <C> <C> <C> <C>
Ben J. Lipps 450,000 98% $12.75 July 17, 2005 $3,609,000 $9,144,000
</TABLE>
The following table summarizes the stock options held at December 31,
1995 by the Specified Executives:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE AT DECEMBER 31, 1995 AT DECEMBER 31, 1995
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE (#) EXERCISABLE/UNEXERCISABLE ($)
- ---- ----------- -------- ------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Ben J. Lipps -- -- 420,000/275,000 4,569,375/2,240,625
Robert E. Farrell 10,250 $126,312 28,750/12,000 364,688/150,000
Heinz Schmidt -- -- 34,000/12,000 449,250/150,000
Scott Walker 3,000 $ 46,125 31,000/12,000 400,500/150,000
</TABLE>
Pursuant to an employment agreement between the Company and Dr. Lipps,
which became effective as of January 1, 1992, Dr. Lipps is required to devote
substantially all of his business efforts and time to serving as the President
of the Company, subject to his also serving as the President and Chief Executive
Officer of Seratronics. Dr. Lipps receives from the Company an annual base
salary of $225,000, together with bonuses up to a maximum of $200,000 based on
the attainment of certain sales and profits targets set annually by management
and reviewed by the Board of Directors. The Company and Dr. Lipps have agreed
that the Company's obligations in respect of such salary and bonus are decreased
by amounts payable to Dr. Lipps by Seratronics. Dr. Lipps has also been granted
- 25 -
<PAGE> 27
incentive stock options with respect to 120,000 shares of Common Stock at an
exercise price of $3.125 per share, which were fully vested as of December 31,
1995. This employment agreement is terminable upon 30 days' advance notice by
the Company, in which event Dr. Lipps is owed one year's base salary payable
over the year following such termination plus $100,000 payable upon such
termination. The agreement may also be terminated by Dr. Lipps upon one year's
notice, as well as by the Company for cause and under certain other
circumstances. Upon any such termination, the Company may require that Dr. Lipps
refrain, for up to two years, from carrying on a business in competition with
the Company's business, in which event the Company must pay an additional annual
amount to Dr. Lipps equal to his annual salary (or, if greater, the aggregate
premiums on certain life and disability policies carried by Dr. Lipps). During
1993, Dr. Lipps was granted options for an additional 125,000 shares at $7.125
per share, vesting over five years, and during 1995, he was granted options for
an additional 450,000 shares at $12.75 per share, subject to stockholder
approval of an amendment to the Company's 1987 Stock Option Plan designating the
maximum number of shares for which options may be granted to any individual.
Fresenius AG has indicated that it will vote its shares in favor of the
amendment. Options for 225,000 vest when the last sale price as reported by
American Stock Exchange (Composite Transactions) has been $16.00 or more for a
period of 10 consecutive trading days, if Dr. Lipps has been continuously
employed by the Company, and for the remaining shares when such last sale price
has been $20.00 or more for a period of 10 consecutive trading days, if Dr.
Lipps has been continuously employed by the Company. As of December 31, 1995,
options for 225,000 of these shares had vested, and since that date, options for
the remaining 225,000 shares have vested. See "Certain Relationships and Related
Transactions."
Dr. Wagner, Dr. Marten, Mr. Ehrlich, Mr. Baker and Mr. Klingler each
receive directors fees of $20,000 per annum. Commencing in 1994, members of the
Audit and Compensation Committees (other than Dr. Krick and Mr. Klingler and
their respective successors as Preferred Directors) each received $1,500 per
meeting for each such committee meeting attended. Dr. Krick receives $60,000
annually for serving as Chairman of the Board of Directors. In June 1994, the
stockholders of the Company approved a Non-Employee Directors' Stock Option
Plan, pursuant to which each current non-employee director of the Company
received a grant of options for 30,000 shares of Common stock vesting at a rate
of 10,000 per year in each of 1994, 1995 and 1996. In June 1995, the
stockholders of the Company approved an amendment to the Non-Employee Directors'
Stock Option Plan permitting participating directors to receive all directors
fees in the form of options to purchase shares of the Company's common stock
rather than in cash. Only Dr. Marten made an election to receive fees in the
form of options. Future non-employee directors will receive a grant of options
for 30,000 shares of Common stock upon their election. The options will vest at
a rate of 10,000 per year on each of the first, second and third anniversaries
of the directors' initial election. Dr. Krick and Mr. Klingler declined to
accept any options under the directors' plan.
In January 1996, in connection with the Reorganization, the directors
elected Messrs. Ehrlich and Baker and Dr. Marten to serve on a special
committee of the Board of Directors, the Independent Committee. Each member of
the Independent Committee will be paid a retainer fee of $25,000, an additional
per diem of $1,500 for each meeting of the Independent Committee attended in
person or by telephone or for each substantial expenditure of time on Committee
business or related matters, and will be reimbursed for out-of-pocket expenses
incurred in connection with Committee business or related matters.
In June 1994 the Board of Directors approved the extension of the
expiration date for options to acquire 31,000 shares of the Company's common
stock held by Dr. Marten. The expiration date was extended from August 6, 1994
to October 1, 1996, for 6,000 shares, and from June 28, 1994 to October 1, 1996
for 25,000 shares.
The Company and Mr. Ehrlich are parties to a consulting agreement
pursuant to which Mr. Ehrlich receives $10,000 annually. The agreement
terminates in June 1996.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of the Board of Directors
during 1995 were Mr. Ehrlich, Dr. Krick and Dr. Wagner. Dr. Krick served as the
Chairman of the Board of Directors during this year, and Mr. Ehrlich was
formerly the Chairman and the President of the Company. Dr. Krick is the
Chairman of the Managing Board of Fresenius AG, with which the Company has
various business dealings. During 1992, the Company agreed to purchase certain
stock options held by Mr. Ehrlich, and to issue new options to him in exchange
for other options held by him and in 1994 the Company made a secured loan to him
to allow him to exercise certain stock options. Dr. Wagner is a partner in the
law firm of O'Melveny & Myers, which from time to time provides
- 26 -
<PAGE> 28
legal services to the Company and which also represents Fresenius AG. See
"Certain Relationships and Related Transactions" and "Directors and Executive
Officers of the Registrant."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of December 31, 1995 certain
information with respect to each person who is known by the Company to own
beneficially more than 5% of any class of the voting securities of the Company,
each director, each Specified Executive and all directors and executive officers
of the Company as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNERS OWNED (1) OF CLASS
- ------------------------------------- --------- --------
<S> <C> <C>
Series F Preferred Stock
Fresenius Aktiengesellschaft 200,000 (2) 100.0%
Borkenberg 14
61343 Bad Homburg v.d.H., Germany
Common Stock
5% Stockholders
Fresenius Aktiengesellschaft 18,673,325 (2)(3) 70.9%
Borkenberg 14
61343 Bad Homburg v.d.H., Germany
Fresenius Securities, Inc. 7,833,202 (4) 29.7%
2637 Shadelands Drive
Walnut Creek, CA 94598
Abbott Laboratories 1,750,000 (5) 7.5%
One Abbott Park Road
Abbott Park, Illinois 60064-3500
J.P. Morgan & Co. Incorporated 1,268,060 (6) 5.9%
60 Wall Street
New York, NY 10260
Directors
Ben Lipps 725,000 (7) 3.5%
2637 Shadelands Drive
Walnut Creek, CA 94598
Robert S. Ehrlich 103,166 (8) *
2637 Shadelands Drive
Walnut Creek, CA 94598
James F. Marten 101,446 (8) *
2637 Shadelands Drive
</TABLE>
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<PAGE> 29
<TABLE>
<S> <C> <C>
Walnut Creek, CA 94598
Francis E. Baker 15,000 (10) *
2637 Shadelands Drive
Walnut Creek, CA 94598
Mathias Klingler 0 0%
Borkenberg 14
61343 Bad Homburg v.d.H., Germany
Gerd Krick 0 0%
Borkenberg 14
61343 Bad Homburg v.d.H., Germany
Ulrich Wagner 20,000 (11) *
54th Floor
153 East 53rd Street
New York, NY 10022
Specified Officers
Robert E. Farrell 34,000 (12) *
2637 Shadelands Drive
Walnut Creek, CA 94598
Heinz Schmidt 34,000 (13) *
2637 Shadelands Drive
Walnut Creek, CA 94598
Scott Walker 31,500 (14) *
2637 Shadelands Drive
Walnut Creek, CA 94598
All directors and executive officers as a group 1,064,112 (15) 4.8%
---------- ----
</TABLE>
- ------------------
* Less than 1%
(1) Except as otherwise indicated, the named owner has sole voting and
investment power with respect to the shares set forth. The figures in
this table are calculated in accordance with Rule 13d-3 under the
Exchange Act.
(2) Each share of Series F Preferred Stock currently is convertible into
approximately 15.65 shares of Common Stock and, on any matters to come
before a meeting of stockholders except the election of directors, the
holders of Series F Preferred Stock are entitled to cast approximately
15.65 votes for each share of Series F Preferred Stock voting with the
Common Stock as a single class. In February, 1996, Fresenius AG
disclosed that it is considering converting the Series F Preferred
Stock into Common Stock.
(3) Includes 3,129,883 shares presently issuable upon conversion of shares
of Series F Preferred Stock, 1,700,000 shares issuable upon the
exercise of a warrant issued to Fresenius AG in connection with the
Abbott Acquisition and 50,000 shares issuable upon exercise of a
warrant issued to Fresenius AG in consideration for its providing
credit support. See "Certain Relationships and Related Transactions."
Also
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<PAGE> 30
includes 7,833,202 shares owned by Fresenius Securities, Inc., a
wholly-owned subsidiary of Fresenius AG.
(4) These shares are also beneficially owned by Fresenius AG. See Note 3.
(5) Represents shares issuable upon exercise of the Abbott Warrant. See
"Business-Overview" and "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Liquidity and Capital
Resources."
(6) In February 1996, J.P. Morgan & Co. Incorporated made a Schedule 13G
filing with the Securities & Exchange Commission reporting this
ownership as of December 29, 1995, and indicating that the securities
were acquired in the normal course of business and were not acquired
for the purpose of changing or influencing the control of the Company.
(7) Includes 645,000 shares issuable upon exercise of options, 450,000 of
which are subject to stockholder approval of an amendment to the
Company's 1987 Stock Option Plan to designate the maximum number of
shares that may be granted to any individual under the plan.
(8) Includes 58,416 shares issuable upon exercise of options.
(9) Includes 86,546 shares issuable upon exercise of options.
(10) Includes 10,000 shares issuable upon exercise of options.
(11) Includes 20,000 shares issuable upon exercise of options.
(12) Includes 28,750 shares issuable upon exercise of options.
(13) Includes 34,000 shares issuable upon exercise of options.
(14) Includes 31,000 shares issuable upon exercise of options.
(15) The amount shown includes any shares owned of record or issuable upon
exercise of options by the directors and all executive officers.
On February 4, 1996, Grace and Fresenius AG entered into a definitive
agreement to combine NMC with Fresenius AG's worldwide dialysis business,
including the Company. Pursuant to this agreement, Fresenius AG has agreed with
Grace that the Company would become a wholly-owned subsidiary of the new
company, and that, when the economic terms on which the Company's shareholders,
other than Fresenius AG and its affiliates, will participate in this
transaction, have been established, will vote its shares in the Company in
favor of the transaction.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See Item 1, "Business" above, under "Recent Development", "Patents,
Trademarks and Licenses" and "Research and Development."
On February 4, 1996, Grace and Fresenius AG entered into a definitive
agreement to combine NMC with Fresenius AG's worldwide dialysis business,
including the Company. Pursuant to this agreement, Fresenius AG has agreed with
Grace that the Company would become a wholly-owned subsidiary of the new
company, and that, when the economic terms on which the Company's shareholders,
other than Fresenius AG and its affiliates, will participate in this
transaction, have been established, will vote its shares in the Company in
favor of the transaction.
TECHNOLOGY FROM FRESENIUS AG
The Company is dependent on Fresenius AG for the technology and
proprietary processes and know-how necessary to manufacture polysulfone
dialyzers successfully in the expanded Ogden, Utah plant. The Company also has
the contractual right to Fresenius AG's know-how relating to certain peritoneal
dialysis products incorporating the Safe-Lock technology in the United States,
Canada and Mexico. See "Business -- Patents, Trademarks and Licenses."
Pursuant to a technology license and know-how agreement, Fresenius AG
has granted the Company an exclusive North American license for the technology,
processes and know-how necessary to manufacture polysulfone dialyzers. Beginning
January 1, 1996, the Company will pay a royalty to Fresenius AG of 4.5% of the
Company's net sales of the dialyzers so produced by the Company for a ten-year
period, after which the Company will have a paid-up exclusive license. Fresenius
AG may make this license non-exclusive if it ceases to own a majority of the
Company's Common Stock. The agreement may be terminated by Fresenius AG upon
specified defaults, and in addition, may be terminated if a majority of the
voting power of the Company is acquired by a company engaged in the treatment,
research, development, manufacture or sale of products for treatment of renal
disease.
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<PAGE> 31
PRODUCTS FROM FRESENIUS AG
The Company and Fresenius AG are parties to an agreement (the
"Distribution Agreement") pursuant to which Fresenius AG has confirmed that the
Company acts as the sole North American distributor for Fresenius AG products
related to ESRD treatment by hemodialysis and to intensive medicine and
infection control applications (excluding pharmaceutical and certain other
products) and a distribution and manufacturing agreement for certain of
Fresenius AG's intensive care and diagnostic products (the "Intensive Care
Agreement"), including the Fresenius AS 104 Cell Separator. The Intensive Care
Agreement was entered into during 1994 for an initial term of five years and
will continue thereafter from year to year unless terminated. The Company is
given both exclusive and non-exclusive rights to manufacture and distribute
certain products in North and South America. If the Company fails to meet
certain sales goals during the five year initial term, Fresenius AG has the
option to terminate the agreement with respect to one or more products or to
convert the Company's exclusive rights with respect to one or more products to a
non-exclusive right. The Distribution Agreement gives the Company first
negotiation rights with respect to products covered by the agreement which
Fresenius AG proposes to have manufactured in North America. With respect to the
products acquired from Abbott, the Company has retained the exclusive rights in
the United States (the rights to Canada and Mexico were retained by Abbott), has
granted Fresenius AG a non-exclusive sublicense with respect to these products
in Central and South America, Australia and New Zealand and an exclusive (with
respect to the Company) sublicense with respect to all other areas acquired from
Abbott, including Europe. Taken together, these agreements effectively limit the
Company's activities primarily to North America, with limited possibilities for
expansion outside of this area.
In the ordinary course of the Company's business, the Company and
Fresenius AG and certain subsidiaries of Fresenius AG enter into various
transactions involving the purchase and sale of hemodialysis systems and
supplies for assembly and/or distribution by the Company. During 1995, the
Company purchased such products for an aggregate purchase price of approximately
$90.6 million. Also during 1995, the Company sold products to Fresenius AG and
certain of its subsidiaries having an aggregate sales price of approximately
$2.5 million. The prices charged to the Company under the Distribution Agreement
are negotiated each year by the Company and Fresenius AG based on Fresenius AG's
estimated costs and desired profit margins, taking into account the competitive
environment in the United States market, and are not to exceed the average of
the prices charged to Fresenius AG's other affiliated distributors (except for
costs attributable to the manufacture of products for sale primarily in the
United States). The Company believes that these prices are no more or less
favorable to the Company than the Company could obtain from unaffiliated third
parties. The only source of supply for several of the Company's products is
Fresenius AG, and there can be no assurance that the prices negotiated will
enable the Company to maintain its profit margins on these products. If
Fresenius AG is unable to deliver products in accordance with the quantities
stipulated in the Company's purchase orders, Fresenius AG is required to
allocate its production capacity to the Company's orders in proportion to the
greater of the percentage of Fresenius AG's total unit business represented by
the Company's purchases during the prior year or the three prior years. Under
the Distribution Agreement, Fresenius AG indemnifies the Company for any claims
of bodily injury or property damage alleged to have arisen from the possession,
use or operation of Fresenius AG's hemodialysis products purchased pursuant to
this agreement. While the Company is obligated to provide installation,
training, repair, warranty and maintenance services for these products and is
responsible for defects in assembly, Fresenius AG reimburses the Company for
material costs associated with warranty repairs other than repairs on components
or parts purchased by the Company from a source other than Fresenius AG. The
Distribution Agreement terminates on the earlier of December 31, 2011, or the
date that Fresenius AG loses the power to elect 51% of the Company's board of
directors, unless a cause for early termination arises. The prices charged to
the Company under the Intensive Care Agreement are based on Fresenius AG's
manufacturing cost plus a set profit margin.
During 1995, trade payables owed by the Company to Fresenius AG and one
of its subsidiaries were due in 150 days, and those amounts past due bore
interest at a rate of 5.5% per annum. As of December 31, 1995, none of the
approximately $41.2 million of trade payables due to Fresenius AG and this
subsidiary were over 150 days old.
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<PAGE> 32
INVESTMENTS BY FRESENIUS AG
Fresenius AG is the beneficial owner of all 200,000 outstanding shares
of the Company's Series F Preferred Stock, currently convertible into 3,129,883
shares of Common Stock. Fresenius AG also beneficially owns 13,793,442 shares of
the Company's outstanding Common Stock and warrants to purchase 1,700,000 shares
of Common Stock exercisable at $8.00 per share and warrants to purchase 50,000
shares of Common Stock at an exercise price of $10.57 per share. If Fresenius AG
were to convert the Series F Preferred Stock and exercise all warrants currently
exercisable, it would hold 18,673,325 shares of Common Stock, or approximately
70.9% of all outstanding shares.
The practical effect of the provisions relating to the Series F
Preferred Stock is to give Fresenius AG, through its ownership of all of the
outstanding shares of Series F Preferred Stock and its direct and indirect
ownership of Common Stock, an absolute majority of the voting power attributable
to each class of the Company's voting securities with respect to all matters.
Accordingly, Fresenius AG possesses the ability, through its voting power and
its power to elect a majority of the Company's directors and to approve any
actions requiring the vote of the Company's stockholders.
Pursuant to an agreement dated September 8, 1987 (the "1987
Agreement"), on October 2, 1987, Delmed issued and sold to Fresenius AG 200,000
shares of Series F Preferred Stock and a warrant (the "1987 Warrant"),
exercisable after December 31, 1987, and on or prior to December 31, 1992. In
order to assure the continued effectiveness of certain favorable tax rulings
with respect to utilization of the Company's net operating loss carryforwards,
in December 1992, the Company repurchased the 1987 Warrant from Fresenius AG at
a purchase price of $20,067 (which was determined to be the fair market value of
the 1987 Warrant on the date of repurchase).
The terms of the 1987 Agreement relating to the Series F Preferred
Stock, of the Company's Articles of Organization and of the Company's By-laws
(adopted in connection with the issue and sale of the Series F Preferred Stock)
provide the following special rights to the holders of Series F Preferred Stock.
- So long as there are at least 100,000 shares of Series F Preferred
Stock outstanding:
There will be an odd number of directors, a simple majority of
whom will be Preferred Directors, while the remaining
directors will be Common Directors;
All committees of the Board of Directors will have an odd
number of members, a simple majority of whom will be elected
by the Preferred Directors while the remaining directors will
be elected by the Common Directors;
A quorum for the conduct of any business by the Board of
Directors or a committee of the Board will require the
presence of at least one Preferred Director, or at least one
director elected to serve on the committee by the Preferred
Directors; and
Any action taken by the Board of Directors or a committee of
the Board will require the affirmative vote of at least one
Preferred Director, or at least one director elected to serve
on the committee by the Preferred Directors.
- So long as Fresenius AG holds at least 100,000 shares of Series F
Preferred Stock, no person will be nominated to be a Common Director if
Fresenius AG reasonably objects to that person.
- So long as there are at least 50,000 shares of Series F Preferred
Stock outstanding:
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<PAGE> 33
The Articles of Organization of the Company will not be
amended without the affirmative vote of a majority of the
holders of Series F Preferred Stock voting separately as a
class, unless such amendment relates solely to an increase or
decrease in the number of authorized shares of Common Stock, a
stock split or combination or a limit on the liability of
directors; and
The Company will not become a party to any transaction
involving its merger into another corporation, a merger of
another corporation into the Company, the consolidation of the
Company with one or more other corporations, the sale or lease
of all or substantially all of the assets of the Company or
the liquidation of the Company without the affirmative vote of
a majority of the holders of Series F Preferred Stock voting
separately as a class.
- So long as any Series F Preferred Stock is outstanding, the Articles
of Organization or By-laws of the Company will not be amended, altered
or repealed so as to diminish materially the rights, privileges or
preferences of the holders of the Series F Preferred Stock without the
approval of a majority of the holders of Series F Preferred Stock
voting separately as a class.
- With respect to any matter submitted to a vote of the Company's
stockholders with respect to which the holders of Series F Preferred
Stock are not entitled to a separate class vote, the holders of Series
F Preferred Stock will vote together with the holders of Common stock
as a single class, with each holder of Series F Preferred Stock
entitled to a number of votes per share equal to the number of shares
of Common stock into which such share of Series F Preferred Stock could
then be converted (approximately 15.59 votes per share) and each holder
of Common stock entitled to one vote per share of Common Stock.
On February 14, 1990, Delmed entered into an agreement with Fresenius
AG and Old FUSA pursuant to which Delmed granted options (the "Options") to
Fresenius AG and Old FUSA allowing them to acquire a number of shares of Common
stock which would increase their aggregate ownership of Delmed's equity from its
then current level of approximately 44% to approximately 80% (excluding the 1987
Warrant). The purchase price for the Options was $5.0 million in cash, which was
paid by Fresenius AG and Old FUSA in August 1990 when the Options were approved
by Delmed's stockholders. Upon exercise of the Options at the end of 1991,
Delmed issued to Fresenius AG and Old FUSA an aggregate of approximately 10.8
million shares of Common stock and received Old FUSA's assets and $11.9 million
in cash, which was used to pay indebtedness to another subsidiary of Fresenius
AG assumed by the Company in the combination.
In December 1992, the Company sold 1,501,235 shares of Common stock to
Fresenius AG for $7.6 million (approximately $5.06 per share, the closing price
of the Company's Common stock on that date). The Company used this cash to pay,
in part, indebtedness which the Company owed to a wholly-owned subsidiary of
Fresenius AG.
Fresenius AG and the Company are parties to a Registration Agreement
dated February 24, 1993, which supersedes a 1987 agreement between the parties.
This agreement grants Fresenius AG demand registration rights with respect to
all shares of Common stock held by Fresenius AG or certain of its subsidiaries
on February 24, 1993 or issuable to them upon conversion of shares of Series F
Preferred Stock or exercise of the Abbott Warrant or exercise of a warrant
issued to Fresenius AG, in connection with its agreement to provide credit
support for a $25.0 million long-term line of credit (collectively, the
"Registrable Shares"). The $25.0 million long-term line of credit, and the
related credit support for this line, are no longer available. The Company is
to pay all expenses in connection with the first such registration; the
holder(s) is responsible for the expenses of subsequent registrations. A holder
of Registrable Shares may also request that the Company include its Registrable
Shares in registration statements filed by the Company in connection with a
public offering of Common stock on behalf of the Company and/or another holder
of Common Stock. Except for the shares covered by the agreements, this
registration agreement is identical to a registration agreement entered into
between the Company and Abbott at the same time with respect to the Common
Stock issuable upon exercise of the Abbott Warrant.
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<PAGE> 34
FINANCIAL SUPPORT FROM FRESENIUS AG
Fresenius AG has provided substantial financial support to the Company.
Fresenius AG currently provides the following credit support: provision of
credit support to assist the Company in obtaining short-term lines of credit and
the Abbott Letter of Credit and participation in and assistance with the
Company's foreign exchange contracts. Fresenius AG also participated in letters
of credit in connection with the Company's industrial revenue bonds until these
bonds were pre-paid in 1994.
As compensation for these services, the Company agreed to pay Fresenius
AG an aggregate fee of $336,000 in quarterly payments, the last of which was due
in June 1994. Future finance fees will be negotiated depending upon the level of
credit support supplied by Fresenius AG. In addition, in February 1993, as
consideration for certain past comfort letters given in support of certain
short-term borrowings and Fresenius AG's commitment to provide up to $40.0
million of credit support in connection with the Abbott Acquisition, the Company
issued Fresenius AG a warrant for 1,700,000 shares of Common stock at an
exercise price of $8.00 per share, and granted a sublicense with respect to the
Abbott peritoneal dialysis products discussed above. In exchange for its
agreement to provide support for a $25.0 million long-term line of credit, the
Company issued to Fresenius AG a ten-year warrant for the purchase of 50,000
shares of Common stock at an exercise price of $10.57 per share. This line of
credit is no longer available to the Company.
OTHER RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. Lipps is the President and Chief Executive Officer of Seratronics.
Mr. Baker is President of Andersen Group, Inc., which owns a majority of the
outstanding capital stock of Seratronics. Pursuant to a series of agreements
with Seratronics and Andersen Group, Inc. entered into in 1985 and extended and
amended in 1995, the Company manages, and acts as sole distributor for, the
dialyzer reuse business of Seratronics. These agreements required the Company to
make minimum net payments of $100,000 per year to Seratronics through 1995 and
require the Company to make minimum payments of $50,000 per quarter through
February 29, 2000, when the agreements expire by their terms. The agreements,
and the payment obligation, originally expired in 1995. The Company has the
right to acquire the assets and liabilities of the reuse business for a nominal
purchase price and, if it exercises this option, its obligation to make the
quarterly payments ends; this option was also extended during 1995, so that it
now expires on February 29, 2000. During 1995, the Company, as distributor,
purchased dialyzer reuse systems and supplies from Seratronics for an aggregate
purchase price of approximately $1.9 million. Management of the Company
believes that the terms of such purchases were on a basis no less favorable to
the Company than the Company could have obtained with unaffiliated third
parties. The results of operations and the assets and liabilities of the
Seratronics' reuse business are included in the Company's consolidated
financial statements. A portion of Dr. Lipps' salary is paid each year by
Seratronics. See"Management -- Executive Compensation."
The Company and Abbott are parties to a registration agreement dated
February 24, 1993. This agreement grants Abbott demand registration rights with
respect to all shares issuable upon the exercise of the Abbott Warrant. Pursuant
to the terms of a purchase agreement between the Company and Abbott entered into
in connection with the Abbott Acquisition, the Company is obligated to purchase
stated quantities of Inpersol products through 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation --
Liquidity and Capital Resources" and Notes 11 and 12 of Notes to Consolidated
Financial Statements.
Mr. Ehrlich, a senior employee and several past employees of the
Company were granted options under the Company's 1989 Special Stock Option Plan,
which replaced grants made under the Company's 1987 Key Employee Stock Purchase
Plan. The Company obtained the favorable tax rulings relating to utilization of
net operating loss carryforwards discussed above under "Investments by Fresenius
AG," in part on the assumption that these grants/options would not expire
unvested/unexercised, and the ruling obtained in 1992 also applied to the
repurchase
- 33 -
<PAGE> 35
of these options at their fair market value. On October 4, 1992, the Board of
Directors determined that the Company should also repurchase these options at
their then fair market value, which the Board determined to be $0.15 per share.
During early 1993, the Company repurchased Mr. Ehrlich's and the senior
employee's options at this price. These options would have expired in August
1994 and had a per-share exercise price of $7.50. In June 1994 the Company made
secured loans totaling $255,570 to Mr. Ehrlich to allow him to exercise options
for 135,000 shares of the Company's Common Stock. The loans included an amount
necessary to pay taxes incurred by him by virtue of the exercise. The annual
interest rate on the loans was 6%. The largest aggregate amount outstanding
during 1995 was $274,737. The loans came due in January 1996 and were paid in
full in March 1996.
The Company and Mr. Ehrlich are parties to a consulting agreement
pursuant to which Mr. Ehrlich receives $10,000 annually. The agreement
terminates in June 1996.
Dr. Wagner is a partner of O'Melveny & Myers, a law firm which provided
certain legal services to the Company in 1995.
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<PAGE> 36
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The financial statements and financial statement schedules filed as
part of this Report are listed and indexed at Page F-1-A.
Listed below are all Exhibits filed as part of this Report. Certain
Exhibits are incorporated herein by reference to documents filed by the
Registrant with the Securities and Exchange Commission (the "Commission")
pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended.
As permitted by Regulation S-K Item 10(d), certain Exhibits are incorporated
herein by reference to certain periodic reports filed by the Registrant more
than five yars ago. These periodic reports were filed by the Registrant,
Commission File Number 1-8350, and are located in Commission file number 2-33,
according to section 200.80f of Title 17 of the Code of Federal Regulations.
3.1 - Restated Articles of Organization of the Registrant, as amended, are
incorporated herein by reference to the Registrant's Form 10-K for the
1994 fiscal year.
3.2 - By-laws of the Registrant, as amended, are incorporated herein by
reference to the Registrant's Form 10-K for the 1993 fiscal year.
4.1 - See Exhibit 3.1 for description of capital stock contained in the
Restated Articles of Organization of the Registrant, and see Exhibit
3.2 for the rights given to the holders of certain shares of the
Registrant.
4.2 - Preferred Stock and Warrant Purchase Agreement dated as of September
8, 1987 between the Registrant and Fresenius Aktiengesellschaft is
incorporated herein by reference to the Registrant's Form 10-K for the
1992 fiscal year.
4.3 - Option Agreement dated as of February 14, 1990 among the Registrant,
Fresenius Aktiengesellschaft and Fresenius Securities, Inc. is
incorporated herein by reference to the Registrant's Form 8-K dated
February 15, 1990, located in Commission file number 2-33.
4.3.1 - Amendment No. 1 dated December 31, 1991 to Option Agreement among
the Registrant, Fresenius Aktiengesellschaft and Fresenius Securities,
Inc. is incorporated herein by reference to the Registrant's Form 10-K
for the 1991 fiscal year.
4.4 - Warrant dated February 24, 1993 issued by the Registrant to Abbott
Laboratories is incorporated herein by reference to the Registrant's
Form 8-K dated February 24, 1993.
4.5 - Warrant dated February 24, 1993 issued by the Registrant to
Fresenius Aktiengesellschaft is incorporated herein by reference to
the Registrant's Form 8-K dated February 24, 1993.
4.6 - Agreement dated February 16, 1993 between the Registrant and
Dresdner Bank is incorporated herein by reference to the Registrant's
Form 8-K dated February 24, 1993.
4.7 - Agreement dated February 19, 1993 between the Registrant and
Deutsche Bank is incorporated herein by reference to the Registrant's
Form 8-K dated February 24, 1993.
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<PAGE> 37
4.9. - Warrant dated April 15, 1994 issued by the Registrant to Fresenius
Aktiengesellschaft is incorporated herein by reference to the
Registrant's Form S-1, No. 33-78422.
10.1 - 1987 Stock Option Plan is incorporated herein by reference to the
Registrant's Form S-8, No. 33-59999.
10.2 - 1989 Special Stock Option Plan is incorporated herein by reference
to the Registrant's definitive proxy statement dated May 12, 1989,
located in Commission file number 2-33.
10.3 - Supply, License and Know-How Agreement dated June 30, 1981, as
amended, between Fresenius Aktiengesellschaft and Registrant is
incorporated herein by reference to the Registrant's Form 10-K for the
1990 fiscal year, located in Commission file number 2-33.
10.4 - Agreement Confirming Exclusive Distribution Arrangement dated
December 30, 1991 between the Registrant and Fresenius AG is
incorporated herein by reference to the Registrant's Form 10-K for the
1991 fiscal year.
10.5 - Asset Purchase Agreement dated as of February 24, 1993 between the
Registrant and Abbot Laboratories is incorporated herein by reference
to the Registrant's Form 8-K dated February 24, 1993.
10.6 - License Agreement dated as of February 24, 1993 between the
Registrant and Abbott Laboratories is incorporated herein by reference
to the Registrant's Form 10-K for the 1992 fiscal year.
10.7 - Registration Agreement dated as of February 24, 1993 between the
Registrant and Fresenius Aktiengesellschaft is incorporated herein by
reference to the Registrant's Form 10-K for the 1992 fiscal year.
10.7.1. - Letter Agreement dated April 15, 1994 between the Registrant and
Fresenius Aktiengesellschaft amending Exhibit 10.7 is incorporated
herein by reference to the Registrant's Form S-1, No. 33-78422.
10.8 - Stock Purchase and Warrant Repurchase Agreement dated as of
September 25, 1992 between the Registrant and Fresenius
Aktiengesellschaft is incorporated herein by reference to the
Registrant's Form 10-K for the 1992 fiscal year.
10.9 - Agreement dated May 14, 1992 between the Registrant and Fresenius
Aktiengesellschaft regarding the acquisition of certain assets of
Critikon, Inc. is incorporated herein by reference to the Registrant's
Form 10-K for the 1992 fiscal year.
10.10 - Agreement dated July 16, 1992 between the Registrant and Fresenius
Aktiengesellschaft regarding Fresenius Pharma (USA) Inc. is
incorporated herein by reference to the Registrant's Form 10-K for the
1992 fiscal year.
10.11 - Employment Agreement effective as of January 1, 1992 between the
Registrant and Ben Lipps is incorporated herein by reference to the
Registrant's Form 10-K for the 1992 fiscal year.
10.12 - Lease, as amended, of premises located at 2367 Shadelands Drive,
Walnut Creek, California is incorporated herein by reference to the
Registrant's Form 10-K for the 1993 fiscal year.
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<PAGE> 38
10.13 - Sublicense Agreement dated as of June 1, 1993 between the
Registrant and Fresenius Aktiengesellschaft regarding certain assets
purchased by the Registrant from Abbott Laboratories is incorporated
herein by reference to the Registrant's Form 10-K for the 1993
fiscal year.
10.14 - Purchase Agreement dated December 1, 1992 between the Registrant
and Fresenius Aktiengesellschaft regarding cell separators and
infusion pumps is incorporated herein by reference to the
Registrant's Form 10-K for the 1993 fiscal year.
10.15 - License Agreement dated as of April 22, 1994 between the
Registrant and Fresenius Aktiengesellschaft regarding polysulfone
dialyzers is incorporated herein by reference to the Registrant's
Form S-1, No. 33-78422.
10.16 - The Registrant's 1993 Stock Option Plan for Non-Employee Directors
is incorporated herein by reference to the Registrant's Form S-8,
No. 33-61411.
10.17 - Security Agreement dated as of June 13, 1994 between the
Registrant and Robert S. Ehrlich is incorporated herein by reference
to the Registrant's Form 10-K for the 1994 fiscal year.
10.17.1 - Option Exercise Note of Robert S. Ehrlich is incorporated herein
by reference to the Registrant's Form 10-K for the 1994 fiscal year.
10.17.2 - Tax Note of Robert S. Ehrlich is incorporated herein by reference
to the Registrant's Form 10-K for the 1994 fiscal year.
10.18. - Limited Distribution Agreement dated as of December 2, 1994
between the Registrant and Fresenius Aktiengesellschaft regarding
intensive care products is incorporated herein by reference to the
Registrant's Form 10-K for the 1994 fiscal year.
10.19 - Participation Agreement, dated as of March 31,1995, among the
Registrant, First Security Bank of Utah, N.A. and Deutsche Bank A.G.
is filed herewith.
10.19.1 - Amendment No. 1 dated as of June 30, 1995 to Participation
Agreement among the Registrant, First Security Bank of Utah, N.A.
and Deutsche Bank A.G. is filed herewith.
10.19.2 - Amendment No. 2 dated as of July 31, 1995 to Participation
Agreement among the Registrant, First Security Bank of Utah, N.A.
and Deutsche Bank A.G. is filed herewith.
10.19.3 - Amendment No. 3 dated December 29, 1995 to Participation Agreement
among the Registrant, First Security Bank of Utah, N.A. and Deutsche
Bank A.G. is filed herewith.
10.20 - Lease Agreement dated as of March 31, 1995 between the Registrant
and First Security Bank of Utah, N.A. is filed herewith.
10.21 - Credit Agreement dated as of January 3, 1995 between the Registrant
and Deutsche Bank A.G. is filed herewith.
11. - Calculation of Earnings Per Share is filed herewith.
21. - A list of the Registrant's subsidiaries is incorporated herein by
reference to the Registrant's Form S-1, No. 33-78422.
23. - The consent of independent public accountants KPMG Peat Marwick LLP
is filed herewith.
27. - The Registrant's Financial Data Schedule is filed herewith.
- 37 -
<PAGE> 39
Pursuant to Item 4(iii) of Item 601 Regulation S-K, the Registrant has
filed as Exhibits only the instruments defining the rights of holders of
long-term debt with respect to which the total amount of securities authorized
thereunder exceeds 10% of the total assets of the Registrant and its
subsidiaries on a consolidated basis. The Registrant agrees to furnish to the
Commission upon its request copies of other instruments defining the rights of
holders of long-term debt. The Registrant also agrees to furnish to the
Commission upon its request copies of any omitted schedule or exhibit to any
exhibit filed herewith.
(b) No Current Reports on Form 8-K were filed by the Company during the
fourth quarter of 1995.
- 38 -
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FRESENIUS USA, INC.
BEN LIPPS
-------------------
Ben Lipps
President and Chief
Executive Officer
Date: March 30, 1996
- 39 -
<PAGE> 41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
GERD KRICK Chairman of the Board and Director March 30, 1996
- -----------------------
Gerd Krick
BEN LIPPS President, Chief Executive Officer March 30, 1996
- ----------------------- (Principal Executive Officer)
Ben Lipps and Director
ROBERT E. FARRELL Corporate Group Vice President - Administration, March 30, 1996
- ----------------------- General Counsel and Clerk
Robert E. Farrell
HEINZ SCHMIDT Corporate Group Vice President - Finance and March 30, 1996
- ----------------------- Treasurer (Principal Financial and
Heinz Schmidt Accounting Officer)
ROBERT S. EHRLICH Director March 30, 1996
- -----------------------
Robert S. Ehrlich
JAMES F. MARTEN Director March 30, 1996
- -----------------------
James F. Marten
FRANCIS E. BAKER Director March 30, 1996
- -----------------------
Francis E. Baker
MATHIAS KLINGLER Director March 30, 1996
- -----------------------
Mathias Klingler
ULRICH WAGNER Director March 30, 1996
- -----------------------
Ulrich Wagner
</TABLE>
- 40 -
<PAGE> 42
FRESENIUS USA, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FOR ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-2
Consolidated Statements of Operations for the Years ended December 31, 1995, 1994
and 1993 F-3
Consolidated Statements of Stockholders' Equity for the Years ended December 31,
1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows for the Years ended December 31, 1995,
1994 and 1993 F-5
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule F-32
</TABLE>
- F-1-A -
<PAGE> 43
Independent Auditors' Report
The Board of Directors and Stockholders Fresenius USA, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Fresenius USA,
Inc. and subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1995. In connection
with our audits of the consolidated financial statements, we also have audited
the accompanying financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fresenius USA, Inc.
and subsidiaries as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
San Francisco, California
February 2, 1996
F-1
<PAGE> 44
FRESENIUS USA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
(Dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
Assets 1995 1994
---- ----
<S> <C> <C>
Current assets:
Cash $ 2,330 2,315
Trade accounts receivable, less allowance for doubtful
accounts of $1,324 in 1995 and $1,744 in 1994 57,052 42,671
Inventories, net 65,706 52,704
Prepaid expenses and other current assets 3,258 1,893
Deferred taxes 4,594 --
--------- ---------
Total current assets 132,940 99,583
Property, plant and equipment, net 48,492 45,956
Intangible assets, net 36,863 39,498
Other assets, net 6,626 311
--------- ---------
$ 224,921 185,348
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 16,276 13,128
Accounts payable to affiliates, net 41,229 33,361
Accrued expenses 13,577 12,214
Short-term borrowings 33,149 22,330
Short-term borrowings from Fresenius AG 3,650 4,380
Current portion of long-term debt and capital lease obligations 11,703 9,496
Income taxes payable 365 95
--------- ---------
Total current liabilities 119,949 95,004
Note payable, less current portion 1,275 1,861
Note payable to FNA 274 274
Long-term debt and capital lease obligations, less current portion 24,821 27,637
--------- ---------
Total liabilities 146,319 124,776
--------- ---------
Commitments and contingencies (notes 12, 13, 16, 19 and 21)
Stockholders' equity
Series F preferred stock, authorized 600 shares, $1.00 par value,
200 shares issued and outstanding 200 200
Common stock, authorized 40,000 shares, $.01 par value,
issued and outstanding 21,465 shares in 1995 and
21,205 shares in 1994 215 212
Capital in excess of par value 141,136 139,510
Currency translation adjustment (80) (94)
Accumulated deficit (62,869) (79,256)
--------- ---------
Total stockholders' equity 78,602 60,572
--------- ---------
$ 224,921 185,348
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 45
FRESENIUS USA, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1995, 1994 and 1993
(Dollars and shares in thousands, except
per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $ 304,964 254,344 205,960
Cost of sales 212,102 175,766 140,960
--------- ------- -------
Gross profit 92,862 78,578 65,000
Operating expenses:
Selling, general and administrative 72,547 64,643 54,213
Research and development 2,289 1,846 1,500
--------- ------- -------
Operating income 18,026 12,089 9,287
Other expense (income):
Interest income (218) (303) (204)
Interest expense 5,142 4,498 4,835
Equity in earnings of Fresenius Brent -- -- (86)
Other, net 149 17 149
--------- ------- -------
Income before income taxes 12,953 7,877 4,593
Income tax expense (benefit) (3,434) 723 900
--------- ------- -------
Net income $ 16,387 7,154 3,693
========= ======= =======
Net income per common and common equivalent share:
Primary $ .61 .32 .18
========= ======= =======
Fully diluted $ .59 .31 .18
========= ======= =======
Weighted average number of shares of common
stock and common stock equivalents used to
compute net income per common and
common equivalent share:
Primary 26,647 23,926 20,660
========= ======= =======
Fully diluted 27,844 23,926 20,660
========= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 46
FRESENIUS USA, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
Preferred stock Common stock
--------------- --------------- Capital Total
Number Number in excess Currency Accumu- stock-
of of of par translation lated holders'
shares Amount shares Amount value adjustment deficit equity
------ ------ ------ ------ --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1992 200 $200 17,169 $172 $ 120,796 $(28) $(90,103) $ 31,037
Conversion of note receivable into common
stock -- -- 468 4 1,705 -- -- 1,709
Issuance of common stock warrants -- -- -- -- 449 -- -- 449
Proceeds from issuance of common stock -- -- -- -- 162 -- -- 162
Currency translation adjustment -- -- -- -- -- (44) -- (44)
Net income -- -- -- -- -- -- 3,693 3,693
--- ---- ------ ---- --------- ---- -------- --------
Balances, December 31, 1993 200 200 17,637 176 123,112 (72) (86,410) 37,006
Proceeds from issuance of common stock in
public offering -- -- 3,450 35 16,142 -- -- 16,177
Proceeds from issuance of common stock
through exercise of options -- -- 118 1 511 -- -- 512
Loan receivable for exercise of stock option -- -- -- -- (255) -- -- (255)
Currency translation adjustment -- -- -- -- -- (22) -- (22)
Net income -- -- -- -- -- -- 7,154 7,154
--- ---- ------ ---- --------- ---- -------- --------
Balances, December 31, 1994 200 200 21,205 212 139,510 (94) (79,256) 60,572
Common stock offering costs -- -- -- -- (188) -- -- (188)
Proceeds from issuance of common stock
through exercise of options -- -- 260 3 1,605 -- -- 1,608
Repayment of loan receivable for exercise
of stock option -- -- -- -- 209 -- -- 209
Currency translation adjustment -- -- -- -- -- 14 -- 14
Net income -- -- -- -- -- -- 16,387 16,387
--- ---- ------ ---- --------- ---- -------- --------
Balances, December 31, 1995 200 $200 21,465 $215 $ 141,136 $(80) $(62,869) $ 78,602
=== ==== ====== ==== ========= ==== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 47
FRESENIUS USA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 16,387 7,154 3,693
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 10,591 8,772 6,893
Equity in earnings of Fresenius Brent -- -- (86)
Deferred tax benefit (4,666) -- --
Gain on sale of fixed assets -- (46) (75)
Stock warrant issued to Fresenius AG as
compensation for credit support -- -- 75
Changes in operating assets and liabilities:
Trade accounts receivable, net (14,381) (2,679) (14,090)
Accounts receivable from affiliated
companies, net -- -- 1,820
Inventories, net (13,410) (9,199) (6,800)
Other current and non-current assets (1,219) 696 (837)
Accounts payable and accrued expenses 4,511 (299) 12,514
Income taxes payable 270 (358) 453
Increase in net operating assets resulting from
the acquisition of Fresenius Brent -- -- 782
-------- ------- -------
Net cash (used in) provided by operating
activities (1,917) 4,041 4,342
-------- ------- -------
Cash flows from investing activities:
Purchase of Abbott's renal dialysis business -- -- (31,000)
Expenditures for the direct costs of acquisitions -- -- (737)
Purchases of property, plant and equipment (37,106) (25,963) (8,226)
Dispositions of property, plant and equipment 1,312 429 --
Proceeds from sale of property, plant and equipment -- 46 128
Validation cost expenditures (6,642) -- --
-------- ------- -------
Net cash used in investing activities (42,436) (25,488) (39,835)
-------- ------- -------
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 48
FRESENIUS USA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Changes in accounts payable to affiliates, net $ 7,868 5,083 5,386
Proceeds from short-term borrowings 55,949 17,911 10,264
Proceeds from capital lease financing 9,103 -- --
Proceeds from sale/leaseback of equipment 26,970 -- --
Repayment of short-term borrowings (45,130) (9,785) (2,430)
(Repayments of) proceeds from long-term payable (586) (556) 2,417
Proceeds from long-term borrowings -- -- 25,000
Principal payments of long-term debt and capital lease
obligations (11,435) (10,877) (1,178)
Proceeds from issuance of common stock 1,629 16,689 162
Loan receivable for exercise of stock option -- (255) --
-------- ------- -------
Net cash provided by financing
activities 44,368 18,210 39,621
-------- ------- -------
Net increase (decrease) in cash 15 (3,237) 4,128
Cash at beginning of year 2,315 5,552 1,424
-------- ------- -------
Cash at end of year $ 2,330 2,315 5,552
======== ======= =======
Supplementary cash flow information:
Cash paid for interest, net of amounts capitalized $ 4,848 2,793 3,237
======== ======= =======
Cash paid for income taxes $ 966 1,126 477
======== ======= =======
Supplementary schedule of non-cash activities:
Acquisition of equipment through obligations under
capital leases $ 1,248 1,094 1,231
======== ======= =======
Disposal of assets under capital leases $ 255 135 --
======== ======= =======
Acquisition of license technology in exchange for
inventory and debt $ -- 908 --
======== ======= =======
Note payable issued as partial consideration for the
Abbott acquisition $ -- -- 10,629
======== ======= =======
Issuance of common stock warrants $ -- -- 449
======== ======= =======
Common stock issued upon conversion of
the note receivable from Fresenius Brent $ -- -- 1,709
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 49
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts)
(1) DESCRIPTION OF BUSINESS
Fresenius USA, Inc. and subsidiaries (the Company) is a manufacturer and
distributor of medical products and systems for sale primarily in the
United States and Canada for the treatment of kidney failure by
hemodialysis and by peritoneal dialysis. The Company is one of only two
companies in the United States offering a full line of both hemodialysis
and peritoneal dialysis machines and disposable products. These products
are used to cleanse a patient's blood of waste products and fluids
normally eliminated by properly functioning kidneys. The Company also
sells cell separation products designed for the therapeutic removal of
diseased blood components as well as collection of donor blood
components for transfusion.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Fresenius
USA, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(c) Inventories
Inventories are stated at the lower of cost (determined by using the
first-in, first-out method) or market value.
(d) Property, Plant and Equipment
Property, plant, and equipment are stated at cost. Property and
equipment under capital leases are stated at the present value of future
minimum lease payments at the inception of the lease.
Depreciation on property, plant and equipment is calculated using the
straight-line method over the estimated useful lives of the assets
ranging from three to thirty years. Property and equipment held under
capital leases and leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or estimated
useful life of the asset.
The Company capitalizes interest on borrowed funds during construction
periods. Interest capitalized during 1995, 1994 and 1993 was $526, $481,
and $22, respectively.
(Continued)
F-7
<PAGE> 50
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(e) Intangible Assets
Intangible assets consist of goodwill (the excess cost over net assets
acquired), manufacturing technology, patents, distribution rights,
licenses and other intangible assets. Intangible assets are amortized on
a straight line basis over the estimated useful lives of the assets
ranging from four to twenty-five years.
The Company assesses the recoverability of intangible assets by
determining whether the amortization of the asset's balance over its
remaining life can be recovered through projected undiscounted future
cash flows.
(f) Other Assets
In 1995, the Company completed construction of a dialyzer plant addition
to its manufacturing facility in Ogden, Utah. Included in other assets
are $6,375 of validation costs, net of accumulated amortization of $267,
incurred to qualify the products and the associated manufacturing
processes for approval by the U.S. Food and Drug Administration. Such
costs are being amortized on a straight-line basis over an estimated
useful life of 3 years upon commencement of manufacturing.
(g) Financial Instruments
Derivative financial instruments are used by the Company in the
management of its interest rate and foreign currency exposures and are
accounted for on an accrual basis. Income and expense are recorded in
the same category as that arising from the related asset or liability
being hedged. Gains and losses resulting from effective hedges of
existing assets, liabilities or firm commitments are recognized when the
offsetting revenues and expenses are recognized on the related hedged
items.
(h) Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52. Net assets of the subsidiaries with
"functional" currencies other than the U.S. dollar are translated at the
year-end rate of exchange. Income and expense items are translated at
the average exchange rate for the year. The resulting translation
adjustments are recorded as a separate component of stockholders'
equity.
(i) Revenue Recognition Policy
Revenues are recognized when title to the product has passed to the
buyer, either at the time of shipment or upon receipt by the customer.
(Continued)
F-8
<PAGE> 51
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(j) Income Taxes
Deferred tax assets and liabilities are recognized for the future
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled.
(k) Net Income Per Common and Common Equivalent Share
Net income per common share was computed by dividing net income by the
weighted average number of shares of common stock and common stock
equivalents outstanding during each year based on the modified treasury
stock method. Stock options, common stock warrants, and the Series F
preferred stock are considered to be common stock equivalents.
The application of the treasury stock method is modified when the
outstanding number of common shares which would be issued if all
outstanding options and warrants and their equivalents were exercised
exceeds 20% of the number of common shares outstanding at the end of the
period. When this 20% test is met, the treasury stock method is first
applied to purchase no more than 20% of the number of common shares
outstanding at the end of the period. The balance of any proceeds
remaining is then applied to reduce debt with appropriate recognition
given for any interest expense savings net of income tax expense. These
calculations are aggregated to determine whether the effect on net
income per common share is dilutive or antidilutive. When dilutive, all
of the calculations are utilized when computing net income per common
share.
The computation of fully diluted income per common share would also
include the effect of converting other outstanding securities such as
convertible debt, when the effect is dilutive, and the additional
dilution related to stock options when the market price at the end of
the period is higher than the average price for the period.
(l) Major Customers and Concentrations of Credit Risk
Trade receivables are financial instruments which potentially expose the
Company to concentrations of credit risk. As of December 31, 1995,
approximately 10% of the recorded trade receivables were concentrated
with a major customer. To reduce credit risk, the Company performs
ongoing credit evaluations of its customers' financial condition. The
Company does not require collateral on credit sales to its customers.
Revenues from the major customer constituted 12% of total revenues for
the year ended December 31, 1995.
(m) Reclassifications
Certain reclassifications not affecting the Company's net income have
been made to the 1994 and 1993 consolidated financial statements to
conform to the 1995 presentation.
(Conitnued)
F-9
<PAGE> 52
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(3) RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 123
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation. SFAS No. 123 is effective beginning
January 1, 1996 and applies to all transactions in which an entity
acquires goods or services by issuing equity instruments such as common
stock, except for employee stock ownership plans. SFAS No. 123
establishes a new method of accounting for stock-based compensation
arrangements with employees which is fair value based. The statement
encourages (but does not require) employers to adopt the new method in
place of the provisions of Accounting Principles Board Opinion (APB) No.
25, Accounting for Stock Issued to Employees. Companies may continue to
apply the accounting provisions of APB No. 25 in determining net income,
however, they must apply the disclosure requirements of SFAS No. 123. If
the Company adopts the fair value based method of SFAS No. 123, a higher
compensation cost would result for fixed stock option plans and a
different compensation cost will result for the Company's contingent or
variable stock option plans. The Company will adopt the disclosure
provisions of SFAS No. 123 on January 1, 1996. Such adoption is not
expected to impact operating results.
SFAS No. 121
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. SFAS No. 121 is effective for financial statements for fiscal years
beginning after December 31, 1995. SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by the
Company be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the Company
estimates the future cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the expected future
cash flows is less than the carrying amount of the asset, an impairment
loss is recognized. Measurement of an impairment loss for long-lived
assets and identifiable intangibles that the Company expects to hold and
use should be based on the fair value of the asset. Adoption of this
statement in 1996 is not expected to effect the Company's accounting
treatment for long-lived assets.
(Continued)
F-10
<PAGE> 53
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(4) INVESTMENTS AND ACQUISITIONS
Investment in Fresenius Brent
On January 17, 1990, the Company formed a joint venture (Fresenius
Brent) with Medihold Ltd. to market and sell the Company's medical
products in Canada. The Company's initial investment in Fresenius Brent,
a Canadian operation, was $200 Canadian dollars (approximately $168
U.S.). This investment was accounted for using the equity method through
May 1993. The Company's 1992 investment balance differed from the
Company's 50% underlying equity in Fresenius Brent due to the
elimination of intercompany profits remaining in Fresenius Brent's
ending inventories.
During May 1993, the Company purchased the remaining 50% equity in
Fresenius Brent from Medihold Ltd. in exchange for a $1,709 convertible
note. The excess of the purchase price over the fair value of the net
assets acquired of $1,318 has been recorded as goodwill and is being
amortized on a straight-line basis over 20 years. In July 1993, the note
was converted into 434,000 shares of the Company's common stock.
The balance sheet of Fresenius Brent has been included in the Company's
consolidated financial statements as of December 31, 1995 and 1994. The
results of operations of Fresenius Brent have been included in the
consolidated financial statements since May 1, 1993. All significant
intercompany balances and transactions have been eliminated.
Critikon Purchase
On July 15, 1992, the Company purchased from Critikon, Inc., a
subsidiary of Johnson and Johnson, certain patents, inventory and other
assets used in connection with its RATEMINDER fluid delivery product
line for approximately $3,700. The $3,700 purchase price included a cash
payment of $500 and an obligation of $3,200 paid as inventory is used.
At December 31, 1995, the Company owed $1,565 to be paid as inventory is
used. The acquisition has been accounted for using the purchase method
of accounting.
Abbott Acquisition
On February 24, 1993, the Company purchased from Abbott Laboratories
(Abbott) certain assets used in connection with its renal dialysis
business in the United States, Australia and New Zealand for a total
purchase price of $41,857. As consideration for the purchase, the
Company paid $31,000 in cash, issued a term note payable for $10,629,
and granted a common stock warrant for the purchase of 1,750,000 shares
of the Company's common stock which was valued at $228. The common stock
issuable upon exercise of the warrant is subject to certain registration
rights. The acquisition has been accounted for using the purchase method
of accounting and, accordingly, the results of operations from the
acquisition have been included in the Company's consolidated financial
statements from February 24, 1993 (note 23). The excess of the purchase
price over the fair value of the net identifiable assets acquired of
$19,378 has been recorded as goodwill and is being amortized on a
straight-line basis over 25 years. The assets acquired from Abbott
consisted of the following:
(Continued)
F-11
<PAGE> 54
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
<TABLE>
<S> <C>
Rental equipment $ 3,000
Manufacturing technology 15,629
Patents 2,500
Distribution rights 1,250
Covenant not to compete 100
Goodwill 19,378
-------
$41,857
=======
</TABLE>
With respect to the products acquired from Abbott, the Company has
retained the exclusive rights in the United States (the rights to Canada
and Mexico were retained by Abbott), has granted Fresenius
Aktiengesellschaft (Fresenius AG) a non-exclusive sublicense with
respect to these products in Central and South America, Australia and
New Zealand and an exclusive (with respect to the Company) sublicense
with respect to all other areas acquired from Abbott, including Europe
in exchange for the credit support provided by Fresenius AG to finance
the acquisition.
(5) INVENTORIES
As of December 31, inventories consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Raw materials and purchased components $ 32,192 23,071
Work in process 10,504 4,237
Finished goods 25,707 27,464
-------- -------
68,403 54,772
Reserves (2,697) (2,068)
-------- -------
Inventories, net $ 65,706 52,704
======== =======
</TABLE>
Depreciation expense for demo and evaluation inventory was $408
for the year ended December 31, 1995 which was charged to the
inventory reserve. There was no depreciation expense for this
inventory in 1994 or 1993.
(Continued)
F-12
<PAGE> 55
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(6) PROPERTY, PLANT AND EQUIPMENT
As of December 31, property, plant and equipment consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land $ 344 325
Buildings and improvements 19,013 10,353
Machinery and equipment 29,071 14,596
Machinery, equipment and rental equipment
under capital leases 9,816 11,429
Rental equipment 17,031 17,160
Loaned equipment 2,784 2,353
Construction in progress 2,693 16,286
-------- -------
80,752 72,502
Accumulated depreciation and amortization (32,260) (26,546)
-------- -------
Property, plant and equipment, net $ 48,492 45,956
======== =======
</TABLE>
Depreciation and amortization expense for property, plant and equipment
amounted to $7,281, $6,541 and $5,140 for the years ended December 31,
1995, 1994 and 1993, respectively.
Included in property, plant and equipment as of December 31, 1995 and
1994, was $14,619 and $11,521, respectively, of net rental equipment.
The rental equipment consists of peritoneal dialysis cycler machines
which the Company leases to customers with end stage renal disease on a
month-to-month basis. Rental income for this equipment was $1,767,
$2,203 and $1,586 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Included in property, plant and equipment as of December 31, 1995 were
approximately $2 million of engineering charges from Fresenius AG
associated with construction of the dialyzer plant in Odgen, Utah.
Accumulated depreciation related to machinery, equipment and rental
equipment under capital leases was $2,588 and $9,094 at December 31,
1995 and 1994, respectively.
(Continued)
F-13
<PAGE> 56
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(7) INTANGIBLE ASSETS
As of December 31, intangible assets consisted of the following:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Goodwill $ 20,795 20,795
Manufacturing technology 15,629 15,629
Patents 3,421 3,421
Distribution rights 1,250 1,250
Other 2,927 2,927
-------- -------
44,022 44,022
Accumulated amortization (7,159) (4,524)
-------- -------
Intangible assets, net $ 36,863 39,498
======== =======
</TABLE>
Amortization expense for intangible assets amounted to $2,635, $2,231
and $1,753 for the years ended December 31, 1995, 1994 and 1993,
respectively.
(8) SHORT-TERM BORROWINGS
Short-term borrowings of $33,149 and $22,330 at December 31, 1995 and
1994, respectively, represent amounts borrowed under lines of credit
with six commercial banks. The Company pays commitment fees ranging from
1/8% - 1/4% per annum on the unused portion of the commitments. The
weighted average interest rate on short-term borrowings outstanding as
of December 31, 1995 and 1994 was 6.55% and 5.48%, respectively. The
lines of credit at December 31, 1995 expire through May 1996 and are
expected to be renewed by the Company. In March 1995, the Company
replaced a $15.0 million line of credit supported by Fresenius AG with a
$20.0 million line of credit from a commercial bank independent of
support from Fresenius AG. This line of credit is secured by the
Company's accounts receivable and contains various covenants including,
but not limited to, requirements for maintaining defined levels of
working capital, net worth, capital expenditures and various financial
ratios.
The Company had lines of credit totaling $47,000 of which $13,851
remains available to be borrowed at December 31, 1995. Fresenius AG has
provided credit support for $27,000 of these lines of credit (note 19).
(9) SHORT-TERM BORROWINGS FROM FRESENIUS AG
At December 31, 1995 and 1994, short-term borrowings under a line of
credit from Fresenius AG consist of $3,650 and $4,380, respectively. As
of December 31, 1995, the total borrowing available under the line of
credit is $3,650 with a weighted average interest rate of 7.563%. The
line expires in the first quarter of 1996 and is expected to be renewed
by the Company.
(Continued)
F-14
<PAGE> 57
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(10) NOTE PAYABLE
In connection with the Abbott acquisition, the Company entered into an
obligation relating to the purchase of OPTUM devices. During 1993, the
Company fulfilled this obligation by taking possession of these OPTUM
devices and entering into a note payable agreement. This note payable
was discounted with an imputed interest rate of 5.68%. As of December
31, 1995, the long-term portion of the discounted note payable was
$1,275 due over the next three years.
(11) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
As of December 31, long-term debt consisted of the following:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Term loan (a) $ 18,750 25,000
Note payable, discounted to present value (b) 6,724 8,731
Capital leases (c) 10,562 2,814
Other, discounted to present value 488 588
-------- -------
36,524 37,133
Less current maturities (11,703) (9,496)
-------- -------
$ 24,821 27,637
======== =======
</TABLE>
(a) In connection with the purchase of certain assets from
Abbott, the Company entered into a term loan with a
commercial bank to borrow $25,000 at 5.68% per annum, due
quarterly. The loan is due in annual installments of
$6,250 beginning February 1995 and each year thereafter
through February 1998. The term loan is guaranteed by
Fresenius AG.
(b) In consideration for proprietary technology acquired from
Abbott, the Company paid $5,000 to Abbott in cash at
closing and issued a note to Abbott for $12,500 due in
annual installments of $2,500 beginning February 1994
through February 1998. The remaining obligation has been
discounted with an imputed interest rate of 5.68%. This
note is secured by a standby letter of credit expiring
March 31, 1998, totaling $10,000. The Company must pay a
commitment fee of 0.5% per annum due quarterly on the
outstanding letter of credit.
(Continued)
F-15
<PAGE> 58
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(c) Future minimum lease payments under capital leases as of
December 31, 1995 are:
<TABLE>
<CAPTION>
For the years ended December 31:
<S> <C>
1996 $ 4,143
1997 3,647
1998 3,210
1999 1,406
2000 3
--------
12,409
Amount representing interest (at 9%-10%) (1,847)
--------
Present value of capital lease obligations 10,562
Current portion of capital lease obligations (3,203)
--------
Capital lease obligations, less current portion $ 7,359
========
</TABLE>
Aggregate annual payments applicable to long-term debt for the
three years subsequent to December 31, 1995 are:
<TABLE>
<CAPTION>
For the years ended December 31:
<S> <C>
1996 $ 8,500
1997 8,673
1998 8,789
-------
$25,962
</TABLE>
(Continued)
F-16
<PAGE> 59
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(12) COMMITMENTS
Operating Leases
The Company leases facility space and machinery and equipment under
various lease agreements expiring at dates through 1998.
On March 31, 1995, the Company entered into a sale leaseback arrangement
with a bank which covers the sale by the Company of approximately $19.0
million of certain new equipment of the Company's dialyzer manufacturing
facility at its Ogden, Utah plant to the bank and the leaseback of the
equipment under a four year operating lease that has renewal options and
a purchase option at fair market value. Although the rent payments on
the lease are variable based on the three-month London Interbank Offered
Rate (LIBOR), the Company has effectively fixed its rent expense through
the use of interest rate swap agreements (note 13). On December 29,
1995, an additional $8.0 million for similar new equipment was sold and
leased back under the above referenced four year renewable lease. If
the Company elects not to purchase the equipment or renew the lease at
the end of the lease term, the Company will be obligated to pay a
termination fee of up to $20,250 to be offset by sales proceeds from
the Company remarketing the equipment.
Rental expense under operating leases was $2,626, $1,462 and $2,428 for
the years ended December 31, 1995, 1994 and 1993, respectively. Future
minimum rental payments under noncancelable operating leases, including
the effective fixed payments under the above leaseback, as of December
31, 1995 are:
<TABLE>
<CAPTION>
For the years ended December 31:
<S> <C>
1996 $ 3,801
1997 2,909
1998 2,429
1999 1,104
2000 257
-------
$10,500
</TABLE>
Purchase Commitments
Under the terms of the purchase agreement with Abbott, the Company is
obligated to purchase stated quantities of Inpersol dialysis solutions,
saline solutions and other renal dialysis ancillary products. Over the
next two years, the minimum purchase commitments under the agreement are
approximately $22 million annually.
(Continued)
F-17
<PAGE> 60
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(13) FINANCIAL INSTRUMENTS
Foreign Exchange Contracts
The Company has entered into foreign exchange contracts as a hedge
against foreign currency exchange risks associated with the settlement
of Deutsche mark denominated trade payables to Fresenius AG. Gains and
losses on these contracts are offset against foreign exchange gains or
losses realized on the settlement of those payables.
At December 31, 1995, the Company had contracts to purchase 48.0 million
Deutsche marks at a fixed rate on the date of settlement. The contracts
mature at various dates through 1996. The fair value of the foreign
exchange contracts is the estimated amount that the Company would
receive or pay to terminate the agreements. As of December 31, 1995, the
cost to terminate the foreign exchange contracts is estimated to be
insignificant.
Interest Rate Swap Agreements
At December 31, 1995, the Company had two interest rate swap agreements
outstanding with a commercial bank for notional amounts of $17,400 and
$7,634, respectively. These agreements effectively change the Company's
rent expense on its variable payment operating lease to fixed rates
based on 8.02% and 5.60%, respectively. The interest rate swap
agreements outstanding as of December 31, 1995 expire in March, 1999.
While the Company does not anticipate nonperformance by counterparties,
the Company is exposed to credit loss in the event of nonperformance by
the other parties to the interest rate swap agreement.
The fair value of the interest rate swaps is the estimated amount that
the Company would receive or pay to terminate the swap agreements. This
estimate is subjective in nature and involves uncertainties and matters
of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates. As of December 31, 1995, the cost to terminate the swap
agreements is estimated to be $1,190.
(14) STOCKHOLDERS' EQUITY
Common Stock Offering
During 1994, the Company successfully completed a public offering of
3,450,000 shares of its common stock, realizing proceeds, after payment
of expenses, of approximately $16,177. During the first quarter of 1995,
the Company paid an additional $188 of expenses related to the cost of
the public offering.
(Continued)
F-18
<PAGE> 61
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Preferred Stock
The 200,000 shares of Series F preferred stock were issued to Fresenius
AG in October 1987 and is presently convertible into 3,129,883 shares of
common stock. The holder is entitled to elect a majority of the
Company's directors and is entitled to preference in liquidation over
common stockholders of $100 per Series F share, but is not entitled to
receive dividends. The holder is entitled to an adjustment in the number
of common shares into which the Series F preferred stock is convertible
under certain circumstances.
(15) COMMON STOCK OPTIONS
The Company has four stock option plans (the Plans) which grant
employees and officers the option to purchase the Company's common
stock. At December 31, 1995, a total of 2,764,420 shares of the
Company's common stock were reserved for issuance of stock options
already granted or available for future grant, of which 635,525 shares
were available for future issuance. During 1995, all stock options were
granted with an exercise price equal to fair market value on the date of
grant.
The 1976 Plan
The Company's 1976 Stock Option Plan (the 1976 Plan) provided for the
purchase of the Company's common stock by officers and key employees of
the Company. The 1976 Plan provided for non-incentive stock options, all
of which vested over a period not to exceed four years from the date of
grant and expire not more than ten years from the date of grant. No
options were granted under the 1976 Plan after December 1986.
The 1985 Plan
The Company's 1985 Special Stock Option Plan (the 1985 Plan) provided
for the grant of non-incentive options to certain employees as
compensation for an unanticipated two-week shutdown which occurred in
1985. All options under the 1985 Plan were granted in 1985 and vested in
1986. The 1985 Plan expired in 1995.
The 1987 Plan
The Company's 1987 Stock Option Plan (the 1987 Plan) currently provides
for granting non-incentive and incentive stock options to key employees
of the Company. In general the stock options outstanding under the 1987
Plan vest in a period not to exceed four years and expire not more than
ten years from the date of grant. However, certain options granted under
the 1987 Plan are exercisable on such other terms as determined by the
Compensation Committee or the Board of Directors.
(Continued)
F-19
<PAGE> 62
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
In July 1995, the Board of Directors granted options to the President of
the Company to purchase 450,000 shares of the Company's common stock
under the 1987 plan subject to shareholder approval of an amendment to
the 1987 Plan to provide that the maximum number of shares for which
options maybe granted under the 1987 Plan to any individual during the
remaining term of the 1987 Plan shall be limited to 1,000,000 shares.
These options vest upon the earlier of (a) the Company's common stock
attaining certain market prices, or (b) on June 30, 2002. As of December
31, 1995, options to purchase 225,000 shares of the total 450,000 shares
of the Company's common stock has vested.
The 1989 Plan
In 1989, the Board of Directors approved the 1989 Special Stock Option
Plan (the 1989 Plan) effectively replacing another plan which has since
terminated. All options granted under the 1989 Plan expire starting in
August 1996 through May 1997 and are immediately exercisable upon
issuance. No options were granted under the 1989 Plan after 1991.
The Directors' Plan
In June 1994, the stockholders of the Company approved a Directors'
Stock Option Plan (the Directors' Plan), pursuant to which each current
non-employee director of the Company received a grant of options for
30,000 shares of common stock vesting at a rate of 10,000 per year in
each of 1994, 1995, and 1996. Two directors who are also either officers
and/or directors of Fresenius AG declined to accept any options under
the Directors' Plan. Future non-employee directors will receive a grant
of options for 30,000 shares of common stock upon their election. The
options will vest at a rate of 10,000 per year on the first, second, and
third anniversaries of the director's initial election.
During 1995, the Directors' Plan was amended to permit each director to
elect whether to receive all or none of the directors' fees due to that
director during a calendar year in the form of options. All options
received in lieu of directors' fees vest 100% upon grant. With respect
to each directors' fee payable in options, a non-employee director will
receive an option for a number of shares of the Company's common stock
determined by the following formula: (Amount of directors' fee otherwise
payable in cash) divided by (60% of the exercise price of the option),
where the exercise price of the option is the closing price of the
Company's stock on the date the directors' fee would otherwise be paid.
The number of shares determined by application of this formula will be
rounded to the nearest whole share. The options will expire ten years
from the date of grant.
(Continued)
F-20
<PAGE> 63
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
Average
Shares price
(in thousands) range
-------------- -----
<S> <C> <C>
Balance at December 31, 1992 964 $ 1.88--9.38
Granted 1,232 5.25--7.38
Exercised 32 3.63--7.13
Canceled or expired 234 6.25--9.38
----- -------------
Balance at December 31, 1993 1,930 1.88--9.38
Granted 135 7.38--7.50
Exercised 118 3.63--7.13
Canceled or expired 19 5.63--7.50
----- -------------
Balance at December 31, 1994 1,928 1.88--9.38
Granted 461 12.75--17.25
Exercised 260 1.88--9.38
----- -------------
Balance at December 31, 1995 2,129 $ 3.13--17.25
===== =============
Exercisable at December 31, 1995 1,362 $ 3.13--15.25
===== =============
</TABLE>
Stock option balances for the years ended December 31, 1995, 1994 and
1993, respectively and exercisable at December 31, 1995 do not include
options to purchase 20,500 shares with options prices ranging from
$32.00 to $88.70 per share. These options expire August 4, 1996.
(16) COMMON STOCK WARRANTS
During 1993, the Company issued a stock warrant for the purchase of
1,750,000 shares of the Company's common stock, at an exercise price of
$8 per share expiring in 2003, to Abbott as partial consideration for
the acquisition of Abbott's renal dialysis business. In addition, the
Company issued a warrant to Fresenius AG for the purchase of 1,700,000
shares of the Company's common stock, at an exercise price of $8 per
share expiring in 2003, as consideration for certain past comfort
letters given in support of certain short-term borrowings and Fresenius
AG's commitment to provide up to $40 million of credit support in
connection with the Abbott acquisition. In 1994, the Company issued a
second warrant to Fresenius AG for the purchase of 50,000 shares of the
Company's common stock, at an exercise price of $10.5685 per share
expiring in 2004, as consideration for providing credit support to the
Company. At December 31, 1995, the Company had 3,500,000 shares of
common stock reserved for the exercise of stock warrants.
(Continued)
F-21
<PAGE> 64
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(17) INCOME TAXES
Income tax expense (benefit) for the years ended December 31 consisted
of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Current:
Federal income taxes $ 313 226 212
Foreign income taxes (72) (123) 88
State income taxes 991 620 600
Deferred (4,666) -- --
------- ------- -------
Total $(3,434) 723 900
======= ======= =======
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, income tax expense
differed from the amounts computed by applying the federal income tax
rate of 34% to income before income taxes as a result of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 4,404 2,678 1,562
Increase (decrease) in income taxes resulting from:
Items not deductible for tax purposes 287 610 1,239
Change in valuation allowance (4,404) -- --
Utilization of net operating loss
carryforwards for which no tax
benefit had previously been
recognized (4,332) (2,920) (2,385)
State taxes, net of federal income tax
benefit 683 478 396
Foreign income taxes (72) (123) 88
------- ------ ------
$(3,434) 723 900
======= ====== ======
</TABLE>
(Continued)
F-22
<PAGE> 65
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
The tax effects of the temporary differences that give rise to deferred
tax assets and liabilities at December 31 are presented below:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets (liabilities):
Inventory, primarily due to additional costs
inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 and inventory
reserve accounts $ 1,248 1,069
Accounts receivable, primarily due to allowance
for doubtful accounts 516 679
Compensated absences, principally due to
accrual for financial accounting reporting
purposes 330 326
State taxes 337 185
Product warranty, principally due to accrual for
financial accounting reporting purposes 135 135
Capital leases, principally due to capitalization
of costs for tax purposes (138) 346
Alternative minimum tax credit carryforward 721 388
Net operating loss carryforwards 13,055 17,336
Plant and equipment, principally due to
differences in depreciation 1,429 1,466
Intangibles, principally due to amortization
pursuant to Tax Reform Act of 1993 1,547 1,454
Other 134 87
-------- --------
Total gross deferred tax assets 19,314 23,471
Less: Valuation allowance (14,720) (23,471)
-------- --------
Net deferred tax assets $ 4,594 --
======== ========
</TABLE>
The valuation allowance for the years ended December 31, 1995 and 1994
decreased by $8,751 and $2,625, respectively. During 1995, the Company
reduced the valuation allowance to reflect the deferred tax asset
utilized in 1995 to the extent of current income taxes and to recognize
a deferred tax asset of $4,594. The recognized deferred tax asset is
based upon expected utilization of net operating loss carryforwards that
the Company expects will more likely than not be realized through the
results of future operations.
At December 31, 1995, the Company had net operating loss carryforwards
of approximately $38,397 for federal income tax reporting purposes. The
net operating losses expire in varying amounts beginning in 1998 through
2006. The ability of the Company to use the carryforwards to offset
taxes on its future income is also subject to certain annual cumulative
limitations.
(Continued)
F-23
<PAGE> 66
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(18) EMPLOYEE BENEFIT PLANS
Employees are eligible to join the Company's 401(k) Savings Plan once
they have achieved a minimum of one year of service, 1,000 hours of
service, and attained the age 18. Under the provisions of the Plan, the
Company contributes 2% of eligible employee base salary to the Plan. The
Company's obligation to the Plan was approximately $420, $540 and $376,
respectively for the years ended December 31, 1995, 1994 and 1993.
(19) RELATED PARTY TRANSACTIONS
Relationship with Fresenius AG
Majority Stockholder
Fresenius AG and Fresenius Securities, Inc. (FSI) currently hold
13,793,442 shares of the Company's common stock; 200,000 shares of the
Company's Series F Preferred Stock which are convertible into 3,129,883
shares of common stock; and warrants to purchase 1,750,000 shares of the
Company's common stock. As of December 31, 1995, Fresenius AG
beneficially owned 70.9% of the Company's common stock.
Distribution Agreement
The Company has a paid-up license to Fresenius AG's know-how relating to
certain peritoneal dialysis products, including those incorporating the
Safe-Lock technology, in the United States, Canada and Mexico. The
Company and Fresenius AG are also parties to an agreement pursuant to
which Fresenius AG has confirmed that the Company acts as the sole North
American distributor for Fresenius AG products related to end-stage
renal disease treatment by hemodialysis and to intensive medicine and
infection control applications, excluding pharmaceutical and certain
other products, and has granted to the Company first negotiation rights
with respect to products covered by the agreement which Fresenius AG
proposes to have manufactured in North America.
In the ordinary course of the Company's business, the Company and
Fresenius AG and certain subsidiaries of Fresenius AG enter into various
transactions involving the purchase and sale of dialysis systems and
supplies for distribution by the Company. The prices charged to the
Company under the distribution agreement are negotiated each year by the
Company and Fresenius AG based on Fresenius AG's estimated costs and
desired profit margins, and generally have not exceeded the average of
the prices charged to Fresenius AG's other affiliated distributors
(except for costs attributable to the manufacture of products for sale
primarily in the United States). The Company believes that these prices
are no less favorable to the Company than the Company could obtain with
unaffiliated third parties. However, the only source of supply for
several of the Company's products is Fresenius AG, and there can be no
assurance that the prices negotiated will enable the Company to maintain
its profit margins on these products.
(Continued)
F-24
<PAGE> 67
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Under its distribution agreement with Fresenius AG, Fresenius AG
indemnifies the Company for any claims of bodily injury or property
damage alleged to have arisen from the possession, use or operation of
Fresenius AG's products purchased pursuant to the agreement, and while
the Company is obligated to provide installation, training, repair,
warranty and maintenance services for these products, Fresenius AG
reimburses the Company for material costs associated with warranty
repairs. The distribution agreement is stated to terminate on the
earlier of December 31, 2011 or the date that Fresenius AG ceases to be
able to elect 51% of the Company's board of directors, unless a cause
for early termination arises.
Intensive Care Agreement
The Company and Fresenius AG are parties to a distribution and
manufacturing agreement for certain of Fresenius AG's intensive care and
diagnostic products, including the Fresenius AS 104 Cell Separator. The
Intensive Care Agreement was entered into during 1994 for an initial
term of five years and will continue thereafter from year to year unless
terminated. The company is given both exclusive and non-exclusive rights
to manufacture and distribute certain products in North and South
America. If the Company fails to meet certain sales goals during the
five year initial term, Fresenius AG has the option to terminate the
agreement with respect to one or more products or to convert the
Company's exclusive rights with respect to one or more products to a
non-exclusive right.
Technology License Agreement
Pursuant to a technology license and know-how agreement, Fresenius AG
has granted the Company an exclusive North American license for the
technology, processes and know-how necessary to manufacture polysulfone
dialyzers. Beginning January 1, 1996, the Company will pay a royalty to
Fresenius AG of 4.5% of the Company's net sales of the dialyzers so
produced by the Company for a ten-year period, after which the Company
will have a paid-up exclusive license. Fresenius AG may make this
license non-exclusive if it ceases to own a majority of the Company's
common stock. The agreement may be terminated by Fresenius AG upon
specified defaults, and in addition, may be terminated if a majority of
the voting power of the Company is acquired by a company engaged in the
treatment, research, development, manufacture or sale of products for
treatment of renal disease.
Financial Support
Fresenius AG has provided substantial financial support to the Company.
This support has included participating in letters of credit in
connection with the Company's previously outstanding industrial revenue
bonds, providing credit support to assist the Company in securing lines
of credit, participating in and assisting with the Company's foreign
exchange contracts as well as various miscellaneous general management
assistance.
As consideration for these services, the Company granted Fresenius AG
certain warrants (note 16) and agreed to pay Fresenius AG a quarterly
fee of $42 for the period from July 1992 to June 1994.
(Continued)
F-25
<PAGE> 68
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Registration Rights Agreement
Fresenius AG and the Company are party to a Registration Rights
Agreement dated February 24, 1993. This agreement grants Fresenius AG
demand registration rights with respect to all shares of common stock
held by Fresenius AG or certain of its subsidiaries on February 24, 1993
or issuable to them upon conversion of shares of Series F preferred
stock or exercise of a warrant for 1,700,000 shares issued to Fresenius
AG in connection with the Abbott acquisition (collectively, the
"Registrable Shares"). The Company is to pay all expenses in connection
with the first such registration; the holder(s) is responsible for the
expenses of subsequent registrations. A holder of Registrable Shares may
also request that the Company include its Registrable Shares in
registration statements filed by the Company in connection with a public
offering of common stock on behalf of the Company and/or another holder
of common stock.
Trade Transactions with Fresenius AG
As of December 31, net amounts due to Fresenius AG and affiliates, were
as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Trade accounts payable $ 41,847 34,588
Trade accounts receivable (618) (1,227)
-------- --------
Accounts payable to affiliates, net $ 41,229 33,361
======== ========
</TABLE>
Effective January 1, 1992, trade payables to Fresenius AG and its wholly
owned subsidiaries were due in 150 days. Amounts not paid in 150 days
bear interest at an annual rate of 5.5%. During 1995 and 1994, the
Company paid no interest related to the trade payables.
For the years ended December 31, the Company had the following trade
transactions with Fresenius AG:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Purchases from Fresenius AG $90,627 63,507 52,442
Sales to Fresenius AG 2,517 4,029 4,197
Warranty costs charged by the Company to Fresenius AG for
purchased materials 911 836 343
Miscellaneous charges by the Company to Fresenius AG 54 107 322
</TABLE>
In 1995, 1994 and 1993, Fresenius AG granted the Company purchase price
credits of $8.4 million, $1.4 million, and $0, respectively, which were
credited against cost of goods sold throughout the year.
(Continued)
F-26
<PAGE> 69
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Note Payable to FNA
In 1991, the Company used the proceeds of $11,900 from the exercise of
stock options by Fresenius AG and FSI to reduce its original
indebtedness to Fresenius North America, Inc. (FNA), a wholly owned
subsidiary of Fresenius AG, from $19,774 to $7,874. During 1992, the
Company issued additional shares of common stock to Fresenius AG for
$7,600, the proceeds of which were used to further reduce the Company's
note payable to FNA. The balance outstanding on the note payable to FNA
was $274 at December 31, 1995 and 1994.
Other
The Company provides various administrative services and advances to
Fresenius Pharma U.S.A., Inc. (Fresenius Pharma), another wholly owned
subsidiary of Fresenius AG. There were no receivables related to these
services from Fresenius Pharma at December 31, 1995 and 1994. During
1992, the Company acquired from Fresenius Pharma the rights to
distribute within North America certain transplantation pharmaceutical
products of Fresenius AG. The Company incurred no costs for the
distribution rights under this agreement.
Pursuant to a series of agreements with Seratronics and Andersen Group,
Inc., entered into in 1985 and extended and amended in 1995, the Company
manages, and acts as sole distributor for the dialyzer reuse business of
Seratronics. These arrangements require the Company to make minimum net
payments of $100 per year to Seratronics through February 1995, and
starting in March 1995 require the Company to make minimum payments of
$50, per quarter through February 29, 2000, when the agreements expire
by their terms. As of February 1995, the Company has the right to
acquire the assets and liabilities of the reuse business for a nominal
purchase price and, if it exercises this option, its obligation to make
the quarterly payments discussed above ends. During 1995 and 1994, the
Company, as distributor, purchased dialyzer reuse systems and supplies
from Seratronics totaling approximately $1.9 million and $1.6 million,
respectively. The results of operations and the assets and liabilities
of the Seratronics' reuse business are included in the Company's
consolidated financial statements. The President and Chief Executive
Officer of the Company is also the President and Chief Executive
Officer of Seratronics. A director of the Company is the President of
Andersen Group, Inc. which owns a majority of the outstanding capital
stock of Seratronics. A portion of the salary of the President and
Chief Executive Officer of the Company is paid each year by
Seratronics.
A member of the Company's Board of Directors is also a partner in a law
firm which provided certain legal services for the Company and Fresenius
AG. The Company paid the law firm approximately $259, $6, and $52 in
1995, 1994 and 1993, respectively.
(Continued)
F-27
<PAGE> 70
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(20) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
For the year ended December 31, 1995
--------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $68,176 76,744 78,933 81,111
Gross profit 21,136 22,956 23,331 25,439
Operating income 4,088 4,180 4,622 5,136
Net income 3,318 3,473 3,747 5,849
Net income per common share $ .13 $ .13 $ .14 $ .21
Weighted average number of
shares of primary and fully
dilutive common stock and
common stock equivalents 25,872 26,694 27,215 27,925
</TABLE>
The Company recognized additional income tax benefit in the fourth
quarter resulting from an adjustment to its deferred tax asset valuation
allowance.
<TABLE>
<CAPTION>
For the year ended December 31, 1994
--------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $59,689 61,139 65,370 68,146
Gross profit 18,552 19,222 19,708 21,096
Operating income 3,036 3,047 3,291 2,715
Net income 1,537 1,519 1,978 2,120
Net income per common share $ .07 $ .07 $ .08 $ .09
Weighted average number of
shares of primary and fully
dilutive common stock and
common stock equivalents 20,953 21,525 24,745 25,542
</TABLE>
Increased demand in the fourth quarter for hemodialysis products
necessitated additional air freight and overtime expenses resulting in
lower operating income in the fourth quarter. In addition, adjustments
were recorded in the fourth quarter to decrease income taxes and
interest expense as estimates were revised based on new information.
(21) LEGAL PROCEEDINGS
In the ordinary course of business, the Company is involved in various
legal actions. In the opinion of management, based upon the advice of
counsel, the resolution of these legal actions will not have a material
effect upon the Company or its financial condition.
(Continued)
F-28
<PAGE> 71
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(22) SUBSEQUENT EVENT
In February 1996, the Company announced that Fresenius AG had entered
into a definitive agreement (the "Agreement") with W.R. Grace & Co.
("Grace") to combine Fresenius AG's worldwide dialysis business,
including the Company, with Grace's National Medical Care, Inc. to
create a fully integrated dialysis company. The Agreement provides that
an aggregate of 55.2% of the shares of the combined company, to be
called Fresenius Medical Care, will be issued to Fresenius AG and the
Company's public shareholders provided that Fresenius AG must retain at
least 51% of the shares of the combined company and that Grace
shareholders will acquire the remaining 44.8%. Fresenius AG agreed with
Grace that the Company would become a wholly-owned subsidiary of
Fresenius Medical Care and that, when the economic terms of the
participation of the Company's minority shareholders in the transaction
have been established, Fresenius AG will vote its shares of the Company
in favor of the transaction.
(Continued)
F-29
<PAGE> 72
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(23) ABBOTT ACQUISITION PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The following unaudited pro forma consolidated statement of operations
is presented for the year ended December 31, 1993 and gives effect to
the Abbott acquisition transaction as if it occurred on January 1, 1993,
after giving effect to certain adjustments, including amortization of
intangible assets, additional depreciation expense, increased interest
expense on debt related to the acquisition, and related income tax
effects. The pro forma consolidated statement of operations should be
read in conjunction with the related notes that follow and are not
necessarily indicative of what the actual results of operations of the
Company would have been had the transaction occurred on January 1, 1993,
nor does it purport to indicate the future results of operations of the
Company.
<TABLE>
<CAPTION>
Year ended December 31, 1993
--------------------------------------------
(Unaudited)
(dollars and shares in thousands, except
per share amounts)
Before
Pro Forma Pro Forma
adjustments adjustments Adjusted
----------- ----------- --------
<S> <C> <C> <C>
Net sales $ 205,960 4,682 (a) 210,642
Cost of sales 140,960 2,258 (b) 143,218
--------- --------- -------
Gross profit 65,000 2,424 67,424
Operating expenses:
Selling, general and administrative 54,213 1,549 (c) 55,762
Research and development 1,500 -- 1,500
Litigation settlements -- -- --
--------- ------- --------
Operating income 9,287 875 10,162
Other income:
Interest income 204 -- 204
Interest expense (4,835) (358)(d) (5,193)
Other, net (63) -- (63)
--------- --------- -------
Income before income taxes 4,593 517 5,110
Income tax expense (900) (50)(e) (950)
--------- --------- -------
Net income $ 3,693 467 4,160
========= ========= =======
Net income per common share $ .18 .20
========= =======
Weighted average number of shares of common
stock and common stock equivalents 20,660 20,660
========= =======
</TABLE>
(Continued)
F-30
<PAGE> 73
FRESENIUS USA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(23) ABBOTT ACQUISITION PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS,
(CONTINUED)
Notes to Pro Forma Condensed Consolidated Statement of Operations
(a) Net Sales
To reflect the estimated increase in sales as a result of the purchase
transaction.
(b) Cost of Sales
To reflect the estimated increase in cost of sales as a result of the
purchase transaction.
(c) Selling, General and Administrative Expenses
To reflect the estimated increase in selling, general and administrative
expenses resulting from the purchase.
(d) Interest Expense
To reflect increase in interest expense for additional debt financing.
(e) Income Tax Expense
To reflect increase in income tax expense as a result of projected
additional net income.
(Continued)
F-31
<PAGE> 74
Schedule II
FRESENIUS USA, INC. AND SUBSIDIARIES
Consolidated Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
Balance at Charged to Deductions/ Balance
beginning costs and Write-offs/ at end
of period expenses Recoveries of period
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995 $1,744 - (420) 1,324
Year ended December 31, 1994 $1,718 79 (53) 1,744
Year ended December 31, 1993 $ 923 875 (80) 1,718
</TABLE>
<TABLE>
<CAPTION>
Balance at Charged to Deductions/ Balance
beginning costs and Write-offs/ at end
of period expenses Recoveries of period
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Inventory reserves:
Year ended December 31, 1995 $2,068 2,476 (1,847) 2,697
Year ended December 31, 1994 $2,832 813 (1,577) 2,068
Year ended December 31, 1993 $1,473 2,291 (932) 2,832
</TABLE>
F-32
<PAGE> 75
INDEX OF EXHIBITS FILED WITH THIS REPORT
10.19 - Participation Agreement, dated as of March 31,1995, among the
Registrant, First Security Bank of Utah, N.A. and Deutsche Bank A.G.
10.19.1 - Amendment No. 1 dated as of June 30, 1995 to Participation
Agreement among the Registrant, First Security Bank of Utah, N.A.
and Deutsche Bank A.G.
10.19.2 - Amendment No. 2 dated as of July 31, 1995 to Participation
Agreement among the Registrant, First Security Bank of Utah, N.A.
and Deutsche Bank A.G.
10.19.3 - Amendment No. 3 dated as of December 29, 1995 to Participation
Agreement among the Registrant, First Security Bank of Utah, N.A.
and Deutsche Bank A.G.
10.20 - Lease Agreement dated as of March 31, 1995 between the Registrant
and First Security Bank of Utah, N.A.
10.21 - Credit Agreement dated as of January 3, 1995 between the Registrant
and Deutsche Bank A.G.
11. - Calculation of Earnings Per Share.
23. - The consent of independent public accountants KPMG Peat Marwick
LLP.
27. - The Registrant's Financial Data Schedule (with SEC version only).
- i -
<PAGE> 1
EXHIBIT 10.19
[LOGO]
DEUTSCHE BANK MEDIUM TERM LEASE
================================================================================
PARTICIPATION AGREEMENT
among
FRESENIUS USA, INC.,
as Lessee,
FIRST SECURITY BANK OF UTAH, N.A.,
not in its individual capacity, except as expressly
stated herein, but solely as Owner Trustee,
and
DEUTSCHE BANK A.G., NEW YORK AND/OR CAYMAN ISLANDS BRANCHES,
as Investor
-----------------------------
Dated as of March 31, 1995
-----------------------------
FRESENIUS USA, INC. EQUIPMENT LEASE PROGRAM
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. DEFINITIONS................................................................................... 1
SECTION 2. INVESTOR CONTRIBUTIONS........................................................................ 1
SECTION 3. SUMMARY OF TRANSACTIONS....................................................................... 1
3.1. Operative Agreements.......................................................................... 1
3.2. Equipment Purchase and Lease.................................................................. 1
SECTION 4. THE CLOSINGS.................................................................................. 2
4.1. Initial Closing Date.......................................................................... 2
4.2. Closing Dates................................................................................. 2
4.3. Owner Trustee Authorization................................................................... 2
SECTION 5. CONDITIONS TO CLOSING DATES................................................................... 2
5.1. General....................................................................................... 2
5.2. Procedures for Funding........................................................................ 2
5.3. Conditions to the Investor's Obligations to Make Investor Contributions for
the Acquisition of Equipment.................................................................. 3
SECTION 6. CONDITIONS TO INITIAL CLOSING DATE............................................................ 5
6.1. Conditions to the Lessor's and the Investor's Obligations..................................... 5
(a) Operative Agreements................................................................. 5
(b) Taxes................................................................................ 6
(c) Opinions of Counsel.................................................................. 6
(d) Governmental Approvals............................................................... 6
(e) Litigation........................................................................... 6
(f) Legal Requirements................................................................... 6
(g) Lessee's Officer's Certificates...................................................... 6
(h) Lessee's Resolutions and Incumbency Certificate, etc................................. 7
(i) Initial Closing Date................................................................. 7
(j) No Material Adverse Change........................................................... 7
(k) Preliminary Appraisal................................................................ 7
(l) Investor Approval.................................................................... 7
(m) Due Diligence........................................................................ 7
(n) Opinion of Investor's Internal Counsel............................................... 7
(o) Quarterly Tax Payment Schedule and Lease Funding Balance
Schedule............................................................................. 8
6.2. Conditions to the Lessee's Obligations........................................................ 8
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
(a) Legal Requirements................................................................... 8
(b) Litigation........................................................................... 8
(c) Operative Agreements................................................................. 8
(d) Lessor's Officer's Certificate....................................................... 8
(e) Lessor's Resolutions and Incumbency Certificate, etc................................. 9
(f) Opinion of Counsel................................................................... 9
(g) Investor's Officers' Certificate..................................................... 9
(h) Opinion of Investor's Counsel........................................................ 9
SECTION 7. REPRESENTATIONS AND WARRANTIES ON THE CLOSING
DATES......................................................................................... 9
7.1. Representations and Warranties of the Investor................................................ 9
(a) Due Organization, etc................................................................ 9
(b) Authorization; No Conflict........................................................... 9
(c) Enforceability, etc.................................................................. 10
(d) Litigation........................................................................... 10
(e) Defaults............................................................................. 10
(f) Regulation........................................................................... 10
(g) Lessor Liens......................................................................... 10
(h) No Employee Benefit Plans............................................................ 10
(i) Offer of Interests................................................................... 11
7.2. Representations and Warranties of the Owner Trustee........................................... 11
(a) Due Organization, etc................................................................ 11
(b) Authorization; No Conflict........................................................... 11
(c) Enforceability, etc.................................................................. 11
(d) Litigation........................................................................... 12
(e) Lessor Liens......................................................................... 12
(f) Defaults............................................................................. 12
(g) Securities Act....................................................................... 12
(h) Chief Place of Business.............................................................. 12
(i) Federal Reserve Regulations.......................................................... 12
(j) Investment Company Act............................................................... 13
(k) Taxes................................................................................ 13
7.3. Representations and Warranties of the Lessee.................................................. 13
(a) Corporate Status..................................................................... 13
(b) Corporate Power and Authority........................................................ 13
(c) No Violation......................................................................... 13
(d) Judgments; Litigation................................................................ 14
(e) Governmental and Other Approvals..................................................... 14
(f) True and Complete Disclosure......................................................... 14
(g) Tax Returns and Payments............................................................. 14
(h) Patents, etc......................................................................... 15
(i) Environmental and Other Regulations.................................................. 15
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
(j) Lease................................................................................ 15
(k) Offer of Securities, etc............................................................. 16
(l) Bankruptcy........................................................................... 16
(m) Use of Funds......................................................................... 16
(n) No Misstatement or Omission.......................................................... 16
(o) Location............................................................................. 16
(p) Title................................................................................ 16
(q) Security Interest.................................................................... 16
(r) Insurance............................................................................ 17
(s) Equipment Operational................................................................ 17
(t) Service and Facilities............................................................... 17
(u) Conditions Precedent Satisfied....................................................... 17
(v) Conveyance Not Void Or Voidable...................................................... 17
(w) Solvency............................................................................. 17
(x) Personal Property.................................................................... 17
(y) Depreciation of the Equipment........................................................ 17
(z) Transaction Expense Amortization..................................................... 18
SECTION 8. COVENANTS OF THE LESSEE....................................................................... 18
SECTION 9. PAYMENT OF CERTAIN EXPENSES................................................................... 23
9.1. Transaction Expenses.......................................................................... 23
9.2. Brokers' Fees and Stamp Taxes................................................................. 24
SECTION 10. OTHER COVENANTS AND AGREEMENTS................................................................ 25
10.1. Cooperation with the Lessee................................................................... 25
10.2. Covenants of the Owner Trustee and the Investor............................................... 25
(a) Discharge of Liens................................................................... 25
(b) Trust Agreement...................................................................... 25
(c) Successor Owner Trustee.............................................................. 26
(d) Indebtedness; Other Business......................................................... 26
(e) No Violation......................................................................... 26
(f) No Voluntary Bankruptcy.............................................................. 26
(g) Change of Chief Place of Business.................................................... 26
10.3. Computation of Rent........................................................................... 26
(a) Basis of Rental Rates................................................................ 26
(b) Overdue Rate......................................................................... 26
(c) Calculation.......................................................................... 27
(d) Inability to Determine Eurodollar Rate............................................... 27
10.4. Increased Costs, Illegality, etc.............................................................. 27
(a) Costs................................................................................ 27
(b) Capital Standards.................................................................... 28
(c) Illegality........................................................................... 28
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
10.5 Funding Indemnity............................................................................. 28
10.6. Notice of Amounts Payable; Relocation......................................................... 29
(a) Notice............................................................................... 29
(b) Relocation........................................................................... 29
SECTION 11. OPERATING LEASE............................................................................... 29
11.1. Election to Provide Operating Lease........................................................... 29
11.2. Rejection..................................................................................... 30
11.3. Conditions to the Investor's and the Lessor's Obligations..................................... 30
11.4. Expenses...................................................................................... 31
11.5. Notices and Documentation..................................................................... 31
SECTION 12. TRANSFER OF INTEREST.......................................................................... 31
12.1. Restrictions on Transfer...................................................................... 31
12.2. Effect of Transfer............................................................................ 32
SECTION 13. INDEMNIFICATION............................................................................... 32
13.1. General Indemnity............................................................................. 32
13.2. General Tax Indemnity......................................................................... 34
(a) Indemnification...................................................................... 34
(b) Payments............................................................................. 34
(c) Reports and Returns.................................................................. 34
(d) Withholding Taxes.................................................................... 35
(e) Contests of Impositions.............................................................. 36
13.3. Special Income Tax Indemnity.................................................................. 37
(a) Indemnity............................................................................ 37
(b) Computation of Indemnity and Gross-Up; Payment....................................... 38
(c) Certain Adjustments.................................................................. 38
(d) Verification......................................................................... 38
(e) Contests............................................................................. 39
SECTION 14. MISCELLANEOUS................................................................................. 39
14.1. Survival of Agreements........................................................................ 39
14.2. No Broker, etc................................................................................ 39
14.3. Notices....................................................................................... 39
14.4. Counterparts.................................................................................. 40
14.5. Amendments and Termination.................................................................... 40
14.6. Headings, etc................................................................................. 41
14.7. Parties in Interest........................................................................... 41
14.8. GOVERNING LAW................................................................................. 41
14.9. Severability.................................................................................. 41
14.10. Liability Limited............................................................................. 41
14.11. Further Assurances............................................................................ 41
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<S> <C> <C>
14.12. Confidentiality................................................................................ 42
14.13. Lessee Reliance on Own Experts................................................................. 42
</TABLE>
-v-
<PAGE> 7
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A Form of Notice of Closing Date
Exhibit B Reserved
Exhibit C Form of Officer's Certificate
Exhibit D Determination of Operating Lease Basic Rent
Exhibit E Lease Funding Balance Calculation
Exhibit E-1 Form of Quarterly Tax Payment Schedule
Exhibit E-2 Form of Lease Funding Balance Schedule
Schedule 1 - A Form of Opinion of Ropes & Gray to be delivered on each
Closing Date other than the Initial Closing Date
Schedule 1 - B Form of Opinion of Robert E. Farrell to be delivered on each Closing Date
other than the Initial Closing Date
Schedule 1 - C Form of Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol to be
delivered on each Closing Date other than the Initial Closing Date
Schedule 2 - A Form of Opinion of Ropes & Gray to be delivered on the Initial Closing
Date
Schedule 2 - B Form of Opinion of Robert E. Farrell to be delivered on the Initial Closing
Date
Schedule 2 - C Form of Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol to be
delivered on the Initial Closing Date
Schedule 3 Form of Opinion of Local Counsel to Owner Trustee
Schedule 4 Form of Opinion of Internal Counsel to Investor
Schedule 5 Form of Opinion of Counsel to Lessor
Schedule 6 Debt and Contingent Obligations
</TABLE>
-vi-
<PAGE> 8
PARTICIPATION AGREEMENT
This PARTICIPATION AGREEMENT (this "Agreement"), dated as of
March 31, 1995, among FRESENIUS USA, INC., a Massachusetts corporation, as
lessee (the "Lessee"), FIRST SECURITY BANK OF UTAH, N.A., a national banking
association, not in its individual capacity (in its individual capacity, the
"Trust Company"), except as expressly stated herein, but solely as Owner Trustee
(the "Owner Trustee" or the "Lessor"), and DEUTSCHE BANK A.G., NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES, duly licensed branches of Deutsche Bank A.G., a German
corporation, as investor (the "Investor").
In consideration of the premises and of the mutual agreements
herein contained and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. DEFINITIONS.
For the purposes hereof, capitalized terms used herein and not
otherwise specifically defined herein shall have the meanings ascribed to them
in Appendix A hereto.
SECTION 2. INVESTOR CONTRIBUTIONS.
Subject to the terms and conditions of this Agreement and in
reliance on the representations and warranties of each of the parties hereto
contained herein or made pursuant hereto, on each Closing Date, the Investor
shall make an investment in the Trust (each, an "Investor Contribution") in an
amount in immediately available funds equal to the total Equipment Cost set
forth in the Notice of Closing Date delivered by the Lessee with respect to such
Closing Date pursuant to Section 5.2 hereof plus the Transaction Expenses
associated with such Closing Date and payable by the Investor pursuant to
Section 9.1 hereof.
SECTION 3. SUMMARY OF TRANSACTIONS.
3.1. Operative Agreements. On the Initial Closing Date, each
of the respective parties hereto and thereto shall execute and deliver this
Agreement, the Lease, the Trust Agreement and such other documents, instruments,
certificates and opinions of counsel as agreed to by the parties hereto.
3.2. Equipment Purchase and Lease. On each Closing Date and
subject to the terms and conditions of this Agreement (a) the Investor will make
an Investor Contribution in accordance with Section 2 hereof and the terms and
provisions of the Trust Agreement, (b) the Owner Trustee will purchase the
applicable items of Equipment identified by the Lessee pursuant
-1-
<PAGE> 9
to one or more Equipment Schedules executed pursuant to the Lease for a purchase
price equal to the total Equipment Cost set forth in the Notice of Closing Date,
(c) the Lessor will simultaneously lease all of its right, title and interest in
such Equipment to the Lessee and (d) the Owner Trustee will pay all of the
Transaction Expenses payable by the Investor pursuant to Section 9.1 hereof and
with respect to which the Investor has made an Investor Contribution.
SECTION 4. THE CLOSINGS.
4.1. Initial Closing Date. The Initial Closing Date shall
occur on March 31, 1995 or such other date as the parties may agree. All
documents and instruments required to be delivered on the Initial Closing Date
shall be delivered at the offices of Winston & Strawn, 35 W. Wacker Drive,
Chicago, Illinois, or at such other location as may be determined by the
Investor and the Lessee.
4.2. Closing Dates. The Lessee shall deliver to the Owner
Trustee and the Investor a Notice of Closing Date, appropriately completed, in
the form of Exhibit A hereto in connection with each Closing Date pursuant to
Section 5.2 hereof ("Notice of Closing Date"). Subject to the satisfaction of
the conditions contained in Section 5, such Closing Date shall occur on the date
set forth in the Notice of Closing Date. There shall be a maximum of six Closing
Dates under this Agreement. Each Interim Closing Date and the Final Closing Date
shall occur on a Payment Date.
4.3. Owner Trustee Authorization. The Investor agrees that,
with respect to the Initial Closing Date and each other Closing Date, the
satisfaction or waiver of the conditions contained in Sections 6 and 5.3 hereof,
as applicable, shall constitute, without further act, authorization and
direction by the Investor to the Owner Trustee to take the actions specified in
Section 2.1 of the Trust Agreement.
SECTION 5. CONDITIONS TO CLOSING DATES.
5.1. General. To the extent funds have been made available to
the Owner Trustee as an Investor Contribution, the Owner Trustee will make an
advance of such funds in accordance with the terms and conditions of this
Agreement and the other Operative Agreements to allow the Owner Trustee at the
direction of the Lessee to acquire Equipment in accordance with the terms of
this Agreement.
5.2. Procedures for Funding. (a) Not less than three (3)
Business Days prior to a Closing Date, the Lessee shall deliver to the Lessor
and the Investor a Notice of Closing Date.
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(b) The Notice of Closing Date shall: (i) be irrevocable, (ii)
request funds in an amount not to exceed the remaining Investor Commitment (or
such lesser amount as shall be equal to the total Equipment Cost as set forth in
the Equipment Schedules being delivered with respect to such Closing Date) for
the payment of the Equipment Cost previously incurred by the Lessee or owing to
a third party vendor in respect of the purchase of Equipment and not previously
purchased by the Lessor pursuant hereto, and (iii) indicate the desired Closing
Date.
(c) So long as no Default or Event of Default has occurred and
is continuing and subject to satisfaction of the conditions precedent set forth
in Section 5.3 hereof and, with respect to the Initial Closing Date, Section 6.1
hereof on such Closing Date, (i) the Investor shall make an Investor
Contribution in an amount equal to the requested funds specified in the Notice
of Closing Date plus the Transaction Expenses associated with such Closing Date
and payable by the Investor pursuant to Section 9.1 hereof; and (ii) the total
amount of such Investor Contribution shall be used by the Lessor to pay the
applicable portion of the Equipment Cost and to pay such Transaction Expenses.
5.3. Conditions to the Investor's Obligations to Make Investor
Contributions for the Acquisition of Equipment. The obligation of the Investor
to make an Investor Contribution on a Closing Date for the purpose of providing
funds to the Lessor necessary to acquire Equipment is subject to (i) the Initial
Closing Date having occurred or occurring simultaneously therewith and the
actions to be taken in connection therewith having been taken and (ii) the
satisfaction or waiver of the following additional conditions precedent:
(a) the correctness on such Closing Date of the
representations and warranties of the Owner Trustee and the Lessee contained
herein and in each of the other Operative Agreements;
(b) the performance by the parties hereto (other than the
Investor) of their respective agreements contained herein and in the other
Operative Agreements to be performed by them on or prior to such Closing Date;
(c) the Lessee shall have delivered to the Owner Trustee and
the Investor a fully executed counterpart of the Notice of Closing Date,
appropriately completed;
(d) title to each item of Equipment being acquired by the
Lessor on such Closing Date shall conform to the representations and warranties
set forth in Section 7.3(s) hereof;
(e) the Lessee shall have delivered one or more Equipment
Schedules, executed by the Lessee and the Lessor, with respect to the Equipment
being acquired by the Lessor on such Closing Date, with a copy thereof to the
Investor;
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(f) the Lessee shall have delivered copies of original
invoices, a Bill of Sale and a Purchase Agreement Assignment with respect to the
Equipment being acquired by the Lessor on such Closing Date to the Lessor;
(g) Ropes & Gray, special counsel to the Lessee, shall have
issued to the Lessor and the Investor its opinion to the effect and in the form
set forth on Schedule 1-A hereto;
(h) Robert E. Farrell, General Counsel to the Lessee, shall
have issued to the Lessor and the Investor his opinion to the effect and in the
form set forth on Schedule 1 - B hereto;
(i) Reboul, MacMurray, Hewitt, Maynard & Kristol, special New
York counsel to the Lessee, shall have issued to the Lessor and the Investor its
opinion to the effect and in the form set forth on Schedule 1 - C hereto;
(j) local counsel to the Owner Trustee reasonably acceptable
to the Investor and the Lessee shall have issued its opinion to the effect and
in the form set forth in Schedule 3 hereto;
(k) there shall not have occurred and be continuing any
Default or Event of Default under any of the Operative Agreements and no Default
or Event of Default under any of the Operative Agreements will have occurred
after giving effect to the Investor Contribution requested by the Notice of
Closing Date;
(l) any financing statements under the Uniform Commercial Code
required by the Lease shall have been filed, if necessary, in such locations as
to enable the Lessee's counsel to render its opinion referred to in Section
5.3(g) hereof;
(m) with respect to each Interim Closing Date and the Final
Closing Date, the conditions set forth in Sections 6.1 (b), (d), (e), (f), (g),
(h) and (j) hereof shall have been satisfied on such Closing Date as well as the
Initial Closing Date;
(n) with respect to the Final Closing Date, the Final Closing
Date shall have occurred no later than June 30, 1995;
(o) with respect to the Final Closing Date, the Investor shall
have received the Final Appraisal and shall be satisfied that the Final
Appraisal meets the requirements set forth in the definition of such term;
(p) the Investor and the Lessor shall have received the
insurance certificates required by Section 14 of the Lease;
(q) the Lessee shall have delivered to the Owner Trustee and
the Investor an Officer's Certificate stating that each one of the foregoing
provisions set forth in Sections 5.3(a)
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<PAGE> 12
(as to the Lessee), (b) (as to the Lessee), (c), (d), (e), (f), (k),(l), (o) (as
to the Final Closing Date) and (p) hereof has been complied with;
(r) in the case of the Investor, on the Final Closing Date, it
shall have received a favorable final opinion of Winston & Strawn, special
counsel to the Investor, dated the Final Closing Date, addressed to the Investor
and covering such Federal tax matters as the Investor may reasonably request;
(s) the Lessee shall have delivered to the Lessor such
landlord estoppels and waivers and mortgagee waivers as the Lessor or the
Investor shall have requested with respect to the real property where the
Equipment being acquired by the Lessor on such Closing Date will be located;
(t) with respect to the Final Closing Date, the Lessor shall
have delivered to the Lessee a final Quarterly Tax Payment Schedule and Lease
Funding Balance Schedule in the forms attached hereto as Exhibits E-1 and E-2,
respectively. The Quarterly Tax Payment Schedule and Lease Funding Balance
Schedule delivered by the Lessor on the Final Closing Date shall differ from
those delivered by the Lessor on the Initial Closing Date under Section 6.1(p)
hereof solely as a result of a change between the Initial Closing Date and the
Final Closing Date of (i) Equipment Cost; (ii) Transaction Expenses and (iii)
the Amortization Component; and
(u) with respect to the first Closing Date after the Initial
Closing Date, the Lessor and the Investor shall have received the results of an
environmental audit of the premises of the Lessee where the Equipment will be
located, including a Phase I environmental survey, prepared by an independent
environmental audit firm reasonably acceptable to the Investor, together with a
letter from such firm addressed to the Lessor and the Investor permitting them
to rely thereon, and the results of such survey shall be satisfactory to the
Investor in its sole discretion.
SECTION 6. CONDITIONS TO INITIAL CLOSING DATE.
6.1. Conditions to the Lessor's and the Investor's
Obligations. The obligations of the Lessor and the Investor to consummate the
transactions contemplated by this Agreement, including the obligation to execute
and deliver the applicable Operative Agreements to which each is a party on the
Initial Closing Date, are subject to (i) the accuracy and correctness on the
Initial Closing Date of the representations and warranties of the other parties
hereto contained herein, (ii) the accuracy and correctness on the Initial
Closing Date of the representations and warranties of the other parties hereto
contained in any other Operative Agreement or certificate delivered pursuant
hereto or thereto, (iii) the performance by the other parties hereto of their
respective agreements contained herein and in the other Operative Agreements and
to be performed by them on or prior to the Initial Closing Date and (iv) the
satisfaction or waiver by the Lessor and the Investor of all of the following
conditions on or prior to the Initial Closing Date:
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<PAGE> 13
(a) Operative Agreements. Each of the Operative Agreements to
be entered into on the Initial Closing Date shall have been duly authorized,
executed and delivered by the parties thereto, other than the Lessor and the
Investor, and shall be in full force and effect, and no default, other than
defaults of the Lessor or the Investor which have not been caused by another
party hereto or thereto, shall exist thereunder (both before and after giving
effect to the transactions contemplated by the Operative Agreements), and the
Lessor and the Investor each shall have received a fully executed copy of each
of the Operative Agreements;
(b) Taxes. All taxes, fees and other charges in connection
with the execution, delivery, recording, filing and registration of the
Operative Agreements shall have been paid or provisions for such payment shall
have been made to the satisfaction of the Lessor and the Investor;
(c) Opinions of Counsel. (i) Ropes & Gray, special counsel to
the Lessee, shall have issued to the Lessor and the Investor his opinion to the
effect and in the form set forth on Schedule 2 - A hereto; (ii) Robert E.
Farrell, General Counsel to the Lessee, shall have issued to the Lessor and the
Investor its opinion to the effect and in the form set forth on Schedule 2 - B
hereto; (iii) Reboul, MacMurray, Hewitt, Maynard & Kristol, special new York
counsel to the Lessee, shall have issued to the Lessor and the Investor its
opinion to the effect and in the form set forth on Schedule 2 -C hereto; (iv) in
the case of the Investor, it shall have received a favorable preliminary opinion
of Winston & Strawn, special counsel to the Investor, dated the Initial Closing
Date, addressed to the Investor and covering such Federal tax matters as the
Investor may reasonably request; and (v) in the case of the Investor, it shall
have received the opinion of Ray, Quinney & Nebeker, special counsel to the
Lessor, addressed to the Lessee, the Lessor or the Investor and to the effect
and in the form set forth on Schedule 5 hereto;
(d) Governmental Approvals. All necessary (or, in the
reasonable opinion of the Investor or its counsel, advisable) Governmental
Actions in each case required by any law or regulation since the date hereof,
shall have been obtained or made and be in full force and effect;
(e) Litigation. No action or proceeding shall have been
instituted, nor shall any action or proceeding be threatened, before any
Governmental Authority, nor shall any order, judgment or decree have been issued
or proposed to be issued by any Governmental Authority (i) to set aside,
restrain, enjoin or prevent the full performance of this Agreement, any other
Operative Agreement or any transaction contemplated hereby or thereby or (ii)
which is reasonably likely to have a Material Adverse Effect;
(f) Legal Requirements. In the reasonable opinion of the
Lessor and the Investor and their counsel, the transactions contemplated by the
Operative Agreements do not and will not violate any Legal Requirements and do
not and will not subject the Lessor or the Investor to any adverse statutory or
regulatory prohibitions or constraints, in each case enacted, imposed, adopted
or proposed since the date of the execution of the Commitment Letter;
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<PAGE> 14
(g) Lessee's Officer's Certificates. The Lessor and the
Investor shall each have received an Officer's Certificate, dated as of the
Initial Closing Date, of the Lessee stating that (a) each and every
representation and warranty of the Lessee contained in the Operative Agreements
to which it is a party is true and correct on and as of the Initial Closing
Date; (b) no Default or Event of Default has occurred and is continuing under
any Operative Agreement; (c) each Operative Agreement to which the Lessee is a
party is in full force and effect with respect to it; and (d) the Lessee has
duly performed and complied with all covenants, agreements and conditions
contained herein or in any Operative Agreement required to be performed or
complied with by it on or prior to the Initial Closing Date;
(h) Lessee's Resolutions and Incumbency Certificate, etc. The
Lessor and the Investor shall each have received (a) a certificate of the
Secretary or an Assistant Secretary of the Lessee attaching and certifying as to
(1) the resolutions of the Executive Committee of the Board of Directors of the
Lessee duly authorizing the execution, delivery and performance by the Lessee of
each Operative Agreement to which it is a party, (2) its certificate of
incorporation and by-laws, the former being certified as of a recent date by the
Secretary of State of the State of its incorporation, and (3) the incumbency and
signature of persons authorized to execute and deliver on its behalf the
Operative Agreements to which it is a party and (b) a good standing certificate
from the appropriate officer of the States of California and Utah as to the
Lessee's good standing in such state;
(i) Initial Closing Date. The Initial Closing Date shall occur
no later than March 31, 1995;
(j) No Material Adverse Change. As of the Initial Closing
Date, there shall not have occurred any material adverse change in the business,
prospects, operations or financial or other condition of the Lessee and its
Subsidiaries since the date of the execution of the Commitment Letter;
(k) Preliminary Appraisal. The Preliminary Appraisal shall
have been delivered to the Investor, and the Investor shall be satisfied that
the Preliminary Appraisal meets the requirements set forth in the definition of
such term;
(l) Investor Approval. The Investor shall have obtained all
required internal approvals, including credit approval with respect to the
Lessee and the transactions contemplated by the Operative Agreements;
(m) Due Diligence. The Investor shall have completed all due
diligence investigations with respect to the Lessee and the Equipment and the
transactions contemplated by the Operative Agreements and shall be satisfied
with the results thereof in its sole discretion;
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<PAGE> 15
(n) Opinion of Investor's Internal Counsel. In the case of the
Lessor, it shall have received the opinion of Jeffrey T. Welch, internal counsel
to the Investor, addressed to the Lessor and the Lessee and to the effect and in
the form set forth on Schedule 4; and
(o) Quarterly Tax Payment Schedule and Lease Funding Balance
Schedule. The Lessor shall have delivered to the Lessee a preliminary Quarterly
Tax Payment Schedule and Lease Funding Balance Schedule in the forms attached
hereto as Exhibits E-1 and E-2, respectively.
6.2. Conditions to the Lessee's Obligations. The obligations
of the Lessee to consummate the transactions contemplated by this Agreement,
including the obligation to execute and deliver the Operative Agreements to
which it is a party on the Initial Closing Date, are subject to (i) the accuracy
and correctness on the Initial Closing Date of the representations and
warranties of the other parties hereto contained herein, (ii) the accuracy and
correctness on the Initial Closing Date of the representations and warranties of
the other parties hereto contained in any other Operative Agreement or
certificate delivered pursuant hereto or thereto, (iii) the performance by the
other parties hereto of their respective agreements contained herein and in the
other Operative Agreements, in each case to be performed by them on or prior to
the Initial Closing Date, and (iv) the satisfaction or waiver by the Lessee of
all of the following conditions on or prior to the Initial Closing Date:
(a) Legal Requirements. In the reasonable opinion of the
Lessee and its counsel, the transactions contemplated by the Operative
Agreements do not violate any Legal Requirements and shall not subject the
Lessee to any adverse regulatory prohibitions or constraints, in each case
enacted, imposed, adopted or proposed since the date hereof;
(b) Litigation. No action or proceeding shall have been
instituted nor shall any action or proceeding be threatened, before any
Governmental Authority, nor shall any order, judgment or decree have been issued
or proposed to be issued by any Governmental Authority to set aside, restrain,
enjoin or prevent the full performance of this Agreement, any other Operative
Agreement or any transaction contemplated hereby or thereby;
(c) Operative Agreements. Each of the Operative Agreements
shall have been duly authorized, executed and delivered by the parties thereto,
other than the Lessee, and shall be in full force and effect, and no Default,
other than Defaults of the Lessee, shall exist thereunder, and the Lessee shall
have received a fully executed copy of each of the Operative Agreements;
(d) Lessor's Officer's Certificate. The Lessee shall have
received an Officer's Certificate of the Lessor, dated as of the Initial Closing
Date, stating that (i) each and every representation and warranty of the Lessor
contained in the Operative Agreements to which it is a party is true and correct
on and as of the Initial Closing Date; (ii) each Operative Agreement to which
the Lessor is a party is in full force and effect with respect to it; and (iii)
the Lessor has
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<PAGE> 16
duly performed and complied with all covenants, agreements and conditions
contained herein or in any Operative Agreement required to be performed or
complied with by it on or prior to the Initial Closing Date;
(e) Lessor's Resolutions and Incumbency Certificate, etc. The
Lessee shall have received (i) a certificate of the Secretary, an Assistant
Secretary, Trust Officer or Vice President of the Lessor attaching and
certifying as to (A) the signing resolutions, (B) its articles of incorporation,
(C) its by-laws and (D) the incumbency and signature of persons authorized to
execute and deliver on its behalf the Operative Agreements to which it is a
party and (ii) a good standing certificate from the Office of the Comptroller of
the Currency as to the Lessor's good standing as a corporation in such state;
(f) Opinion of Counsel. Ray, Quinney & Nebeker, special
counsel to the Lessor, shall have issued to the Lessee, the Lessor and the
Investor its opinion to the effect and in the form set forth on Schedule 5;
(g) Investor's Officers' Certificate. The Lessee shall have
received an Officers' Certificate of the Investor, dated as of the Initial
Closing Date, stating that (i) each and every representation and warranty of the
Investor contained in the Operative Agreements to which it is a party is true
and correct on and as of the Initial Closing Date; (ii) each Operative Agreement
to which the Investor is a party is in full force and effect with respect to it;
and (iii) the Investor has duly performed and complied with all covenants,
agreements and conditions contained herein or in any Operative Agreement
required to be performed or complied with by it on or prior to the Initial
Closing Date; and
(h) Opinion of Investor's Counsel. The Lessee shall have
received the opinion of internal counsel to the Investor required by Section 6.1
(n) hereof.
SECTION 7. REPRESENTATIONS AND WARRANTIES ON THE CLOSING
DATES.
7.1. Representations and Warranties of the Investor. Effective
as of the Initial Closing Date and each other Closing Date, the Investor
represents and warrants to each of the other parties hereto that:
(a) Due Organization, etc. The Investor is duly licensed as a
branch of Deutsche Bank A.G., a German corporation, and is in good standing
under the laws of the State of New York and the Cayman Islands and has the power
and authority to carry on its business as now conducted and to enter into and
perform its obligations under each Operative Agreement to which it is or is to
be a party and each other agreement, instrument and document to be executed and
delivered by it on or before each Closing Date in connection with or as
contemplated by each such Operative Agreement to which it is or will be a party.
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<PAGE> 17
(b) Authorization; No Conflict. The execution, delivery and
performance of each Operative Agreement to which it is or will be a party have
been duly authorized by all necessary action on its part and neither the
execution and delivery thereof, nor the consummation of the transactions
contemplated thereby, nor compliance by it with any of the terms and provisions
thereof (i) requires or will require any approval of the stockholders of, or
approval or consent of any trustee or holders of any indebtedness or obligations
of, the Investor which have not been obtained, (ii) contravenes or will
contravene any Legal Requirement applicable to or binding on it (except no
representation or warranty is made as to any Legal Requirement to which it may
be subject solely as a result of the activities of the Lessee) as of the date
hereof, (iii) does or will contravene or result in any breach of or constitute
any default under, or result in the creation of any Lien upon any item of
Equipment (other than Liens created by the Operative Agreements) under its
certificate of incorporation or any indenture, mortgage, chattel mortgage, deed
of trust, conditional sales contract, bank loan or credit agreement or other
agreement or instrument to which it is a party or by which it or its properties
are bound or affected or (iv) does or will require any Governmental Action by
any Governmental Authority (other than arising solely by reason of the business,
condition or activities of the Lessee or any Affiliate thereof).
(c) Enforceability, etc. Each Operative Agreement to which it
is or will be a party has been, or will be, duly executed and delivered by it
and constitutes, or upon execution and delivery will constitute, a legal, valid
and binding obligation enforceable against it in accordance with the terms
thereof.
(d) Litigation. There is no action or proceeding pending or,
to its knowledge, threatened against it before any Governmental Authority that
questions the validity or enforceability of any Operative Agreement to which it
is or will become a party or that, if adversely determined, would materially and
adversely affect its ability to perform its obligations under the Operative
Agreements to which it is a party.
(e) Defaults. No Default or Event of Default under the
Operative Agreements attributable to it has occurred and is continuing.
(f) Regulation. It is not a "holding company" or a "subsidiary
company" of a "holding company" or an "affiliate" of a "holding company" or a
"public utility" within the meaning of the Public Utility Holding Company Act of
1935, as amended, or a "public utility" within the meaning of the Federal Power
Act, as amended. It is not an "investment company" or a company controlled by an
"investment company" within the meaning of the Investment Company Act or an
"investment adviser" within the meaning of the Investment Advisers Act of 1940,
as amended.
(g) Lessor Liens. The Equipment being acquired by the Lessor
on any Closing Date will be free and clear of Lessor Liens attributable to the
Investor on such Closing Date.
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<PAGE> 18
(h) No Employee Benefit Plans. The Investor is not an Employee
Benefit Plan, and no part of the funds used by it to make an Investor
Contribution to the Owner Trustee hereunder constitute assets of an Employee
Benefit Plan or its related trust.
(i) Offer of Interests. It is acquiring its interest in the
Trust Estate for its own account for investment and not with a view to any
distribution (as such term is used in Section 2(11) of the Securities Act)
thereof, and if in the future it should decide to dispose of its interest in the
Trust Estate, it understands that it may do so only in compliance with the
Securities Act and the rules and regulations of the Securities and Exchange
Commission thereunder and any applicable state securities laws.
7.2. Representations and Warranties of the Owner Trustee.
Effective as of the Initial Closing Date and each other Closing Date, Trust
Company in its individual capacity and as the Owner Trustee, as indicated,
represents and warrants to each of the other parties hereto as follows,
provided, that the representations in the following paragraphs (h), (i), (j) and
(k) are made solely in its capacity as the Owner Trustee:
(a) Due Organization, etc. It is a national banking
association duly organized and validly existing and in good standing under the
laws of the United States of America and has the power and authority to enter
into and perform its obligations under the Trust Agreement and has the corporate
and trust power and authority to act as the Owner Trustee and to enter into and
perform the obligations under each of the other Operative Agreements to which
Trust Company or the Owner Trustee, as the case may be, is or will be a party
and each other agreement, instrument and document to be executed and delivered
by it in connection with or as contemplated by each such Operative Agreement to
which Trust Company or the Owner Trustee, as the case may be, is or will be a
party.
(b) Authorization; No Conflict. The execution, delivery and
performance of each Operative Agreement to which it is or will be a party,
either in its individual capacity or as the Owner Trustee, as the case may be,
has been duly authorized by all necessary action on its part, and neither the
execution and delivery thereof, nor the consummation of the transactions
contemplated thereby, nor compliance by it with any of the terms and provisions
thereof (i) does or will require any approval or consent of any trustee or
holders of any of its indebtedness or obligations or any other Person, (ii) does
or will contravene any current Requirement of Law, (iii) does or will contravene
or result in any breach of or constitute any default under, or result in the
creation of any Lien upon any of its property under, its charter or by-laws or
any indenture, mortgage, chattel mortgage, deed of trust, conditional sales
contract, bank loan or credit agreement or other agreement or instrument to
which it is a party or by which it or its properties may be bound or affected,
or (iv) does or will require any Governmental Action by any Governmental
Authority.
(c) Enforceability, etc. The Trust Agreement and each other
Operative Agreement to which Trust Company or the Owner Trustee, as the case may
be, is or will be a
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<PAGE> 19
party have been, or on or before the applicable Closing Date will be, duly
executed and delivered by Trust Company or the Owner Trustee, as the case may
be, and the Trust Agreement and each such other Operative Agreement to which
Trust Company or the Owner Trustee, as the case may be, is a party constitutes,
or upon execution and delivery will constitute, a legal, valid and binding
obligation enforceable against Trust Company or the Owner Trustee, as the case
may be, in accordance with the terms thereof.
(d) Litigation. There is no action or proceeding pending or,
to its knowledge, threatened to which it is or will be a party, either in its
individual capacity or as the Owner Trustee, before any Governmental Authority
that, if adversely determined, would adversely affect its ability, in its
individual capacity or as Owner Trustee, to perform its obligations under the
Operative Agreements to which it is a party or would question the validity or
enforceability of any of the Operative Agreements to which it is or will become
a party.
(e) Lessor Liens. The Equipment being acquired by the Lessor
on any Closing Date will be free and clear of Lessor Liens attributable to the
Trust Company or the Owner Trustee on such Closing Date.
(f) Defaults. No Default or Event of Default under the
Operative Agreements attributable to it has occurred and is continuing.
(g) Securities Act. Neither the Owner Trustee nor any Person
authorized by the Owner Trustee to act on its behalf has offered or sold any
interest in the Trust Estate or in any similar security relating to the
Equipment, or in any security the offering of which for the purposes of the
Securities Act would be deemed to be part of the same offering as the offering
of the aforementioned securities to, or solicited any offer to acquire any of
the same from, any Person in violation of Section 5 of the Securities Act, and
neither the Owner Trustee nor any Person authorized by the Owner Trustee to act
on its behalf will take any action which would subject the issuance or sale of
any interest in the Trust Estate to the provisions of Section 5 of the
Securities Act or require the qualification of any Operative Agreement under the
Trust Indenture Act of 1939, as amended.
(h) Chief Place of Business. The Owner Trustee's chief place
of business, chief executive office and office where the documents, accounts and
records relating to the transactions contemplated by this Agreement and each
other Operative Agreement are kept are located at 79 South Main Street, Salt
Lake City, Utah 84111.
(i) Federal Reserve Regulations. The Owner Trustee is not
engaged principally in, and does not have as one of its important activities,
the business of extending credit for the purpose of purchasing or carrying any
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System of the United States), and no part of the proceeds of
the Investor Contribution will be used by it to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any such margin stock or for
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<PAGE> 20
any purpose that violates, or is inconsistent with, the provisions of
Regulations G, T, U, or X of the Board of Governors of the Federal Reserve
System of the United States.
(j) Investment Company Act. The Owner Trustee is not an
"investment company" or a company controlled by an "investment company" within
the meaning of the Investment Company Act.
(k) Taxes. There are no Taxes payable by the Owner Trustee,
either in its individual capacity or as Owner Trustee, imposed by the State of
Utah or any political subdivision thereof in connection with the execution and
delivery by the Trust Company, in its individual capacity or as Owner Trustee,
as the case may be, of this Agreement or the other Operative Agreements to which
it is a party; and there are no Taxes payable by the Trust Company, in its
individual capacity or as Owner Trustee, as the case may be, imposed by the
State of Utah or any political subdivision thereof in connection with the
acquisition of its interest in the Trust Estate (other than franchise or other
taxes based on or measured by any fees or compensation received by the Owner
Trustee for services rendered in connection with the transactions contemplated
hereby).
7.3. Representations and Warranties of the Lessee. Effective
as of the Initial Closing Date and each other Closing Date, the Lessee
represents and warrants to each of the other parties hereto that:
(a) Corporate Status. The Lessee (i) is a duly organized and
validly existing corporation in good standing under the laws of The Commonwealth
of Massachusetts and has the corporate power and authority to own its property
and assets and to transact the business in which it is engaged and (ii) has duly
qualified and is authorized to do business and is in good standing in all
jurisdictions (A) where the Equipment is located, and (B) where it is required
to be so qualified and where the failure to be so qualified would have a
Material Adverse Effect.
(b) Corporate Power and Authority. The Lessee has the
corporate power and authority to execute, deliver and carry out the terms and
provisions of the Operative Agreements to which it is or will be a party and has
taken all necessary corporate action to authorize the execution, delivery and
performance of the Operative Agreements to which it is or will be a party, has
duly executed and delivered each Operative Agreement required to be executed and
delivered by it on the applicable Closing Date, and each such Operative
Agreement constitutes a legal, valid and binding obligation enforceable against
it in accordance with its terms.
(c) No Violation. Neither the execution, delivery and
performance by the Lessee of the Operative Agreements to which it is or will be
a party nor compliance with the terms and provisions thereof, nor the
consummation of the transactions contemplated therein (i) will contravene any
applicable provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any court or governmental instrumentality applicable to
the Lessee or any of its property or assets, (ii) will conflict or be
inconsistent with or result in any breach of any of
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the terms, covenants, conditions or provisions of, or constitute a default
under, or (other than pursuant to the Operative Agreements) result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of the Lessee pursuant to the terms of any
indenture, loan agreement, lease agreement, mortgage, deed of trust, agreement
or other instrument to which the Lessee is a party or by which it or any of its
property or assets is bound or to which it may be subject, or (iii) will violate
any provision of the certificate of incorporation or by-laws of the Lessee.
(d) Judgments; Litigation. There are no material outstanding
judgments and there are no actions, suits or proceedings pending or, to the
knowledge of the Lessee, threatened with respect to the Lessee (i) to set aside,
restrain, enjoin or prevent the full performance of any Operative Agreement, or
(ii) that have a material risk of resulting in a Material Adverse Effect.
(e) Governmental and Other Approvals. No Governmental Action
by any Governmental Authority or authorization, registration, consent, approval,
waiver, notice or other action by, to or of any other Person is required to
authorize or is required in connection with (i) the execution, delivery or
performance by the Lessee of any Operative Agreement, except those which are
required to be made after the Initial Closing Date pursuant to regulatory
requirements to which the Lessee is subject, or (ii) the legality, validity,
binding effect or enforceability of any Operative Agreement, in each case,
except those which have been obtained.
(f) True and Complete Disclosure. All factual information
heretofore or contemporaneously furnished by the Lessee in writing to the
Independent Appraiser, the Investor or the Owner Trustee (including without
limitation all information contained in the Operative Agreements) for purposes
of or in connection with the Equipment, this Agreement or any transaction
contemplated herein is, and all other such factual information hereafter
furnished by or on behalf of such Persons in writing to the Independent
Appraiser, the Investor or the Owner Trustee will be, true and accurate in all
material respects on the date as of which such information is dated or certified
and not incomplete by omitting to state any material fact necessary to make such
information not misleading at such time in light of the circumstances under
which such information was provided. While the projected financial information
of the Lessee and its Subsidiaries prepared by the Lessee and delivered to the
Investor in connection with the consummation of this transaction was prepared in
good faith and, to the Lessee's knowledge, was reasonable when prepared, it is
based upon a number of assumptions, some of which may not materialize, and
unanticipated events may have occurred or may occur in the future which could
affect the actual results achieved by the by the Lessee and its Subsidiaries
during the period covered by such projections. Except as provided in the
immediately preceding sentence, no express or implied representation or warranty
is made with respect to the Lessee's projections. The Lessee does not intend to
update or otherwise revise such projections to reflect events or circumstances
after the date thereof. Such projections were not prepared with a view toward
compliance with published guidelines of the American Institute of Certified
Public Accountants or GAAP and have not been examined, reviewed or compiled by
the Lessee's independent public accountants.
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(g) Tax Returns and Payments. The Lessee and its Restricted
Subsidiaries have filed or caused to be filed all material tax returns and
reports which are required to be filed, and have paid all taxes shown to be due
and payable on said returns or on any assessments made against them or any of
their respective properties or assets, including the Equipment, and all other
taxes, fees and charges imposed on them or any of their respective properties by
any Governmental Authority other than those the amount or validity of which are
currently being contested in good faith by appropriate proceedings diligently
pursued and with respect to which reserves in conformity with GAAP have been
provided on the books of the Lessee and/or its Restricted Subsidiaries, as
applicable, and no tax Lien has been filed or received. There is no proposed tax
assessment against the Lessee and/or its Subsidiaries, as applicable, which
would reasonably be expected to have a Material Adverse Effect. The charges,
accruals and reserves on the books of the Lessee and/or its Subsidiaries, as
applicable, in respect of taxes or other governmental changes are, in the
opinion of the Lessee, adequate.
(h) Patents, etc.. (i) The Lessee has obtained all patents,
trademarks, servicemarks, trade names, copyrights, licenses and other rights,
free from burdensome restrictions, that are necessary for the operation of the
Equipment as presently conducted and as proposed to be conducted, (ii) none of
such patents, trademarks, servicemarks, copyrights or licenses infringes upon
the rights of others, and (iii) the Lessee has not received any notice or claim
of such infringement from any third party.
(i) Environmental and Other Regulations. The Lessee is in
compliance in all material respects with all Environmental Laws relating to
pollution and environmental control or employee safety in all domestic
jurisdictions in which the Lessee is presently doing business, and the Lessee
will comply in all material respects with all such laws and regulations which
may be imposed in the future in jurisdictions in which the Lessee may then be
doing business. Notwithstanding the foregoing, (i) no Governmental Authority has
issued any notice of violation of or non-compliance with any Environmental Law
with respect to the Equipment; (ii) there are not now circumstances that may
reasonably be anticipated to prevent or interfere with the Lessee's ability to
operate and maintain the Equipment as contemplated by the Operative Agreements
in compliance with all applicable Environmental Laws; (iii) no Hazardous
Substance is or has been used in connection with the Equipment, and the
Equipment will not and has not been used in connection with the generation,
treatment or disposal of any Hazardous Substances, except, in both cases, as
necessary for the normal and customary use, operation and maintenance of the
Equipment as contemplated by the Operative Agreements and in compliance with all
applicable Environmental Laws; and (iv) there are no past, pending or, to the
best of the Lessee's knowledge after due inquiry, threatened claims, actions or
proceedings under any Environmental Laws (x) with respect to the Equipment or
(y) involving the Lessee which are reasonably likely to affect the ability of
the Lessee to use, operate or maintain the Equipment for its intended purposes
or to perform the Lessee's obligations under the Operative Agreements.
(j) Lease. Upon the execution and delivery of the applicable
Equipment Schedules, (i) the Lessee will have unconditionally accepted the
Equipment subject to such
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<PAGE> 23
Equipment Schedules and will have a valid and subsisting leasehold interest in
the Equipment subject thereto, subject only to Permitted Liens, and (ii) no
offset will exist with respect to any Rent or other sums payable under the
Lease.
(k) Offer of Securities, etc. Neither the Lessee nor any
Person authorized to act on its behalf has, directly or indirectly, offered any
interest in the Equipment, the Trust Estate or any other interest similar
thereto (the sale or offer of which would be integrated with the sale or offer
of such interest in the Equipment or the Trust Estate), for sale to, or
solicited any offer to acquire any of the same from, any Person in violation of
the Securities Act.
(l) Bankruptcy. The Lessee has not filed a voluntary petition
in bankruptcy or been adjudicated a bankrupt or insolvent, or filed any petition
or answer seeking any reorganization, liquidation, receivership, dissolution or
similar relief under any bankruptcy, receivership, insolvency, or other law
relating to relief for debtors, or sought or consented to or acquiesced in the
appointment of any trustee, receiver, conservator or liquidator of all or any
part of its properties or its interest in any Equipment. No court of competent
jurisdiction has entered an order, judgment, or decree approving a petition
filed against the Lessee seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any federal or
state bankruptcy, receivership, insolvency or other law relating to relief for
debtors, and no other liquidator has been appointed for the Lessee or all or any
part of its properties or its interest in any Equipment, and no such action is
pending. The Lessee has not given notice to any Governmental Authority or any
Person of insolvency or pending insolvency, or suspension or pending suspension
of operations.
(m) Use of Funds. The Lessee shall not use the proceeds of any
Investor Contribution made available to it by the Lessor for any purpose other
than to reimburse itself for, or to repay indebtedness incurred by the Lessee in
order to finance, the cost of purchasing the Equipment being acquired by the
Lessor on the Closing Date related thereto.
(n) No Misstatement or Omission. The representations and
warranties of the Lessee set forth in the Operative Agreements are true and
correct in all respects on and as of each Closing Date. The Lessee is in
compliance with its obligations under the Operative Agreements and there exists
no Default or Event of Default under any of the Operative Agreements. No Default
or Event of Default will occur under any of the Operative Agreements as a result
of, or after giving effect to, the purchase of the Equipment being acquired by
the Lessor on a Closing Date requested by the Notice of Closing Date.
(o) Location. As of the applicable Closing Date, each item of
Equipment being acquired by the Lessor on such Closing Date is located at the
location set forth on the applicable Equipment Schedule, all of which are in the
continental United States.
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<PAGE> 24
(p) Title. Upon the acquisition of Equipment on any Closing
Date, and at all times thereafter, the Lessor will have good and marketable
title to such Equipment, subject only to Permitted Liens and Lessor Liens.
(q) Security Interest. Upon filing of the Lessor Financing
Statements with respect to the Equipment being acquired by the Lessor on a
Closing Date in the filing offices designated by the Lessee, such Lessor
Financing Statements will have been filed with the appropriate Governmental
Authority and, to the extent the Lease is treated as a lease intended for
security under applicable law, will create a valid and perfected first priority
security interest in all of such Equipment in favor of the Lessor.
(r) Insurance. As of the applicable Closing Date, the Lessee
will have obtained insurance coverage for the Equipment being acquired by the
Lessor on such Closing Date which meet the requirements of Section 14.1 of the
Lease and all of such coverage will be in full force and effect.
(s) Equipment Operational. As of the applicable Closing Date,
the Equipment being acquired by the Lessor on such Closing Date (i) complies
with all Legal Requirements (including, without limitation, all zoning and land
use laws and Environmental Laws); and (ii) meets the specifications of all
manufacturer's warranties, provided that no third party shall be entitled to
rely upon the representation and warranty in clause (ii) above, except for
transferees and providers of financing pursuant to Section 12.1 (a) or (b)
hereof. As of the Final Closing Date, the Equipment shall have been completely
installed, equipped and tested and is fully operational for its intended
purposes, and the Equipment shall have been "placed in service" for tax purposes
during the second quarter of the Investor's taxable year in which the Final
Closing Date occurs.
(t) Service and Facilities. As of the applicable Closing Date,
all utility services and facilities necessary for the operation of the Equipment
being acquired by the Lessor on such Closing Date (including, without
limitation, gas, electrical, water and sewage services and facilities) are
available at the location where such Equipment has been installed.
(u) Conditions Precedent Satisfied. As of each Closing Date,
all conditions precedent contained in this Agreement and in the other Operative
Agreements relating to the acquisition of the Equipment being acquired by the
Lessor on such Closing Date have been satisfied in full or waived.
(v) Conveyance Not Void Or Voidable. The conveyance of any
Equipment effected by a Bill of Sale on a Closing Date is not void or voidable
under any applicable state or federal law.
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<PAGE> 25
(w) Solvency. On each Closing Date, both before and after
giving effect to the transactions contemplated hereby, the Lessee will not be
insolvent within the meaning of any applicable law.
(x) Personal Property. Each item of Equipment is personal
property and is not, and will not be, attached to real estate in such a manner
that any item of Equipment constitutes, or will constitute, a fixture.
(y) Depreciation of the Equipment. (i) The Equipment will
qualify as property with respect to which the depreciation deductions provided
by Code Section 167(a) are determined pursuant to Code Section 168 using the
applicable depreciation method set forth in Code Section 168(b)(1) and the
applicable convention described in Code Section 168(d)(4)(A); (ii) approximately
8.7% of the Equipment will qualify as "3-year property," approximately 50.4% of
the Equipment will qualify as "5-year property" and approximately 40.9% of the
Equipment will qualify as "7-year property", each within the meaning of Code
Section 168(e)(1); and (iii) have a tax basis equal to 100% of Equipment Cost
(not taking into account the Transaction Expenses payable by the Investor
pursuant to Section 9.1 hereof).
(z) Transaction Expense Amortization. The Investor will be
entitled to amortize the Transaction Expenses payable by the Investor pursuant
to Section 9.1 hereof with respect to the Equipment on a basis not less rapid
than straight-line over a period not longer than the aggregate of the Basic Term
and a seven (7) year Operating Lease Term (excluding any Renewal Term).
(aa) Adverse Contracts. Neither the Lessee nor any of its
Subsidiaries is a party to or bound by, nor are any of the properties or assets
owned by it or used in the conduct of its business affected by, any agreement,
ordinance, resolution, decree, bond, note, indenture, order or judgment, or
subject to any charter or other corporate resolution, which could have a
Material Adverse Effect.
(bb) No Default. Neither the Lessee nor any of its
Subsidiaries is in default under, or in violation of any term of, any agreement
binding on it which default or violation could have a Material Adverse Effect.
(cc) Financial Statements. The balance sheets, profit and loss
statements and other financial information of the Lessee and its consolidated
Subsidiaries for the period ending December 31, 1994, and heretofore furnished
to the Investor present fairly the consolidated financial condition of the
Lessee and each of its consolidated Subsidiaries as at the dates thereof.
(dd) No Material Adverse Effect. There has been no Material
Adverse Effect since the December 31, 1994, balance sheet and financial
statements of the Lessee and its Subsidiaries heretofore furnished to the
Investor.
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<PAGE> 26
SECTION 8. COVENANTS OF THE LESSEE.
8.1. Affirmative Covenants. The Lessee covenants and agrees
that, so long as this Agreement remains in effect:
(a) Conduct of Business. The Lessee shall, and shall cause
each Restricted Subsidiary to, conduct its business in substantially the same
manner and in substantially the same fields as such business is carried on and
conducted on the date hereof.
(b) Corporate Existence. Except as otherwise provided in
Section 8.2(c) hereof, the Lessee shall, and shall cause each Restricted
Subsidiary to, maintain its corporate existence.
(c) Books and Records. The Lessee shall, and shall cause each
Restricted Subsidiary to, maintain its books and records in accordance with
GAAP, and permit the Investor to make or cause to be made, at the Investor's
expense, inspections and audits of any books, records and papers of the Lessee
and its Subsidiaries and to make extracts therefrom at all such reasonable times
and as often as the Investor may reasonably require.
(d) Corporate Name. The Lessee shall maintain as part of its
corporate name the "Fresenius" name.
(e) Consolidated EBITDA to Consolidated Interest Expense
Ratio. The Lessee shall maintain at the end of each calendar quarter a ratio of
its Consolidated EBITDA (computed for the previous twelve months) to
Consolidated Interest Expense (computed for the previous twelve months) of at
least 3:1 (all to be determined in accordance with GAAP consistently applied).
"Consolidated EBITDA" shall mean, for any period of determination thereof, the
consolidated net income (excluding any extraordinary gains) of the Lessee and
its Subsidiaries on a consolidated basis for such period before interest
expenses, provision for federal and state income taxes, depreciation and
amortization, in each case for such period. "Consolidated Interest Expense"
shall mean, for any period of determination thereof, the total interest expense
(including, without limitation, interest expense attributable to capitalized
leases in accordance with GAAP, but excluding from such total interest expense,
any interest paid to Fresenius AG) of the Lessee and its Subsidiaries for such
period determined on a consolidated basis.
(f) Consolidated Tangible Net Worth. The Lessee shall maintain
at all times Consolidated Tangible Net Worth in an amount not less than
$15,000,000 plus (i) one hundred percent (100%) of the net proceeds of the
issuance of any stock of the Lessee after the date hereof and (ii) fifty percent
(50%) of the consolidated net income of the Lessee and its Subsidiaries, if
positive, for each fiscal quarter after March 31, 1994. "Consolidated Tangible
Net Worth" shall be equal to total stockholders' equity minus intangibles
(including, without limitation, patents, copyrights, trademarks, and goodwill),
all determined in accordance with GAAP consistently applied.
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(g) Debt to Consolidated Tangible Net Worth Ratio. The Lessee
shall maintain at all times a ratio of (i) total Debt less the sum of (A) up to
$10,000,000 in Debt of the Lessee to Fresenius AG maturing within twelve (12)
months of the date of determination; and (B) the aggregate principal amount of
any other loans made by Fresenius AG to the Lessee and not included in the
preceding clause (A), to the extent such other loans shall have been
subordinated to the Lessee's obligations under the Loan Documents and the
Operative Agreements in a manner satisfactory to the Investor to (ii)
Consolidated Tangible Net Worth of (x) from the date hereof through but not
including December 31, 1995, not more than 3.5 to 1 and (y) on and after
December 31, 1995, 3.0 to 1.
(h) Financial Statements. The Lessee shall provide the
Investor with financial statements for the first three fiscal quarters of each
fiscal year (within sixty (60) days from the closing of the respective quarterly
period) and on an annual basis. Annual statements shall be supplied within one
hundred twenty (120) days from the closing of the respective annual fiscal
period and shall be audited by a nationally recognized, independent accountant.
(i) Officer's Certificate. The Lessee shall provide the
Investor concurrently with delivery of the financial statements referred to in
Section 8.1(h) hereof with a certificate of the chief financial officer of the
Lessee in the form of Exhibit C attached hereto and duly signed confirming (i)
that such officer has reviewed the terms of the Operative Agreements and has
concluded that no Lease Default or Lease Event of Default has occurred during
such period or, if any such default has occurred, specifying the nature and
extent thereof and, if continuing, the action the Lessee proposes to take in
respect thereof and (ii) the Lessee's compliance with the financial covenants
set forth in this Agreement as of the end of such calendar quarter.
(j) Further Information. The Lessee shall, and shall cause
each Restricted Subsidiary to, provide the Investor with any other information
the Investor may reasonably request from time to time.
8.2. Negative Covenants. The Lessee covenants and agrees that,
so long as this Agreement remains in effect:
(a) Debt. The Lessee shall not, and shall not permit any
Subsidiary to, incur, or permit to exist, any Debt other than (i) Debt incurred
from the Bank under the Loan Documents and any other Debt of the Lessee or any
Subsidiary to the Bank whether now existing or hereafter incurred, (ii) Debt
existing on the date hereof and described in Schedule 6 attached hereto, and
(iii) any extension, renewal, or refinancing of the Debt referred to in clause
(ii), provided that (x) if such Debt is unsecured, such Debt as extended,
renewed or refinanced remains unsecured and (y) the terms of such Debt as
extended, renewed or refinanced are no more restrictive than the terms of such
Debt as of the date hereof; (iv) Debt of the Lessee to Fresenius AG to the
extent such Debt (x) matures within twelve (12) months of the date of incurrance
or issuance thereof and does not exceed $10,000,000 in the aggregate principal
amount or (y) shall have been subordinated to the Lessee's obligations
hereunder, under the Loan Documents and the
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Operative Agreements in a manner satisfactory to the Investor and (v) Debt in
addition to the Debt permitted under the preceding clauses (i) through (iv) of
this paragraph (a) incurred after the date hereof, provided that the aggregate
principal amount of such additional Debt outstanding at any one time shall not
exceed $35,000,000. "Debt" shall mean, with respect to any Person, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than trade payables incurred in the
ordinary course of business of such Person and not overdue and other than trade
payables payable by the Lessee to Fresenius AG), (ii) all indebtedness of such
Person evidenced by a note, bond, debenture or similar instrument, (iii) the
principal component of all capitalized leases (as defined in accordance with
GAAP) of such Person, (iv) the face amount of all letters of credit (other than
documentary letters of credit) issued for the account of such Person and all
unreimbursed amounts drawn thereunder, (v) all indebtedness of any other Person
secured by any lien on any property owned by such Person, whether or not such
indebtedness has been assumed, and (vi) all Contingent Obligations of such
Person.
(b) Contingent Obligations. The Lessee shall not, and shall
not permit any Subsidiary to, incur, or permit to exist, any Contingent
Obligation other than (i) any Contingent Obligation under the Loan Documents or
the Operative Agreements and any other Contingent Obligation of the Lessee or
any Subsidiary to the Investor or the Bank whether now existing or hereafter
incurred, and (ii) Contingent Obligations existing on the date hereof and
described in Schedule 6 attached hereto. "Contingent Obligation" shall mean, as
to any Person, any obligation of such Person guaranteeing or intended to
guarantee or having the effect of guaranteeing any Debt, leases, dividends or
other obligations ("primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly; provided, however, that
the term "Contingent Obligation" shall not include (i) endorsements of
instruments for deposit or collection in the ordinary course of business or (ii)
any guarantee by the Lessee of the primary obligations of any wholly owned
Subsidiary of the Lessee.
(c) Merger, Consolidation, Sale or Lease. The Lessee shall
not, and shall not permit any Subsidiary to, enter into any merger or
consolidation or sell or lease or otherwise dispose of all or any substantial
part of its assets, other than sales in the ordinary course of business or as
contemplated by the Operative Agreements; except that any Subsidiary may merge
into or consolidate with any other Subsidiary which is wholly owned by the
Lessee, and any Subsidiary which is wholly owned by the Lessee may merge with or
consolidate into the Lessee provided that the Lessee is the surviving
corporation.
(d) Investments. The Lessee shall not, and shall not permit
any Subsidiary to, lend or advance money, credit or property to or invest in (by
capital contribution, loan, purchase or otherwise) any Person except investments
in the ordinary course of the Lessee's business in Persons engaged in
substantially the same business as the Lessee and except investments in
Permitted Investments having maturities not in excess of one year. "Permitted
Investments" shall mean shall mean (i) obligations of or directly and fully
guaranteed by the United States of America or any agency or instrumentality
thereof when such obligations are backed by the full faith and
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<PAGE> 29
credit of the United States, (ii) certificates of deposit, time deposits or
bankers acceptances issued by any domestic or foreign commercial bank whose
long-term credit rating is at least A- or the equivalent by Standard & Poor's
Rating Group and A3 or the equivalent by Moody's Investors Service, Inc., (iii)
direct obligations of, the principal of and interest on which are
unconditionally guaranteed by, and any other obligations the interest on which
is excluded from gross income for federal income tax purposes issued by, any
state of the United States, the District of Columbia or the Commonwealth of
Puerto Rico, or any political subdivision, agency, authority or other
instrumentality of any of the foregoing, which are rated at least AA or the
equivalent by Standard & Poor's Rating Group and Aa or the equivalent by Moody's
Investors Service, Inc., (iv) commercial paper issued by any corporation rated
at least A-1 or the equivalent by Standard & Poors Rating Group and at least P-1
or equivalent by Moody's Investors Service, Inc., (v) instruments issued by
investment companies having a portfolio ninety-five percent (95%) or more
consisting of the type described above, (vi) repurchase agreements with banking
institutions and securities dealers recognized as primary dealers by the Federal
Reserve Bank of New York having a combined capital and surplus of not less than
$250 million with respect to any of the obligations described in clauses (i)
through (iii) above in which a fiduciary shall have a perfected security
interest and for which a fiduciary shall hold as collateral the securities
purchased or a third party shall hold as collateral the securities purchased for
the benefit of the fiduciary, and (vii) other investment grade instruments to be
mutually agreed upon by the Investor and the Lessee.
(e) Liens. The Lessee shall not, and shall not permit any
Subsidiary to, create, assume, or permit to exist, any Lien on any of its
property or assets now owned or hereafter acquired except (i) Liens in favor of
the Bank under the Loan Documents and any other Liens of the Lessee or any
Subsidiary in favor of the Bank whether now existing or hereafter created, (ii)
Liens for Taxes or other governmental charges which are not delinquent or which
are being contested in good faith and for which a reserve shall have been
established in accordance with GAAP, (iii) statutory Liens of landlords and
Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed
by any Requirement of Law (other than any Lien imposed under ERISA or pursuant
to any Environmental Law) created in the ordinary course of business for amounts
not yet due or which are being contested in good faith by appropriate
proceedings diligently conducted and with respect to which adequate bonds have
been posted, (iv) easements, rights-of-way, zoning and similar restrictions and
other similar charges or encumbrances not interfering with the ordinary conduct
of business and which do not detract materially from the value of the property
to which they attach or impair materially the use thereof, (v) Liens created to
secure purchase money indebtedness or capital lease indebtedness, in each case
to the extent such Debt is permitted under Section 8.2(a) hereof, provided that
(x) such Liens are only in respect of the property or assets subject to, and
secure only, such Debt and (y) the aggregate amount of such Debt secured by such
Liens shall not exceed $12,500,000 in the aggregate at any time outstanding, and
(vi) customary Liens arising from or created in connection with the issuance of
letters of credit for the account of the Lessee, provided that in each case such
Liens apply only to the raw materials, inventory, machinery or equipment in
connection with the purchase of which such letter of credit was issued or to the
balance of any account of the account party in respect of such letter of credit
with the bank issuing such letter of credit. Notwithstanding the foregoing (i)
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there shall be no Liens on any of the Collateral (as defined in the Loan
Documents) other than Liens in favor of the Bank and (ii) the restriction on
Liens contained in this paragraph (e) shall not be deemed to extend to any Lien
arising out of or deemed to arise out of any lease (including, without
limitation, the Lease) in respect of which the Investor, any affiliate thereof
or any trustee acting on behalf of the Investor or such affiliate is the lessor
and the Lessee is the lessee.
(f) Dividends. The Lessee shall not, and shall not permit any
Subsidiary to, declare or pay any dividends on its capital stock (other than
dividends payable solely in shares of its own common stock), or purchase,
redeem, retire or otherwise acquire any of its capital stock at any time
outstanding, except that (i) any Subsidiary of the Lessee may declare and pay
dividends pro rata to the holders of shares of its capital stock entitled to
receive such dividends, and (ii) the Lessee may declare or pay dividends on its
capital stock, in each case so long as (x) no Default or Event of Default has
occurred and is continuing at the time of such declaration or payment and (y)
the aggregate amount of such dividends paid or declared by any such Subsidiary
to entities other than Subsidiaries of the Lessee plus the aggregate amount of
such dividends paid or declared by the Lessee plus the aggregate amounts paid by
any joint venture in which the Lessee or any Subsidiary of the Lessee is a joint
venturer to any entity other than the Lessee or a Subsidiary of the Lessee, in
each case in any fiscal year, does not exceed fifty percent (50%) of the
consolidated net income (excluding any extraordinary gains) of the Lessee and
its Subsidiaries on a consolidated basis for the fiscal year immediately
preceding such fiscal year.
(g) Operating Leases. The Lessee shall not, and shall not
permit any Subsidiary to, create, assume, enter into, or permit to exist any
operating lease (as defined in accordance with GAAP consistently applied) if
after giving effect to such operating lease the aggregate amount of payments
required to be made by the Lessee and its Restricted Subsidiaries under all
operating leases (other than any operating lease in respect of which the
Investor, any affiliate thereof or any trustee acting on behalf of the Investor
or such affiliate is the lessor and the Lessee is the lessee) in any fiscal year
will exceed the Maximum Lease Amount. The "Maximum Lease Amount" shall mean, for
any fiscal year, an amount equal to (i) for the fiscal years beginning January
1, 1994 and January 1, 1995, $6,000,000, and (ii) for each fiscal year
thereafter, an amount equal to the Maximum Lease Amount for the immediately
preceding fiscal year plus an amount equal to five percent (5%) of such amount.
(h) Change of Location or Name. The Lessee shall not move its
chief executive office, or change its name from, nor carry on business under any
name other than, "Fresenius USA, Inc.", until (i) it has given to the Investor
and the Lessor not less than sixty (60) days' prior written notice of its
intention to do so, clearly describing such new location or specifying such new
name, as the case may be, and providing such other information in connection
therewith as the Investor may reasonably request, and (ii) with respect to such
new location or such new location or such new name, as the case may be, it shall
have taken all action, satisfactory to the Investor and the Lessor to protect
their interest in the Equipment.
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SECTION 9. PAYMENT OF CERTAIN EXPENSES.
9.1. Transaction Expenses. (a) If the Initial Closing Date
occurs, on the Initial Closing Date, the Investor shall pay, or cause to be
paid, the Commitment Fee, all reasonable fees, expenses and disbursements of
each of the Lessor's, Owner Trustee's and the Investor's counsel in connection
with the transactions contemplated by the Operative Agreements and incurred in
connection with such Initial Closing Date, including all Transaction Expenses of
the Lessor, the Owner Trustee and the Investor (arising from the Initial Closing
Date), and all other reasonable expenses in connection with such Initial Closing
Date, including, without limitation, all expenses relating to the Preliminary
Appraisal, due diligence, environmental audit and all fees, taxes and expenses
for the recording, registration and filing of documents and the initial fees and
expenses of the Owner Trustee.
(b) On each other Closing Date, the Investor shall pay, or
cause to be paid, all reasonable fees, expenses and disbursements of each of the
Lessor's, the Owner Trustee's, and the Investor's counsel in connection with
such transactions contemplated by the Operative Agreements and incurred in
connection with such Closing Date, including all Transaction Expenses of the
Lessor, the Owner Trustee and the Investor (arising from such Closing Date), and
all other reasonable expenses of the Lessor, the Owner Trustee and the Investor
in connection with such Closing Date, including, without limitation, all
expenses relating to the Final Appraisal (in the case of the Final Closing
Date), due diligence, environmental audit and all fees, taxes and expenses for
the recording, registration and filing of documents.
(c) If the Initial Closing Date does not occur, the Lessee
shall pay all of the Transaction Expenses referred to in Section 9.1(a) hereof
(other than the Commitment Fee). Following the occurrence of the Initial Closing
Date, the Lessee agrees to pay when due: (i) the reasonable expenses (including
legal fees and expenses) of the Owner Trustee and the Investor incurred
subsequent to the Initial Closing Date in connection with any supplements,
amendments, modifications or alterations of any of the Operative Agreements;
(ii) the ongoing reasonable fees and expenses (including legal fees and
expenses) of the Owner Trustee under the Trust Agreement; (iii) all reasonable
costs and expenses incurred by the Lessor, the Lessee and the Investor in
connection with any purchase of any Equipment by the Lessee pursuant to Section
16 or 20 of the Lease. In either event, the Lessee shall pay (A) the fees and
expenses of its legal counsel; and (B) any costs and expenses relating to this
transaction as provided in the Operative Agreements which the Lessor or the
Investor is not expressly obligated to pay hereunder.
(d) The Lessee also agrees, to the extent permitted by
applicable law, to pay and indemnify the Owner Trustee and the Investor against
any reasonable costs and expenses incurred on or after the occurrence of a Lease
Default or a Lease Event of Default, including reasonable attorneys' fees
incurred by the Owner Trustee or the Investor, in evaluating (in connection with
any investigation, litigation or other proceeding involving the Lessee
(including,
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without limitation, any threatened investigation or proceeding) relating to this
Agreement or the other Operative Agreements to which the Lessee is a party) and
enforcing any rights or remedies under this Agreement or the other Operative
Agreements to which the Lessee is a party or in responding to any subpoena or
other legal process issued in connection with this Agreement or the other
Operative Agreements to which the Lessee is a party, including without
limitation, costs and expenses incurred in any bankruptcy case.
9.2. Brokers' Fees and Stamp Taxes. The Lessee shall pay or
cause to be paid any brokers' fees and any and all stamp, transfer and other
similar taxes, fees and excises, if any, including any interest and penalties,
which are payable in connection with the transactions contemplated by this
Agreement and the other Operative Agreements, provided that the Lessee shall not
be responsible for any such taxes, fees or excises in connection with a transfer
by the Lessor or the Investor of its rights or interests under Section 12.1
hereof.
SECTION 10. OTHER COVENANTS AND AGREEMENTS.
10.1. Cooperation with the Lessee. The Investor and the Owner
Trustee (at the direction of the Investor) shall, to the extent reasonably
requested by the Lessee (but without assuming additional liabilities on account
thereof), at the Lessee's expense, cooperate with the Lessee in connection with
its covenants contained in Section 14.11 hereof including, without limitation,
at any time and from time to time, upon the request of the Lessee, to promptly
and duly execute and deliver any and all such further instruments, documents and
financing statements (and continuation statements related thereto) as the Lessee
may reasonably request in order to perform such covenants. Each of the Investor
and the Owner Trustee agrees that, to the extent it (or, in the case of the
Owner Trustee, a Responsible Officer thereof) shall obtain actual knowledge of
the occurrence of a Lease Default or Lease Event of Default, it shall promptly
notify the Lessee describing the same in reasonable detail or provide the Lessee
with a copy of any default notice received by it; provided, that the failure to
provide such notices shall not result in any liability to the Investor or the
Owner Trustee.
10.2. Covenants of the Owner Trustee and the Investor. Each of
the Owner Trustee and the Investor hereby agrees, severally and not jointly,
that so long as this Agreement is in effect:
(a) Discharge of Liens. Each of the Investor and the Owner
Trustee (both in its trust capacity and in its individual capacity) will not
create or permit to exist at any time, and will, at its own cost and expense,
promptly take such action as may be necessary duly to discharge, or to cause to
be discharged, all Lessor Liens on the Equipment attributable to it; provided,
however, that the Investor and the Owner Trustee shall not be required to so
discharge any such Lessor Lien while the same is being contested in good faith
by appropriate proceedings diligently prosecuted so long as such proceedings
shall not involve any material danger of impairment of the Liens of the Security
Documents or of the sale, forfeiture or loss of, and shall
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not interfere with the use or disposition of, any Equipment or title thereto or
any interest therein or the payment of Rent.
(b) Trust Agreement. Without prejudice to any right under the
Trust Agreement of the Owner Trustee to resign, or the Investor's rights under
the Trust Agreement to remove the institution acting as Owner Trustee, each of
the Investor and the Owner Trustee hereby agrees with the Lessee (i) not to
terminate or revoke the trust created by the Trust Agreement except as permitted
by Section 8 of the Trust Agreement, (ii) not to amend, supplement, terminate or
revoke or otherwise modify any provision of the Trust Agreement in such a manner
as to adversely affect the rights or interests of the Lessee without the prior
written consent of the Lessee and (iii) to comply with all of the terms of the
Trust Agreement, the nonperformance of which would adversely affect the Lessee.
(c) Successor Owner Trustee. The Owner Trustee or any
successor may resign or be removed by the Investor as Owner Trustee, a successor
Owner Trustee may be appointed, and a corporation may become the Owner Trustee
under the Trust Agreement, only in accordance with the provisions of Section 9
of the Trust Agreement and, with respect to such appointment, with the consent
of the Lessee, which consent shall not be unreasonably withheld or delayed.
(d) Indebtedness; Other Business. The Owner Trustee, in its
capacity as Owner Trustee under the Trust Agreement, and not in its individual
capacity, shall not contract for, create, incur or assume any indebtedness, or
enter into any business or other activity, other than pursuant to or under the
Operative Agreements.
(e) No Violation. The Investor will not instruct the Owner
Trustee to take any action in violation of the terms of any Operative Agreement.
(f) No Voluntary Bankruptcy. Neither the Investor nor the
Owner Trustee shall (i) commence any case, proceeding or other action with
respect to the Owner Trustee under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, arrangement, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (ii) seek appointment of a
receiver, trustee, custodian or other similar official with respect to the Owner
Trustee or for all or any substantial part of its property, or a general
assignment for the benefit of the creditors of the Owner Trustee; and neither
the Investor nor the Owner Trustee shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in this paragraph.
(g) Change of Chief Place of Business. The Owner Trustee shall
give prompt notice to the Lessee and the Investor if the Owner Trustee's chief
place of business or chief executive office, or the office where the records
concerning the Equipment or the Trust Estate are kept, shall cease to be located
at 79 South Main Street, Salt Lake City, Utah 84111 or if it shall change its
name.
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10.3. Computation of Rent.
(a) Basis of Rental Rates. The rental rates applicable to the
Rent under the Lease shall be determined based upon the Eurodollar Rate, except
as otherwise required by any circumstances described in Sections 10.3(d) or 10.4
hereof. If any of such Sections are applicable, the rental rates applicable to
the Lease shall, until the condition or event described therein has been cured
or otherwise no longer exists, be determined based upon the ABR. If the ABR is
applicable, the term "ABR" shall be substituted for the term "Eurodollar Reserve
Rate" in the definitions of "Eurodollar Component" and "Overdue Rate".
(b) Overdue Rate. If all or a portion of any other amount
payable by the Lessee hereunder, under the Lease or under any other Operative
Agreement shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a rate
per annum which is equal to the Overdue Rate from the date of such non-payment
until such amount is paid in full (as well after as before judgment) and such
interest shall constitute Supplemental Rent.
(c) Calculation. Basic Rent shall be calculated on the basis
of a 360-day year for the actual days elapsed. The Investor shall as soon as
practicable notify the Lessor and the Lessee of each determination of a
Eurodollar Reserve Rate. Any change in the Eurodollar Component of Basic Rent
resulting from a change in the ABR or the Eurocurrency Reserve Requirements
shall become effective as of the opening of business on the day on which such
change becomes effective. The Investor shall as soon as practicable notify the
Lessor and the Lessee of the effective date and the amount of each such change
in rental rate. Each determination of a rental rate by the Investor pursuant to
any provision of this Agreement shall be conclusive and binding on the Lessor
and the Lessee in the absence of manifest error. The Investor shall, at the
request of the Lessee, deliver to the Lessee a statement showing the quotations
used by the Investor in determining any rental rate pursuant to Section 10.3(a)
hereof.
(d) Inability to Determine Eurodollar Rate. If the Eurodollar
Rate cannot be determined by the Reference Lender in the manner specified in the
definition of the term "Eurodollar Rate", the Investor shall give telecopy or
telephonic notice thereof to the Lessor and the Lessee as soon as practicable
thereafter. Until such time as the Eurodollar Rate can be determined by the
Reference Lender in the manner specified in the definition of such term, the
Eurodollar Component shall be determined based upon the ABR as provided in
Section 10.3(a) hereof until a Eurodollar Rate is again able to be determined.
10.4. Increased Costs, Illegality, etc.
(a) Costs. If (i) there shall be any increase in the cost to
the Investor of agreeing to make or making, funding or maintaining its
investment in the Lease or (ii) any reduction in any amount receivable in
respect thereof, and such increased cost or reduced amount receivable is due to
either:
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(x) the introduction of or any change in, or in the
interpretation of, any law or regulation after the date
hereof; or
(y) the compliance with any guideline or request made
after the date hereof from any central bank or other
Governmental Authority (whether or not having the force of
law);
then (subject to the provisions of Section 10.6 hereof) the Lessee shall from
time to time, upon written demand by the Investor pay the Investor additional
amounts sufficient to compensate the Investor for such increased cost or reduced
amount receivable (other than costs and amounts addressed and either covered by
or specifically excluded from coverage of Section 13 hereof).
(b) Capital Standards. If the Investor shall have reasonably
determined that (i) the applicability of any law, rule, regulation or guideline
adopted after the date hereof pursuant to or arising out of the July 1988 paper
of the Basle Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards", or
(ii) the adoption after the date hereof of any other law, rule, regulation or
guideline regarding capital adequacy affecting the Investor, or (iii) any change
arising after the date hereof in any such law, rule, regulation or guideline or
in the interpretation or administration of any of the foregoing by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or (iv) compliance by the Investor (or
any lending office of the Investor), or any holding company for the Investor
which is subject to any of the capital requirements described above, with any
request or directive of general application issued after the date hereof
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on the Investor's capital or on the capital of any
such holding company as a direct consequence of the Investor's obligations
hereunder or under the Lease to a level below that which the Investor or any
such holding company could have achieved but for such adoption, change or
compliance (taking into consideration the Investor's policies and the policies
of such holding company with respect to capital adequacy) by an amount deemed by
the Investor to be material, then (subject to the provisions of Section 10.6
hereof) from time to time the Investor may request the Lessee to pay to the
Investor such additional amounts as will compensate the Investor or any such
holding company for any such reduction suffered. Any certificate as to such
amounts which is delivered pursuant to Section 10.6(a) hereof shall, in addition
to any items required by Section 10.6(a) hereof, include the calculation of the
savings (if any) which may be reasonably projected to be associated with such
increased capital requirement; provided, however, that in no event shall the
Investor be obligated to pay or refund any amounts to the Lessee on account of
such savings.
(c) Illegality. Notwithstanding any other provision herein, if
the adoption of or any change in any Requirement of Law or in the interpretation
or application thereof shall make it unlawful for the Investor to make or
maintain its investment in the Lease based upon the Eurodollar Rate as
contemplated by this Agreement, the Investor shall give notice thereof to the
Lessor and the Lessee describing the relevant provisions of such Requirement of
Law, following
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which the commitment of the Investor hereunder to maintain its investment based
upon the Eurodollar Rate shall forthwith be cancelled and the rental rates
applicable to the Rent under the Lease shall be converted from rates based upon
the Eurodollar Rate to rates based upon the ABR (i) on the last day of the then
current Rental Period, or (ii) within such earlier period as required by law. If
any such conversion occurs on a day which is not the last day of the then
current Rental Period with respect thereto, the Lessee shall pay to the Investor
such amounts, if any, as may be required pursuant to Section 10.5 hereof.
10.5 Funding Indemnity. Subject to the provisions of
Section 10.6(a) hereof, the Lessee agrees to indemnify the Investor and to hold
the Investor harmless from any loss or reasonable expense which the Investor may
sustain or incur as a consequence of (a) there being no Closing Date on the date
scheduled therefor for any reason other than default by the Investor or the
Owner Trustee after furnishing a Notice of Closing Date, (b) any conversion from
or continuation of the basis for the determination of Rent based upon the
Eurodollar Rate as provided herein, or (c) the making of a voluntary or
involuntary prepayment of Basic Rent or Supplemental Rent on a day which is not
the last day of a Rental Period with respect thereto. Such indemnification shall
be in an amount equal to the excess, if any, of (i) the amount of interest which
would have accrued on the amount so prepaid, or not so invested, converted or
continued, for the period from the date of such prepayment or of such failure to
invest, convert or continue to the last day of such Rental Period (or, in the
case of a failure to invest, the Rental Period that would have commenced on the
date of such failure) in each case at the applicable rate of interest provided
for herein, provided that, in the case of a conversion described in (b) above,
the amount described in this clause (i) shall be based solely upon the
Eurodollar Component and not any other component of Basic Rent, over (ii) the
amount of interest (as determined by the Investor) which would have accrued to
the Investor on such amount by placing such amount on deposit for a comparable
period with leading banks in the relevant interest rate market. This covenant
shall survive the termination of this Agreement and the payment of all other
amounts payable hereunder.
10.6. Notice of Amounts Payable; Relocation.
(a) Notice. In the event that the Investor becomes aware that
any amounts are or will be owed to it pursuant to Sections 10.4 or 10.5 hereof
or that it is unable to maintain its investment in the Lease on the basis of the
Eurodollar Rate, then it shall promptly notify the Lessor and the Lessee thereof
and, as soon as possible thereafter, the Investor shall submit to the Lessee
(with a copy to the Lessor) a certificate indicating the amount owing to it and
the calculation thereof. The amounts set forth in such certificate shall be
prima facie evidence of the obligations of the Lessee hereunder.
(b) Relocation. If the Investor claims any additional amounts
payable pursuant to Section 10.4 hereof or that it is unable to maintain its
investment in the Lease on the basis of the Eurodollar Rate, it shall use its
reasonable efforts (consistent with legal and regulatory restrictions) to avoid
the need for paying such additional amounts or such inability, including
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changing the jurisdiction of the applicable office through which the investment
in this Lease is maintained; provided, however, that the taking of any such
action would not, in the sole judgment of the Investor, be disadvantageous to
the Investor.
SECTION 11. OPERATING LEASE.
11.1. Election to Provide Operating Lease. If the Lease has
not been otherwise earlier terminated and the Lessee shall have made an election
under Section 20.3 of the Lease, then the Lessee shall cause an Operating Lessee
to enter into a replacement lease (an "Operating Lease"). Any such Operating
Lease shall:
(a) have a term that begins immediately upon the expiration of
the Basic Term or the then current Renewal Term and continues for a term of
seven (7) years (the "Operating Lease Term");
(b) except as provided below, contain substantive terms and
conditions identical in all material respects (but with appropriate changes to
reflect the different identity of the Operating Lessee) to those contained in
the Lease, except for Sections 13.3(a)(i) hereof and Sections 19, 20, 21 and 22
(except as set forth in Section 11.1(d) hereof) of the Lease (the subject matter
of which need not be addressed in the Operating Lease), and no terms or
conditions inconsistent therewith as well as representations, warranties,
covenants and indemnities identical in all material respects (but with
appropriate changes to reflect the identity and credit standing of the Operating
Lessee) to those contained in Sections 7.3 and 8 hereof;
(c) provide for basic rent ("Operating Lease Basic Rent") in
amounts at least equal to the amounts calculated according to the formula set
forth in Exhibit D attached hereto; and
(d) provide for the return of the Equipment at the expiration
of the Operating Lease Term to the Lessor dismantled and delivered to a location
selected by the Lessor, free and clear of any and all Liens.
11.2. Rejection. The Lessor may, by irrevocable written notice
delivered to the Lessee no later than twelve (12) months prior to the Expiration
Date, elect to reject any proposed Operating Lease and relieve the Lessee of its
obligations under this Section 11 and Section 20.3 of the Lease, in which case
the Lessee shall deliver or surrender the Equipment to the Lessor at the end of
the Term of the Lease in accordance with the provisions of Sections 10.1 and
22.1 (other than Section 22.1(b)) thereof.
11.3. Conditions to the Investor's and the Lessor's
Obligations. At the commencement of the Operating Lease, the Lessee shall cause
the Equipment to be delivered or surrendered to the Operating Lessee in
accordance with Sections 10.1 and 22.1 of the Lease as
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directed by the Operating Lessee. In addition, the Lessor's obligation to enter
into the Operating Lease shall be subject to the satisfaction of the following
conditions at or prior to the commencement of the Operating Lease Term: (i) the
Operating Lease shall be duly executed by Operating Lessee, and such other
recordings, filings, financing statements, continuation statements or other
instruments and all other actions shall have been taken as are necessary to
maintain the Lessor's title to the Equipment, (ii) the Lessor and the Investor
shall be furnished with such evidence of compliance by the Operating Lessee with
the insurance provisions of the Operating Lease as the Lessor and the Investor
may reasonably request and such other documents, certificates and opinions of
counsel as the Lessor and the Investor may reasonably request, (iii) the Lessee
shall furnish the Lessor with a certificate of a Responsible Officer of the
Lessee certifying that immediately prior to the commencement of the Operating
Lease no Lease Default or Lease Event of Default exists unless such Lease
Default or Lease Event of Default is cured at the time or as a result of
entering into the Operating Lease, and no Lease Default or Lease Event of
Default shall occur as a result of the entering into of the Operating Lease, and
(iv) such other matters and proceedings taken in connection with such
transaction shall be reasonably satisfactory to the Lessor and the Investor and
their counsel.
11.4. Expenses. The Lessee shall be responsible for all
reasonable costs, fees and expenses incurred by the Lessee, the Lessor, the
Investor, the Agent and the Lenders (including, without limitation, reasonable
fees and disbursements of counsel) in connection with the Operating Lease.
11.5. Notices and Documentation. If the Lessee shall elect to
cause an Operating Lessee to enter into an Operating Lease pursuant to this
Section, then (i) on or before sixteen (16) months prior to the expiration of
the Basic Term or any Renewal Term, as the case may be, the Lessee shall give
the Lessor irrevocable notice of such election, which notice shall identify the
proposed Operating Lessee and shall furnish such financial and such other
information as the Lessor may reasonably request; and (ii) should the Lessor not
elect to reject the proposed Operating Lease pursuant to Section 11.2 hereof,
the Lessor and the Investor each shall negotiate in good faith to enter into the
Operating Lease documentation with the Operating Lessee on or before the
Expiration Date.
SECTION 12. TRANSFER OF INTEREST.
12.1. Restrictions on Transfer. (a) The Investor may, directly
or indirectly, assign, sell or grant participations in, convey or otherwise
transfer any of its right, title or interest in or to the Trust Estate, the
Trust Agreement or any other Operative Agreement without the consent of any
party hereto or thereto. The Owner Trustee may, subject to the Lien of the
applicable Security Documents and with the consent and at the direction of the
Investor, directly or indirectly, assign, sell or grant participations in,
convey, appoint an agent with respect to enforcement of, or otherwise transfer
any of its right, title or interest in or to any Equipment, the Lease, the Trust
Agreement, this Agreement (including, without limitation, any right to
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indemnification thereunder), any Operative Agreement or any other document
relating to the Equipment or any interest in the Equipment as provided in the
Trust Agreement and the Lease.
(b) In addition, the Investor and/or the Owner Trustee, with
the consent and at the direction of the Investor, may enter into one or more
Credit Agreements and related Security Documents in connection with any
financing by the Investor of its interest in the Equipment or the Trust Estate.
Upon the written request of the Investor, the parties hereto shall negotiate and
enter into a Credit Agreement, such Security Documents, and such amendments to
this Agreement and the other Operative Agreements and the parties shall execute
such other documents, agreements and instruments (including estoppel
certificates) as the Investor shall reasonably request and as are customary in
synthetic lease transactions, leveraged lease transactions or securitized
financings to effect such financing, provided, that no such agreements,
documents or amendments shall result in any change in any amounts payable by the
Lessee under any Operative Agreement other than pursuant to the indemnification
provisions thereof (except for the indemnification provisions contained in
Sections 13.2 and 13.3 hereof, to the extent referred to therein). In connection
with any such financing, the Lessee agrees that, from time to time upon not less
than ten (10) days' prior request by the Investor or the Owner Trustee, the
Lessee will deliver to the Investor, the Lessor and any other Person requested
by either of them (i) a statement in writing certifying (A) that the Lease is
unmodified and in full force and effect (or if there have been modifications, a
description of such modifications and that the Lease as modified is in full
force and effect); (B) the dates to which Rent and other charges have been paid;
(C) that the Lessor is not in default under any provision of the Lease, or, if
in default, the nature thereof in detail; and (D) such further matters as the
Investor or the Lessor may request; and (ii) such instruments of subordination
and attornment as the Investor or the Lessor may request in connection
therewith, it being intended that any such statements and instruments may be
relied upon by any prospective lenders or other providers of such financing, or
any prospective assignee of any such Persons, or any prospective and/or
subsequent purchaser or transferee of all or a part of the Lessor's or the
Investor's interest in the Trust Estate, subject to delivery by such prospective
lender, assignee or purchaser to the Lessee of a non-disturbance agreement with
respect to the Lessee's quiet enjoyment of the Equipment, in form and substance
reasonably satisfactory to the Lessee.
12.2. Effect of Transfer. From and after any transfer effected
in accordance with this Section 12, the transferor shall be released, to the
extent of such transfer, from its liability hereunder and under the other
documents to which it is a party in respect of obligations to be performed on or
after the date of such transfer; provided, however, that any transferor Investor
shall remain liable under Section 11 of the Trust Agreement to the extent that
the transferee Investor shall not have assumed the obligations of the transferor
Investor thereunder. Upon any transfer by the Owner Trustee or an Investor as
above provided, any such transferee shall assume the obligations of the Owner
Trustee, and the Lessor or Investor, as the case may be, and shall be deemed an
"Owner Trustee", "Lessor" or "Investor", as the case may be, for all purposes of
such documents and each reference herein to the transferor shall thereafter be
deemed a reference to such transferee for all purposes, except as provided in
the preceding sentence. Notwithstanding
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any transfer of all or a portion of the transferor's interest as provided in
this Section 12, the transferor shall be entitled to all benefits accrued and
all rights vested prior to such transfer including, without limitation, rights
to indemnification under any such document.
SECTION 13. INDEMNIFICATION.
13.1. General Indemnity. The Lessee, whether or not any of the
transactions contemplated hereby shall be consummated, hereby assumes liability
for and agrees to defend, indemnify and hold harmless each Indemnified Person on
an After Tax Basis from and against any Claims, which may be imposed on,
incurred by or asserted against an Indemnified Person (other than to the extent
such Claims arise from the misrepresentation, violation of covenants, gross
negligence or willful misconduct of such Indemnified Person or Claims addressed
in and either covered by or specifically excluded from the coverage of Sections
13.2 or 13.3 hereof) in any way relating to or arising or alleged to arise out
of the execution, delivery, performance or enforcement of this Agreement, the
Lease or any other Operative Agreement or on or with respect to any Equipment,
including, without limitation, Claims in any way relating to or arising or
alleged to arise out of (a) the financing, refinancing, purchase, acceptance,
rejection, ownership, design, construction, delivery, acceptance, nondelivery,
leasing, subleasing, possession, use, operation, repair, maintenance,
modification, transportation, condition, sale, return, repossession (whether by
summary proceedings or otherwise), or any other disposition of any Equipment or
any part thereof; (b) any latent or other defects in any property whether or not
discoverable by an Indemnified Person or the Lessee; (c) a violation of
Environmental Laws, Environmental Claims or other loss of or damage to any
property or the environment relating to any Equipment, the Lease or the Lessee;
(d) the Operative Agreements, or any transaction contemplated thereby; (e) any
breach by the Lessee of any of its representations or warranties under the
Operative Agreements or failure by the Lessee to perform or observe any covenant
or agreement to be performed by it under any of the Operative Agreements; (f)
the transactions contemplated hereby or by any other Operative Agreement, in
respect of the application of Parts 4 and 5 of Subtitle B of Title I of ERISA;
and (g) personal injury, death or property damage, including Claims based on
strict liability in tort. The Lessee shall be entitled to control, and shall
assume full responsibility for the defense of any Claim for Indemnified Persons
other than the Owner Trustee and the Trust Company so long as the Lessee is
diligently pursuing such defense and no Default or Event of Default shall have
occurred and be continuing; provided, however, that (i) the Investor may retain
separate counsel at the expense of the Lessee in the event of a conflict, (ii)
such parties shall use reasonable efforts to share counsel to the extent
practicable and minimize the fees of counsel being reimbursed hereunder, and
(iii) the Lessee shall not be entitled to control, or to assume the defense of,
any Claim, if and to the extent that in the reasonable opinion of the
Indemnified Person the Claim shall involve the potential imposition of any
criminal liability, or any civil liability which would not be fully indemnified
against, on such Indemnified Person. Notwithstanding anything to the contrary
herein, the Owner Trustee and the Trust Company may retain independent counsel,
whether or not a conflict exists, at the expense of the Lessee; provided,
however, the Owner Trustee and the Trust Company shall not settle any Claim
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without the consent of the Lessee (which consent shall not be unreasonably
withheld or delayed). The Lessee and each Indemnified Person agree to give each
other prompt written notice of any Claim hereby indemnified against but the
giving of any such notice by an Indemnified Person shall not be a condition to
the Lessee's obligations under this Section 13.1, except to the extent failure
to give such notice precludes the Lessee from contesting all or part of such
Claim. After an Indemnified Person has been fully indemnified for a Claim
pursuant to this Section 13.1 and so long as no Lease Event of Default shall
have occurred and be continuing, the Lessee shall be subrogated to any right of
such Indemnified Person (except against another Indemnified Person) with respect
to such Claim. The general indemnity provisions of this Section 13.1 do not
constitute a guaranty by the Lessee of the residual value of the Equipment.
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13.2. General Tax Indemnity.
(a) Indemnification. The Lessee shall pay and assume liability
for, and does hereby agree to indemnify, protect and defend all Indemnified
Persons, and hold them harmless against all Impositions (other than amounts
addressed in and either covered by or specifically excluded from the coverage of
Section 13.3 hereof) on an After Tax Basis.
(b) Payments. (i) Subject to the terms of Section 13.2(e)
hereof, the Lessee shall pay or cause to be paid all Impositions directly to the
taxing authorities where feasible and otherwise to the Indemnified Person, as
appropriate, and the Lessee shall at its own expense, upon such Indemnified
Person's reasonable request, furnish to such Indemnified Person copies of
official receipts or other satisfactory proof evidencing such payment.
(ii) In the case of Impositions for which no contest is
conducted pursuant to Section 13.2(e) hereof and which the Lessee pays directly
to the taxing authorities, the Lessee shall pay such Impositions prior to the
latest time permitted by the relevant taxing authority for timely payment. In
the case of Impositions for which the Lessee reimburses an Indemnified Person,
the Lessee shall do so within twenty (20) days after receipt by the Lessee of
demand by such Indemnified Person describing in reasonable detail the nature of
the Imposition and the basis for the demand (including the computation of the
amount payable), but in no event shall the Lessee be required to pay such
reimbursement prior to thirty (30) days before the latest time permitted by the
relevant taxing authority for timely payment. In the case of Impositions for
which a contest is conducted pursuant to Section 13.2(e) hereof, the Lessee
shall pay such Impositions or reimburse such Indemnified Person for such
Impositions, to the extent not previously paid or reimbursed pursuant to
subsection (a), prior to the latest time permitted by the relevant taxing
authority for timely payment after conclusion of all contests under Section
13.2(e) hereof.
(iii) Impositions imposed with respect to Equipment for a
billing period during which the Lease expires or terminates (unless the Lessee
has exercised the Renewal Option or the Expiration Date Purchase Option with
respect to such Equipment) shall be adjusted and prorated on a daily basis
between the Lessee and the Lessor, whether or not such Imposition is imposed
before or after such expiration or termination, and each party shall pay or
reimburse the other for each party's pro rata share thereof.
(iv) At the Lessee's request, the amount of any
indemnification payment by the Lessee pursuant to subsection (a) shall be
verified and certified by an independent public accounting firm mutually
acceptable to the Lessee and the Indemnified Person. The fees and expenses of
such independent public accounting firm shall be paid by the Lessee.
(c) Reports and Returns. (i) The Lessee shall be responsible
for preparing and filing any real and personal property or ad valorem tax
returns in respect of each item of Equipment. In case any other report or tax
return shall be required to be made with respect to
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any obligations of the Lessee under or arising out of subsection (a) and of
which the Lessee has knowledge or should have knowledge, the Lessee, at its cost
and expense, shall notify the relevant Indemnified Person of such requirement
and (except if such Indemnified Person notifies the Lessee that such Indemnified
Person intends to file such report or return) (A) to the extent required or
permitted by and consistent with Legal Requirements, make and file in its own
name such return, statement or report; and (B) in the case of any other such
return, statement or report required to be made in the name of such Indemnified
Person, advise such Indemnified Person of such fact and prepare such return,
statement or report for filing by such Indemnified Person or, where such return,
statement or report shall be required to reflect items in addition to any
obligations of the Lessee under or arising out of subsection (a), provide such
Indemnified Person at the Lessee's expense with information sufficient to permit
such return, statement or report to be properly made with respect to any
obligations of the Lessee under or arising out of subsection (a). Such
Indemnified Person shall, upon the Lessee's request and at the Lessee's expense,
provide any data maintained by such Indemnified Person (and not otherwise
available to or within the control of the Lessee) with respect to each item of
Equipment which the Lessee may reasonably require to prepare any required tax
returns or reports;
(d) Withholding Taxes. As between the Lessee on one hand, and
the Lessor or the Agent, any Lender or the Investor on the other hand, the
Lessee shall be responsible for, and the Lessee shall indemnify and hold
harmless the Lessor, the Agent, the Lender and the Investor (without duplication
of any indemnification required by subsection (a)) on an After Tax Basis against
any obligation for United States or foreign withholding taxes imposed in respect
of the Rent payments under the Lease (and, if the Lessor, the Agent, any Lender
or the Investor receives a demand for such payment from any taxing authority,
the Lessee shall discharge such demand on behalf of the Lessor, the Agent, the
Lender or the Investor). The Lessee shall be obligated to request from the
Investor (i) two duly completed copies of United States Internal Revenue Service
Form 1001 or 4224, or applicable successor form, as the case may be, certifying
that the Investor is entitled to receive payments payable to it under the
Operative Agreements without deduction or withholding of any United States
federal income taxes, (ii) if applicable, an Internal Revenue Service Form W-8
or W-9, or applicable successor form, as the case may be, to establish an
exemption from United States backup withholding tax, and (iii) any other
governmental forms that are necessary or required under an applicable tax treaty
or otherwise by law to reduce or eliminate any withholding tax. The Lessee shall
send the Investor written request for such forms at least thirty (30) days prior
to the first date on which a payment is made to the Investor under any of the
Operative Agreements and at least thirty (30) days prior to the date that any
such form expires or becomes obsolete. The Investor agrees to provide such forms
to the Lessee upon timely written request, unless an event (including without
limitation any change in treaty, law or regulation) has occurred prior to the
date on which any such forms would otherwise be delivered hereunder that renders
such forms inapplicable or that would prevent the Investor from duly completing
and delivering any such forms with respect to it. The Investor's failure or
inability to deliver to the Lessee any forms so requested shall not relieve the
Lessee of its obligations under this subsection to gross up payments for any
taxes required to be withheld. Notwithstanding the foregoing, the Lessee shall
not indemnify the Lessor, the Agent, the Lenders
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or the Investor for withholding tax to the extent that such withholding tax
exceeds the amount of withholding tax that would have been imposed had the
Lessor not transferred, assigned, pledged or sold its interest in the Equipment
after the applicable Closing Date or had the Investor not transferred, assigned,
pledged or sold its interest in the Trust or Trust Estate after the applicable
Closing Date.
(e) Contests of Impositions. (i) If a written claim is made
against any Indemnified Person or if any proceeding shall be commenced against
such Indemnified Person (including a written notice of such proceeding), for any
Impositions, such Indemnified Person shall promptly notify the Lessee in writing
and shall not take action with respect to such claim or proceeding without the
consent of the Lessee for thirty (30) days after the receipt of such notice by
the Lessee; provided, however, that, in the case of any such claim or
proceeding, if action shall be required by law or regulation to be taken prior
to the end of such 30-day period, such Indemnified Person shall, in such notice
to the Lessee, inform the Lessee of such shorter period, and no action shall be
taken with respect to such claim or proceeding without the consent of the Lessee
before two (2) days before the end of such shorter period; provided, further,
that the failure of such Indemnified Person to give the notices referred to in
this sentence shall not diminish the Lessee's obligation hereunder except to the
extent failure to give such notice precludes the Lessee from contesting all or
part of such claim.
(ii) If, within thirty (30) days of receipt of such notice
from the Indemnified Person (or such shorter period as the Indemnified Person
has notified the Lessee is required by law or regulation for the Indemnified
Person to commence such contest), the Lessee shall request in writing that such
Indemnified Person contest such Imposition, the Indemnified Person shall, at the
expense of the Lessee, in good faith conduct and control such contest
(including, without limitation, by pursuit of appeals, provided that the Lessee
shall have the right to approve the Indemnified Person's selection of tax
counsel for such contest, which approval shall not be unreasonably withheld)
relating to the validity, applicability or amount of such Impositions (provided,
however, that (A) if such contest involves a tax other than a tax on net income
and can be pursued independently from any other proceeding involving a tax
liability of such Indemnified Person, the Indemnified Person, at the Lessee's
request, shall allow the Lessee to conduct and control such contest and (B) in
the case of any contest, the Indemnified Person may request the Lessee to
conduct and control such contest) by, in the sole discretion of the Person
conducting and controlling such contest, (1) resisting payment thereof, (2) not
paying the same except under protest, if protest is necessary and proper, (3) if
the payment be made, using reasonable efforts to obtain a refund thereof in
appropriate administrative and judicial proceedings, or (4) taking such other
action as is reasonably requested by the Lessee from time to time.
(iii) The party controlling any contest shall consult in good
faith with the non-controlling party and shall keep the non-controlling party
reasonably informed as to the conduct of such contest; provided, that all
decisions ultimately shall be made in the sole discretion of the controlling
party. The parties agree that an Indemnified Person may at any time decline to
take further action with respect to the contest of any Imposition and may settle
such contest if
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such Indemnified Person shall waive its rights to any indemnity from the Lessee
that otherwise would be payable in respect of such claim (and any future claim
by any taxing authority, the contest of which is precluded by reason of such
resolution of such claim) and shall pay to the Lessee any amount previously paid
or advanced by the Lessee pursuant to this Section 13.2 by way of
indemnification or advance for the payment of an Imposition other than expenses
of such contest.
(iv) Notwithstanding the foregoing provisions of this Section
13.2, an Indemnified Person shall not be required to take any action and the
Lessee shall not be permitted to contest any Impositions in its own name or that
of the Indemnified Person unless (A) the Lessee shall have agreed in writing to
pay and shall pay to such Indemnified Person on demand and on an After Tax Basis
all reasonable costs, losses and expenses that such Indemnified Person actually
incurs in connection with contesting such Impositions, including, without
limitation, all reasonable legal, accounting and investigatory fees and
disbursements, and the amount of such Imposition should the contest be
unsuccessful, (B) in the case of a claim that must be pursued in the name of an
Indemnified Person (or an Affiliate thereof), the amount of the potential
indemnity (taking into account all similar or logically related claims that have
been or could be raised in any audit involving such Indemnified Person for which
the Lessee may be liable to pay an indemnity under this Section 13.2) exceeds
$100,000, (C) the Indemnified Person shall have reasonably determined that the
action to be taken will not result in any material danger of sale, forfeiture or
loss of any Equipment, or any part thereof or interest therein, will not
interfere with the payment of Rent, and will not result in risk of criminal
liability, (D) if such contest shall involve the payment of the Imposition prior
to the contest, the Lessee shall provide to the Indemnified Person an
interest-free advance in an amount equal to the Imposition that the Indemnified
Person is required to pay (with no additional net after-tax cost to such
Indemnified Person), (E) in the case of a claim that must be pursued in the name
of an Indemnified Person (or an Affiliate thereof), the Lessee shall have
provided to such Indemnified Person an opinion of independent tax counsel
selected by the Lessee and reasonably satisfactory to the Indemnified Person
stating that a reasonable basis exists to contest such claim (or, in the case of
an appeal of an adverse determination, an opinion of such counsel to the effect
that the position asserted in such appeal will more likely than not prevail) and
(F) no Event of Default hereunder shall have occurred and be continuing. In no
event shall an Indemnified Person be required to appeal an adverse judicial
determination to the United States Supreme Court. In addition, an Indemnified
Person shall not be required to contest any claim in its name (or that of an
Affiliate) if the subject matter thereof shall be of a continuing nature and
shall have previously been decided adversely by a court of competent
jurisdiction pursuant to the contest provisions of this Section 13.2, unless
there shall have been a change in law (or interpretation thereof) and the
Indemnified Person shall have received, at the Lessee's expense, an opinion of
independent tax counsel selected by the Lessee and reasonably acceptable to the
Indemnified Person stating that as a result of such change in law (or
interpretation thereof), it is more likely than not that the Indemnified Person
will prevail in such contest.
13.3. Special Income Tax Indemnity.
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(a) Indemnity. The Lessee will indemnify the Lessor and the
Investor on an After Tax Basis for (i) any loss, reduction, failure to claim
(based on an opinion of tax counsel that there is no reasonable basis to claim),
disallowance, recapture, or deferral, in whole or in part, of any tax benefits
that the Lessor or the Investor has claimed in connection with the Equipment and
the transactions contemplated by the Operative Agreements and any costs,
expenses, losses or breakage incurred by the Lessor or the Investor in
connection therewith, and (ii) any inclusion (an "Inclusion") in the Lessor's or
the Investor's foreign, federal, state or local gross income of any amounts
other than (A) Basic Rent, Termination Value, Purchase Option Price, Expiration
Date Termination Payment or Remarketing Option Payment, in the amounts and at
the times provided in the Lease; (B) payments made hereunder or under the Lease
on an After Tax Basis; (C) any other amount to the extent that such income
Inclusion is completely offset by a deduction of the same character and in the
same taxable year as the Inclusion; and (D) any amount designated as a pre-tax
fee or interest payment due and owing to the Lessor or the Investor under the
terms of the Operative Agreements, each loss and Inclusion under clause (a)(i)
and (ii) (net of the amount of any actual tax benefits that the Lessor or the
Investor receives by reason of such loss or Inclusion) constituting a "Tax
Loss." This tax indemnity shall constitute an "all events" indemnity, covering,
by way of example only, any Tax Loss resulting from a change of law, change in
tax rates, recharacterization of the transaction for tax purposes, and the
Lessor's inability to currently utilize any tax benefits. Notwithstanding the
foregoing, the Lessee shall not indemnify the Lessor or the Investor for (i) a
Tax Loss resulting solely from (x) the Investor's failure to take the actions
within the Investor's control that are reasonably necessary to secure the
benefits that are the subject of the Tax Loss or (y) the Investor's failure to
prevent the Trust from becoming an entity separately subject to United States
federal income tax liability; or (ii) a Tax Loss to the extent that such Tax
Loss exceeds the amount that the Tax Loss would have been had the Lessor not
transferred, assigned, pledged or sold its interest in the Equipment after the
applicable Closing Date or had the Investor not transferred, assigned, pledged
or sold its interest in the Trust or Trust Estate after the applicable Closing
Date.
(b) Computation of Indemnity and Gross-Up; Payment. The amount
of the indemnity payable as a result of a Tax Loss, and the gross-up of the
indemnity payment for income taxes attributable to the indemnity payment
hereunder, shall be computed using the actual rate(s) of United States federal,
state and local tax then in effect and applicable to the Lessor or the Investor,
as the case may be. An event or occurrence giving rise to a Tax Loss for federal
income tax purposes shall be deemed to give rise to a Tax Loss at the same time
and in the same amount for state and local income tax purposes. At the Lessor's
option, the Lessee shall pay the indemnity in installments on each subsequent
Payment Date or by an amendment to the Lease Funding Balance Schedule.
(c) Certain Adjustments. If the Lessor shall suffer a Tax Loss
involving a tax benefit that was taken into account in calculating the Lease
Funding Balance, Eurodollar Component, Basic Rent, Renewal Rent or any other
amount under the Lease, then such value or values shall be adjusted to take into
account the unavailability, if any, of such tax benefit.
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(d) Verification. At the Lessee's request, the amount of any
indemnification payment to made by the Lessee pursuant to this Section 13.3
shall be verified and certified by an independent public accounting firm
mutually acceptable to the Lessee, the Lessor and the Investor. The fees and
expenses of such independent public accounting firm shall be paid by the Lessee.
(e) Contests. Any contests of claims arising in connection
with a Tax Loss shall be conducted under the provisions set forth in Section
13.2(e) hereof, except that (i) references to the Indemnified Person shall be to
the Lessor or the Investor, or both, as the case may be; (ii) references to a
Imposition shall be to a Tax Loss; (iii) the amount in Section 13.2(e)(iv)(B)
shall be $250,000.
SECTION 14. MISCELLANEOUS.
14.1. Survival of Agreements. The representations, warranties,
covenants, indemnities and agreements of the parties provided for in the
Operative Agreements, and the parties' obligations under any and all thereof,
shall survive the execution and delivery of this Agreement, the transfer of any
Equipment to the Owner Trustee, any disposition of any interest of the Owner
Trustee in any Equipment or any interest of the Investor in the Trust, the
Equipment, the Operative Agreements or otherwise and shall be and continue in
effect notwithstanding any investigation made by any party and the fact that any
party may waive compliance with any of the other terms, provisions or conditions
of any of the Operative Agreements. Except as otherwise expressly set forth
herein or in any other Operative Agreement, the indemnities of the parties
provided for in the Operative Agreements shall survive the expiration or
termination of any thereof.
14.2. No Broker, etc. Each of the parties hereto represents to
the others that it has not retained or employed any broker, finder or financial
adviser to act on its behalf in connection with this Agreement, nor has it
authorized any broker, finder or financial adviser retained or employed by any
other Person so to act. Any party who is in breach of this representation shall
indemnify and hold the other parties harmless from and against any liability
arising out of such breach of this representation.
14.3. Notices. Unless otherwise specifically provided herein,
all notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to any
Person shall be given in writing by United States mail, by nationally recognized
courier service or by hand and any such notice shall become effective upon
receipt and shall be directed to the address of such Person as indicated:
If to the Lessee, to it at the address set forth in the Lease, with a
copy as directed in the Lease.
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If to the Owner Trustee, to it at:
First Security Bank of Utah, N.A.
79 South Main Street
Salt Lake City, Utah 84111
Attn: Corporate Trust Department
Telephone No.: (801) 246-5630
Telecopy No.: (801) 246-5053
If to the Investor, to it at:
Deutsche Bank A.G., New York
and/or Cayman Islands Branches
550 South Hope Street
Suite 1850
Los Angeles, California 90071
Attn: Christine N. Lane, Assistant Vice President
Telephone No.: (213) 627-8200
Telecopy No.: (213) 627-9779
with a copy to:
Deutsche Bank A.G., New York
and/or Cayman Islands Branches
31 West 52nd Street
New York, New York 10019
Attn: Sarah K. Pennington,
Contracts Administrator,
International Leasing Group
Telephone No.: (212) 474-7393
Telecopy No.: (212) 474-7398
From time to time any party may designate a new address for purposes of notice
hereunder by notice to each of the other parties hereto.
14.4. Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
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14.5. Amendments and Termination. Neither this Agreement nor
any of the terms hereof may be terminated, amended, supplemented, waived or
modified except by an instrument in writing signed by the party against which
the enforcement of the termination, amendment, supplement, waiver or
modification shall be sought. This Agreement may be terminated by an agreement
signed in writing by the Owner Trustee, the Investor and the Lessee.
14.6. Headings, etc. The Table of Contents and headings of the
various Sections of this Agreement are for convenience of reference only and
shall not modify, define, expand or limit any of the terms or provisions hereof.
14.7. Parties in Interest. Except as expressly provided
herein, none of the provisions of this Agreement are intended for the benefit of
any Person except the parties hereto.
14.8. GOVERNING LAW. THIS AGREEMENT SHALL IN ALL RESPECTS BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE
NEW YORK GENERAL OBLIGATIONS LAW BUT EXCLUDING ANY OTHER CONFLICT-OF-LAW OR
CHOICE-OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE INTERNAL LAWS OF
ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
14.9. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14.10. Liability Limited. The Lessee and the Investor each
acknowledge and agree that the Owner Trustee is (except as otherwise expressly
provided herein or therein) entering into this Agreement and the other Operative
Agreements to which it is a party (other than the Trust Agreement), solely in
its capacity as trustee under the Trust Agreement and not in its individual
capacity. Anything to the contrary contained in this Agreement or in any other
Operative Agreement notwithstanding, neither the Lessor nor any officer,
director, shareholder, or partner thereof, nor any of the successors or assigns
of the foregoing, shall be personally liable in any respect for any liability or
obligation hereunder or in any other Operative Agreement, provided, however,
that the Owner Trustee shall be liable in its individual capacity in the case of
the inaccuracy of any of its representations and warranties expressly made in
its individual capacity or the breach of any of its covenants expressly made in
its individual capacity contained in this Agreement or any Operative Agreement
to which it is a party.
14.11. Further Assurances. The parties hereto shall promptly
cause to be taken, executed, acknowledged or delivered, at the sole expense of
the Lessee, all such further acts, conveyances, documents and assurances as the
other parties may from time to time reasonably
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request in order to carry out and effectuate the intent and purposes of this
Participation Agreement, the other Operative Agreements and the transactions
contemplated hereby and thereby (including, without limitation, the preparation,
execution and filing of any and all Uniform Commercial Code financing statements
and other filings or registrations which the parties hereto may from time to
time request to be filed or effected). The Lessee, at its own expense and
without need of any prior request from any other party, shall take such action
as may be necessary (including any action specified in the preceding sentence),
or (if the Owner Trustee shall so request) as so requested, in order to maintain
and protect all security interests provided for hereunder or under any other
Operative Agreement.
14.12. Confidentiality. Each of the parties hereto, other than
the Investor and, as applicable, its Affiliates, agrees that it will maintain
the confidentiality of the general structure of this transaction, except to the
extent disclosure is required pursuant to regulatory requirements to which the
Lessee is subject.
14.13. Lessee Reliance on Own Experts. The Lessee acknowledges
that it is entering into this Agreement in reliance upon its own professional
advisors and experts for accounting, legal and tax advice, and is not relying
upon any accounting, legal or tax information or advice contained in any
communications received from the Lessor or the Investor. The Lessee further
acknowledges that all references in Exhibit E in connection with the payment of
taxes by the Investor or other items or estimates associated with taxes are
solely for the purposes of the calculations contained therein and do not
constitute a representation or agreement by the Investor to report its tax
liability as set forth in Exhibit E.
[Signature page follows]
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<PAGE> 51
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
FRESENIUS USA, INC., as Lessee
By:
-------------------------------
Heinz Schmidt, Vice President
Finance
FIRST SECURITY BANK OF
UTAH, N.A., not in its
individual capacity, except
as expressly stated herein,
but solely as Owner Trustee
By:
-----------------------------------
Name:
Title
DEUTSCHE BANK A.G., NEW YORK
AND/OR CAYMAN ISLANDS BRANCHES,
as Investor
By:
-----------------------------------
John P. Ryan, Vice President
By:
-----------------------------------
Christine N. Lane, Assistant
Vice President
<PAGE> 52
================================================================================
APPENDIX A
RULES OF USAGE AND DEFINITIONS
================================================================================
I. Rules of Usage
The following rules of usage shall apply to this Appendix A
and the Operative Agreements (and each appendix, schedule, exhibit and annex to
the foregoing) unless otherwise required by the context or unless otherwise
defined therein:
(a) Except as otherwise expressly provided, any
definitions set forth herein or in any other document shall be
equally applicable to the singular and plural forms of the
terms defined.
(b) Except as otherwise expressly provided,
references in any document to articles, sections, paragraphs,
clauses, annexes, appendices, schedules or exhibits are
references to articles, sections, paragraphs, clauses,
annexes, appendices, schedules or exhibits in or to such
document.
(c) The headings, subheadings and table of contents
used in any document are solely for convenience of reference
and shall not constitute a part of any such document nor shall
they affect the meaning, construction or effect of any
provision thereof.
(d) References to any Person shall include such
Person, its successors and permitted assigns and transferees.
(e) Except as otherwise expressly provided, reference
to any agreement means such agreement as amended, modified,
extended or supplemented from time to time in accordance with
the applicable provisions thereof.
(f) Except as otherwise expressly provided,
references to any law includes any amendment or modification
to such law and any rules or regulations issued thereunder or
any law enacted in substitution or replacement therefor.
(g) When used in any document, words such as
"hereunder", "hereto", "hereof" and "herein" and other words
of like import shall, unless the context
<PAGE> 53
clearly indicates to the contrary, refer to the whole of the
applicable document and not to any particular article,
section, subsection, paragraph or clause thereof.
(h) References to "including" mean including without
limiting the generality of any description preceding such term
and for purposes hereof the rule of ejusdem generis shall not
be applicable to limit a general statement, followed by or
referable to an enumeration of specific matters, to matters
similar to those specifically mentioned.
(i) Each of the parties to the Operative Agreements
and their counsel have reviewed and revised, or requested
revisions to, the Operative Agreements, and the usual rule of
construction that any ambiguities are to be resolved against
the drafting party shall be inapplicable in the construing and
interpretation of the Operative Agreements and any amendments
or exhibits thereto.
II. Definitions
"ABR" shall mean for any day, a rate per annum equal to the greater of
(a) the Prime Lending Rate in effect on such day, and (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime
Lending Rate" shall mean the rate (rounded upwards to the nearest 1/100 of one
percent (1%)) which the Reference Lender announces from time to time as its
prime lending rate, base rate or equivalent, as in effect from time to time. The
Prime Lending Rate shall change automatically and without notice from time to
time as and when the prime lending rate, base rate or equivalent of the
Reference Lender changes. "Federal Funds Effective Rate" shall mean for any
period, a fluctuating interest rate per annum equal for each day during such
period to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Reference Lender from three Federal funds brokers of recognized standing
selected by it. Any change in the ABR due to a change in the Prime Lending Rate
or the Federal Funds Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Lending Rate or the
Federal Funds Effective Rate, respectively.
"Affiliate" shall mean with respect to any Person, any Person or group
acting in concert in respect of the Person in question that, directly or
indirectly, controls or is controlled by or is under common control with such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control with")
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of management and policies of a Person, whether through the
ownership of voting securities or by contract or otherwise.
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"After Tax Basis" shall mean, with respect to any payment to be
received, the amount of such payment increased so that, after deduction of the
amount of all taxes required to be paid by the recipient calculated at the then
maximum marginal rates generally applicable to persons of the same type as the
recipients (less any tax savings realized as a result of the payment of the
indemnified amount) with respect to the receipt by the recipient of such
amounts, such increased payment (as so reduced) is equal to the payment
otherwise required to be made.
"Agent" shall mean the Agent for the Lenders pursuant to any Credit
Agreement, or any successor agent appointed in accordance with the terms of such
Credit Agreement.
"Agreement" shall mean the Participation Agreement.
"Amortization Component" shall mean, for any Rental Period, the
quotient of (i) the total Equipment Cost on the Final Closing Date minus the
amount determined under clause (i)(a) of the definition of the term "Purchase
Option Price", divided by (ii) fifteen. For Rental Periods ending on the first,
second and third monthly anniversaries of the Initial Closing Date, the
Amortization Component shall be equal to zero.
"Assignment of Lease" shall mean any assignment of lease and related
documents required in connection with any Credit Agreement.
"Bank" shall mean Deutsche Bank A.G., Los Angeles, New York and/or
Cayman Islands Branches, in its capacity as lender under the Loan Agreement.
"Basic Rent" shall mean, for any Rental Period, the sum of (i) the
Recourse Component, (ii) the Equity Component, (iii) the Eurodollar Component
and (iv) the Amortization Component.
"Basic Term" shall have the meaning specified in Section 2.2 of the
Lease.
"Basic Term Expiration Date" shall mean the day which is one day prior
to the fourth anniversary of the Initial Closing Date.
"Bill of Sale" shall mean a Bill of Sale in the form attached as
Exhibit D to the Lease.
"Board" shall mean the Board of Governors of the Federal Reserve System
of the United States (or any successor).
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which national and/or state banks in New York, New
York, or Ogden, Utah are generally authorized or obligated, by law or executive
order, to close.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, 42 U.S.C. sec. 9601 et seq., as
amended by the Superfund Amendments and Reauthorization Act of 1986.
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"Change of Control" shall mean Fresenius AG shall no longer own,
directly or indirectly, at least fifty-one percent (51%) of the Lessee's voting
capital stock.
"Claims" shall mean any and all obligations, liabilities, losses,
damages, actions, suits, penalties, claims, demands, costs and expenses
(including, without limitation, reasonable attorney's fees and expenses) of any
nature whatsoever.
"Closing Date" shall mean each date on which the Lessor purchases
Equipment pursuant to the Participation Agreement and leases such Equipment to
the Lessee pursuant to the Lease, and shall include the Initial Closing Date,
each Interim Closing Date and the Final Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute thereto.
"Collateral" shall mean all assets of the Owner Trustee or the
Investor, now owned or hereafter acquired, upon which a Lien is purported to be
created by the Security Documents.
"Commitment Fee" shall mean $75,000.
"Commitment Letter" shall mean the letter dated March 6, 1995 from the
Investor to the Lessee regarding the transactions contemplated by the Operative
Agreements.
"Consolidated EBITDA" shall have the meaning specified in Section
8.1(e) of the Participation Agreement.
"Consolidated Interest Expense" shall have the meaning specified in
Section 8.1(e) of the Participation Agreement.
"Consolidated Tangible Net Worth" shall have the meaning specified in
Section 8.1(f) of the Participation Agreement.
"Contingent Obligation" shall have the meaning specified in Section
8.2(b) of the Participation Agreement.
"Credit Agreement" shall mean any credit agreement, entered into after
the Initial Closing Date, among the Lessor, the Agent, and the Lenders, as
specified therein, or any agreements and documents reasonably required to effect
a securitization of the interest of the Lessor and/or the Investor in any
amounts of Rent or other amounts receivable under the Lease, the Equipment or
the Trust Estate, including, without limitation, all replacements thereof, all
amendments or supplements thereto and all modifications thereof.
"Credit Agreement Default" shall mean any event or condition which,
with the lapse of time or the giving of notice, or both, would constitute a
Credit Agreement Event of Default.
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"Credit Agreement Event of Default" shall mean any event or condition
defined as an "event of default" in the Credit Agreement.
"Debt" shall have the meaning specified in Section 8.2(a) of the
Participation Agreement.
"Default" shall mean any event or condition which, with the lapse of
time or the giving of notice, or both, would constitute an Event of Default.
"Employee Benefit Plan" or "Plan" shall mean an employee benefit plan
(within the meaning of Section 3(3) of ERISA, including any Multiemployer Plan),
or any "plan" as defined in Section 4975(e)(1) of the Code and as interpreted by
the Internal Revenue Service and the Department of Labor in rules, regulations,
releases or bulletins in effect on any Closing Date.
"Environmental Claims" shall mean any and all Claims arising out of or
related to Environmental Violations.
"Environmental Laws" shall mean any and all foreign, federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other requirements
of law regulating, relating to or imposing liability or standards of conduct
concerning protection of human health or the environment, as now or may at any
time hereafter be in effect.
"Environmental Violation" shall mean any activity, occurrence or
condition that violates or threatens (if the threat requires remediation under
any Environmental Law and is not remediated during any grace period allowed
under such Environmental Law) to violate or results in or threatens (if the
threat requires remediation under any Environmental Law and is not remediated
during any grace period allowed under such Environmental Law) to result in
noncompliance with any Environmental Law.
"Equipment" shall mean equipment, apparatus, furnishings, fittings and
personal property of every kind and nature whatsoever constituting a part of an
integrated production system for manufacturing blood dialysis filters which is
capable of producing a saleable end product purchased using the proceeds of the
Investor Contribution by the Lessor, whether or not now or subsequently attached
to, contained in or used or usable in any way in connection with any operation
of any improvements to real property, including but without limiting the
generality of the foregoing, all equipment described in the Final Appraisal,
including, without limitation, all direct production equipment, associated
equipment and spare parts, together with all operating manuals and required
Intellectual Property of every kind and description necessary for the operation
of the Equipment and the sale of its production.
"Equipment Cost" shall mean the cost of purchasing and installing the
Equipment and the associated Transaction Expenses funded by the Investor, in the
aggregate not to exceed $19,000,000.
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"Equity Component" shall mean, for any Rental Period, the product of
(i) (a) the Equity Margin multiplied by (b) a fraction equal to (1) the number
of days in such Rental Period, divided by (2) 360, multiplied by (ii) an amount
equal to twenty percent (20%) of the original Equipment Cost for all Equipment
then subject to the Lease.
"Equity Margin" shall mean (i) with respect to the Basic Term, one
hundred fifteen basis points (1.15%) per annum, and (ii) with respect to any
Renewal Term, as determined by the Lessor in its good faith business judgment
based upon the Renewal Term Pricing Factors applicable to such Renewal Term.
"Equipment Schedule" shall mean an Equipment Schedule in the form
attached as Exhibit A to the Lease.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" shall mean each entity required to be aggregated with
any Lessee pursuant to the requirements of Section 414(b) or (c) of the Code.
"Eurocurrency Reserve Requirements" shall mean for any day, the
aggregate (without duplication) of the maximum rates (expressed as a decimal
fraction) of reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Business Day" shall mean a Business Day other than any day
on which banks are not open for dealings in dollar deposits in the London
interbank market.
"Eurodollar Component" shall mean, for any Rental Period, the product
of (i) (a) the Eurodollar Reserve Rate multiplied by (b) a fraction equal to (1)
the number of days in such Rental Period, divided by (2) 360, multiplied by (ii)
the Lease Funding Balance.
"Eurodollar Make Whole Amount" shall mean the sum of (i) an amount
equal to the excess, if any of (A) the amount of interest which will have
accrued under the Lease on the Unamortized Equipment Cost outstanding on the
date of determination from such date until the last day of the then applicable
Rental Period, over (B) the amount of interest (as determined by the Investor)
which would have accrued to the Investor by placing such amount on deposit for a
comparable period with lending banks in the relevant interest rate market, plus
(ii) the amount, if any, necessary to reimburse the Investor for breakage costs
associated with the termination of any Interest Rate Protection Agreement
entered into by the Investor and the Lessee with respect to any obligations of
the Lessee under the Lease.
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"Eurodollar Rate" shall mean the offered quotation (rounded upwards to
the nearest 1/16 of 1%), if any, to first class banks in the Eurodollar market
by the Reference Lender for deposits in the amounts in immediately available
funds comparable to the total Equipment Cost of all Equipment then subject to
the Lease with maturities comparable to the Rental Period for which such
Eurodollar Rate will apply, as of approximately 10:00 A.M. (New York City time)
two Business Days prior to the beginning of such Rental Period.
"Eurodollar Reserve Rate" shall mean, with respect to each day during
each Rental Period, a rate per annum determined for such day in accordance with
the following formula (rounded upward to the nearest 1/100 of one percent
(.01%)):
Eurodollar Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default" shall mean a Lease Event of Default or a Credit
Agreement Event of Default.
"Event of Loss" shall mean any of the following events: the Equipment
is (i) destroyed, damaged beyond repair or suffers damage which renders repair
uneconomic or renders the Equipment permanently unfit for normal use for any
reason whatsoever, or (ii) condemned, confiscated or seized in whole or any
significant part or title thereto or use thereof is requisitioned, for the
lesser of six months or the remainder of the Basic Term or any Renewal Term, or
(iii) is stolen or disappears, or (iv) is damaged or destroyed and such damage
or destruction results in an insurance settlement with respect to such item on
the basis of a total loss, or a constructive loss or a compromised total loss,
or (v) the Equipment is rendered inoperable as an integrated production system
capable of producing a saleable end product.
"Excepted Payment" shall mean:
(i) all indemnity payments (including indemnity payments made
pursuant to Section 13 of the Participation Agreement) and expenses to which the
Owner Trustee in its individual capacity, the Investor or any of their
respective Affiliates (or the respective successors, assigns, agents, officers,
directors or employees of the Owner Trustee in its individual capacity or the
Investor) is entitled;
(ii) any amounts (other than Basic Rent, Termination Value,
Purchase Option Price, Remarketing Option Payment and Expiration Date
Termination Payment) payable under any Operative Agreements to reimburse the
Owner Trustee, the Investor or any of their respective Affiliates (including the
reasonable expenses of the Owner Trustee and the Investor incurred in connection
with any such payment) for performing or complying with any of the obligations
of the Lessee under and as permitted by any Operative Agreement;
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(iii) any insurance proceeds (or payments with respect to
risks self-insured or policy deductibles) under liability policies payable to
the Investor or the Owner Trustee in its individual capacity;
(iv) any insurance proceeds under policies maintained by the
Owner Trustee or the Investor and not required to be maintained by the Lessee
under the Lease;
(v) any amount payable to the Owner Trustee or the Investor
pursuant to Section 9 of the Participation Agreement;
(vi) any amount payable to the Investor by any transferee of
such interest of the Investor as the purchase price of the Investor's interest
in the Trust Estate (or a portion thereof);
(vii) all right, title and interest of the Investor or the
Owner Trustee to any Equipment or any portion thereof or any other property to
the extent any of the foregoing has been released from the Liens of the Security
Documents and the Lease pursuant to the terms thereof;
(viii) upon termination of the Credit Agreement pursuant to
the terms thereof, all remaining property covered by the Lease or Security
Documents; and
(ix) any payments of interest on payments referred to in
clauses (i) through (viii) above.
"Expiration Date" shall mean the Basic Term Expiration Date or the
scheduled expiration of the then current Renewal Term, if any.
"Expiration Date Election Notice" shall have the meaning specified in
Section 20.2 of the Lease.
"Expiration Date Purchase Option" shall mean the Lessee's option to
purchase all (but not less than all) of the Equipment on the Expiration Date.
"Expiration Date Termination Payment" shall mean the difference between
(i) the Unamortized Equipment Cost on the Expiration Date and (ii) twenty
percent (20%) of the Equipment Cost of such Equipment.
"Facility" shall mean a facility used for the treatment, storage or
disposal of Hazardous Substances.
"Fair Market Value" of any property or service as of any date shall
mean the cash rent or cash price obtainable in an arm's-length lease, or sale or
supply, respectively, between an informed and willing lessee or buyer (under no
compulsion to lease or purchase) and an informed and willing lessor or seller or
supplier (under no compulsion to lease or sell or supply) of the
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property or service in question, and shall, in the case of the Equipment, be
determined on the basis that, except as otherwise expressly provided in the
Lease (i) the Equipment has been maintained in accordance with and in the
condition required by, and the Lessee has complied with, the requirements of the
Lease and the other Operative Agreements to which the Lessee is a party, (ii)
the Equipment is unencumbered by the Lease or any Security Documents, (iii)
included with the Equipment will be any Intellectual Property rights and
facility support and services agreements necessary to operate the Equipment and
(iv) the Equipment operates as part of an integrated production system capable
of producing a saleable end product.
"Final Appraisal" shall mean a letter addressed to the Investor from
the Independent Appraiser who conducted the Preliminary Appraisal, dated the
Final Closing Date and reaffirming the conclusions reached in the Preliminary
Appraisal, with such variations therefrom as are acceptable to the Investor.
"Final Closing Date" shall mean the final date on which the Lessor
purchases Equipment pursuant to the Participation Agreement and leases such
Equipment to the Lessee pursuant to the Lease.
"GAAP" shall mean generally accepted accounting principles in the U.S.
as in effect from time to time. If any changes in GAAP or the application
thereof from that used in the preparation of the financial statements referred
to in Section 8.1(h) of the Participation Agreement occur after the Initial
Closing Date and such changes result in, in the judgment of the Investor or the
Lessee, a material change in the calculation of any financial covenants or
restrictions set forth in the Participation Agreement, then the parties to the
Participation Agreement agree to enter into and diligently pursue negotiations
in order to amend such financial covenants and restrictions so as to equitably
reflect such changes, with the desired result that the criteria for evaluating
the financial condition and results of operations of the Lessee and its
Subsidiaries shall be the same after such changes as if such changes had not
been made.
"Governmental Action" shall mean all permits, authorizations,
registrations, consents, approvals, waivers, exceptions, variances, orders,
judgments, written interpretations, decrees, licenses, exemptions, publications,
filings, notices to and declarations of or with, or required by, any
Governmental Authority, or required by any Legal Requirement or Requirement of
Law, relating to the Equipment, its use and operation, or the real property on
which the Equipment is located and shall include, without limitation, all
environmental and operating permits and licenses that are required in connection
therewith.
"Governmental Authority" shall mean any foreign, Federal, state,
county, municipal or other United States Federal, state, local or foreign
governmental authority or judicial or regulatory agency, board, body,
commission, instrumentality, court or quasi-governmental authority.
"Hazardous Substance" shall mean any of the following: (i) any
petroleum or petroleum product, explosives, radioactive materials, asbestos,
formaldehyde, polychlorinated biphenyls,
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lead and radon gas; (ii) any substance, material, product, derivative, compound
or mixture, mineral, chemical, waste, gas, medical waste, or pollutant, in each
case whether naturally occurring, man-made or the by-product of any process,
that is toxic, harmful or hazardous to the environment or human health or safety
as determined in accordance with any Environmental Law; or (iii) any substance,
material, product, derivative, compound or mixture, mineral, chemical, waste,
gas, medical waste or pollutant that would support the assertion of any claim
under any Environmental Law, whether or not defined as hazardous as such under
any Environmental Law.
"Impositions" shall mean, except to the extent described in the
following sentence, any and all liabilities, losses, expenses, costs, charges
and Liens of any kind whatsoever for fees, taxes, levies, imposts, duties,
charges, assessments or withholdings ("Taxes") including (i) real and personal
property taxes, including personal property taxes on any property covered by the
Lease that is classified by Governmental Authorities as personal property, and
real estate or ad valorem taxes in the nature of property taxes; (ii) sales
taxes, use taxes and other similar taxes (including rent taxes and intangibles
taxes); (iii) any excise taxes; (iv) real estate transfer taxes, conveyance
taxes, stamp taxes and documentary recording taxes and fees; (v) taxes that are
or are in the nature of franchise, income, value added, privilege and doing
business taxes, license and registration fees; (vi) assessments on any
Equipment, including all assessments for public improvements or benefits,
whether or not such improvements are commenced or completed within the Term; and
(vii) any tax, Lien, assessment or charge asserted, imposed or assessed by the
PBGC or any governmental authority succeeding to or performing functions similar
to, the PBGC; and in each case all interest, additions to tax and penalties
thereon, which at any time prior to, during or with respect to the Term or in
respect of any period for which the Lessee shall be obligated to pay
Supplemental Rent, may be levied, assessed or imposed by any Governmental
Authority upon or with respect to (a) any Equipment or any part thereof or
interest therein; (b) the leasing, financing, refinancing, demolition,
construction, substitution, subleasing, assignment, control, condition,
occupancy, servicing, maintenance, repair, ownership, possession, activity
conducted on, delivery, insuring, use, operation, improvement, transfer of
title, return or other disposition of such Equipment or any part thereof or
interest therein; (c) any indebtedness with respect to any Equipment or any part
thereof or interest therein; (d) the rentals, receipts or earnings arising from
any Equipment or any part thereof or interest therein; (e) the Operative
Agreements, the performance thereof, or any payment made or accrued pursuant
thereto; (f) the income or other proceeds received with respect to any Equipment
or any part thereof or interest therein upon the sale or disposition thereof;
(g) any contract relating to the construction, acquisition, installation or
delivery of the Equipment or any part thereof or interest therein; or (h)
otherwise in connection with the transactions contemplated by the Operative
Agreements.
The term "Imposition" shall not mean or include:
(i) Taxes and impositions (other than Taxes that are, or are
in the nature of, sales, use, rental, value added, transfer or property
taxes) that are imposed on a Indemnified Person (other than the Lessor)
by the United States federal government that are based on or measured
by the net income (including taxes based on capital gains and
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minimum taxes) of such Person; provided, that this clause (i) shall not
be interpreted to prevent a payment from being made on an After Tax
Basis if such payment is otherwise required to be so made;
(ii) Taxes and impositions (other than Taxes that are, or are
in the nature of, sales, use, rental, value added, transfer or property
taxes) that are imposed by any state or local jurisdiction or taxing
authority within any state or local jurisdiction and that are based
upon or measured by the net income or net receipts of an Indemnified
Person except that this clause (ii) shall not apply to (and thus shall
not exclude) any such Taxes imposed on a Indemnified Person by a state
(or any local taxing authority thereof or therein) where any Equipment
is located, possessed or used under the Lease; provided, that this
clause (ii) shall not be interpreted to prevent a payment from being
made on an After Tax Basis if such payment is otherwise required to be
so made;
(iii) any Tax or imposition to the extent, but only to such
extent, it relates to any act, event or omission that occurs after the
termination of the Lease and redelivery or sale of the property in
accordance with the terms of the Lease (but not any Tax or imposition
that relates to any period or occurrence prior to such termination and
redelivery);
(iv) any Tax or imposition for so long as, but only for so
long as, it is being contested in accordance with the provisions of
Section 13.2 of the Participation Agreement; or
(v) any Taxes which are imposed on a Indemnified Person as a
result of the gross negligence or wilful misconduct of such Indemnified
Person itself (as opposed to gross negligence or wilful misconduct
imputed to such Indemnified Person), but not Taxes imposed as a result
of ordinary negligence of such Indemnified Person.
Any Tax or imposition excluded from the defined term "Imposition" in any one of
the foregoing clauses (i) through (v) shall not be construed as constituting an
Imposition by any provision of any other of the aforementioned clauses.
"Inclusion" shall have the meaning specified in Section 13.3(a) of the
Participation Agreement.
"Indemnified Person" shall mean the Lessor, the Owner Trustee, in its
individual and its trust capacity, the Agent, the Investor, the Lenders and any
other parties (other than the Lessee or its Affiliates) to the Credit Agreement,
any other Security Document or any agreement, document or instrument executed in
connection therewith, and their respective successors, assigns, directors,
shareholders, partners, officers, employees, agents and Affiliates.
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"Independent Appraiser" shall mean Marshall & Stevens, Inc., or another
independent, nationally recognized appraisal firm selected by the Investor and
reasonably acceptable to the Lessee.
"Initial Closing Date" shall mean the date on which all of the
conditions set forth in Section 6 of the Participation Agreement shall have been
satisfied and the Lessor first purchases Equipment pursuant to the Participation
Agreement and leases such Equipment to the Lessee pursuant to the Lease.
"Insurance Requirements" shall mean all terms and conditions of any
insurance policy required by the Lease to be maintained by the Lessee and all
requirements of the issuer of any such policy.
"Intellectual Property" shall mean all operating manuals, technology,
patents, trademarks, copyrights, licenses, software and any other intellectual
property necessary for the operation of the Equipment, but excluding any such
intellectual property of Fresenius AG licensed to the Lessee.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect any Person against fluctuations in interest
rates.
"Interim Closing Date" shall mean any date subsequent to the Initial
Closing Date and prior to the Final Closing Date on which the Lessor purchases
Equipment pursuant to the Participation Agreement and leases such Equipment to
the Lessee pursuant to the Lease.
"Investment Company Act" shall mean the Investment Company Act of 1940,
as amended, together with the rules and regulations promulgated thereunder.
"Investor" shall mean Deutsche Bank A.G., New York and/or Cayman
Islands Branches.
"Investor Commitment" shall mean $19,000,000.
"Investor Contribution" shall have the meaning specified in Section 2
of the Participation Agreement.
"Lease" or "Lease Agreement" shall mean the Lease Agreement, dated as
of the Initial Closing Date, between the Lessor and the Lessee, together with
any Equipment Schedules thereto, as such Lease Agreement may from time to time
be supplemented, amended or modified in accordance with the terms thereof or of
any other Operative Agreement.
"Lease Commencement Date" shall mean the Initial Closing Date.
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"Lease Default" shall mean any event or condition which, with the lapse
of time or the giving of notice, or both, would constitute a Lease Event of
Default.
"Lease Event of Default" shall have the meaning specified in Section
17.1 of the Lease.
"Lease Funding Balance" shall have the meaning specified in Exhibit E
to the Participation Agreement, as modified pursuant to Section 16.2(c) of the
Lease and Section 13.3(c) of the Participation Agreement.
"Legal Requirements" shall mean all foreign, Federal, state, county,
municipal and other governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions affecting any Equipment or the
taxation, demolition, construction, use or alteration thereof, whether now or
hereafter enacted and in force, including any that require repairs,
modifications or alterations in or to any Equipment or in any way limit the use
and enjoyment thereof (including all building, zoning and fire codes and the
Americans with Disabilities Act of 1990, 42 U.S.C. sec. 12101 et. seq., and any
other similar Federal, state or local laws or ordinances and the regulations
promulgated thereunder) and any that may relate to environmental requirements
(including all Environmental Laws), and all permits, certificates of occupancy,
licenses, authorizations and regulations relating thereto, and all covenants,
agreements, restrictions and encumbrances contained in any instruments affecting
any Equipment.
"Lenders" shall mean the several banks and other financial institutions
from time to time party to any Credit Agreement.
"Lessee" shall have the meaning set forth in the Lease.
"Lessor" shall mean the Owner Trustee, not in its individual capacity,
as lessor under the Lease.
"Lessor Financing Statements" shall mean UCC financing statements
appropriately completed and executed for filing in the applicable jurisdictions
in order to protect the Lessor's interest under the Lease to the extent the
Lease is a security agreement.
"Lessor Lien" shall mean any Lien, true lease or sublease or
disposition of title which, in the absence of an Event of Default, interferes
with the Lessee's right of quiet enjoyment set forth in Section 5 of the Lease.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien, option or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale of receivables with recourse (in whole or in part) against the
seller or any other Person except the account debtors, any filing or agreement
to file a financing statement as debtor under the UCC or any similar statute
other than to reflect ownership by a third party of property leased to the
Lessee or any of its Subsidiaries under a lease
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which is not in the nature of a conditional sale or title retention agreement,
or any subordination arrangement in favor of another Person).
"Loan Agreement" shall mean the Loan Agreement between the Lessee and
the Bank, as such Loan Agreement may be amended, supplemented or otherwise
modified from time to time and any loan agreement entered into to refinance the
indebtedness of the Lessee thereunder upon terms and conditions reasonably
satisfactory to the Investor.
"Loan Documents" shall have the meaning specified in the Loan
Agreement.
"Marketing Period" shall mean, if the Lessee has not given the
Expiration Date Election Notice in accordance with Section 20.2 of the Lease and
has not elected to arrange an Operating Lease in accordance with Section 20.3 of
the Lease, the period commencing on the date which is sixteen (16) months prior
to the applicable Expiration Date and ending on the date the Equipment remaining
subject to the Lease shall have been sold or otherwise disposed of.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, condition (financial or otherwise), assets, liabilities or
operations of the Lessee and its Subsidiaries taken as a whole, (b) the ability
of the Lessee or any Subsidiary to perform its respective obligations under any
Operative Agreement to which it is a party, (c) the validity or enforceability
of any Operative Agreement or the rights and remedies of the Agent, the Lenders,
the Investor or the Lessor thereunder, (d) the validity, priority or
enforceability of any Lien on any Equipment or other property created by any of
the Operative Agreements, (e) the value, utility or useful life of any Equipment
or the use, or ability of the Lessee to use, any Equipment for the purpose for
which it was intended or (f) on the Lessor's interest in the Equipment.
"Maximum Lease Amount" shall have the meaning specified in Section 8.2
(g) of the Participation Agreement.
"Modifications" shall have the meaning specified in Section 11.1(a) of
the Lease.
"Multiemployer Plan" shall mean any plan described in Section
4001(a)(3) of ERISA to which contributions are or have been made or required by
the Lessee or any of its Subsidiaries or ERISA Affiliates.
"Net Sales Proceeds" shall mean the proceeds of a sale of the Equipment
described in Section 22.1 of the Lease less any costs and expenses of Lessor
associated with such sale.
"Notice of Closing Date" shall have the meaning specified in Section
4.2 of the Participation Agreement.
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"Officer's Certificate" shall mean a certificate signed by any
individual holding the office of vice president or higher, which certificate
shall certify as true and correct the subject matter being certified to in such
certificate.
"Operating Lease" shall have the meaning specified in Section 11.1 of
the Participation Agreement.
"Operating Lease Basic Rent" shall have the meaning specified in
Section 11.1(c) of the Participation Agreement.
"Operating Lease Term" shall have the meaning specified in Section
11.1(a) of the Participation Agreement.
"Operating Lessee" shall mean a United States entity (other than the
Lessee or any of its Affiliates) that meets all of the following criteria on the
Expiration Date:
(i) The entity has a current, unqualified rating either by
Standard & Poor's Ratings Group of at least "A" or by Moody's Investor
Services of at least "A2" on either (a) the entity's long-term senior
unsecured rated debt or (b) if the entity has no rated debt, then on
the Operating Lease itself, as arranged by the Lessee;
(ii) The Investor would not be prohibited from directly
lending to the entity an amount equal to the Residual Value because of
legal lending limitations or restrictions, or any other Requirement of
Law or guideline; and
(iii) The entity is engaged in the medical products or
pharmaceutical industries and has a demonstrated ability to maintain
and operate equipment similar to, or performing similar functions as,
the Equipment in accordance with all required industry, governmental
and environmental standards.
"Operative Agreements" shall mean the following:
(a) the Participation Agreement;
(b) the Lease and each Equipment Schedule;
(c) the Credit Agreement, if any;
(d) the UCC Financing Statements;
(e) the Notices of Closing Date;
(f) the Trust Agreement; and
(g) the Security Documents, if any.
"Overdue Rate" shall mean the lesser of: (i) the sum of (a) the
Eurodollar Reserve Rate then applicable plus the Equity Margin plus (b) two
percent (2%) per annum and (ii) the highest rate permitted by the applicable
law.
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"Owner Trustee" shall mean First Security Bank of Utah, N.A., not in
its individual capacity except as expressly stated in the Participation
Agreement or the Trust Agreement, but solely as Owner Trustee under the Trust
Agreement, and any successor or replacement Owner Trustee expressly permitted
under the Operative Agreements.
"Participation Agreement" shall mean the Participation Agreement dated
as of March 31, 1995, among the Lessee, the Owner Trustee, not in its individual
capacity except as expressly stated therein, and the Investor, as such
Participation Agreement may be amended, supplemented or otherwise modified from
time to time in accordance with the terms thereof or of any other Operative
Agreement.
"Payment Date" shall mean each of the first, second and third monthly
anniversaries of the Initial Closing Date and thereafter, the last day of each
Rental Period and the Expiration Date or earlier date on which the Lease shall
be terminated with respect to the Equipment.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
under Title IV of ERISA.
"Permitted Investments" shall have the meaning specified in Section
8.2(d) of the Participation Agreement.
"Permitted Liens" shall mean:
(i) the respective rights and interests of the parties to the
Operative Agreements as provided in the Operative Agreements;
(ii) the rights of any sublessee or assignee under a sublease
or an assignment expressly permitted by the terms of the Lease;
(iii) Liens for Taxes that either are not yet due or are being
contested in accordance with the provisions of Section 13 of the Lease;
(iv) Liens arising by operation of law, materialmen's,
mechanics', workmen's, repairmen's, employees', carriers',
warehousemen's and other like Liens relating to any Modifications or
arising in the ordinary course of business for amounts that either are
not more than 30 days past due or are being diligently contested in
good faith by appropriate proceedings, so long as such proceedings
satisfy the conditions for the continuation of proceedings to contest
Taxes set forth in Section 13 of the Lease;
(v) Liens of any of the types referred to in clause (iv) above
that have been bonded for not less than the full amount in dispute (or
as to which other security arrangements satisfactory to the Lessor have
been made), which bonding (or arrangements)
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shall comply with applicable Legal Requirements, and shall have
effectively stayed any execution or enforcement of such Liens; and
(vi) Liens arising out of judgments or awards with respect to
which appeals or other proceedings for review are being prosecuted in
good faith and for the payment of which adequate reserves have been
provided as required by GAAP or other appropriate provisions have been
made, so long as such proceedings have the effect of staying the
execution of such judgments or awards and satisfy the conditions for
the continuation of proceedings to contest Taxes set forth in Section
13 of the Lease.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
Governmental Authority or any other entity.
"Plan" shall have the meaning specified in the definition of the term
"Employee Benefit Plan."
"Preliminary Appraisal" shall mean a letter addressed to the Investor,
dated the Initial Closing Date, from the Independent Appraiser, containing a
preliminary appraisal of the Equipment, in form and substance reasonably
satisfactory to the Investor and the Lessee, which appraisal shall (i) include
the following conclusions:
(A) the Equipment Cost (not including Transaction Expenses payable
by the Investor pursuant to Section 9.1 of the Participation
Agreement) is equal to the fair market value of the Equipment
as of the Lease Commencement Date and the Final Closing Date
and the Basic Rent approximates a fair market rent for the
Equipment;
(B) the Equipment is expected to be useful to or usable by the
Investor or a third-party unrelated to the Lessee at the end
of the Basic Term and any Renewal Term and by a third party
unrelated to the Lessee and the Operating Lessee at the end of
any Operating Lease Term, as delivered to Lessor pursuant to
Section 22.1(c) of the Lease or pursuant to the return
provisions of the Operating Lease, as the case may be;
(C) based on our investigation, the Equipment falls within Asset
Classes 30.21, 28.0 and 30.2; therefore, approximately 8.7% of
the Equipment qualifies as "3-year property," approximately
50.4% of the Equipment qualifies as "5-year property" and
approximately 40.9% of the Equipment qualifies as "7-year
property", each within the meaning of sections 168(e)(1) and
168(e)(3)(C) of the Code;
(D) the estimated economic useful life of the Equipment dismantled
is not less than 125% of the Basic Term (plus any Renewal Term
and any Operating Lease Term);
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(E) the Residual Value of the Equipment in place as permitted by
Section 22.1(d) of the Lease at the end of the Basic Term,
taking into account inflation at a reasonable annual rate;
(F) the residual value of the Equipment dismantled at the end of
the Basic Term and the end of any Operating Lease Term,
without taking into account inflation or deflation, is
expected to equal or exceed 20% of total Equipment Cost (not
including Transaction Expenses payable by the Investor
pursuant to Section 9.1 of the Participation Agreement);
(G) as of the Final Closing Date, the Equipment will be placed in
service and will not require any improvements, modifications
or additions to render such Equipment complete and fit for its
intended use by the Lessee;
(H) the formula for computing Operating Lease Basic Rent set forth
on Exhibit C to the Participation Agreement is expected to
generate rents that are not above the range of fair market
rents for the Equipment; as of the Final Closing Date there
reasonably are expected to be multiple potential Operating
Lessees for the Equipment; and the Equipment is expected to be
able to be placed for a re-lease period of seven years at the
end of the Basic Term with an Operating Lessee pursuant to an
Operating Lease;
(I) it is reasonable to expect that the terms of the Operating
Lease are not likely to be so burdensome, onerous or
economically unattractive to a potential Operating Lessee
so as to make finding a potential Operating Lessee
sufficiently difficult as to compel the Lessee to exercise its
option to purchase the Equipment at the end of the Basic Term
or any Renewal Term;
(J) based upon the comparative costs of the reasonably anticipated
alternatives expected to be available to the Lessee at the
expiration of the Basic Term and any Renewal Term, because of
the existence of the Operating Lease Option, the Lessee will
not be under any economic compulsion to exercise its option to
purchase the Equipment; and
(K) as of the Final Closing Date, the Equipment constitutes a
single self-contained, fully integrated facility, of which
each of the major components is interrelated in terms of the
useful life, structure and design; and
(L) the rights and interests required to be delivered or granted
by the Lessee to the Lessor, or in the case of an Operating
Lease to the Operating Lessee, under Section 22.1(d) of the
Lease are all the rights and interests necessary for the
productive operation of the Equipment in place by the Lessor,
the Operating Lessee or another user; and
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(ii) address such other matters as the Investor shall
reasonably request.
"Purchase Agreement Assignment" shall mean a Purchase Agreement
Assignment in the form attached as Exhibit C to the Lease, together with a
Consent and Agreement in the form attached thereto.
"Purchase Option Discount" shall mean the estimated value of the
deferral of the Investor's federal and state income taxes during 1999, if any,
by reason of the Lessee's exercise of the Expiration Date Purchase Option under
Section 20.2 of the Lease, as determined at that time and as mutually agreed by
the Investor and the Lessee.
"Purchase Option Price" shall mean (i) with respect to the Basic Term,
(a) the greater of (1) ninety-five percent (95%) of the Equipment Cost or (2)
the Residual Value on the Basic Term Expiration Date, minus (b) the Purchase
Option Discount, if any, provided that in no event shall the Purchase Option
Price be less than the Residual Value of the Equipment on the Basic Term
Expiration Date, and (ii) with respect to the first Renewal Term, the greater of
(a) the Unamortized Equipment Cost on the Expiration Date or (b) the Residual
Value on the Expiration Date.
"Quarterly Tax Payments" shall have the meaning specified in Exhibit E
to the Participation Agreement.
"Recourse Component" shall mean, for any Rental Period, the product of
(i)(a) the Recourse Margin, multiplied by (b) a fraction equal to (1) the number
of days in such Rental Period, divided by (2) 360, multiplied by (ii) the
difference between (a) the Unamortized Equipment Cost and (b) twenty percent
(20%) of the original Equipment Cost for all Equipment then subject to the
Lease.
"Recourse Margin" shall mean (i) with respect to the Basic Term,
sixty-five basis points (0.65%) per annum, and (ii) with respect to any Renewal
Term, as determined by the Lessor in its good faith business judgment based upon
the Renewal Term Pricing Factors applicable to such Renewal Term.
"Reference Lender" shall mean Deutsche Bank A.G., New York Branch.
"Release" shall mean any release, pumping, pouring, emptying,
injecting, escaping, leaching, dumping, seepage, spill, leak, flow, discharge,
disposal or emission of a Hazardous Substance.
"Remarketing Option" shall have the meaning specified in Section 21.4
of the Lease.
"Remarketing Option Payment" shall mean an amount equal to the
difference between (i) the Unamortized Equipment Cost on the Expiration Date and
(ii) the Net Sales Proceeds, but not
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to exceed the difference between (x) the Unamortized Equipment Cost on the
Expiration Date and (y) twenty percent (20%) of the original Equipment Cost.
"Renewal Rent" shall have the meaning specified in Section 21 of the
Lease.
"Renewal Option" shall have the meaning specified in Section 21 of the
Lease.
"Renewal Term" shall have the meaning specified in Section 21 of the
Lease.
"Renewal Term Appraisal" shall mean an appraisal of the Equipment
prepared by an Independent Appraiser in a manner consistent with the preparation
of the Preliminary Appraisal and the Final Appraisal and addressing such matters
as the Investor shall reasonably request, including, but not limited to, the
conclusions set forth in clauses (H)-(J) of the definition of "Preliminary
Appraisal".
"Renewal Term Pricing Factors" shall mean, with respect to any Renewal
Term, (i) prevailing market conditions, (ii) the terms and conditions of such
Renewal Term, (iii) the credit standing of the Lessee, and (iv) any other
factors that the Investor reasonably deems relevant at the time of
determination.
"Rent" shall mean, collectively, the Basic Rent and the Supplemental
Rent, in each case payable under the Lease.
"Rental Period" shall mean:
(i) initially, the period commencing on the Initial Closing
Date and ending one month thereafter;
(ii) thereafter, until the Final Closing Date, each period
commencing on the last day of the next preceding Rental Period and
ending one month thereafter, with the last of such periods ending on
the Final Closing Date; and
(iii) thereafter, each period commencing on the last day of
the next preceding Rental Period and ending three months thereafter;
provided, however, that all of the foregoing provisions relating to
Rental Periods are subject to the following:
(a) if any Rental Period would otherwise end on a day
that is not a Business Day, such Rental Period shall be
extended to the next succeeding Business Day unless the result
of such extension would be to carry such Rental Period into
another calendar month, in which event such Rental Period
shall end on the immediately preceding Business Day;
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(b) any Rental Period that begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Rental Period) shall end on the last Business
Day of a calendar month;
(c) the final Rental Period of the Basic Term shall
end on the Basic Term Expiration Date; and
(d) no Rental Period shall end on a date after the
Expiration Date.
"Reportable Event" shall have the meaning specified in ERISA.
"Required Modification" shall have the meaning specified in Section 11
of the Lease.
"Requirement of Law" as to any Person, the Certificate of Incorporation
and By-Laws or other organizational or governing documents of such Person, and
any law, treaty, rule or regulation (including ERISA) or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Residual Value" shall mean, at any date, the estimated fair market
value of the item or items of Equipment with respect to which such determination
is being made taking into account a reasonable rate of inflation, as shown on
the Final Appraisal or, with respect to a Renewal Term, if available, a Renewal
Term Appraisal.
"Responsible Officer" shall mean the Chairman or Vice Chairman of the
Board of Directors, the Chairman or Vice Chairman of the Executive Committee of
the Board of Directors, the President, any Senior Vice President or Executive
Vice President, any Vice President, the Secretary, any Assistant Secretary, the
Treasurer or any Assistant Treasurer.
"Restricted Subsidiary" shall mean each Subsidiary of the Lessee having
total assets (determined in accordance with the GAAP consistently applied) in
excess of five percent (5%) of the total consolidated assets (determined in
accordance with GAAP consistently applied) of the Lessee and its consolidated
Subsidiaries.
"Securities Act" shall mean the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, together with the rules and regulations promulgated
thereunder.
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"Security Agreement" shall mean any security agreement between the
Owner Trustee or the Investor and the Agent, for the benefit of the Lenders, in
order to create a first priority Lien on the Trust Estate, as amended,
supplemented or otherwise modified from time to time.
"Security Documents" shall mean the collective reference to the
Security Agreement, the Assignment of Lease and all other security documents
hereafter delivered to the Agent or any other Person granting a Lien on any
asset or assets of any Person to secure the obligations and liabilities of the
Owner Trustee or the Investor under any Credit Agreement or to secure any
guarantee of any such obligations and liabilities, and all replacements thereof
and all amendments or supplements thereto or modifications thereof.
"Severable Optional Modification" shall mean the meaning specified in
Section 11 of the Lease.
"Subsidiary" shall mean as to any Person, any corporation of which at
least a majority of the outstanding stock having by the terms thereof ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person, or by one or
more Subsidiaries, or by such Person and one or more Subsidiaries.
"Supplemental Rent" shall mean all amounts, liabilities and obligations
(other than Basic Rent) which Lessee assumes or agrees to pay to Lessor, the
Investor, the Agent or any other Person under the Lease or under any of the
other Operative Agreements including, without limitation, payments of
Termination Value, Expiration Date Termination Payment, Remarketing Option
Payment and all indemnification amounts, liabilities and obligations.
"Taxes" shall have the meaning specified in the definition of the term
"Impositions."
"Tax Loss" shall have the meaning specified in Section 13.3(a) of the
Participation Agreement.
"Term" shall mean the Basic Term and each Renewal Term.
"Termination Date" shall have the meaning specified in Section 16.2(a)
of the Lease.
"Termination Event" shall mean (i) a Reportable Event (other than a
Reportable Event not subject to the provisions for 30-day notice to the PBGC
under such regulations), or (ii) the withdrawal of the Lessee or any of its
ERISA Affiliates from a Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a
notice of intent to terminate a Plan in a distress termination under Section
4041 of ERISA, or (iv) the institution of proceedings to terminate a Plan by the
PBGC, or (v) any other event or condition which might constitute grounds under
Section 4042 of ERISA for the involuntary
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termination of, or the appointment of a trustee to administer, any Plan, or (vi)
the imposition of liability of Lessee or any of its ERISA Affiliates pursuant to
Sections 4064 or 4069 of ERISA, which, in the case of any event described in
clauses (i) through (v) above, would cause the sum of the Lessee's and its ERISA
Affiliates' liabilities (after giving effect to the tax consequences thereof)
resulting from or otherwise associated with such event to exceed $3,000,000.
"Termination Notice" shall have the meaning specified in Section
16.1(a) of the Lease.
"Termination Value" shall mean, at any date and with respect to the
Equipment, the sum of: (i) any costs or expenses of Lessor associated with a
sale or other disposition of the Equipment; (ii) the Unamortized Equipment Cost
of such Equipment at such date; and (iii) the Eurodollar Make Whole Amount for
the Equipment.
"Transaction Expenses" shall mean all costs and expenses incurred in
connection with the preparation, execution and delivery of the Operative
Agreements and the transactions contemplated by the Operative Agreements
including without limitation:
(i) the reasonable fees, out-of-pocket expenses and
disbursements of counsel in negotiating the terms of the Operative
Agreements and the other transaction documents, preparing for the
closings under, and rendering opinions in connection with, such
transactions and in rendering other services customary for counsel
representing parties to transactions of the types involved in the
transactions contemplated by the Operative Agreements;
(ii) any other reasonable fee, out-of-pocket expenses,
disbursement or cost of any party to the Operative Agreements or any of
the other transaction documents;
(iii) the reasonable out-of-pocket expenses of the Investor in
connection with the transactions contemplated by the Operative
Agreements;
(iv) any and all Taxes and fees incurred in recording or
filing any Operative Agreement or any other transaction document,
security agreement, notice or financing statement with any public
office, registry or governmental agency in connection with the
transactions contemplated by the Operative Agreements; and
(v) the Commitment Fee.
"Trust" shall have the meaning specified in the Trust Agreement.
"Trust Agreement" shall mean the Trust Agreement dated as of the
Initial Closing Date between the Investor and the Owner Trustee.
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"Trust Company" shall mean First Security Bank of Utah, N.A. and any
successor financial institution acting as Owner Trustee under the Operative
Agreements, in each case in its individual capacity.
"Trust Estate" shall have the meaning specified in the Trust Agreement.
"UCC Financing Statements" shall mean collectively the financing
statements required by the Credit Agreement or related Security Documents and
the Lessor Financing Statements.
"Unamortized Equipment Cost" shall mean, for any period or at any date,
the difference between (i) the original total Equipment Cost of the Equipment,
and (ii) the sum of all Amortization Components for all periods ending prior to
the period with respect to which the Unamortized Equipment Cost is being
determined.
"Uniform Commercial Code" and "UCC" shall mean the Uniform Commercial
Code as in effect in any applicable jurisdiction.
"U.S." shall mean the United States of America, its territories, its
possessions and all other areas subject to its jurisdiction.
"Voting Power" shall mean, with respect to securities issued by any
Person, the combined voting power of all securities of such person which are
issued and outstanding at the time of determination and which are entitled to
vote in the election of directors of such Person, other than securities having
such power only by reason of the happening of a contingency.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
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EXHIBIT 10.19.1
FIRST AMENDMENT TO PARTICIPATION AGREEMENT
AND LEASE AGREEMENT
This FIRST AMENDMENT TO PARTICIPATION AGREEMENT AND LEASE AGREEMENT
(this "Amendment"), dated as of June 30, 1995, is by and among FRESENIUS USA,
INC., a Massachusetts corporation, as lessee (the "Lessee"), FIRST SECURITY BANK
OF UTAH, N.A., a national banking association, not in its individual capacity
(in its individual capacity, the "Trust Company"), except as expressly stated
herein, but solely as Owner Trustee (the "Owner Trustee" or the "Lessor"), and
DEUTSCHE BANK A.G., NEW YORK AND/OR CAYMAN ISLANDS BRANCHES, duly licensed
branches of Deutsche Bank A.G., a German corporation, as investor (the
"Investor").
RECITALS:
A. The parties hereto are parties to that certain Participation
Agreement dated as of March 31, 1995 (as amended, restated, supplemented or
otherwise modified from time to time, the "Participation Agreement");
B. The Lessee and the Lessor are parties to that certain Lease
Agreement dated as of March 31, 1995 (as amended, restated, supplemented or
otherwise modified from time to time, the "Lease"), pursuant to which the Lessor
has leased certain Equipment to the Lessee;
C. The parties desire to amend certain provisions of the Participation
Agreement and the Lease, all on the terms and conditions set forth in this
Amendment; and
D. Each capitalized term used in this Amendment and not otherwise
defined in this Amendment shall have the meaning ascribed thereto in Appendix A
to the Participation Agreement; this Amendment shall constitute an Operative
Agreement; these Recitals shall be construed as part of this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
1. Amendments to the Participation Agreement.
1.1 Section 5.3(n) of the Participation Agreement is hereby amended by
deleting the reference to "June 30" in the second line thereof and substituting
therefor "July 31".
1.2 The last line of Section 5.3(t) of the Participation Agreement is
hereby amended in its entirety to read as follows: "of (i) Equipment Cost; (ii)
Transaction Expenses; (iii) the Amortization Component; (iv) the depreciable
basis and asset classification of the Equipment; and (v) the Final Closing Date;
and".
<PAGE> 2
1.3 Section 7.3(s) of the Participation Agreement is hereby amended by
deleting the word "second" in the ninth line thereof and substituting therefor
the word "third".
1.4 Section 1.2 of Exhibit E to the Participation Agreement is hereby
amended by deleting the word "second" in the sixth line thereof and substituting
therefor the word "third".
2. Amendment to the Lease. Section 17.1(m) of the Lease is hereby
amended by deleting the reference to "June 30" in the first line thereof and
substituting therefor "July 31".
3. Reference to and Effect on the Participation Agreement.
3.1 Except as specifically amended above, the Participation Agreement
and each of the Schedules, Exhibits and Appendices thereto shall remain in full
force and effect and the Participation Agreement as amended by this Amendment,
is hereby ratified and confirmed in all respects.
3.2 Upon the effectiveness of this Amendment each reference in (a) the
Participation Agreement to "this Agreement," "hereunder," "hereof," or words of
similar import and (b) any other Operative Agreement to "the Participation
Agreement," shall, in each case, mean and be a reference to the Participation
Agreement, as amended hereby.
4. Miscellaneous.
4.1 Headings. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
4.2 Counterparts. This Amendment may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one agreement.
4.3 GOVERNING LAW. THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY
THE LAW OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW BUT EXCLUDING ANY OTHER CONFLICT-OF-LAW OR CHOICE-OF-LAW
RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE INTERNAL LAWS OF ANY OTHER
JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
* * * *
IN WITNESS WHEREOF, each party hereto has caused this First Amendment
to be duly executed and delivered by its proper and duly authorized officer as
of the date first written above.
FRESENIUS USA, INC.,
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as Lessee
By: ______________________________
Title: ___________________________
FIRST SECURITY BANK OF UTAH, N.A.,
not in its individual capacity, except as expressly stated
herein, but solely as Owner Trustee
By: ______________________________
Title: ___________________________
DEUTSCHE BANK A.G., NEW YORK
AND/OR CAYMAN ISLANDS BRANCHES,
as Investor
By: ______________________________
Title: ___________________________
By: ______________________________
Title: ___________________________
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<PAGE> 1
EXHIBIT 10.19.2
SECOND AMENDMENT TO PARTICIPATION AGREEMENT
AND LEASE AGREEMENT
This SECOND AMENDMENT TO PARTICIPATION AGREEMENT AND LEASE AGREEMENT
(this "Amendment"), dated as of July 31, 1995, is by and among FRESENIUS USA,
INC., a Massachusetts corporation, as lessee (the "Lessee"), FIRST SECURITY BANK
OF UTAH, N.A., a national banking association, not in its individual capacity
(in its individual capacity, the "Trust Company"), except as expressly stated
herein, but solely as Owner Trustee (the "Owner Trustee" or the "Lessor"), and
DEUTSCHE BANK A.G., NEW YORK AND/OR CAYMAN ISLANDS BRANCHES, duly licensed
branches of Deutsche Bank A.G., a German corporation, as investor (the
"Investor").
RECITALS:
A. The parties hereto are parties to that certain Participation
Agreement dated as of March 31, 1995 (as amended, restated, supplemented or
otherwise modified from time to time, the "Participation Agreement");
B. The Lessee and the Lessor are parties to that certain Lease
Agreement dated as of March 31, 1995 (as amended, restated, supplemented or
otherwise modified from time to time, the "Lease"), pursuant to which the Lessor
has leased certain Equipment to the Lessee;
C. The parties desire to amend certain provisions of the Participation
Agreement and the Lease, all on the terms and conditions set forth in this
Amendment; and
D. Each capitalized term used in this Amendment and not otherwise
defined in this Amendment shall have the meaning ascribed thereto in Appendix A
to the Participation Agreement; this Amendment shall constitute an Operative
Agreement; these Recitals shall be construed as part of this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
1. Amendments to the Participation Agreement.
1.1 Section 5.3(e) of the Participation Agreement is hereby amended by
adding the following after the word "Investor" and before the semi-colon on the
third line thereof: ", provided that with respect to the Final Closing Date, the
Equipment Schedule to be delivered by the Lessee shall list all of the Equipment
acquired by the Lessor on a cumulative basis on each Closing Date, including the
Final Closing Date".
1.2 Section 7.3(y) of the Participation Agreement is hereby amended by
(i) deleting the reference to "8.7%" in clause (ii) thereof and substituting
therefor "2.3%", (ii)
<PAGE> 2
deleting the reference to "50.4%" in clause (ii) thereof and substituting
therefor "53.9%" and (iii) deleting the reference to "40.9%" in clause (ii)
thereof and substituting therefor "43.8%".
1.3 Section 1.2 of Exhibit E to the Participation Agreement is hereby
amended by deleting the reference to "8.7%" in clause (ii) thereof and
substituting therefor "2.3%", (ii) deleting the reference to "50.4%" in clause
(ii) thereof and substituting therefor "53.9%" and (iii) deleting the reference
to "40.9%" in clause (ii) thereof and substituting therefor "43.8 %".
2. Amendment to the Lease. Section 2.4 of the Lease is hereby amended
by adding the following after the word "Lease" and before the period on the
fourth line thereof: ", provided that with respect to the Final Closing Date,
the Equipment Schedule to be executed and delivered by Lessee and Lessor shall
list all of the Equipment acquired by Lessor on a cumulative basis on each
Closing Date, including the Final Closing Date".
3. Reference to and Effect on the Participation Agreement.
3.1 Except as specifically amended above, the Participation Agreement
and each of the Schedules, Exhibits and Appendices thereto shall remain in full
force and effect and the Participation Agreement as amended by this Amendment,
is hereby ratified and confirmed in all respects.
3.2 Upon the effectiveness of this Amendment each reference in (a) the
Participation Agreement to "this Agreement," "hereunder," "hereof," or words of
similar import and (b) any other Operative Agreement to "the Participation
Agreement," shall, in each case, mean and be a reference to the Participation
Agreement, as amended hereby.
4. Miscellaneous.
4.1 Headings. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
4.2 Counterparts. This Amendment may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one agreement.
4.3 GOVERNING LAW. THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY
THE LAW OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW BUT EXCLUDING ANY OTHER CONFLICT-OF-LAW OR CHOICE-OF-LAW
RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE INTERNAL LAWS OF ANY OTHER
JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
* * * *
-2-
<PAGE> 3
IN WITNESS WHEREOF, each party hereto has caused this Second Amendment
to be duly executed and delivered by its proper and duly authorized officer as
of the date first written above.
FRESENIUS USA, INC.,
as Lessee
By: ______________________________
Title: ___________________________
FIRST SECURITY BANK OF UTAH, N.A.,
not in its individual capacity, except as expressly stated
herein, but solely as Owner Trustee
By: ______________________________
Title: ___________________________
DEUTSCHE BANK A.G., NEW YORK
AND/OR CAYMAN ISLANDS BRANCHES,
as Investor
By: ______________________________
Title: ___________________________
By: ______________________________
Title: ___________________________
-3-
<PAGE> 1
EXHIBIT 10.19.3
THIRD AMENDMENT TO PARTICIPATION AGREEMENT
AND LEASE AGREEMENT
This THIRD AMENDMENT TO PARTICIPATION AGREEMENT AND LEASE AGREEMENT
(this "Amendment"), dated as of December 29, 1995, is by and among FRESENIUS
USA, INC., a Massachusetts corporation, as lessee (the "Lessee"), FIRST SECURITY
BANK OF UTAH, N.A., a national banking association, not in its individual
capacity (in its individual capacity, the "Trust Company"), except as expressly
stated herein, but solely as Owner Trustee (the "Owner Trustee" or the
"Lessor"), and DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES, duly
licensed branches of Deutsche Bank AG, a German corporation, as investor (the
"Investor").
RECITALS:
A. The parties hereto are parties to that certain Participation
Agreement dated as of March 31, 1995 (as amended, restated, supplemented or
otherwise modified from time to time, the "Participation Agreement");
B. The Lessee and the Lessor are parties to that certain Lease
Agreement dated as of March 31, 1995 (as amended, restated, supplemented or
otherwise modified from time to time, the "Lease"), pursuant to which the Lessor
has leased certain Equipment to the Lessee;
C. The parties desire to amend certain provisions of the Participation
Agreement and the Lease, among other things, to increase the amount of the
Investor's Commitment and to provide for an additional Closing Date for the
acquisition by the Lessor of additional Equipment, which Equipment will become
subject to the Lease, all on the terms and conditions set forth in this
Amendment;
D. Shortly following the date hereof, it is contemplated that the
Lessor will sell to Fleet Credit Corporation ("Fleet") all of the Equipment for
a purchase price equal to the Equipment Cost (the "Sale"), which Sale shall be
subject to the Lease, and Fleet will enter into a lease agreement with Deutsche
Bank AG, New York Branch ("Deutsche Bank"), which lease (the "Head Lease") shall
be subject and subordinate to the Lease; and
E. Each capitalized term used in this Amendment and not otherwise
defined in this Amendment shall have the meaning ascribed thereto in Appendix A
to the Participation Agreement; this Amendment shall constitute an Operative
Agreement; and these Recitals shall be construed as part of this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
<PAGE> 2
1. Amendments to the Participation Agreement.
1.1 Section 5.3(n) of the Participation Agreement is hereby amended by
deleting the reference to "June 30" in the second line thereof and substituting
therefor "December 29".
1.2 Section 7.3(s) of the Participation Agreement is hereby amended by
adding at the conclusion of such Section the following: "(other than the
Equipment acquired by the Lessor on the Final Closing Date which shall have been
"placed in service" for tax purposes during the fourth quarter of the Investor's
taxable year in which the Final Closing Date occurs)".
1.3 Section 7.3(y) of the Participation Agreement is hereby amended by
(i) deleting the reference to "2.3%" in clause (ii) thereof and substituting
therefor "0%", (ii) deleting the reference to "53.9%" in clause (ii) thereof and
substituting therefor "61.1%" and (iii) deleting the reference to "43.8%" in
clause (ii) thereof and substituting therefor "38.9%".
1.4 Section 1.2 of Exhibit E to the Participation Agreement is hereby
amended by (a) deleting the reference to "2.3%" in clause (ii) thereof and
substituting therefor "0%", (b) deleting the reference to "53.9%" in clause (ii)
thereof and substituting therefor "61.1%", (c) deleting the reference to "43.8%"
in clause (ii) thereof and substituting therefor "38.9%" and (d) by adding after
the work "occurs" in the seventh line thereof the following: "(other than the
Equipment acquired by the Lessor on the Final Closing Date which it is assumed
is placed in service in the fourth quarter of the Investor's taxable year in
which the Final Closing Date occurs)".
1.5 Appendix A to the Participation Agreement is hereby amended as
follows:
(a) The definition of the term "Equipment Cost" is amended by
deleting the reference to the figure "$19,000,000" in the third line thereof and
substituting therefor the figure "$27,000,000".
(b) The definition of the term "Eurodollar Component" shall be
amended to read as follows:
"Eurodollar Component" shall mean (i) for the Stub Period, the
product of (a)(1) the NIBOR multiplied by (2) a fraction equal to (A)
the number of days in the Stub Period, divided by (B) 360, multiplied
by (b) the Lease Funding Balance, and (ii) for any other Rental Period,
the product of (c)(1) the Eurodollar Reserve Rate multiplied by (2) a
fraction equal to (C) the number of days in such Rental Period, divided
by (D) 360, multiplied by (d) the Lease Funding Balance."
(c) The definition of the term "Indemnified Person" shall be
deemed to include Fleet following consummation of the Sale and the execution of
the Head Lease.
-2-
<PAGE> 3
(d) The definition of the term "Investor Commitment" is
amended by deleting the reference to the figure "$19,000,000" in the first line
thereof and substituting therefor the figure "$27,000,000".
(e) The first three clauses (i) - (iii) in the definition of
the term "Rental Period" ending with the words 'Business Day,' shall be amended
to read as follows:
"(i) initially, the period commencing on the Initial Closing
Date and ending one month thereafter;
(ii) thereafter, until July 31, 1995, each period commencing
on the last day of the next preceding Rental Period and ending one
month thereafter, with the last of such periods ending on July 31,
1995;
(iii) thereafter, until the Final Closing Date, each period
commencing on the last day of the next preceding Rental Period and
ending three months thereafter, with the last of such Rental Periods
ending on the Final Closing Date;
(iv) the Stub Period; and
(v) thereafter, each period commencing on the last day of the
next preceding Rental Period and ending three months thereafter, with
the first of such periods commencing on the last day of the Stub
Period;"
(f) The following new definitions shall be added in
alphabetical order as follows:
"NIBOR" shall mean the New York Interbank Offered Rate, an
interest rate at which United States financial center bank deposits
trade in the United States marketplace.
"Stub Period' shall mean the period commencing on the Final
Closing Date and ending on December 31, 1995."
2. Amendments to the Lease.
2.1 Section 17.1(m) of the Lease is hereby amended by deleting the
reference to "June 30" in the first line thereof and substituting therefor
"December 29".
2.2 The first three lines of Section 22.1(c) of the Lease are hereby
amended in their entirety to read as follows:
-3-
<PAGE> 4
"(c) If the Equipment is being sold on the Expiration Date
pursuant to Lessee's exercise of its Remarketing Option or is being
returned to Lessor, Lessee shall, at Lessor's option and Lessee's own
risk and expense, return the Equipment to Lessor by (i) disassembling,
boxing and preparing the Equipment for shipment and delivering the
Equipment to the nearest operating railroad capable of shipping the
same or (ii) delivering the Equipment in place and in use where
located, in either case, in the same. . .".
2.3 The last sentence of Section 22.1(d) of the Lease is hereby amended
to read as follows:
"All assignments, easements, agreements and other deliveries required
by clauses (i), (ii) and (iii) of this paragraph (d) shall (i) be in
form satisfactory to Lessor, (ii) be fully assignable (including both
primary assignments and assignments given in the nature of security)
without payment of any fee, cost or other charge and (iii) extend in
duration for the remaining economic useful life of the Equipment
following termination of this Lease."
3. Reference to and Effect on the Participation Agreement and Lease.
3.1 Except as specifically amended above, the Participation Agreement,
the Lease and each of the Schedules, Exhibits and Appendices thereto shall
remain in full force and effect and each of the Participation Agreement and the
Lease as amended by this Amendment, is hereby ratified and confirmed in all
respects.
3.2 Effective as of the date of this Amendment, each reference in (a)
the Participation Agreement or the Lease, as applicable, to "this Agreement,"
"hereunder," "hereof," or words of similar import and (b) any other Operative
Agreement to "the Participation Agreement" or "the Lease", as applicable, shall,
in each case, mean and be a reference to the Participation Agreement or the
Lease, as applicable, as amended hereby.
3.3 The Lessee hereby consents to the sale/leaseback transaction
referred to in Section C of the Recitals and acknowledges and agrees that any
Operating Lease which the Lessee has elected to cause an Operating Lessee to
enter into shall be subject and subordinate to the Head Lease.
3.4 Upon the request of Fleet or Deutsche Bank, the Lessee agrees to
acknowledge directly in writing to Fleet that Fleet is an "Indemnified Person"
as such term is defined in the Participation Agreement consistent with the terms
thereof and to provide Fleet with a copy of the applicable provisions of the
Lessee's indemnification obligations under the Participation Agreement and/or
Lease in connection with any notice of a Claim, Imposition or Tax Loss received
from Fleet.
-4-
<PAGE> 5
4. Miscellaneous.
4.1 Headings. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
4.2 Counterparts. This Amendment may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one agreement.
4.3 GOVERNING LAW. THIS AMENDMENT SHALL IN ALL RESPECTS BE GOVERNED BY
THE LAW OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW BUT EXCLUDING ANY OTHER CONFLICT-OF-LAW OR CHOICE-OF-LAW
RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE INTERNAL LAWS OF ANY OTHER
JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
[SIGNATURE PAGE FOLLOWS]
-5-
<PAGE> 6
IN WITNESS WHEREOF, each party hereto has caused this Third Amendment
to be duly executed and delivered by its proper and duly authorized officer as
of the date first written above.
FRESENIUS USA, INC.,
as Lessee
By: ______________________________
Title: _____________________________
FIRST SECURITY BANK OF UTAH, N.A.,
not in its individual capacity, except as expressly stated
herein, but solely as Owner Trustee
By: ______________________________
Title: ____________________________
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLANDS BRANCHES,
as Investor
By: ______________________________
Title: ____________________________
By: ______________________________
Title: ____________________________
-6-
<PAGE> 1
EXHIBIT 10.20
[LOGO]
DEUTSCHE BANK MEDIUM TERM LEASE
================================================================================
LEASE AGREEMENT
between
FIRST SECURITY BANK OF UTAH, N.A.,
not in its individual capacity,
but solely as Owner Trustee,
as Lessor,
and
FRESENIUS USA, INC.,
as Lessee
--------------------------------------
Dated as of March 31, 1995
---------------------------------------
FRESENIUS USA, INC. EQUIPMENT LEASE PROGRAM
================================================================================
This Lease Agreement may in the future be subject to a security interest in
favor of a commercial bank or other financial institution, as agent (the
"Agent") under a credit agreement, among First Security Bank of Utah, N.A., not
in its individual capacity except as expressly stated therein, but solely as
the Owner Trustee, the Lenders referred to therein and the Agent, as amended or
supplemented. This Lease Agreement has been executed in several counterparts.
To the extent, if any, that this Lease Agreement constitutes chattel paper (as
such term is defined in the Uniform Commercial Code as in effect in any
applicable jurisdiction), no security interest in this Lease Agreement may be
created through the transfer or possession of any counterpart other than the
original counterpart containing the receipt therefor executed by the Owner
Trustee on the signature page hereof.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. DESCRIPTION OF THE EQUIPMENT AND LEASE TERM . . . . . . . . . . . . . . 1
2.1. Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2. Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3. Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4. Equipment Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3. RENT AND RENT PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2. Supplemental Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.3. Performance on a Non-Business Day . . . . . . . . . . . . . . . . . . . 3
3.4. Rent Payment Provisions . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 4. UTILITY CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 5. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 6. NET LEASE AND ABATEMENT . . . . . . . . . . . . . . . . . . . . . . . . 4
6.1. Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.2. No Termination or Abatement . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 7. RIGHTS IN AND TO THE EQUIPMENT . . . . . . . . . . . . . . . . . . . . . 5
7.1. Ownership of the Equipment . . . . . . . . . . . . . . . . . . . . . . . 5
7.2. Security Interest in the Equipment . . . . . . . . . . . . . . . . . . . 5
SECTION 8. CONDITION AND USE OF THE EQUIPMENT . . . . . . . . . . . . . . . . . . . 5
8.1. Condition of the Equipment . . . . . . . . . . . . . . . . . . . . . . . 5
8.2. Possession and Use of the Equipment . . . . . . . . . . . . . . . . . . 6
SECTION 9. COMPLIANCE WITH LEGAL REQUIREMENTS AND INSURANCE REQUIREMENTS . . . . . 7
SECTION 10. MAINTENANCE AND ENVIRONMENTAL INSPECTION . . . . . . . . . . . . . . . 7
10.1. Maintenance and Repair; Return . . . . . . . . . . . . . . . . . . . . . 7
10.2. Environmental Inspection . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 11. MODIFICATIONS, SUBSTITUTIONS AND REPLACEMENTS AND FINANCING THEREOF . . 9
11.1. Modifications, Substitutions and Replacements . . . . . . . . . . . . . . 9
11.2. Financing of Severable Optional Modifications . . . . . . . . . . . . . . 9
SECTION 12. PROHIBITION AGAINST LIENS . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 13. PERMITTED CONTESTS OTHER THAN IN RESPECT OF INDEMNITIES . . . . . . . . 11
SECTION 14. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
14.1. Public Liability and Workers' Compensation Insurance . . . . . . . . . . 12
14.2. Hazard and Other Insurance . . . . . . . . . . . . . . . . . . . . . . . 12
14.3. Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 15. EVENTS OF LOSS AND ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . 14
15.1. Event of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15.2. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 16
15.3. Notice of Environmental Matters . . . . . . . . . . . . . . . . . . . . 17
SECTION 16. TERMINATION FOR EVENTS OF LOSS . . . . . . . . . . . . . . . . . . . . . 17
16.1. Termination Upon Certain Events . . . . . . . . . . . . . . . . . . . . 17
16.2. Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 17. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
17.1. Lease Events of Default . . . . . . . . . . . . . . . . . . . . . . . . 18
17.2. Surrender of Possession . . . . . . . . . . . . . . . . . . . . . . . . 20
17.3. Reletting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
17.4. Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
17.5. Final Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . 22
17.6. Waiver of Certain Rights . . . . . . . . . . . . . . . . . . . . . . . . 22
17.7. Assignment of Rights Under Contracts . . . . . . . . . . . . . . . . . . 22
17.8. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 18. LESSOR'S RIGHT TO CURE LESSEE'S LEASE DEFAULTS . . . . . . . . . . . . . 23
SECTION 19. PROVISIONS RELATING TO LESSEE'S TERMINATION OF
THIS LEASE OR EXERCISE OF EXPIRATION DATE
PURCHASE OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 20. EXPIRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
20.1. Expiration Date Options . . . . . . . . . . . . . . . . . . . . . . . . 23
20.2. Expiration Date Purchase Option . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
20.3. Operating Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
20.4. Remarketing Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 21. RENEWAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
21.1. Renewal Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
21.2. Exercise of Renewal Option . . . . . . . . . . . . . . . . . . . . . . . 25
21.3. Renewal Term Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 22. SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
22.1. Sale Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
22.2. Application of Proceeds of Sale . . . . . . . . . . . . . . . . . . . . 27
22.3. Certain Obligations Continue . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 23. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 24. RISK OF LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 25. SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
25.1. Subletting and Assignment . . . . . . . . . . . . . . . . . . . . . . . 28
25.2. Subleases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 26. NO WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 27. ACCEPTANCE OF SURRENDER . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 28. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 29. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
29.1. Survival and Severability . . . . . . . . . . . . . . . . . . . . . . . 30
29.2. Amendments and Modifications . . . . . . . . . . . . . . . . . . . . . . 30
29.3. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 31
29.4. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
29.5. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
29.6. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
29.7. Limitations on Recourse . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
-iii-
<PAGE> 5
EXHIBITS
Exhibit A Form of Equipment Schedule
Exhibit B Other Names and Locations of Lessee
Exhibit C Purchase Agreement Assignment
Exhibit D Form of Bill of Sale
-iv-
<PAGE> 6
LEASE AGREEMENT
This LEASE AGREEMENT (this "Lease"), dated as of March 31,
1995, between FIRST SECURITY BANK OF UTAH, N.A., a national banking
association, having its principal office at 79 South Main Street, Salt Lake
City, Utah 84111, not in its individual capacity, but solely as Owner Trustee,
as lessor (the "Lessor"), and FRESENIUS USA, INC., a Massachusetts corporation,
having its principal place of business at 2637 Shadelands Drive, Walnut Creek,
California 94598, as lessee (the "Lessee").
W I T N E S S E T H:
WHEREAS, subject to the terms and conditions of this Lease,
Lessor will purchase the Equipment from Lessee or one or more third parties
designated by Lessee; and
WHEREAS, Lessor desires to lease to Lessee, and Lessee desires
to lease from Lessor, the Equipment;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
Capitalized terms used but not otherwise defined in this Lease
have the respective meanings specified in Appendix A to the Participation
Agreement of even date herewith (the "Participation Agreement") among the
Lessee, First Security Bank of Utah, N.A., not in its individual capacity
except as expressly stated therein, as Owner Trustee, and the Investor, the
terms of which are incorporated herein by reference.
SECTION 2. DESCRIPTION OF THE EQUIPMENT AND LEASE TERM.
2.1. Equipment. Subject to the terms and conditions
hereinafter set forth and contained in the Equipment Schedules relating to the
Equipment, Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Equipment.
2.2. Lease Term. The term of this Lease with respect to
the Equipment (the "Basic Term") shall begin on the Lease Commencement Date and
shall end on the Basic Term
-1-
<PAGE> 7
Expiration Date, unless extended or earlier terminated in accordance with the
provisions of this Lease.
2.3. Title. Each item of Equipment is leased to Lessee
without any representation or warranty, express or implied, by Lessor and
subject to Permitted Liens and all applicable Legal Requirements. Lessee shall
in no event have any recourse against Lessor for any defect in title to any
Equipment, except for Lessor Liens attributable to Lessor.
2.4. Equipment Schedules. On the Lease Commencement Date
and each other Closing Date, Lessee and Lessor shall each execute and deliver
an Equipment Schedule or Equipment Schedules for the Equipment to be leased on
such date in substantially the form of Exhibit A hereto, and thereafter such
Equipment shall be subject to the terms of this Lease.
SECTION 3. RENT AND RENT PAYMENT.
3.1. Rent. (a) During the Basic Term, Lessee shall pay
Basic Rent in arrears on each Payment Date and on any date on which this Lease
shall terminate with respect to any or all of the Equipment. Basic Rent shall
be computed in accordance with the definition thereof and the other defined
terms used therein set forth in Appendix A to the Participation Agreement and
Sections 10.3, 10.4, 10.5 and 10.6 of the Participation Agreement which are
incorporated herein by reference.
(b) Basic Rent shall be due and payable in lawful money
of the United States and shall be paid by wire transfer of immediately
available funds on the due date therefor to such account or accounts at such
bank or banks or to such other Person or in such other manner as Lessor shall
from time to time direct.
(c) Neither Lessee's inability or failure to take
possession of all or any portion of any Equipment when delivered by Lessor, nor
Lessor's inability or failure to deliver all or any portion of any Equipment to
Lessee on or before the applicable Closing Date, whether or not attributable to
any act or omission of Lessee or any act or omission of Lessor, or for any
other reason whatsoever, shall delay or otherwise affect Lessee's obligation to
pay Rent for such Equipment in accordance with the terms of this Lease.
3.2. Supplemental Rent. Lessee shall pay to Lessor or the
Person entitled thereto any and all Supplemental Rent promptly as the same
shall become due and payable, and if Lessee fails to pay any Supplemental Rent,
Lessor shall have all rights, powers and remedies provided for herein or by law
or equity or otherwise in the case of nonpayment of Basic Rent. Lessee shall
pay to Lessor, as Supplemental Rent, among other things, on demand, to the
extent permitted by applicable Legal Requirements, interest at the applicable
Overdue Rate on any installment of Basic Rent not paid when due for the period
for which the same shall be overdue and on any payment of Supplemental Rent not
paid when due or demanded by Lessor for the period from the due date
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or the date of any such demand, as the case may be, until the same shall be
paid. The expiration or other termination of Lessee's obligations to pay Basic
Rent hereunder shall not limit or modify the obligations of Lessee with respect
to Supplemental Rent. Unless expressly provided otherwise in this Lease, in
the event of any failure on the part of Lessee to pay and discharge any
Supplemental Rent as and when due, Lessee shall also promptly pay and discharge
any fine, penalty, interest or cost which may be assessed or added for
nonpayment or late payment of such Supplemental Rent, all of which shall also
constitute Supplemental Rent.
3.3. Performance on a Non-Business Day. If any payment is
required hereunder on a day that is not a Business Day, then such payment shall
be due on the next succeeding Business Day, unless the definition of the term
"Rental Period" shall require payment on a different day.
3.4. Rent Payment Provisions. Lessee shall make payment
of all Basic Rent and Supplemental Rent when due regardless of whether any of
the Operative Agreements pursuant to which same is calculated and is owing
shall have been rejected, avoided or disavowed in any bankruptcy or insolvency
proceeding involving any of the parties to any of the Operative Agreements.
Such provisions of such Operative Agreements and their related definitions are
incorporated herein by reference and shall survive any termination, amendment
or rejection of any such Operative Agreements.
SECTION 4. UTILITY CHARGES.
Lessee shall pay or cause to be paid all charges for
electricity, power, gas, oil, water, telephone, sanitary sewer service and all
other rents and utilities used in or in connection with the Equipment and
related real property during the Basic Term. Lessee shall be entitled to
receive any credit or refund with respect to any utility charge paid by Lessee
and the amount of any credit or refund received by Lessor on account of any
utility charges paid by Lessee, net of the costs and expenses incurred by
Lessor in obtaining such credit or refund, shall be promptly paid over to
Lessee. All charges for utilities imposed with respect to an item of Equipment
for a billing period during which this Lease expires or terminates shall be
adjusted and prorated on a daily basis between Lessor and Lessee, and each
party shall pay or reimburse the other for such party's pro rata share thereof.
SECTION 5. QUIET ENJOYMENT.
Subject to the rights of Lessor contained in Sections 17.2 and
17.3 hereof and the other terms of this Lease and so long as no Lease Event of
Default shall have occurred and be continuing, Lessee shall peaceably and
quietly have, hold and enjoy the Equipment for the Basic Term, free of any
claim or other action by Lessor or anyone rightfully claiming by, through or
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under Lessor (other than Lessee) with respect to any matters arising from and
after the applicable Closing Date.
SECTION 6. NET LEASE AND ABATEMENT.
6.1. Net Lease. This Lease shall constitute a net lease,
and Basic Rent and Supplemental Rent shall be paid absolutely net to Lessor, so
that this Lease shall yield to Lessor the full amount thereof, without setoff,
deduction or reduction (other than as already taken into account in the
computation of Supplemental Rent). Any present or future law to the contrary
notwithstanding, this Lease shall not terminate, nor shall Lessee be entitled
to any abatement, suspension, deferment, reduction, setoff, counterclaim, or
defense with respect to the Rent (other than as already taken into account in
the computation of Supplemental Rent), nor shall the obligations of Lessee
hereunder be affected (except as expressly herein permitted and by performance
of the obligations in connection therewith) by reason of: (i) any damage to or
destruction of any Equipment or any part thereof; (ii) any taking of any
Equipment or any part thereof or interest therein by condemnation or otherwise;
(iii) any prohibition, limitation, restriction or prevention of Lessee's use,
occupancy or enjoyment of any Equipment or any part thereof, or any
interference with such use, occupancy or enjoyment by any Person or for any
other reason (other than as a result of an intentional breach by Lessor of its
covenant of quiet enjoyment); (iv) any title defect, Lien or any matter
affecting title to any Equipment (other than as a result of an intentional
breach by Lessor of its covenant of quiet enjoyment); (v) any default by Lessor
hereunder (other than an intentional breach by Lessor of its covenant of quiet
enjoyment); (vi) any action for bankruptcy, insolvency, reorganization,
liquidation, dissolution or other proceeding relating to or affecting Lessor;
(vii) the impossibility of performance by Lessor, Lessee or both; (viii) any
action of any Governmental Authority; (ix) Lessee's acquisition of ownership of
all or part of any item of Equipment (except to the extent this Lease is
terminated with respect to such item of Equipment pursuant to the terms
hereof); (x) breach of any warranty or representation with respect to any
Equipment or any Operative Agreement; (xi) any defect in the condition,
quality or fitness for use of any Equipment or any part thereof; or (xii) any
other cause or circumstances whether similar or dissimilar to the foregoing and
whether or not Lessee shall have notice or knowledge of any of the foregoing
(other than as a result of an intentional breach by Lessor of its covenant of
quiet enjoyment). The parties intend that the obligations of Lessee hereunder
shall be covenants and agreements that are separate and independent from any
obligations of Lessor hereunder and shall continue unaffected unless such
obligations shall have been modified or terminated in accordance with an
express provision of this Lease.
6.2. No Termination or Abatement. Lessee shall remain
obligated under this Lease in accordance with its terms and shall not take any
action to terminate, rescind or avoid this Lease, notwithstanding any action
for bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting Lessor, or any action with respect to this Lease or any
Operative Agreement which may be taken by any trustee, receiver or liquidator
of Lessor or by any court with respect to Lessor. Lessee hereby waives all
right (i) to terminate or surrender this
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Lease or (ii) to avail itself of any abatement, suspension, deferment,
reduction, setoff, counterclaim or defense with respect to any Rent. Lessee
shall remain obligated under this Lease in accordance with its terms and Lessee
hereby waives any and all rights now or hereafter conferred by statute or
otherwise to modify or to avoid strict compliance with its obligations under
this Lease. Notwithstanding any such statute or otherwise, Lessee shall be
bound by all of the terms and conditions contained in this Lease.
SECTION 7. RIGHTS IN AND TO THE EQUIPMENT.
7.1. Ownership of the Equipment. Lessor and Lessee intend
that (i) Lessor will be treated as the owner and lessor of the Equipment and
(ii) Lessee will be treated as the lessee of the Equipment. Lessee agrees that
neither it, any affiliate of Lessee, nor any permitted sublessee or user of the
Equipment will, directly or indirectly, at any time during the term of the
Lease take any action or fail to take any action or file or fail to file any
returns, certificates, or other documents if such action, failure to act,
filing or failure to file would be inconsistent with the foregoing
characterization of the transaction. Lessee agrees further that it will file
such returns, take such action, execute such documents, and keep and make
available to Lessor such records as may be reasonable and necessary to
facilitate accomplishing the foregoing.
7.2. Security Interest in the Equipment. In the event
that this Lease shall be recharacterized under applicable law as a lease
intended for security or a secured financing, Lessor and Lessee further intend
and agree that, for the purpose of securing Lessee's obligations for the
repayment of its obligations hereunder, (i) this Lease shall also be deemed to
be a security agreement and financing statement within the meaning of Article 9
of the Uniform Commercial Code; (ii) the conveyance provided for in Section 2.1
hereof shall be deemed to be a grant by Lessee to Lessor of a lien on and
security interest in all of Lessee's right, title and interest in and to the
Equipment and all proceeds of the conversion, voluntary or involuntary, of the
foregoing into cash, investments, securities or other property, whether in the
form of cash, investments, securities or other property; (iii) the possession
by Lessor or any of its agents of notes and such other items of property as
constitute instruments, money, negotiable documents or chattel paper shall be
deemed to be "possession by the secured party" for purposes of perfecting the
security interest pursuant to Section 9-305 of the Uniform Commercial Code; and
(iv) notifications to Persons holding such property, and acknowledgements,
receipts or confirmations from financial intermediaries, bankers or agents (as
applicable) of Lessee shall be deemed to have been given for the purpose of
perfecting such security interest under applicable law. Lessor and Lessee
shall, to the extent consistent with this Lease, take such actions as may be
necessary (including the filing of Uniform Commercial Code Financing
Statements) to ensure that, if this Lease were deemed to create a security
interest in the Equipment in accordance with this Section, such security
interest would be deemed to be a perfected security interest of first priority
under applicable law and will be maintained as such throughout the Basic Term.
SECTION 8. CONDITION AND USE OF THE EQUIPMENT.
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8.1. Condition of the Equipment. LESSEE ACKNOWLEDGES AND
AGREES THAT IT IS LEASING THE EQUIPMENT "AS IS" WITHOUT REPRESENTATION,
WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY LESSOR. NEITHER LESSOR NOR THE
INVESTOR HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY
OR COVENANT (EXPRESS OR IMPLIED) OR SHALL BE DEEMED TO HAVE ANY LIABILITY
WHATSOEVER AS TO THE TITLE, VALUE, USE, CONDITION, DESIGN, OPERATION,
MERCHANTABILITY OR FITNESS FOR USE OF ANY EQUIPMENT (OR ANY PART THEREOF), OR
ANY OTHER REPRESENTATION, WARRANTY OR COVENANT (SUBJECT TO LESSEE'S RIGHT OF
QUIET ENJOYMENT) WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY EQUIPMENT
(OR ANY PART THEREOF), AND NEITHER LESSOR NOR THE INVESTOR SHALL BE LIABLE FOR
ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN OR THE FAILURE OF ANY EQUIPMENT,
OR ANY PART THEREOF, TO COMPLY WITH ANY LEGAL REQUIREMENT. LESSEE HAS OR WILL
HAVE BEEN AFFORDED FULL OPPORTUNITY TO INSPECT THE EQUIPMENT, IS OR WILL BE
(INSOFAR AS THE LESSOR IS CONCERNED) SATISFIED WITH THE RESULTS OF ITS
INSPECTIONS AND IS ENTERING INTO THIS LEASE SOLELY ON THE BASIS OF THE RESULTS
OF ITS OWN INSPECTIONS, AND ALL RISKS INCIDENT TO THE MATTERS DESCRIBED IN THE
PRECEDING SENTENCE, AS BETWEEN THE INVESTOR AND LESSOR, ON THE ONE HAND, AND
LESSEE, ON THE OTHER HAND, ARE TO BE BORNE BY LESSEE.
8.2. Possession and Use of the Equipment. (a) At all
times during the Basic Term, the Equipment shall be continuously used by Lessee
or a permitted sublessee in the ordinary course of its business, subject to
usual and customary downtime for repairs, maintenance and the making of
modifications. Lessee shall pay, or cause to be paid, all charges and costs
required in connection with the use of the Equipment as contemplated by this
Lease.
(b) The address of Lessee stated below or on the
applicable Equipment Schedule is the chief place of business and chief
executive office of Lessee (as such terms are used in Section 9-103(3) of the
Uniform Commercial Code); and except for such names and the names specified on
Exhibit B hereto or on the applicable Equipment Schedule, Lessee does not
conduct business in a corporate or divisional name at any location where the
Equipment is or will be located under any other name. Each Equipment Schedule
correctly identifies the location of each item of Equipment and whether any of
such locations are leased by Lessee or are subject to any real property
mortgage. Lessee has no other places of business where the Equipment will be
located other than those identified on the applicable Equipment Schedule.
(c) With respect to the Equipment being purchased by
Lessor on the Lease Commencement Date or any other Closing Date, subject to the
terms and conditions of this Lease and the Participation Agreement, Lessor and
Lessee shall execute and deliver one or more Equipment Schedules that have a
complete description of each item of Equipment to be leased hereunder as of
such date and a Purchase Agreement Assignment in the form attached hereto as
Exhibit C. Simultaneously therewith, Lessor shall purchase such Equipment from
Lessee or the
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applicable third party vendor subject to satisfaction of such terms and
conditions by paying to Lessee or such vendor an amount equal to the total
Equipment Cost specified on the Equipment Schedules for such Equipment, such
purchase to be evidenced by a Bill of Sale from Lessee or such vendor to Lessor
in the form attached hereto as Exhibit D covering such Equipment; whereupon, as
between Lessor and Lessee, such Equipment shall be deemed to have been accepted
by Lessee for all purposes of this Lease and to be subject to this Lease.
SECTION 9. COMPLIANCE WITH LEGAL REQUIREMENTS AND
INSURANCE REQUIREMENTS.
Subject to the terms of Section 13 hereof relating to
permitted contests, Lessee, at its sole cost and expense, shall (i) comply with
all Legal Requirements (including all Environmental Laws), except to the extent
noncompliance therewith could not, individually or in the aggregate, have a
Material Adverse Effect, and all Insurance Requirements relating to the
Equipment, including the use, operation, maintenance, repair and restoration
thereof, whether or not compliance therewith shall require structural or
extraordinary changes in the Equipment or interfere with the use and enjoyment
of the Equipment, and (ii) procure, maintain and comply with all licenses,
permits, orders, approvals, consents and other authorizations required for the
use, operation, maintenance, repair and restoration of the Equipment, except to
the extent noncompliance therewith could not, individually or in the aggregate,
have a Material Adverse Effect.
SECTION 10. MAINTENANCE AND ENVIRONMENTAL INSPECTION.
10.1. Maintenance and Repair; Return. (a) Lessee, at its
sole cost and expense, shall cause each item of Equipment to be operated,
serviced, maintained and repaired (i) so as to keep it in good operable
condition, ordinary wear and tear excepted; (ii) in accordance with the terms
of any vendor's or manufacturer's warranties and specifications; (iii) in a
manner consistent with standard industry practice for similar equipment and
Lessee's maintenance practices applicable to its other equipment and applicable
Insurance Requirements; (iv) in accordance with all Legal Requirements, except
to the extent noncompliance therewith could not, individually or in the
aggregate, have a Material Adverse Effect; and (v) so as to permit the
continued operation as an integrated production system capable of producing a
saleable end product. Lessee shall make all necessary repairs thereto, of
every kind and nature whatsoever, ordinary or extraordinary, structural or
nonstructural or foreseen or unforeseen, in each case as required by all Legal
Requirements, Insurance Requirements, and manufacturer's specifications and
standards and on a basis consistent with the operation and maintenance of
properties or equipment comparable in type and function to the applicable
Equipment, subject, however, to the provisions of Section 15.1 hereof with
respect to Events of Loss.
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(b) Lessee shall not use or locate the Equipment outside
of the United States. Lessee shall not move or relocate the Equipment to any
location other than a location listed on the applicable Equipment Schedule
hereto unless Lessee shall provide Lessor with written notice of such
relocation not less than thirty (30) days after such relocation or such lesser
period as allowed by law and Lessee shall file any Uniform Commercial Code
financing statements with respect to such Equipment in such filing offices, to
the extent required by law, and obtain such landlord waivers and/or mortgagee
waivers with respect to such Equipment, as Lessor shall require.
(c) Upon reasonable advance notice, Lessor and its agents
shall have the right to inspect the Equipment and all maintenance records with
respect thereto at any reasonable time during normal business hours but shall
not, in the absence of a Lease Event of Default, materially disrupt the
business of Lessee. Lessee shall cause an appraisal with respect to the
Equipment in form and substance satisfactory to Lessor to be provided to Lessor
at Lessee's sole expense unless otherwise specified (i) following Lessor's
reasonable request, in the absence of a Lease Default or Lease Event of
Default, no more than twice a year following the Final Closing Date, provided
that any such appraisals shall be at Lessor's sole expense, (ii) at such other
times as Lessor may request if a Lease Default or Lease Event of Default shall
have occurred and be continuing, (iii) in connection with an Operating Lease as
provided in Section 11 of the Participation Agreement, and (iv) in connection
with any proposed Renewal Term as provided in Section 21.1.
(d) Lessor shall under no circumstances be required to
make any repairs, replacements, alterations or modifications of any nature or
description to any Equipment, make any expenditure whatsoever in connection
with this Lease or maintain any Equipment in any way. Lessor shall not be
required to maintain, repair or rebuild all or any part of any Equipment, and
Lessee waives the right to (i) require Lessor to maintain, repair, or rebuild
all or any part of any Equipment, or (ii) make repairs at the expense of Lessor
pursuant to any Legal Requirement, Insurance Requirement, contract, agreement,
covenant, condition or restriction at any time in effect.
(e) Lessee shall, upon the expiration or earlier
termination of this Lease with respect to the Equipment, if Lessee shall not
have exercised its Expiration Date Purchase Option or option to secure an
Operating Lessee with respect to such Equipment, surrender such Equipment to
Lessor in its then-current, "AS IS" condition, subject to Lessee's obligations
under Sections 9, 10.l(a), 10.2, 11, 12 and 22.1 hereof.
10.2. Environmental Inspection. If Lessee has not given
notice of exercise of its Expiration Date Purchase Option or of its election to
secure an Operating Lease pursuant to Section 20.2 or 20.3 hereof, then not
more than 120 days nor less than 30 days prior to the Expiration Date, Lessee
shall, at its sole cost and expense, provide to Lessor at its request a report
by an environmental consultant selected by Lessee, and satisfactory to Lessor,
certifying that, since the Lease Commencement Date, Hazardous Substances have
not at any time been generated, used, treated or stored in, transported to or
from, Released at, on or from or deposited at or on such Equipment in violation
of this Lease, and no portion of such Equipment has been used for
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such purposes other than (i) as necessary to use, operate, maintain, repair and
restore such Equipment in accordance with this Lease and (ii) in full
compliance with all Environmental Laws. If such is not the case, the report
shall set forth a remedial response plan (the cost of which shall be borne by
the Lessee) relating to such Equipment (which remedial response plan, if
required by any Environmental Law or Governmental Authority, shall be approved
by the appropriate Governmental Authority). Such remedial response plan shall
include, but shall not be limited to, plans for full response, remediation,
removal, or other corrective action, and the protection, or mitigative action
associated with the protection, of natural resources, as required by all
applicable Environmental Laws.
SECTION 11. MODIFICATIONS, SUBSTITUTIONS AND REPLACEMENTS
AND FINANCING THEREOF.
11.1. Modifications, Substitutions and Replacements. If any
parts of the Equipment become worn out, lost, destroyed, damaged beyond repair
or otherwise permanently rendered unfit for use, Lessee, at its own expense,
will within a reasonable time replace such parts with replacement parts which
are free and clear of all Liens (other than Permitted Liens) and have a value,
utility and useful life at least equal to the parts replaced. Lessee, at its
sole cost and expense, may at any time and from time to time make alterations,
renovations, improvements and additions to the Equipment or any part thereof
and substitutions and replacements therefor (collectively with such replacement
parts referred to in the preceding sentence, "Modifications"); provided, that:
(i) no Modification shall impair the value, utility or useful life of the
Equipment from that which existed immediately prior to such Modification; (ii)
Lessee shall make all Modifications required to be made pursuant to a Legal
Requirement or an Insurance Requirement (each, a "Required Modification");
(iii) the Modification shall be done expeditiously and in a good and
workmanlike manner; (iv) Lessee shall comply with all Legal Requirements
(including all Environmental Laws), except to the extent noncompliance
therewith could not, individually or in the aggregate, have a Material Adverse
Effect, and Insurance Requirements applicable to the Modification; (v) subject
to the terms of Section 13 hereof relating to permitted contests, Lessee shall
pay all costs and expenses and discharge any Liens arising with respect to the
Modification; (vi) such Modification shall comply with Sections 8.2 and 10.1
hereof; and (vii) no Modification shall cause the Equipment or any part thereof
to become "limited use property", as defined in Revenue Procedure 75-21 and
Revenue Procedure 76-30. All Required Modifications and all other
Modifications (other than those that may be readily removed without impairing
the value, utility or remaining useful life of the applicable Equipment
("Severable Optional Modifications")) shall become property of Lessor and shall
be subject to this Lease, and title to any such Modifications shall immediately
vest in Lessor. All Modifications to which Lessor shall not have title may be
removed at any time by Lessee. Any such Modifications shall be removed by
Lessee at its expense if Lessor shall so request prior to the return of the
Equipment to Lessor, sale thereof to a third party or lease thereof by Lessor
to an Operating Lessee in accordance with the provisions of this Lease, and
Lessee shall at its expense repair any damage to the Equipment caused by the
removal of such Modifications. Lessor shall have the option to purchase all
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Severable Optional Modifications on the Expiration Date for Fair Market Value,
determined as if such Modifications were detached from the Equipment, and in "AS
IS" "WHERE IS" condition.
11.2. Financing of Severable Optional Modifications. (a)
Lessor agrees to consider in its sole discretion making an equity investment in
respect of any Severable Optional Modifications proposed by Lessee and not in
violation of this Lease. If Lessor does not agree to make an equity investment
in a Severable Optional Modification, then Lessee shall have the right to
arrange separate financing thereof and shall retain all depreciation, interest
deductions and other tax benefits associated with the Severable Optional
Modification; provided, however, that in the event that such separate financing
shall be secured by such Severable Optional Modification, then Lessee shall:
(i) provide Lessor with not less than ten (10) days' prior
written notice of Lessee's intent to secure any separate financing arranged by
it of any Severable Optional Modification with a Lien on such Severable
Optional Modification;
(ii) affix in a prominent place to any Equipment to which
such Severable Optional Modification is attached such labels, name plates or
other markings as Lessor may designate, clearly indicating Lessor as the owner
of such Equipment; and
(iii) upon the Expiration Date, at its expense, remove such
Severable Optional Modification from the Equipment to which it is attached
unless (A) Lessor purchases such Severable Optional Modification pursuant to
Section 11.1 hereof, or (B) Lessee exercises one of its options on the
Expiration Date pursuant to Section 20.1 (i) or (ii) hereof.
(b) Any such financing by Lessor shall be subject to the
receipt of the documents referred to below (in form and substance reasonably
satisfactory to Lessor):
(i) a lease supplement, duly authorized, executed and
delivered by Lessee and Lessor, providing for adjustments in Rent, Unamortized
Equipment Cost, Residual Value, Termination Value, Lease Funding Balance and
Purchase Option Price under the Lease, together with such instruments of
conveyance, assignment and transfer, if any, necessary to subject such lease
supplement to the Lien of the Credit Agreement and the other Security
Documents, and evidence as to the due recording or filing of each thereof and
of financing or similar statements with respect thereto;
(ii) Such instruments of conveyance, assignment and transfer
(including, without limitation, contractors' waivers) duly executed and
delivered by the respective parties thereto, and such evidence of the due
filing thereof or of financing statements with respect thereto, as may be
reasonably requested to convey to Lessor all property included in such
Severable Optional Modifications, if any, and to subject such property to the
Lien of the Credit Agreement and the other Security Documents, subject to no
Liens except for Permitted Liens;
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(iii) originals or certified copies of all corporate actions
and governmental approvals and permits necessary for the due and valid
authorization, execution, delivery and performance by Lessee and Lessor of the
lease supplement and the creation of the Lien thereon referred to above, all of
which corporate actions and governmental approvals and permits shall have been
duly obtained and shall be in full force and effect; together with evidence as
to the due occurrence of such authorization, execution, delivery and
performance;
(iv) such other instruments, certificates, opinions of
counsel, as may be reasonably requested by Lessor; and
(v) such modifications, amendments, waivers or supplements to
the Operative Agreements as may be reasonably requested by Lessor or Lessee in
order to effectuate the financing contemplated by this Section 11.2.
SECTION 12. PROHIBITION AGAINST LIENS.
Lessee agrees that, except as otherwise provided herein and
subject to the terms of Section 13 hereof relating to permitted contests,
Lessee shall not directly or indirectly create or allow to remain, and shall
promptly discharge at its sole cost and expense, any Lien, defect, attachment,
levy, title retention agreement or claim upon any Equipment or any
Modifications or any Lien, attachment, levy or claim with respect to the Rent
or with respect to any amounts held by the Agent pursuant to the Credit
Agreement, other than Permitted Liens and Lessor Liens. Lessee shall promptly
notify Lessor in the event of the existence of a Lien other than a Permitted
Lien or Lessor Lien with respect to an item of Equipment. Lessee represents
and warrants to, and covenants with, Lessor that the Liens in favor of the
Lessor created by the Operative Agreements are first priority perfected liens
subject only to Permitted Liens.
SECTION 13. PERMITTED CONTESTS OTHER THAN IN RESPECT OF
INDEMNITIES.
Except to the extent otherwise provided for in Section 13 of
the Participation Agreement, Lessee, on its own or on Lessor's behalf but at
Lessee's sole cost and expense, may contest, by appropriate administrative or
judicial proceedings conducted in good faith and with due diligence, the
amount, validity or application, in whole or in part, of any Legal Requirement,
or utility charges payable pursuant to Section 4 or any Lien, attachment, levy,
encumbrance or encroachment, and Lessor agrees not to pay, settle or otherwise
compromise any such item, provided that (a) the commencement and continuation
of such proceedings shall suspend the collection thereof from, and suspend the
enforcement thereof against, the applicable Equipment, Lessor, the Investor,
the Agent and the Lenders; (b) there shall be no risk of the imposition of a
Lien (other than Permitted Liens) on any Equipment and no part of any Equipment
nor any Rent would be in any danger of being sold, foreclosed, forfeited, lost
or deferred; (c) at no time during
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the permitted contest shall there be a risk of the imposition of any criminal
liability, or any civil liability which would not be fully indemnified against,
on Lessor, the Investor, the Agent or any Lender for failure to comply
therewith; and (d) there shall be no risk of the extension of the application of
such item beyond the end of the Basic Term or any Renewal Term; provided, that
Lessee shall deliver to Lessor an Officer's Certificate certifying as to the
matters set forth in clauses (a), (b), (c) and (d) of this Section 13. Lessor,
at Lessee's sole cost and expense, shall execute and deliver to Lessee such
authorizations and other documents as may reasonably be required in connection
with any contest and, if reasonably requested by Lessee, shall join as a party
therein at Lessee's sole cost and expense.
SECTION 14. INSURANCE.
14.1. Public Liability and Workers' Compensation Insurance.
During the Basic Term and any Renewal Term, Lessee shall procure and carry, at
Lessee's sole cost and expense, commercial general liability insurance for
claims for injuries or death sustained by persons or damage to property while
on the premises where the Equipment is located and such other public liability
coverages as are ordinarily procured by Persons who own or operate similar
equipment in similar businesses. Such insurance shall be on terms, in amounts
and with deductibles that are no less favorable than insurance maintained by
Lessee with respect to similar equipment that it owns and that are in
accordance with normal industry practice. The policy shall also specifically
provide that the policy shall be considered primary insurance which shall apply
to any loss or claim before any contribution by any insurance which Lessor, the
Investor, the Agent or the Lenders may have in force. Lessee shall, in the
operation of the Equipment, comply with the applicable workers' compensation
laws, maintain statutory workers' compensation insurance meeting all
requirements of applicable laws with limits of no less than $1,000,000 per
occurrence, and protect Lessor against any liability under such laws.
14.2. Hazard and Other Insurance. During the Basic Term
and any Renewal Term, Lessee shall keep, or cause to be kept, the Equipment
insured against loss or damage by fire and other risks in an amount not less
than the then applicable Termination Value of the Equipment, on terms and with
deductibles that are no less favorable than insurance covering other similar
properties owned by Lessee and that are in accordance with normal industry
practice. The policy shall also specifically provide that the policy shall be
considered primary insurance which shall apply to any loss or claim before any
contribution by any insurance which Lessor, the Investor, the Agent or the
Lenders shall have in force. Any loss payable under the insurance policy
required by this Section will be paid to and adjusted solely by Lessor in
accordance with Section 14.3(g) hereof.
14.3. Coverage. (a) Lessee shall furnish Lessor with
certificates showing the insurance required under Sections 14.1 and 14.2 hereof
to be in effect and (i) with respect to liability insurance maintained pursuant
to Section 14.1 hereof, naming Lessor, the Investor, the Agent and the Lenders
as an additional insured, and (ii) with respect to insurance maintained
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pursuant to Section 14.2, naming Lessor and the Investor as an additional
insured and the Agent, if any, as loss payee for so long as any indebtedness is
outstanding under the Credit Agreement, and thereafter naming Lessor as loss
payee. All insurers shall be of recognized responsibility and standing and
approved by the Investor, such approval not to be unreasonably withheld or
delayed, and shall not be disqualified from insuring risks in the jurisdiction
where the Equipment is located. All such insurance shall be at the cost and
expense of Lessee. Such certificates shall include a provision for thirty (30)
days' advance written notice by the insurer to Lessor and the Agent in the
event of cancellation of such insurance. Lessee shall deliver to Lessor copies
of all insurance policies required by Sections 14.1 and 14.2 hereof.
(b) Lessee agrees that the insurance policy or policies
required by Section 14.2 hereof shall include an appropriate clause pursuant to
which such policy shall provide that it will not be invalidated should Lessee
waive, in writing, prior to a loss, any or all rights of recovery against
Lessor, the Investor, the Agent or the Lenders for losses covered by such
policy. Lessee hereby waives any and all such rights against Lessor, the
Investor, the Agent and the Lenders to the extent of payments made to any such
Person under such policies.
(c) Neither Lessor nor Lessee shall carry separate
insurance concurrent in kind or form or contributing in the event of loss with
any insurance required under this Section 14, except that Lessor may carry
separate insurance at Lessor's sole cost so long as (i) Lessee's insurance is
designated as primary and in no event excess or contributory to any insurance
Lessor may have in force which would apply to a loss covered under Lessee's
policy and (ii) each such insurance policy will not cause Lessee's insurance
required under this Section 14 to be subject to a coinsurance exception of any
kind.
(d) Lessee shall pay as they become due all premiums for
the insurance required by Section 14.1 and Section 14.2 hereof, shall renew or
replace each policy prior to the expiration date thereof or otherwise maintain
the coverage required by such Sections without any lapse in coverage and shall
promptly deliver to Lessor and the Agent certificates for such policies.
(e) Any of the foregoing insurance coverages may be
carried as a part of excess insurance or blanket policies. Any policies with
respect to property insurance shall provide (i) that if such insurance is
cancelled for any reason whatsoever, or any substantial change is made in the
coverage which affects the interest of Lessor, the Agent or the Investor, or if
such insurance is allowed to lapse for nonpayment of premium, such
cancellation, change or lapse shall not be effective against any insured party
for 30 days after receipt by Lessor, the Agent or the Investor, respectively,
of written notice from any applicable insurers of such cancellation, change or
lapse, and (ii) that each of Lessor, the Agent or the Investor shall be
permitted to make payments to effect the continuation of such insurance
coverage upon notice of cancellation due to nonpayment of premiums.
(f) In the event that Lessee shall fail to maintain
insurance as herein provided, Lessor, the Agent or the Investor may at its
option maintain insurance which is required to be
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maintained by Lessee hereunder, and, in such event, Lessee shall reimburse such
party upon demand for the cost thereof, together with interest thereon at the
Overdue Rate, as Supplemental Rent.
(g) Subject to Section 15.1(f) hereof, all insurance
proceeds (except under insurance separately maintained by Lessor, the Investor
or the Agent) on account of any physical loss or damage to the Equipment or any
part thereof (less the actual costs, fees and expenses incurred in the
collection thereof) shall be paid to Lessor, and all such proceeds shall be
applied and dealt with as follows:
(i) except as provided in clause (ii) below, all such
proceeds shall be paid over to Lessee or as it may direct from time to time as
restoration progresses, to pay (or reimburse Lessee for) the cost of
restoration, if the amount of such proceeds received by the Agent or Lessor,
together with such additional amount, if any, theretofore expended by Lessee
out of its own funds for such restoration, are sufficient to pay the estimated
cost of completing such restoration upon a written application and an Officer's
Certificate of Lessee showing in reasonable detail the nature of such
restoration and the estimated cost to complete such restoration and stating
that no Lease Default or Lease Event of Default has occurred and is continuing.
The balance, if any, of such proceeds shall be paid over or assigned to Lessee
and Lessor as their respective interests may appear; and
(ii) all such proceeds in respect of an Event of Loss for
which no election has been made pursuant to the proviso of the first sentence
of Section 15.1(b) hereof shall be applied in satisfaction of Lessee's
obligation to pay Termination Value as provided in Sections 15.1(b) and 15.1(d)
hereof.
(h) Any insurance policy maintained by Lessee pursuant to
Section 14.1 or 14.2 hereof shall:
(i) include effective waivers by the insurer of all
claims for insurance premiums or commissions or (if such policies provide for
the payment thereof) additional premiums or assessments against Lessor, the
Agent, the Investor and the Lenders;
(ii) provide that in respect of the interests of Lessor,
the Agent, the Investor and the Lenders, to the extent commercially available,
such policies shall not be invalidated by any action or inaction of Lessee or
any other Person and shall insure Lessor, the Agent, the Investor and the
Lenders regardless of, and any claims for losses shall be payable
notwithstanding, any act of negligence, including any breach of any condition
or warranty in any policy of insurance, of Lessee, Lessor, the Agent, the
Investor, the Lenders or any other Person; and
(iii) provide that all provisions thereof, except the
limits of liability (which shall be applicable to all insureds as a group) and
liability for premiums (which shall be solely a
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liability of Lessee), shall operate in the same manner as if there were a
separate policy covering each insured.
SECTION 15. EVENTS OF LOSS AND ENVIRONMENTAL MATTERS.
15.1. Event of Loss. (a) In the event that the Equipment
shall suffer either (i) an Event of Loss or (ii) an event which, in the
reasonable opinion of the Lessee, might constitute an Event of Loss, such fact
and the date of the occurrence thereof shall promptly be reported by Lessee to
Lessor. In the case of any event described in clause (ii) of the preceding
sentence, Lessee shall determine, not later than sixty (60) days after the
occurrence of such event, whether such event constitutes an Event of Loss.
(b) Upon the occurrence of an Event of Loss, Lessee shall
purchase the Equipment by paying Termination Value therefor in accordance with
Section 16 hereof; provided that not later than sixty (60) days prior to the
next Payment Date, Lessee may, at its expense, irrevocably elect to, and shall
thereafter, replace the Equipment with equipment with a value, utility and
remaining useful life at least equal to the Equipment replaced, assuming such
replaced Equipment was in the condition in which it was required to be
maintained at the time of such Event of Loss, in which case this Lease shall
continue in full force and effect. In connection with any replacement of
Equipment pursuant to this Section 15.1(b) and within the sixty (60) day period
referred to in the previous sentence, Lessee will at its sole cost and expense:
(i) furnish Lessor with a bill of sale with respect to
such replacement Equipment;
(ii) cause an Equipment Schedule amendment covering such
replacement Equipment to be duly executed and delivered;
(iii) furnish Lessor with certificates showing the
insurance coverage required pursuant to Section 14 hereof with respect to such
replacement Equipment;
(iv) furnish Lessor with an Officer's Certificate
certifying that such replacement Equipment has a value, utility and remaining
useful life at least equal to that of the Equipment replaced, assuming no Event
of Loss had occurred and that such replaced Equipment was in the condition
required by this Lease; and
(v) furnish the Investor and Lessor with an appraisal of
such Equipment satisfactory to the Investor and prepared in a manner consistent
with that of the Preliminary Appraisal and Final Appraisal.
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(c) In the event of damage to the Equipment which does not
constitute an Event of Loss, Lessee shall promptly restore the Equipment to the
condition to which it is required to be maintained hereunder.
(d) Unless Lessee elects to replace Equipment pursuant to the
proviso to Section 15.1(b) hereof, insurance and other payments received by
Lessor, the Agent or Lessee in respect of an Event of Loss shall be applied
against Lessee's obligation to pay Termination Value in accordance with Section
15.1(b) hereof and amounts in excess of Termination Value shall be paid to
Lessee and Lessor, as their interests may appear. If Lessee elects to replace
the Equipment which suffered an Event of Loss pursuant to the proviso to Section
15.1(b) hereof or if an event of the type described in Section 15.1(e) hereof
which does not constitute an Event of Loss has occurred, insurance and other
payments in excess of the amounts required to repair, restore or replace the
Equipment that has been destroyed, damaged, lost, condemned, confiscated,
stolen, seized or requisitioned, as the case may be, shall be paid to Lessee and
Lessor, as their interests may appear.
(e) Unless a Lease Default or Lease Event of Default shall
have occurred and be continuing, payments (except under insurance separately
maintained by Lessor, the Agent or the Investor) received at any time by Lessor,
the Agent or Lessee from any Governmental Authority, insurer or other Person
with respect to any destruction, damage, loss, condemnation, confiscation, theft
or seizure of or requisition of title to or use of the Equipment or any item
thereof not constituting an Event of Loss shall be paid to Lessor and first
shall be applied in accordance with the provisions of Section 14.3(g) hereof to
restore or replace what has been destroyed, damaged, lost, condemned,
confiscated, stolen, seized or requisitioned, and second in accordance with the
provisions of Section 15.1(d) hereof.
(f) Notwithstanding the foregoing provisions of this Section
15.1, so long as a Lease Default or Lease Event of Default shall have occurred
and be continuing, any amount that would otherwise be payable to or for the
account of, Lessee pursuant to this Section 15.1 or Section 14 hereof shall be
paid to the Agent (or Lessor after the principal of, premium, if any, and
interest on any indebtedness under any Credit Agreement shall have been paid in
full and the Lien of the Security Documents shall have been discharged) as
security for the obligations of Lessee under this Lease and, at such time
thereafter as no Lease Default or Lease Event of Default shall exist, such
amount shall be applied in accordance with the provisions of Section 14.3(g)
hereof to restore or replace what has been destroyed, damaged, lost, condemned,
confiscated, stolen, seized or requisitioned, and second in accordance with the
provisions of Section 15.1(d) hereof unless this Lease shall theretofore have
been declared to be in default pursuant to Section 17.1 hereof, in which event
such amount shall be disposed of in accordance with the provisions hereof, of
the Credit Agreement, if any, and of the Trust Agreement.
(g) In no event shall an Event of Loss with respect to which
this Lease remains in full force and effect under this Section 15.1 affect
Lessee's obligations to pay Rent pursuant to Section 3.1 hereof.
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15.2. Environmental Matters. (a) In addition to and without
limitation of all other representations, warranties and covenants made by Lessee
under this Lease, Lessee further represents, warrants and covenants that Lessee
has not used and is not using Hazardous Substances on, in, or affecting the
Equipment in any manner which constitutes an Environmental Violation. With
regard to and in any way affecting the Equipment, Lessee shall comply with all
Environmental Laws, except to the extent noncompliance therewith could not,
individually or in the aggregate, have a Material Adverse Effect, and shall not
use, operate or maintain the Equipment except as contemplated by this Lease.
(b) Promptly upon Lessee's actual knowledge of the presence of
Hazardous Substances on, in, or affecting any item of Equipment in
concentrations and conditions that constitute an Environmental Violation, Lessee
shall notify Lessor in writing of such condition. In the event of any
Environmental Violation (regardless of whether notice thereof must be given),
Lessee shall, not later than thirty (30) days after Lessee has actual knowledge
of such Environmental Violation, at Lessee's sole cost and expense, promptly and
diligently undertake any response, clean up, remedial or other action necessary
to remove, clean up or remediate the Environmental Violation in accordance with
all Environmental Laws. Lessee shall, upon completion of remedial action by
Lessee, cause to be prepared by an environmental consultant reasonably
acceptable to Lessor a report describing the Environmental Violation and the
actions taken by Lessee (or its agents) in response to such Environmental
Violation, and a statement by the consultant that the Environmental Violation
has been remedied in full compliance with applicable Environmental Law.
15.3. Notice of Environmental Matters. Promptly, but in any
event within five (5) Business Days from the date Lessee has actual knowledge
thereof, Lessee shall provide to Lessor written notice of any material pending
or threatened claim, action or proceeding involving any Environmental Law or any
Release on, in, or affecting any Equipment. All such notices shall describe in
reasonable detail the nature of the claim, action or proceeding and Lessee's
proposed response thereto. In addition, Lessee shall provide to Lessor, within
five (5) Business Days of receipt, copies of all material written communications
with any Governmental Authority relating to any Environmental Law in connection
with or affecting any Equipment. Lessee shall also promptly provide such
detailed reports of any such material environmental claims as may reasonably be
requested by Lessor.
SECTION 16. TERMINATION FOR EVENTS OF LOSS.
16.1. Termination Upon Certain Events. Unless Lessee has
delivered notice pursuant to Section 15.1(b) hereof that, following the
occurrence of an Event of Loss, this Lease shall not terminate with respect to
the Equipment, then Lessee shall be obligated to deliver, not later than sixty
(60) days prior to the next Payment Date, a written notice to the Lessor in the
form described in Section 16.2(a) hereof (a "Termination Notice") of the
termination of this Lease.
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16.2. Procedures. (a) A Termination Notice shall contain: (i)
notice of termination of this Lease on the next Payment Date occurring at least
sixty (60) days following the occurrence of such Event of Loss (the "Termination
Date"); and (ii) a binding and irrevocable agreement of Lessee to pay the
Termination Value for the Equipment and purchase the Equipment on the
Termination Date.
(b) On the Termination Date, Lessee shall pay to Lessor the
Termination Value for the Equipment, plus all amounts owing in respect of Rent
for the Equipment (including Supplemental Rent) theretofore accruing, and Lessor
shall convey the Equipment to Lessee in accordance with Section 19 hereof.
(c) The Lease Funding Balance shall be adjusted to reflect the
payment of Termination Value hereunder.
SECTION 17. DEFAULT.
17.1. Lease Events of Default. If any one or more of the
following events (each a "Lease Event of Default") shall occur:
(a) Lessee shall fail to pay (i) any Basic Rent (except as set
forth in clause (ii)) within five (5) days after the same has become
due and payable or (ii) any Expiration Date Termination Payment,
Remarketing Option Payment, Termination Value or Purchase Option Price,
on the date any such payment is due, or any payment of Basic Rent or
Supplemental Rent due on the due date of any such payment of Expiration
Date Termination Payment, Termination Value or Purchase Option Price,
or any amount due on the Expiration Date after the same has become due
and payable;
(b) Lessee shall fail to make payment of any Supplemental Rent
(other than Supplemental Rent referred to in Section 17.1(a)(ii)
hereof) due and payable within five (5) days after receipt of notice
thereof;
(c) Lessee shall fail to maintain insurance as required by
Section 14 of this Lease;
(d) Lessee shall fail to observe or perform any term, covenant
or condition of Lessee under this Lease, the Participation Agreement or
any other Operative Agreement to which Lessee is a party other than
those set forth in Section 17.1(a), (b), (c) or (h) hereof, or any
representation or warranty made by Lessee set forth in this Lease or in
any other Operative Agreement or in any document entered into in
connection herewith or therewith or in any document, certificate or
financial or other statement delivered in connection herewith or
therewith shall be false or inaccurate in any material way, and such
failure or misrepresentation or breach of warranty is capable of being
cured and shall
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remain uncured for a period of thirty (30) days after receipt of
written notice from Lessor thereof;
(e) Lessee shall (i) admit in writing its inability to pay its
debts generally as they become due, (ii) file a petition under the
United States bankruptcy laws or any other applicable insolvency law or
statute of the United States of America or any State or Commonwealth
thereof, (iii) make a general assignment for the benefit of its
creditors, (iv) consent to the appointment of a receiver of itself or
the whole or any substantial part of its property, (v) fail to cause
the discharge of any custodian, trustee or receiver appointed for
Lessee or the whole or a substantial part of its property within thirty
(30) days after such appointment, or (vi) file a petition or answer
seeking or consenting to reorganization under the United States
bankruptcy laws or any other applicable insolvency law or statute of
the United States of America or any State or Commonwealth thereof;
(f) insolvency proceedings or a petition under the United
States bankruptcy laws or any other applicable insolvency law or
statute of the United States of America or any State or Commonwealth
thereof shall be filed against Lessee and not dismissed within thirty
(30) days from the date of its filing, or a court of competent
jurisdiction shall enter an order or decree appointing, without the
consent of Lessee, a receiver of Lessee or the whole or a substantial
part of its property, and such order or decree shall not be vacated or
set aside within thirty (30) days from the date of the entry thereof;
(g) a Change of Control of Lessee shall occur;
(h) in the event Lessee shall not have exercised its
Expiration Date Purchase Option, Lessee shall have failed (A) to
arrange an Operating Lease commencing on the Expiration Date, or (B) to
remarket or return the Equipment in accordance with Sections 20.4 and
22 hereof and make the Remarketing Option Payment or the Expiration
Date Termination Payment, as the case may be, on the Expiration Date;
(i) (i) Lessee shall (A) default in any payment with respect
to any Debt under the Loan Agreement or any other Debt in excess of
$3,000,000 beyond the period of grace, if any, provided in the
instrument or agreement under which such Debt was created or (B)
default in the observance or performance of any agreement or condition
relating to any such Debt or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Debt
(or a trustee or agent on behalf of such holder or holders) to cause
(determined without regard to whether any notice or lapse of time is
required), any such Debt to become due prior to its stated maturity; or
(ii) any such Debt shall be declared to be due and payable, or required
to be prepaid other than by a regularly scheduled required prepayment
or as a mandatory prepayment, prior to the stated maturity thereof,
except in connection with a voluntary prepayment by Lessee;
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(j) one or more material judgments or decrees shall be entered
against Lessee or any of its Subsidiaries (to the extent not paid or
fully covered by insurance, provided by a carrier that has acknowledged
coverage) and any such judgments or decrees shall not have been
vacated, discharged or stayed or bonded pending appeal within thirty
(30) days from the entry thereof; or
(k) (i) a Reportable Event or Reportable Events, or a
failure to make a required installment or other payment (within the
meaning of Section 412(n)(1) of the Code), shall have occurred with
respect to any Plan or Plans that would reasonably be expected to
result in liability of Lessee or any of its Subsidiaries to the PBGC or
to a Plan in an aggregate amount exceeding $3,000,000 and the Investor
shall have notified the Lessee in writing that, on the basis of such
Reportable Event or Reportable Events or such failure to make a
required payment, there are reasonable grounds (A) for the termination
of such Plan or Plans by the PBGC, (B) for the appointment by the
appropriate United States District Court of a trustee to administer
such Plan or Plans or (C) for the imposition of a Lien in favor of a
Plan; or a Termination Event shall have occurred; or
(ii) Lessee or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan and the amount of the
Withdrawal Liability specified in such notice, when aggregated with all
other Withdrawal Liabilities (determined as of the date or dates of
such notification), exceeds $3,000,000; or
(iii) Lessee or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or is being terminated, within the meaning of
Title IV of ERISA, if solely as a result of such reorganization or
termination the aggregate annual contributions of Lessee and its ERISA
Affiliates to all Multiemployer Plans that are then in reorganization
or have been or are being terminated have been or will be increased
over the amounts required to be contributed to such Multiemployer Plans
for their most recently completed plan years by an amount exceeding
$3,000,000; or
(l) Lessee or any of its Subsidiaries shall be the subject of
any proceeding or investigation pertaining to the release on or after
the Initial Closing Date by Lessee or any of its Subsidiaries, or any
other Person of any toxic or hazardous waste or substance into the
environment, or any violation of any Environmental Law, which, in
either case, would reasonably be expected to have a Material Adverse
Effect; or
(m) the Final Closing Date shall not have occurred on or
before June 30, 1995, or if all of the Equipment intended to be subject
to the Lease on such date shall not be so subject on such date and the
Equipment shall not constitute an integrated production system for
manufacturing blood dialysis filters capable of producing a saleable
end product as contemplated by the Preliminary Appraisal;
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then, in any such event, Lessor may, in addition to the other rights and
remedies provided for in this Section 17 and in Section 18 hereof, terminate
this Lease by giving Lessee written notice of such termination, and this Lease
shall terminate, and all rights of Lessee under this Lease shall cease. Lessee
shall, to the fullest extent permitted by law, pay as Supplemental Rent all
costs and expenses incurred by or on behalf of Lessor, including fees and
expenses of counsel, as a result of any Lease Event of Default hereunder.
17.2. Surrender of Possession. If a Lease Event of Default
shall have occurred and be continuing, and whether or not this Lease shall have
been terminated pursuant to Section 17.1 hereof, Lessee shall upon written
demand of Lessor, surrender to Lessor possession of the Equipment. Lessor may
enter upon any premises where the Equipment is located and repossess the
Equipment and may remove any and all of Lessee's equipment and personalty and
severable Modifications from the Equipment. Lessor shall have no liability by
reason of any such entry, repossession or removal performed in accordance with
applicable law. Upon the written demand of Lessor, Lessee shall return the
Equipment promptly to Lessor at the location, in the manner and condition
required by, and otherwise in accordance with the provisions of, Section 22.1(c)
and (d) hereof.
17.3. Reletting. If a Lease Event of Default shall have
occurred and be continuing, and whether or not this Lease shall have been
terminated pursuant to Section 17.1 hereof, Lessor may, but shall be under no
obligation to, relet any or all of the Equipment, for the account of Lessee or
otherwise, for such term or terms (which may be greater or less than the period
which would otherwise have constituted the balance of the Term) and on such
conditions (which may include concessions or free rent) and for such purposes as
Lessor may determine, and Lessor may collect, receive and retain the rents
resulting from such reletting. Lessor shall not be liable to Lessee for any
failure to relet any Equipment or for any failure to collect any rent due upon
such reletting.
17.4. Damages. Neither (a) the termination of this Lease as to
all or any of the Equipment pursuant to Section 17.1 hereof; (b) the
repossession of all or any of the Equipment; nor (c) except to the extent
required by applicable law, the failure of Lessor to relet all or any of the
Equipment, the reletting of all or any portion thereof, nor the failure of
Lessor to collect or receive any rentals due upon any such reletting shall
relieve Lessee of its liability and obligations hereunder, all of which shall
survive any such termination, repossession or reletting. If any Lease Event of
Default shall have occurred and be continuing and notwithstanding any
termination of this Lease pursuant to Section 17.1 hereof, Lessee shall
forthwith pay to Lessor all Rent and other sums due and payable hereunder to and
including the date of such termination. Thereafter, on the days on which Basic
Rent or Supplemental Rent, as applicable, are payable under this Lease or would
have been payable under this Lease if the same had not been terminated pursuant
to Section 17.1 hereof and until the end of the Basic Term or Renewal Term
hereof or what would have been the Basic Term or Renewal Term in the absence of
such termination, Lessee shall pay Lessor, as current liquidated damages (it
being agreed that it would be impossible accurately to determine actual
damages), an amount equal to the Basic Rent and Supplemental Rent that are
payable under
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this Lease or would have been payable by Lessee hereunder if this Lease had not
been terminated pursuant to Section 17.1 hereof, less the net proceeds, if any,
which are actually received by Lessor with respect to the period in question of
any reletting of any Equipment or any portion thereof; provided that Lessee's
obligation to make payments of Basic Rent and Supplemental Rent under this
Section 17.4 shall continue only so long as Lessor shall not have received the
amounts specified in Section 17.5 hereof. In calculating the amount of such net
proceeds from reletting, there shall be deducted all of Lessor's, the Agent's
and any Lenders' reasonable expenses in connection therewith, including
repossession costs, brokerage or sales commissions, fees and expenses for
counsel and any necessary repair or alteration costs and expenses incurred in
preparation for such reletting. To the extent Lessor receives any damages
pursuant to this Section 17.4, such amounts shall be regarded as amounts paid on
account of Rent. If any statute or rule of law shall limit the amount of such
final liquidated damages to less than the amount agreed upon, Lessor shall be
entitled to the maximum amount allowable under such statute or rule of law.
17.5. Final Liquidated Damages. If a Lease Event of Default
shall have occurred and be continuing, whether or not this Lease shall have been
terminated pursuant to Section 17.1 hereof and whether or not Lessor shall have
collected any current liquidated damages pursuant to Section 17.4 hereof, Lessor
shall have the right to recover, by demand to Lessee and at Lessor's election,
and Lessee shall pay to Lessor, as and for final liquidated damages, and in lieu
of all current liquidated damages beyond the date of such demand (it being
agreed that it would be impossible accurately to determine actual damages) the
sum of: (i) the Termination Value for all Equipment remaining under this Lease;
plus (ii) all other amounts owing in respect of Rent and Supplemental Rent
theretofore accruing under this Lease; provided, that in the event of the
occurrence of a Lease Event of Default under Sections 17.1(e) or (f) hereof such
amount shall become immediately due and payable. If any statute or rule of law
shall limit the amount of such final liquidated damages to less than the amount
agreed upon, Lessor shall be entitled to the maximum amount allowable under such
statute or rule of law.
17.6. Waiver of Certain Rights. If this Lease shall be
terminated pursuant to Section 17.1 hereof, Lessee waives, to the fullest extent
permitted by law, (a) any notice of re-entry or the institution of legal
proceedings to obtain re-entry or possession; (b) any right of redemption,
re-entry or repossession; (c) the benefit of any laws now or hereafter in force
exempting property from liability for rent or for debt; and (d) any other rights
which might otherwise limit or modify any of Lessor's rights or remedies under
this Section 17.
17.7. Assignment of Rights Under Contracts. If a Lease Event
of Default shall have occurred and be continuing, and whether or not this Lease
shall have been terminated pursuant to Section 17.1 hereof, Lessee shall upon
Lessor's demand immediately assign, transfer and set over to Lessor all of
Lessee's right, title and interest in and to (a) the Intellectual Property and
each agreement executed by Lessee in connection therewith and (b) each agreement
(other than those involving the Intellectual Property or any intellectual
property of Fresenius AG) executed by Lessee in connection with the purchase,
construction, installation, use or operation of the Equipment (including,
without limitation, all right, title and interest of Lessee with respect
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<PAGE> 28
to all warranty, performance, service and indemnity provisions), as and to the
extent that the same relate to the purchase, construction, installation, use or
operation of the Equipment.
17.8. Remedies Cumulative. The remedies herein provided shall
be cumulative and in addition to (and not in limitation of) any other remedies
available at law, equity or otherwise.
-23-
<PAGE> 29
SECTION 18. LESSOR'S RIGHT TO CURE LESSEE'S LEASE
DEFAULTS.
Lessor, without waiving or releasing any obligation or Lease
Event of Default, may (but shall be under no obligation to) remedy any Lease
Event of Default for the account and at the sole cost and expense of Lessee,
including the failure by Lessee to maintain the insurance required by Section 14
hereof, and may, to the fullest extent permitted by law, and notwithstanding any
right of quiet enjoyment in favor of Lessee, enter upon any real property owned
or leased by Lessee where any Equipment is located for such purpose and take all
such action thereon as may be necessary or appropriate therefor. No such entry
shall be deemed an eviction of Lessee. All out-of-pocket costs and expenses so
incurred (including fees and expenses of counsel), together with interest
thereon at the Overdue Rate from the date on which such sums or expenses are
paid by Lessor, shall be paid by Lessee to Lessor on demand.
SECTION 19. PROVISIONS RELATING TO LESSEE'S
TERMINATION OF THIS LEASE OR EXERCISE OF
EXPIRATION DATE PURCHASE OPTION.
In connection with any termination of this Lease with respect
to the Equipment pursuant to the terms of Section 16.2 hereof, or in connection
with Lessee's exercise of its Expiration Date Purchase Option, upon the date on
which this Lease is to terminate with respect to the Equipment or upon the
Expiration Date with respect to the Equipment, and upon tender by Lessee of the
amounts set forth in Sections 16.2(b) or 20.2 hereof, as applicable, Lessor
shall execute and deliver to Lessee (or to Lessee's designee) at Lessee's cost
and expense a bill of sale transferring Lessor's entire interest in the
Equipment, in each case free and clear of the Lien of the Lease and any Lessor
Liens attributable to Lessor but without any other warranties from Lessor. The
Equipment shall be conveyed to Lessee "AS IS" "WHERE IS" and in its then present
physical condition.
SECTION 20. EXPIRATION.
20.1. Expiration Date Options. Lessee shall have the following
options upon the Expiration Date, exercisable with respect to all, but not less
than all, of the Equipment in accordance with the following Sections hereof: (i)
the Renewal Option pursuant to Section 21 hereof; (ii) to purchase the Equipment
pursuant to Section 20.2 hereof; (iii) to secure an Operating Lessee in
accordance with Section 20.3 hereof; and (iv) to remarket the Equipment in
accordance with Sections 20.4 and 22.1 hereof. If Lessee does not exercise any
of such options, then Lessee shall be obligated to return the Equipment pursuant
to Section 22.1 hereof.
20.2. Expiration Date Purchase Option. Not more than
twenty-two (22) months nor less than sixteen (16) months prior to the expiration
of the Basic Term or the first Renewal
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<PAGE> 30
Term Lessee may give Lessor irrevocable written notice (the "Expiration Date
Election Notice") that Lessee is electing to exercise the Expiration Date
Purchase Option. If Lessee shall elect to exercise the Expiration Date Purchase
Option, then on the Expiration Date Lessee shall pay to Lessor an amount equal
to the Purchase Option Price for all of the Equipment and, upon receipt of such
amount plus all Rent and other amounts then due and payable under this Lease and
any other Operative Agreement, Lessor shall transfer to Lessee all of Lessor's
right, title and interest in and to the Equipment in accordance with Section 19
hereof.
20.3. Operating Lease. Not more than twenty-two (22) months
nor less than sixteen (16) months prior to the expiration of the Basic Term or
any Renewal Term, Lessee may secure an Operating Lessee who will undertake an
Operating Lease with Lessor, commencing on the then current Expiration Date, in
accordance with the provisions of Section 11 of the Participation Agreement.
20.4. Remarketing Option. If Lessee desires to exercise its
option to remarket the Equipment (the "Remarketing Option"), Lessee shall give
Lessor irrevocable written notice thereof not more than twenty-two (22) months
nor less than sixteen (16) months prior to the expiration of the Basic Term or
any Renewal Term. If Lessee shall elect to exercise the Remarketing Option,
Lessee shall follow the procedure set forth in Section 22.1 hereof, and on the
Expiration Date Lessee shall pay to Lessor an amount equal to the sum of (i) the
Remarketing Option Payment, (ii) the Net Sales Proceeds if paid to Lessee, and
(iii) all Rent and other amounts then due and payable under this Lease and any
other Operative Agreement.
SECTION 21. RENEWAL.
21.1. Renewal Option. At the end of the Basic Term or the then
applicable Renewal Term, as the case may be, provided that no Lease Default or
Lease Event of Default shall have occurred and be continuing, Lessee shall have
the option (each a "Renewal Option") to request that Lessor renew the term of
this Lease for one or more periods (each, a "Renewal Term") of not less than one
year or more than four years, less one day, provided, that (i) each Renewal Term
shall be for at least one year; (ii) the aggregate length of the Basic Term and
all Renewal Terms shall not exceed eighty percent (80%) of the estimated useful
life of the Equipment as of the Final Closing Date as determined by both the
Final Appraisal and the Renewal Term Appraisal delivered pursuant to clause (iv)
of this sentence; (iii) at the end of any Renewal Term and at the end of a
seven-year Operating Lease Term immediately following such Renewal Term, the
uninflated residual value of the remaining Equipment shall not be less than
twenty percent (20%) of the Equipment Cost of such Equipment, as determined by
both the Final Appraisal and the Renewal Term Appraisal; (iv) Lessee shall
obtain, at Lessee's expense, a Renewal Term Appraisal confirming the expected
remaining useful life, Residual Value and the uninflated residual value of such
Equipment, as well as the conclusions set forth in clauses (H)-(K) of the
definition of "Preliminary Appraisal"; and (v) Lessor shall have the right, in
its sole discretion, to refuse to consent to any proposed Renewal Term.
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<PAGE> 31
21.2. Exercise of Renewal Option. If Lessee desires to
exercise its Renewal Option, it shall notify Lessor thereof not more than twenty
four (24) months nor less than eighteen (18) months prior to the expiration of
the Basic Term or any Renewal Term. Lessor shall notify Lessee of its consent to
or denial of such request within thirty (30) days of receipt of such request. If
Lessor shall have consented to such request, Lessee and Lessor shall have thirty
(30) days from the date of such consent to agree upon the terms and conditions
of the Renewal Term. Any such exercise shall be irrevocable as to Lessee, but be
binding on Lessor only if Lessor shall have consented thereto, the parties shall
have agreed on such terms and conditions and on the effective date of the
Renewal Term no Lease Default or Lease Event of Default shall have occurred and
be continuing.
21.3. Renewal Term Rent. The terms and conditions of any
Renewal Term shall be mutually acceptable to Lessor and Lessee. The Renewal Term
rent (the "Renewal Rent") will be calculated using the same formula used to
calculate Basic Rent, except (i) "Renewal Term" will be substituted for "Basic
Term" each place it appears; (ii) Lessor will determine the Recourse Margin and
the Equity Margin in accordance with the Renewal Term Pricing Factors; (iii)
Lessor will determine the Amortization Component based upon the terms and
conditions of the Renewal Term, the Renewal Term Appraisal and the Renewal Term
Pricing Factors; and (iv) the Lease Funding Balance and components thereof shall
be negotiated by Lessor and Lessee.
SECTION 22. SALE.
22.1. Sale Procedure. (a) If Lessee exercises its Remarketing
Option pursuant to Section 20.4 hereof or if Lessee shall be required to return
the Equipment to Lessor pursuant to Section 20.1 hereof, Lessee shall remarket
the Equipment in accordance with this Section 22.1 and make the payments to
Lessor required by Section 20.4 hereof, in the case of the Remarketing Option,
or Section 22.1(b) hereof, in the case of a return of the Equipment. During the
Marketing Period, Lessee, as exclusive broker for Lessor, in the case of the
Remarketing Option, or as nonexclusive broker for Lessor, in the case of a
return of the Equipment, shall obtain bids for the cash purchase of the
Equipment being sold to be consummated for the highest price available, shall
notify Lessor promptly of the name and address of each prospective purchaser and
the cash price which each prospective purchaser shall have offered to pay for
such Equipment and shall provide Lessor with such additional information about
the bids and the bid solicitation procedure as Lessor may reasonably request
from time to time. In the case of a return, Lessor may reject any and all bids
and may assume sole responsibility for obtaining bids or may require Lessee to
return the Equipment to Lessor by giving Lessee written notice to that effect at
any time. Upon receipt of such notice, Lessee shall surrender the Equipment to
Lessor pursuant to Sections 10.1 and 22.1(c) and (d) hereof. Unless Lessor shall
have given such notice, in the case of a return, or if Lessee has exercised its
Remarketing Option, Lessee shall arrange for Lessor to sell the Equipment free
of any Lessor Liens attributable to it, without recourse or warranty, for cash
to the purchaser or purchasers identified by Lessee or Lessor, as the case may
be. Lessee shall surrender the Equipment so sold or subject to such documents to
such purchaser in the condition
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<PAGE> 32
specified in Sections 10.1 and 22.1(c) hereof. Lessee shall not take or fail to
take any action which would have the effect of discouraging bona fide third
party bids for the Equipment. During the Marketing Period, Lessee shall be
obligated to maintain at its expense the insurance coverages required under
Section 14 hereof and to pay for the costs of storing the Equipment after the
Expiration Date in a storage facility reasonably acceptable to Lessor.
(b) On the Expiration Date, unless the Equipment (i) is
purchased by Lessee pursuant to exercise of its Expiration Date Purchase Option,
or (ii) is subject to an Operating Lease commencing on the Expiration Date, or
(iii) is sold to a third party purchaser pursuant to Lessee's exercise of its
Remarketing Option, Lessee shall pay to Lessor the Expiration Date Termination
Payment for the Equipment.
(c) If the Equipment is being sold on the Expiration Date
pursuant to Lessee's exercise of its Remarketing Option or is being returned to
Lessor, Lessee shall at its own risk and expense return the Equipment to Lessor
or deliver it to a third party purchaser in the same condition as when delivered
to Lessee hereunder, ordinary wear and tear resulting from proper use thereof
excepted, and in such operating condition as is capable of performing its
originally intended use (but excluding any use requiring any intellectual
property of Fresenius AG licensed to Lessee), free and clear of all Liens other
than Lessor Liens and otherwise in accordance with the terms of this Lease, by
the assembling, crating, insuring and delivering of such Equipment by
knowledgeable professionals in accordance with manufacturer's standards and
specifications, if available, and if not so available, in accordance with
industry standards for new equipment, with all sumps and tanks clean and dry and
no Hazardous Substances located in or on the Equipment, and together with all
maintenance and service records and all software and software documentation
necessary for the operation of the Equipment, to such locations as Lessor or
such purchaser shall specify within continental North America. Upon such
delivery, Lessee shall, at its expense, reassemble the Equipment and test it to
manufacturer's specifications, confirming that the Equipment is operational as
an integrated production system capable of producing saleable end product.
Return or delivery shall be completed within fifteen (15) days after the
Expiration Date or earlier termination of this Lease with respect to the
Equipment. In addition to Lessor's other rights and remedies hereunder, if any
item of the Equipment is not returned or delivered in a timely fashion, or if
repairs are necessary to place the Equipment in the condition required in this
Section 22.1(c), Lessee shall continue to pay to Lessor Rent in respect of the
Equipment at the higher of the then Fair Market Rental Value for such Equipment
and the last prevailing lease rate hereunder for the period of delay in
redelivery, or for the period of time reasonably necessary to accomplish such
repairs, together with the cost of such repairs, as applicable. Lessor's
acceptance of such Rent on account of such delay or repair does not constitute a
renewal of the term of this Lease or a waiver of Lessor's right to prompt return
of the Equipment in proper condition.
(d) If any Equipment is not purchased by Lessee on the
Expiration Date, at the option of Lessor, or, in the case of an Operating Lease,
the Operating Lessee, Lessee shall continue to provide Lessor (or a purchaser or
lessee of the Equipment from Lessor) or, in the case of an Operating Lease, the
Operating Lessee, with (i) (A) Intellectual Property and authorizations
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<PAGE> 33
necessary to use and operate in place the Equipment for its intended purposes,
and (B) an assignment of all permits, certificates of occupancy, governmental
licenses and authorizations necessary to use and operate the Equipment for its
intended purposes, (ii) such easements, rights-of-way and other rights and
privileges in the nature of an easement as are reasonably necessary or desirable
in connection with the use, repair, access to or maintenance in place of the
Equipment as Lessor shall request (at arm's-length fair market rates), and (iii)
such facility support and services agreements covering such services (including
access and utilities) as Lessor may request in order to use and operate the
Equipment in place for its intended purposes at such rates (not in excess of
arm's-length fair market rates) as shall be acceptable to Lessor and Lessee. All
assignments, easements, agreements and other deliveries required by clauses (i),
(ii) and (iii) of this paragraph (d) shall be in form satisfactory to Lessor and
shall be fully assignable (including both primary assignments and assignments
given in the nature of security) without payment of any fee, cost or other
charge.
22.2. Application of Proceeds of Sale. Lessor shall apply the
proceeds of sale of items of Equipment in the following order of priority:
(i) FIRST, to pay or to reimburse Lessor for the payment of
all reasonable costs and expenses incurred by Lessor in connection with
the sale;
(ii) SECOND, so long as any Credit Agreement is in effect, to
the Agent to be applied pursuant to the provisions of the Credit
Agreement; and
(iii) THIRD, to the Owner Trustee to be applied pursuant to
the provisions of the Trust Agreement.
22.3. Certain Obligations Continue. During the Marketing
Period, the obligation of Lessee to pay Rent with respect to the Equipment
(including the installment of Basic Rent due on the expiration date of the Basic
Term or Renewal Term, as the case may be) shall continue undiminished until
payment in full to Lessor of the Expiration Date Termination Payment, and all
other amounts due to Lessor with respect to such Equipment.
SECTION 23. HOLDING OVER.
If Lessee shall for any reason remain in possession of the
Equipment after the expiration or earlier termination of this Lease as to the
Equipment (unless the Equipment is conveyed to Lessee), such possession shall be
as a tenancy at sufferance during which time Lessee shall continue to pay
Supplemental Rent that would be payable by Lessee hereunder were the Lease then
in full force and effect with respect to the Equipment and Lessee shall pay
Basic Rent at an annual rate equal to one hundred ten percent (110%) of the
higher of the then Fair Market Value rent for such Equipment and the annual
Basic Rent payable hereunder immediately preceding such expiration or earlier
termination. Such Basic Rent shall be payable from time to
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<PAGE> 34
time upon demand by Lessor. During any period of tenancy at sufferance, Lessee
shall, subject to the second preceding sentence, be obligated to perform and
observe all of the terms, covenants and conditions of this Lease, but shall have
no rights hereunder. Nothing contained in this Section 23 shall constitute the
consent, express or implied, of Lessor to the holding over of Lessee after the
expiration or earlier termination of this Lease as to the Equipment (unless the
Equipment is conveyed to Lessee) and nothing contained herein shall be read or
construed as preventing Lessor from maintaining a suit for possession of such
Equipment or exercising any other remedy available to Lessor at law or in
equity.
SECTION 24. RISK OF LOSS.
During the Basic Term and any Renewal Term, unless Lessee
shall not be in actual possession of the Equipment in question solely by reason
of Lessor's exercise of its remedies of dispossession under Section 17 hereof,
the risk of loss of or decrease in the enjoyment and beneficial use of the
Equipment as a result of the damage or destruction thereof by fire, the
elements, casualties, thefts, riots, wars or otherwise is assumed by Lessee, and
Lessor shall in no event be answerable or accountable therefor.
SECTION 25. SUBLETTING.
25.1. Subletting and Assignment. Lessee may not assign this
Lease or any of its rights or obligations hereunder in whole or in part;
provided, that Lessee may assign this Lease to an Affiliate of Lessee so long as
Lessee remains directly and primarily liable for all obligations of Lessee under
this Lease and the other Operative Agreements. Provided that no Lease Default or
Lease Event of Default has occurred and is continuing, Lessee may, without the
consent of Lessor, sublease any Equipment to any Person that is not a
"tax-exempt entity" within the meaning of section 168(h)(2) of the Code. No
sublease or other relinquishment of possession of any Equipment shall in any way
discharge or diminish any of Lessee's obligations to Lessor hereunder and Lessee
shall remain directly and primarily liable under this Lease as to the Equipment
so sublet. Any sublease of any Equipment shall be made expressly subject to and
subordinated to this Lease and to the rights of Lessor hereunder, and shall
expressly provide for the surrender of the Equipment after a Lease Event of
Default hereunder. All such subleases shall expressly provide for termination at
or prior to the earlier of the Expiration Date or the termination of this Lease
pursuant to Section 17 hereof.
25.2. Subleases. Promptly following the execution and delivery
of any sublease permitted by this Section 25, Lessee shall deliver a copy of
such executed sublease to Lessor.
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<PAGE> 35
SECTION 26. NO WAIVER.
No failure by Lessor or Lessee to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy upon a
default hereunder, and no acceptance of full or partial payment of Rent during
the continuance of any such default, shall constitute a waiver of any such
default or of any such term. To the fullest extent permitted by law, no waiver
of any default shall affect or alter this Lease, and this Lease shall continue
in full force and effect with respect to any other then existing or subsequent
default.
SECTION 27. ACCEPTANCE OF SURRENDER.
No surrender to Lessor of this Lease or of all or any item of
any Equipment or of any interest therein (other than as specifically permitted
herein) shall be valid or effective unless agreed to and accepted in writing by
Lessor, and no act by Lessor or any representative or agent of Lessor, other
than a written acceptance, shall constitute an acceptance of any such surrender.
SECTION 28. NOTICES.
All notices, demands, requests, consents, approvals and other
communications hereunder shall be in writing and delivered personally or by a
nationally recognized overnight courier service or mailed (by registered or
certified mail, return receipt requested, postage prepaid), addressed to the
respective parties, as follows:
If to Lessee:
Fresenius USA, Inc.
2637 Shadelands Drive
Walnut Creek, California 94598
Attention: Heinz Schmidt, Vice President Finance
Telephone No.: (510) 295-0200
Telecopy No.: (510) 988-1950
If to Lessor:
First Security Bank of Utah, N.A.
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Telephone No.: (801) 246-5630
Telecopy No.: (801) 246-5053
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<PAGE> 36
In each case, with a copy to the Investor:
Deutsche Bank A.G., New York
and/or Cayman Islands Branches
550 South Hope Street
Suite 1850
Los Angeles, California 90071
Attn: Christine Lane, Vice
President
Telephone No.: (213) 627-8200
Telecopy No.: (213) 627-9779
with a copy to:
Deutsche Bank A.G., New York
and/or Cayman Islands Branches
31 West 52nd Street
New York, New York 10019
Attn: Sarah K. Pennington, Contracts
Administrator,
International Leasing Group
Telephone No.: (212) 474-7393
Telecopy No.: (212) 474-7398
or such additional parties and/or other address as such party may hereafter
designate , and shall be effective upon receipt or refusal thereof.
SECTION 29. MISCELLANEOUS.
29.1. Survival and Severability. Anything contained in this
Lease to the contrary notwithstanding, all claims against and liabilities of
Lessee or Lessor arising from events commencing prior to the expiration or
earlier termination of this Lease shall survive such expiration or earlier
termination. If any provision of this Lease shall be held to be unenforceable in
any jurisdiction, such unenforceability shall not affect the enforceability of
any other provision of this Lease in such jurisdiction or of such provision or
of any other provision hereof in any other jurisdiction.
29.2. Amendments and Modifications. Neither this Lease nor any
provision hereof may be amended, waived, discharged or terminated except by an
instrument in writing signed by Lessor and Lessee.
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<PAGE> 37
29.3. Successors and Assigns. All the terms and provisions of
this Lease shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
29.4. Counterparts. This Lease may be executed in any number
of counterparts, each of which shall be an original, but all of which shall
together constitute one and the same
instrument.
29.5. Headings. The Table of Contents and headings of the
various Sections of this Lease are for convenience of reference only and shall
not modify, define, expand or limit any of the terms or provisions hereof.
29.6. GOVERNING LAW. THIS LEASE SHALL IN ALL RESPECTS BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE
NEW YORK GENERAL OBLIGATIONS LAW BUT EXCLUDING ANY OTHER CONFLICT-OF-LAW OR
CHOICE-OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE INTERNAL LAWS OF
ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
29.7. Limitations on Recourse. Notwithstanding anything
contained in this Lease to the contrary, Lessee agrees to look solely to
Lessor's interest in the Trust Estate for the collection of any judgment
requiring the payment of money by Lessor in the event of liability by Lessor,
and no other property or assets of Lessor or any shareholder, owner or partner
(direct or indirect) in or of Lessor, or any director, officer, employee,
beneficiary, or Affiliate of any of the foregoing shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Lessee's
remedies under or with respect to this Lease, the relationship of Lessor and
Lessee hereunder or Lessee's use of the Equipment or any other liability of
Lessor to Lessee, provided that this Section 29.7 shall not be construed or
interpreted as a waiver of any rights of Lessee under the Participation
Agreement.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 38
IN WITNESS WHEREOF, the parties have caused this Lease to be
duly executed and delivered as of the date first above written.
FIRST SECURITY BANK OF UTAH,
N.A., not in its individual capacity, but
solely as Owner Trustee
By:_________________________________
Name:_______________________________
Title:________________________________
FRESENIUS USA, INC.
By:_________________________________
Heinz Schmidt, Vice President Finance
[Receipt of this original counterpart of
the foregoing Lease is hereby acknowledged
as of the date hereof.]
FIRST SECURITY BANK OF UTAH,
N.A., not in its individual capacity, but
solely as Owner Trustee
By:_________________________________
Name:______________________________
Title:_______________________________
<PAGE> 39
EXHIBIT A TO THE LEASE
[FORM OF EQUIPMENT SCHEDULE]
EQUIPMENT SCHEDULE NO.
Forming a part of Lease Agreement dated as of March 31, 1995 (the
"lease"), between First Security Bank Of Utah, N.A., not in its individual
capacity, but solely as Owner Trustee, as lessor (the "Lessor") and Fresenius
USA, Inc., as lessee (the "Lessee").
1. EQUIPMENT. The Equipment leased hereunder shall be as set forth in
the schedule attached hereto as Annex A.
TOTAL EQUIPMENT COST: $____________
2. TERM. Upon and after the date of execution hereof, the Equipment
shall be subject to the terms and conditions provided herein and in the Lease
(which is incorporated herein by reference).
3. RENT. From and after the date hereof, the Basic Rent for said
Equipment during the Basic Lease Term shall be payable on the dates and in the
amounts set forth in Section 3 of the Lease which is incorporated herein by
reference.
4. LESSEE CONFIRMATION. Lessee hereby confirms and warrants to Lessor
that the Equipment: (a) was duly delivered to lessee on or prior to the date
hereof at the locations specified in Section 5 hereof; (b) has been received,
inspected and determined to be in compliance with all applicable specifications
and that the Equipment is hereby accepted for all purposes of the Lease; and (c)
is a part of the "Equipment" referred to in the Lease and is taken subject to
all terms and conditions therein and herein provided.
5. LOCATION OF EQUIPMENT. The locations of the Equipment are specified
on the Schedule of Equipment attached hereto as Annex A.
6. FINANCING STATEMENTS. Annex B attached hereto specifies the location
of all UCC financing statements or other similar documents under applicable law
covering the Equipment.
Date of Execution: ____________, 1995
FIRST SECURITY BANK OF UTAH, FRESENIUS USA, INC.
N.A., not in its individual capacity, but
solely as Owner Trustee
By: ____________________________ By: ___________________________
Name: __________________________ Name: _________________________
Title: ___________________________ Title: ________________________
<PAGE> 40
ANNEX A TO
EQUIPMENT SCHEDULE
EQUIPMENT
Approved by _____________________________ Page No. ___ of ___ total pages
(Lessee to initial each
page)
Attached Bill of Sale dated Equipment located at:
_______________,1995
__________________________________________
and Street No.
__________________________________________
Equipment Schedule No. ___. City County State Zip
This location is ___ owned, ____leased, ___
mortgaged.
<TABLE>
<S> <C> <C>
Manufacturer and/or
Vendor Name & Description Equipment Cost
Invoice No.
</TABLE>
<PAGE> 41
ANNEX B TO
EQUIPMENT SCHEDULE
FINANCING STATEMENTS COVERING
EQUIPMENT
<TABLE>
<S> <C> <C> <C>
Secured Party Statement No. Filing Date Filing Location
- ------------- ------------- ----------- ---------------
</TABLE>
<PAGE> 42
EXHIBIT B TO THE LEASE
OTHER NAMES AND LOCATIONS OF LESSEE
None
<PAGE> 43
EXHIBIT C TO THE LEASE
[FORM OF
PURCHASE AGREEMENT ASSIGNMENT]
This Purchase Agreement Assignment, dated __________, 1995, is
between FRESENIUS USA, INC., a Massachusetts corporation ("Assignor") and FIRST
SECURITY BANK OF UTAH, N.A., not in its individual capacity, but solely as Owner
Trustee ("Assignee").
WHEREAS, Assignor has entered into purchase agreements or purchase
orders (collectively the "Purchase Agreement") between Assignor and ___________
("Vendor"), providing for the sale to Assignor of various equipment, as more
fully described on Equipment Schedule No. (the "Equipment Schedule") attached as
Exhibit A hereto and made a part hereof (the "Equipment"); and
WHEREAS, Assignor [has purchased the Equipment and] desires that
Assignee acquire the Equipment from [Assignor/Vendor] and lease the Equipment to
Assignor pursuant to the terms of the Lease Agreement dated as of March 31,
1995, as supplemented by the Equipment Schedule (the "Lease").
NOW, THEREFORE, the parties hereto agree as follows:
1. Assignor does hereby sell, assign, transfer and set unto Assignee
all of Assignor's right, title and interest in, under and to the Purchase
Agreement and in and to the Equipment and all product support, warranty and
indemnification provisions and software and software licenses related thereto.
Assignee hereby accepts such assignment.
2. Assignor may not amend, modify, rescind or terminate the Purchase
Agreement in any manner which would have an adverse effect on Assignee without
the prior written consent of Assignee, which consent shall not be unreasonably
withheld.
3. It is agreed that, anything herein contained to the contrary
notwithstanding: (a) Assignor shall at all times remain liable to Vendor under
the Purchase Agreement to perform all the duties and obligations of the
purchaser thereunder to the same extent as if this Agreement had not been
executed, and Assignee does not assume and shall not be obligated to perform any
of these duties and obligations, and (b) the exercise by Assignee of any of the
rights assigned hereunder shall not release Assignor from its duties or
obligations to Vendor under the Purchase Agreement.
4. Assignor agrees at any time and from time to time and at its own
expense upon written request of Assignee to promptly and duly execute and
deliver any and all such further instruments and documents and take such further
actions as Assignee may reasonably request in order to obtain the full benefits
of this Agreement and of the rights and powers granted herein.
<PAGE> 44
5. Assignor does hereby represent and warrant that: (a) the Purchase
Agreement is in full force and effect and enforceable in accordance with its
terms and Assignor is not in default thereunder, (b) Assignor has the legal
right to enter into this Agreement, and (c) the Purchase Agreement is free from
all claims, security interests, liens and encumbrances, except for the interest
being conveyed hereunder and the interest of Assignor therein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on or as of the day and year first above written.
FRESENIUS USA, INC.,
Assignor
By:
-------------------------------
Title:
-------------------------------
FIRST SECURITY BANK OF UTAH, N.A.,
not in its individual capacity, but
solely as Owner Trustee, Assignee
By:
-------------------------------
Title:
-------------------------------
<PAGE> 45
CONSENT AND ACKNOWLEDGMENT OF
PURCHASE AGREEMENT ASSIGNMENT
The undersigned hereby consents to the attached Purchase
Agreement Assignment between Assignor and Assignee and consents to and accepts
said Assignment on and subject to the terms and conditions therein set forth.
[VENDOR]
By:
-------------------------------
Title:
-------------------------------
Date:
-------------------------------
<PAGE> 46
EXHIBIT D TO THE LEASE
[FORM OF BILL OF SALE]
KNOW ALL MEN BY THESE PRESENTS THAT _______________________ ("Seller"), for
and in consideration of the sum of $10.00 and other good and valuable
consideration, in hand paid by First Security Bank of Utah, N.A., not in its
individual capacity, but solely as Owner Trustee under that certain Trust
Agreement dated as of March ___, 1995 ("Purchaser"), the receipt of which is
hereby acknowledged, grants, bargains, sells, conveys, transfers and delivers
all right, title and interest unto Purchaser, its successors and assigns forever
to the equipment described on Schedule A attached hereto and made a part hereof
(the "Equipment"), free and clear of any and all liens, claims, charges and
encumbrances.
Seller does hereby agree to and with Purchaser, its successors and assigns, to
warrant and defend title to the aforesaid Equipment hereby sold unto Purchaser,
its successors and assigns against all and every person and persons whomsoever.
Seller hereby represents and warrants to Purchaser that Seller is the record
and beneficial owner of such Equipment and that Seller has full right, power and
authority to sell the Equipment and to make this Bill of Sale.
Seller, for itself and its successors and assigns further covenants and agrees
to do, execute and deliver, or to cause to be done, executed or delivered, all
such further acts, transfers and assurances, for the better assuring, conveying
and confirming unto Purchaser and its successors and assigns the rights and
interests in the Equipment hereby bargained, sold, assigned, transferred, set
over and conveyed, as Purchaser and its successors and assigns shall reasonably
request.
This Bill of Sale and the representations, warranties and covenants herein
contained shall inure to the benefit of Purchaser and its successors and
assigns, shall be binding upon Seller and its successors, assigns and
transferees, and shall survive the execution and delivery hereof.
IN WITNESS WHEREOF, Seller has hereunto set its hand by an officer as of this
____ day of ______, 1995.
[LESSEE OR THIRD PARTY VENDOR]
By:
-------------------------------
Title:
-------------------------------
<PAGE> 1
EXHIBIT 10.21
Fresenius USA, Inc. dated as of January 3, 1995
2637 Shadelands Dept.: LEX/dmq
Walnut Creek, CA 94598 Ref.: LAN/8979
Tel.: (213) 627-8200
Attn.: Mr. Heinz Schmidt
Vice President Finance
Ladies and Gentlemen:
We are pleased to advise you that Deutsche Bank AG Los Angeles Branch, New York
Branch and/or Cayman Islands Branch (the "Bank") holds available to Fresenius
USA, Inc., a Massachusetts corporation (the "Borrower"), a line of credit (the
"Facility") in the aggregate principal amount of US$20,000,000.00 (the
"Commitment") from the date hereof until January 2, 1998 (such date, or if
earlier, the date of termination of the Commitment hereunder, the "Final
Maturity Date"). Within the limits of the Commitment the Borrower may borrow,
repay or prepay and reborrow under this letter agreement (the "Agreement").
This Facility shall at all times be secured by a perfected first ranking
security interest in the Borrower's accounts receivable pursuant to the terms
and conditions in the Bank's Security Agreement (as defined below).
Subject to the terms and conditions of this Agreement, this Commitment may be
utilized by the Borrower in the form of loans and/or letters of credit provided
that the aggregate principal amount of loans outstanding at any one time,
credit extensions by way of letters of credit, and unreimbursed drawings under
letters of credit does not exceed US$20,000,000.00.
I. LOANS
1. Domestic dollar loans bearing a per annum interest rate equal
to the Bank's floating Base Rate (as defined in the attached
note); such loans shall be evidenced by a note in the form of
Exhibit A hereto (the "Note").
2. Alternatively, the Borrower may request the Bank to make, and,
subject to the satisfaction of the conditions precedent herein
contained the Bank shall make, one or more Eurodollar loans in
minimum amounts of $1,000,000 and multiples of $100,000 in
excess thereof thereafter with interest periods (each an
"Interest Period") up to one year in duration as requested by
the Borrower in the notice of borrowing (such notice in the
form of Exhibit G attached hereto, a "Notice of Borrowing")
delivered by the Borrower in connection with such loan and
agreed to by the Bank. The precise duration of each Interest
Period requested will be calculated by the Bank according to
its Eurodollar practices; provided that no Interest Period
shall end after the Final Maturity Date. Eurodollar loans
shall bear a per annum interest rate at a margin of 0.60
percent in excess of the rate at which Deutsche Bank AG Cayman
Islands Branch can obtain U.S. Dollar deposits for the
Interest Period requested, in the New York Market during New
York business hours. Interest shall be based on the bank
basis of a year of 360 days and the exact number of days
elapsed. Such loans shall be evidenced by the Note.
<PAGE> 2
2
II. LETTERS OF CREDIT
Documentary and standby letters of credit, the terms and charges with respect
to which letters of credit will be mutually agreed upon on a case-by-case
basis. Such letters of credit will be subject to our commissions, fees and
out-of-pocket expenses as negotiated on a case-by-case basis.
In addition to the documents required pursuant to Section V below, the Borrower
shall have, prior to the issuance of a letter of credit, supplied the Bank with
(i) a duly completed application (specimen attached as Exhibit F) and (ii) the
respective text, in form and substance satisfactory to the Bank, of the
proposed standby letter of credit.
Subject to the terms of this Agreement, each letter of credit transaction will
be handled in accordance with the Bank's usual practice.
Effective as of the date hereof, (i) the CAD$3,000,000 letter of credit
(Number: 839-53110), issued by the Bank for the account of the Borrower on
September 26, 1994 (the "Canadian Letter of Credit") shall be deemed issued
and outstanding under the Facility, (ii) the Borrower's rights and obligations
with respect to the Canadian Letter of Credit shall be governed by the Loan
Documents, and (iii) the Borrower's obligations with respect to such letter of
credit shall be secured by the Collateral (as defined in the Security
Agreement). For purposes of any calculation of the amounts outstanding under
the Facility required to be made hereunder on any day (including, without
limitation, any calculation of outstanding obligations for purposes of
determining the amount of usage of the Commitment or for purposes of
determining compliance with financial ratios), the Bank will compute the United
States Dollar equivalent of the Canadian dollar obligations of the Bank with
respect to the Canadian Letter of Credit using a rate of exchange equal to the
rate of exchange which in accordance with normal banking procedures the Bank
could purchase Canadian dollars with United States Dollars on such day.
III. ORIGINATION FEE/COMMITMENT FEE
The Borrower agrees to pay to the Bank the following:
1. A one-time up-front fee in the amount of US$10,000.00, which
shall be due and payable on the date this Agreement is signed
by the Borrower;
2. A commitment fee (the "Commitment Fee") of 0.125% per annum of
the average daily unused portion of the Commitment, commencing
on the date this Agreement is signed by the Borrower. This
Commitment Fee, which shall be based on the actual number of
days elapsed on a 360-day year, shall commence to accrue
beginning on the date hereof and shall be payable quarterly in
arrears on the last business day of each calendar quarter; and
3. With respect to letters of credit, such commissions, fees and
out-of-pocket expenses as are negotiated on a case-by-case
basis at the time each letter of credit is issued.
IV. COVENANTS
The Borrower covenants and agrees from the date hereof until the Commitment has
terminated, each letter of credit issued hereunder has terminated, and any and
all obligations and liabilities hereunder, together with interest and other
costs and expenses, in each case owing to the Bank, have been paid in full
that:
<PAGE> 3
3
A. AFFIRMATIVE COVENANTS
The Borrower shall, and, in the case of subparagraphs (a) through (i),
(m) and (p) of this paragraph IV. A., shall cause each subsidiary
(each such subsidiary, a "Restricted Subsidiary") having total assets
(determined in accordance with generally accepted accounting
principles, consistently applied) in excess of 5% of the total
consolidated assets (determined in accordance with generally accepted
accounting principles, consistently applied) of the Borrower and its
consolidated subsidiaries, to:
(a) maintain adequate insurance;
(b) duly pay and discharge all taxes or other claims which might
become a lien upon any of its property except to the extent
that such items are bring in good faith appropriately
contested;
(c) maintain, preserve and keep its properties in good repair,
working order and condition, and make all reasonable repairs,
replacements, additions, betterments and improvements thereto;
(d) conduct its business in substantially the same manner and in
substantially the same fields as such business is carried on
and conducted on the date hereof;
(e) except as otherwise provided in Section IV. B.(c) below,
maintain its corporate existence;
(f) pay all stamp or issuance taxes, if any, payable by reason of
the execution, delivery or issuance of the Loan Documents (as
defined below) under any applicable ordinance or statute now
existing or hereafter enacted, and the Borrower shall at all
times indemnify and hold harmless the Bank against any
liability in respect thereof;
(g) maintain its books and records in accordance with generally
accepted accounting principles, consistently applied, and
permit the Bank to make or cause to be made, at the Bank's
expense, inspections and audits of any books, records and
papers of the Borrower and its subsidiaries and to make
extracts therefrom at all such reasonable times and as often
as the Bank may reasonably require;
(h) use the proceeds of all loans made pursuant to this Agreement
for general corporate purposes;
(i) maintain as part of its corporate name the "Fresenius" name;
(j) maintain at the end of each calendar quarter a ratio of its
Consolidated EBITDA (computed for the previous twelve months)
to Consolidated Interest Expense (computed for the previous
twelve months) of at least 3:1 (all to be determined in
accordance with generally accepted accounting principles
consistently applied). "Consolidated EBITDA" shall mean, for
any period of determination thereof, the consolidated net
income (excluding any extraordinary gains) of the Borrower and
its subsidiaries on a consolidated basis for such period
before interest expenses, provision for federal and state
income taxes, depreciation and amortization, in each case for
such period. "Consolidated Interest Expense" shall mean, for
any period of determination thereof, the total interest
expense (including, without limitation, interest expense
attributable to capitalized leases in accordance with
generally accepted accounting principles, but excluding from
such total
<PAGE> 4
4
interest expense, any interest paid to Fresenius AG) of the
Borrower and its subsidiaries for such period determined on a
consolidated basis;
(k) maintain at all times Consolidated Tangible Net Worth in an
amount not less than $15,000,000 plus (i) 100% of the net
proceeds of the issuance of any stock of the Borrower after
the date hereof and (ii) 50% of consolidated net income of
the Borrower and its subsidiaries, if positive, for each
fiscal quarter after March 31, 1994. "Consolidated Tangible
Net Worth" shall be equal to total stockholders' equity minus
intangibles (including, without limitation, patents,
copyrights, trademarks, and goodwill), all determined in
accordance with generally accepted accounting principles
consistently applied;
(l) maintain at all times a ratio of (i) total Debt (as defined
below) less the sum of (A) up to $10,000,000 in Debt of the
Borrower to Fresenius AG maturing within twelve (12) months of
the date of determination and (B) the aggregate principal
amount of any loans made by Fresenius AG to the Borrower and
not included in the preceding clause (A), to the extent such
loans shall have been subordinated to the Borrower's
obligations hereunder and under the other Loan Documents in a
manner satisfactory to the Bank to (ii) Consolidated Tangible
Net Worth of (x) from the date hereof through but not
including December 31, 1995, not more than 3.5 to 1 and (y) on
and after December 31, 1995, 3.0 to 1;
(m) comply with all applicable laws, rules, regulations and orders
of any governmental authority, non-compliance with which could
reasonably be expected to materially adversely affect the
business or credit of the Borrower and its consolidated
subsidiaries, taken as a whole, or the Borrower's ability to
perform its obligations under the Loan Documents;
(n) provide the Bank with financial statements for the first three
fiscal quarters of each fiscal year (within 60 days from the
closing of the respective quarterly period) and on an annual
basis. Annual statements shall be supplied within 120 days
from the closing of the respective annual fiscal period and
shall be audited by a nationally recognized, independent
accountant;
(o) provide the Bank within 45 days after the last day of each
calendar quarter with (i) lists of Eligible Receivables (as
defined below); (ii) an aging report for such Eligible
Receivables; and (iii) a certificate of the chief financial
officer of the Borrower in the form of Exhibit E attached
hereto and duly signed confirming (x) that such officer has
reviewed the terms of the Loan Documents and has concluded
that no Event of Default or event that would constitute such
an Event of Default but for the requirement that notice be
given or time elapse or both has occurred during such period
or, if any such default has occurred, specifying the nature
and extent thereof and, if continuing, the action the Borrower
proposes to take in respect thereof and (y) the Borrower's
compliance with the financial covenants set forth in this
Agreement as of the end of such calendar quarter; and
(p) provide the Bank with any other information the Bank may
reasonably request from time to time.
<PAGE> 5
5
B. NEGATIVE COVENANTS
The Borrower shall not, and shall not permit any subsidiary to:
(a) incur, or permit to exist, any Debt other than (i) Debt
incurred from the Bank under the Loan Documents and any other
Debt of the Borrower or any subsidiary to the Bank whether now
existing or hereafter incurred; (ii) Debt existing on the date
hereof and described in Part A of the Disclosure Schedule
attached hereto; (iii) any extension, renewal, or refinancing
of the Debt referred to in clause (ii), provided that (x) if
such Debt is unsecured, such Debt as extended, renewed or
refinanced remains unsecured and (y) the terms of such Debt as
extended, renewed or refinanced are no more restrictive than
the terms of such Debt as of the date hereof; (iv) Debt of the
Borrower to Fresenius AG to the extent that such Debt either
(x) matures within twelve (12) months of the date of
incurrence or issuance thereof and does not exceed $10,000,000
in aggregate principal amount or (y) shall have been
subordinated to the Borrower's obligations hereunder in a
manner satisfactory to the Bank and (v) Debt in addition to
the Debt permitted under the preceding clauses (i) through
(iv) of this paragraph (a) incurred after the date hereof,
provided that the aggregate principal amount of such
additional Debt outstanding at any one time shall not exceed
$35,000,000. "Debt" shall mean, with respect to any person,
(i) all indebtedness of such person for borrowed money or for
the deferred purchase price of property or services (other
than trade payables incurred in the ordinary course of
business of such Person and not overdue and other than trade
payables payable by the Borrower to Fresenius AG) incurred in
the ordinary course of business of such Person), (ii) all
indebtedness of such Person evidenced by a note, bond,
debenture or similar instrument, (iii) the principal component
of all capitalized leases (as defined in accordance with
generally accepted accounting principles) of such Person, (iv)
the face amount of all letters of credit issued for the
account of such person and all unreimbursed amounts drawn
thereunder, (v) all indebtedness of any other person secured
by any lien on any property owned by such Person, whether or
not such indebtedness has been assumed, and (vi) all
Contingent Obligations (as defined below) of such Person;
(b) incur, or permit to exist, any Contingent Obligation other
than (i) any Contingent Obligation under the Loan Documents
and any other Contingent Obligation of the Borrower or any
subsidiary to the Bank whether now existing or hereafter
incurred; and (ii) Contingent Obligations existing on the date
hereof and described in Part B of the Disclosure Schedule
attached hereto. "Contingent Obligation" shall mean, as to
any person any obligation of such person guaranteeing or
intended to guarantee or having the effect of guaranteeing any
Debt, leases, dividends or other obligations ("primary
obligations") of any other person (the "primary obligor") in
any manner, whether directly or indirectly; provided, however,
that the term Contingent Obligation shall not include (i)
endorsements of instruments for deposit or collection in the
ordinary course of business or (ii) any guarantee by the
Borrower of the primary obligations of any wholly owned
subsidiary of the Borrower;
(c) enter into any merger or consolidation or sell or lease or
otherwise dispose of all or any substantial part of its
assets, other than sales in the ordinary course of business;
except that any subsidiary may merge into or consolidate with
any other subsidiary which is wholly owned by the Borrower,
and any subsidiary which is wholly owned by the Borrower may
merge with or consolidate into the Borrower provided that the
Borrower is the surviving corporation;
<PAGE> 6
6
(d) lend or advance money, credit or property to or invest in (by
capital contribution, loan, purchase or otherwise) any firm,
corporation, or other person except investments in furtherance
of the Borrower's business in persons engaged in substantially
the same business as the Borrower and except investments in
Permitted Investments having maturities not in excess of one
year. "Permitted Investments" shall mean shall mean (i)
obligations of or directly and fully guaranteed by the United
States of America or any agency or instrumentality thereof
when such obligations are backed by the full faith and credit
of the United States; (ii) certificates of deposit, time
deposits or bankers acceptances issued by any domestic or
foreign commercial bank whose long-term credit rating is at
least A- or the equivalent by Standard & Poor's Rating Group
and A3 or the equivalent by Moody's Investors Service, Inc.;
(iii) direct obligations of, the principal of and interest on
which are unconditionally guaranteed by, and any other
obligations the interest on which is excluded from gross
income for federal income tax purposes issued by, any state of
the United States, the District of Columbia or the
Commonwealth of Puerto Rico, or any political subdivision,
agency, authority or other instrumentality of any of the
foregoing, which are rated at least AA or the equivalent by
Standard & Poor's Rating Group and Aa or the equivalent by
Moody's Investors Service, Inc.; (iv) commercial paper issued
by any corporation rated at least A-1 or the equivalent by
Standard & Poor's Rating Group and at least P-1 or the
equivalent by Moody's Investors Service, Inc.; (v) instruments
issued by investment companies having a portfolio 95% or more
consisting of the type described above; (vi) repurchase
agreements with banking institutions and securities dealers
recognized as primary dealers by the Federal Reserve Bank of
New York having a combined capital and surplus of not less
than $250 million with respect to any of the obligations
described in clauses (i) through (iii) above in which a
fiduciary shall have a perfected security interest and for
which a fiduciary shall hold as collateral the securities
purchased or a third party shall hold as collateral the
securities purchased for the benefit of the fiduciary; and
(vii) other investment grade instruments to be mutually agreed
upon by the Bank and the Borrower;
(e) create, assume, or permit to exist, any mortgage, pledge, lien
or encumbrance of or upon, or security interest in
(collectively, a "Lien"), any of its property or assets now
owned or hereafter acquired except (i) Liens in favor of the
Bank under the Loan Documents and any other Liens of the
Borrower or any subsidiary in favor of the Bank whether now
existing or hereafter created; (ii) Liens for taxes or other
governmental charges which are not delinquent or which are
being contested in good faith and for which a reserve shall
have been established in accordance with generally accepted
accounting principles; (iii) statutory Liens of landlords and
Liens of carriers, warehousemen, mechanics, materialmen and
other Liens imposed by Law (other than any Lien imposed under
the Employee Retirement Income Security Act or pursuant to any
environmental law) created in the ordinary course of business
for amounts not yet due or which are being contested in good
faith by appropriate proceedings diligently conducted and with
respect to which adequate bonds have been posted; (iv)
easements, rights-of-way, zoning and similar restrictions and
other similar charges or encumbrances not interfering with the
ordinary conduct of business and which do not detract
materially from the value of the property to which they attach
or impair materially the use thereof; (v) Liens created to
secure purchase money indebtedness or capital lease
indebtedness, in each case to the extent such Debt is
permitted under paragraph B(a) above, provided that (x) such
Liens are only in respect of the property or assets subject
to, and secure only, such Debt and (y) the aggregate amount of
such Debt secured by such Liens shall not exceed $12,500,000
in the aggregate at any time outstanding and (vi) customary
Liens arising from or created in connection with the issuance
of letters of credit for
<PAGE> 7
7
the account of the Borrower; provided that in each case such
Liens apply only to the raw materials, inventory, machinery or
equipment in connection with the purchase of which such letter
of credit was issued or to the balance of any account of the
account party in respect of such letter of credit with the
bank issuing such letter of credit. Notwithstanding the
foregoing (i) there shall be no Liens on any of the Collateral
(as defined in the Security Agreement) other than Liens in
favor of the Bank and (ii) the restriction on Liens contained
in this paragraph (e) shall not be deemed to extend to any
Lien arising out of or deemed to arise out of any lease in
respect of which the Bank, any affiliate thereof or any
trustee acting on behalf of the Bank or such affiliate is the
lessor and the Borrower is the lessee;
(f) declare or pay any dividends on its capital stock (other than
dividends payable solely in shares of its own common stock),
or purchase, redeem, retire or otherwise acquire any of its
capital stock at any time outstanding, except that (i) any
subsidiary wholly-owned by the Borrower may declare and pay
dividends to the Borrower, and (ii) the Borrower may declare
or pay dividends on its capital stock so long as (x) no Event
of Default or event that would constitute such an Event of
Default but for the requirement that notice be given or time
elapse or both has occurred and is continuing at the time of
such declaration or payment and (y) the aggregate amount of
such dividends paid or declared in any fiscal year does not
exceed 50% of the consolidated net income (excluding any
extraordinary gains) of the Borrower and its subsidiaries on a
consolidated basis for the fiscal year immediately preceding
such fiscal year;
(g) create, assume, enter into, or permit to exist any operating
lease (as defined in accordance with generally accepted
accounting principles, consistently applied) if after giving
effect to such operating lease the aggregate amount of
payments required to be made by the Borrower and its
Restricted Subsidiaries under all operating leases (other than
any operating lease in respect of which the Bank, any
affiliate thereof or any trustee acting on behalf of the Bank
or such affiliate is the lessor) in any fiscal year will
exceed the Maximum Lease Amount. The "Maximum Lease Amount"
shall mean, for any fiscal year, an amount equal to (i) for
the fiscal years beginning January 1, 1994 and January 1,
1995, $6,000,000 and (ii) for each fiscal year thereafter, an
amount equal to the Maximum Lease Amount for the immediately
preceding fiscal year plus an amount equal to 5% of such
amount; and
(h) in the case of the Borrower only, move its chief executive
office, or change its name from, nor carry on business under
any name other than, "Fresenius USA, Inc.", until (i) it has
given to the Bank not less than 60 days' prior written notice
of its intention to do so, clearly describing such new
location or specifying such new name, as the case may be, and
providing such other information in connection therewith as
the Bank may reasonably request, and (ii) with respect to such
new location or such new name, as the case may be, it shall
have taken all action, satisfactory to the Bank to maintain
the security interest of the Bank in the Collateral intended
to be granted by the Security Agreement at all times fully
perfected and in full force and effect.
V. CONDITIONS PRECEDENT
A. The obligation of the Bank to permit the first utilization of the
Commitment (whether by way of advance or the issuance of a letter of
credit), shall be subject to the condition precedent that (i) the Bank
shall have received the following documents, each dated the date
hereof and each in form and substance
<PAGE> 8
8
satisfactory to the Bank, and (ii) each of the other conditions
precedent referred to below shall have been met to the Bank's
satisfaction:
(a) a copy of this Agreement duly executed by the Borrower;
(b) the Note, duly executed by the Borrower;
(c) the Bank's standard Continuing Letter of Credit Agreement
(Security Agreement) in the form of Exhibit B, duly executed
by the Borrower (the "Letter of Credit Agreement");
(d) the Bank's Continuing General Security Agreement and Financing
Statement in the form of Exhibit C attached hereto and duly
executed by the Borrower (the "Security Agreement"), as well
as the duly signed UCC-1 financing statements enclosed
herewith (the "UCCs"), which UCCs shall have been filed in the
following filing offices: Secretary of State of California;
(e) copies of search reports from the Uniform Commercial Code
filing offices or other registers in each jurisdiction in
which the Borrower or predecessors in title of the Borrower
have an office or in which assets of the Borrower or
predecessors in title of the Borrower are located, as
certified by an authorized officer of the Borrower, showing no
filings or recordings with respect to any of the Collateral
(as defined in the Security Agreement) in favor of any Person
other than the Bank;
(f) copies of all documents evidencing all necessary corporate
action and governmental approvals, if any, with respect to
this Agreement, the Note, the Letter of Credit Agreement, the
Security Agreement, and the UCCs (each a "Loan Document" and
collectively the "Loan Documents");
(g) an Officer's Certificate of the Borrower to which is attached
(i) true and correct copies of the Borrower's charter, and
bylaws, (ii) a copy of a certificate as of a recent date of
the appropriate Massachusetts governmental officials attesting
to the Borrower's existence and good standing as a corporation
under Massachusetts law, and (iii) a copy of a certificate as
of a recent date of the appropriate California governmental
officials attesting to the Borrower's qualification to do
business as a foreign corporation in the State of California;
(h) a legal opinion from counsel acceptable to the Bank in the
form of Exhibit D attached hereto, duly executed by such
counsel; and
(i) receipt by the Bank of the up-front fee referred to in
paragraph III above.
B. The obligation of the Bank to make each advance hereunder or to issue
any letter of credit (including the first such advance or letter of
credit) shall be subject to the following conditions precedent:
(a) With respect to any loan, the Bank shall have received a duly
executed Notice of Borrowing; with respect to any letter of
credit, the Bank shall have received the documents referred to
in Section II above;
(b) On the date of the making of such advance or the issuance of
such letter of credit, the following statements shall be true,
and each of the request for such advance or the request for
issuance of any letter of credit and the acceptance by the
Borrower of the proceeds of such advance or the
<PAGE> 9
9
issuance of such letter of credit shall constitute a
representation and warranty by the Borrower that on the date
of such advance or issuance (i) the representations and
warranties contained in each of the Loan Documents are correct
on and as of the date of such advance or issuance, before and
after giving effect to such advance or issuance and to the
application of the proceeds therefrom, as though made on and
as of such date, and (ii) no event has occurred and is
continuing, or would result from such advance or issuance, or
from the application of the proceeds therefrom, which
constitutes an Event of Default (as defined below) or would
constitute such an Event of Default but for the requirement
that notice be given or time elapse or both; and
(c) There has been no material adverse change in the consolidated
financial condition, operations, business or assets of the
Borrower since June 30, 1994;
VI. EVENTS OF DEFAULT
If any of the following events ("Events of Default") shall occur and be
continuing:
(a) the Borrower shall fail to pay any principal of the Note when
the same becomes due and payable or interest on or any other
amount payable under the Loan Documents within five days of
the date the same becomes due and payable;
(b) any representation or warranty made by the Borrower (or any of
its officers) under or in connection with the Loan Documents
shall prove to have been incorrect in any material respect
when made or deemed made;
(c) the Borrower shall fail to perform or observe any term,
covenant or agreement contained in any Loan Document on its
part to be performed or observed;
(d) the Borrower or any of its Restricted Subsidiaries shall fail
to pay any principal of or premium or interest with respect to
any Debt in an amount exceeding $3,000,000 United States
Dollars (but excluding Debt evidenced by the Note) of the
Borrower or such subsidiary (as the case may be), when the
same becomes due and payable (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise), and
such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to
such Debt; or any other event shall occur or condition shall
exist under any agreement or instrument relating to any such
Debt and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect
of such event or condition is to accelerate, or to permit the
acceleration of, the maturity of such Debt; or any such Debt
shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required
prepayment), redeemed, purchased or defeased, or an offer to
prepay, redeem, purchase or defease such Debt shall be
required to be made, in each case prior to the stated maturity
thereof;
(e) the Borrower or any of its Restricted Subsidiaries shall
generally not pay its debts as such debts become due, or shall
admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors;
or any proceeding shall be instituted by or against the
Borrower or any of its Restricted Subsidiaries seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under
any law relating to bankruptcy,
<PAGE> 10
10
insolvency or reorganization or relief of debtors, or seeking
the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it
or for any substantial part of its property and, in the case
of any such proceeding instituted against it (but not
instituted by it), either such proceeding shall remain
undismissed or unstayed for a period of 30 days, or any of the
actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its property)
shall occur; or the Borrower or any Restricted Subsidiary
shall take any corporate action to authorize any of the
actions set forth above in this subsection (e);
(f) Fresenius AG shall no longer own, directly or indirectly, at
least 51% of the Borrower's voting capital stock;
(g) any material judgment or order for the payment of money shall
be rendered against the Borrower or any of its subsidiaries
and shall remain unpaid or unsatisfied for a period of 30
days;
(h) any default or event of default shall occur under any other
Loan Document and, in the case of a default, shall continue
past any applicable cure period specified therein;
(i) any of the Loan Documents shall for any reason cease to be in
full force and effect, or shall cease to give the Bank the
Liens, rights, powers and privileges purported to be created
thereby;
THEN AND IN ANY SUCH EVENT the Bank (i) may, by notice to the
Borrower, declare the Commitment and its obligation to make advances hereunder
to be terminated, whereupon the same shall forthwith terminate, and (ii) may,
by notice to the Borrower, declare the Note, all interest thereon and all other
amounts payable under the Loan Documents to be forthwith due and payable,
whereupon the Note, all such interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest, or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
provided, however, that in the event of an actual or deemed entry of an order
for relief with respect to the Borrower under the Federal Bankruptcy Code, (A)
the Commitment and the obligation of the Bank to make advances hereunder shall
automatically be terminated and (B) the advances, the Note, all such interest
and all such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
VII. REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower hereby represents and warrants to the Bank that (a) the Borrower
and each of its Restricted Subsidiaries is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization; (b) each
of the Loan Documents has been duly authorized, executed and delivered and each
constitutes the valid and legally binding obligation of the Borrower,
enforceable against the Borrower in accordance with its terms; (c) the
execution and delivery and performance of the Loan Documents shall not violate
the charter, bylaws or any instrument or agreement to which the Borrower is a
party or any provision of any law, rule or regulation or any judgment
applicable to it; (d) neither the Borrower nor any subsidiary is a party to or
bound by, nor are any of the properties or assets owned by it or used in the
conduct of its business affected by, any agreement, ordinance, resolution,
decree, bond note, indenture, order or judgment, or subject to any
<PAGE> 11
11
charter or other corporate restriction, which materially and adversely affects
its business, assets or condition, financial or otherwise; (e) there are no
material outstanding judgments, and there are no actions or proceedings pending
or threatened before any court or governmental authority, against or affecting
the Borrower or any of its subsidiaries which actions or proceedings,
individually or in the aggregate, if adversely determined, could have a
material adverse effect on the business, assets or condition, financial or
otherwise, of the Borrower; (f) neither the Borrower nor any of its
subsidiaries is in default under, or in violation of any term of, any material
agreement binding on it; (g) the balance sheets, profit and loss statements and
other financial information of the Borrower and its subsidiaries for the period
ending June 30, 1994 and heretofore furnished to the Bank present fairly the
financial condition of the Borrower and each of its subsidiaries as at the
dates thereof; (h) the financial condition, operations, business and assets of
the Borrower and its subsidiaries has not materially adversely changed since
the June 30, 1994 balance sheet and financial statements of the Borrower and
its subsidiaries heretofore furnished to the Bank; (i) no part of the proceeds
of any loan which is evidenced by the Note shall be used to purchase or carry
any margin stock as defined in Regulation U of the Board of Governors of the
Federal Reserve System; (j) the Security Agreement is effective to create, as
security for the Obligations (as defined therein), a legal, valid and
enforceable Lien on or security interest in all of the Collateral in favor of
the Bank; (k) the Borrower is, and as to Collateral acquired by it from time to
time after the date hereof, the Borrower will be, the owner of all Collateral
free from all Liens; (l) other than financing statements filed in connection
with the Loan Documents, there is no financing statement (or similar statement
or instrument of registration under the law of any jurisdiction) covering or
purporting to cover any interest of any kind in the Collateral; (m) the chief
executive office of the Borrower is located at 2637 Shadelands, Walnut Creek,
CA 94598; and (n) all necessary and appropriate recordings and filings have
been effected with the Secretary of State of the State of California and all
other necessary and appropriate public offices so that on the date hereof the
Lien created by the Security Agreement constitutes a perfected Lien on and
security interest in the Collateral prior and superior to all other Liens all
in accordance with the Uniform Commercial Code as enacted in any and all
relevant jurisdictions or any other relevant law.
VIII. REPAYMENT AND PREPAYMENT
A. MANDATORY
On the 45th day following the end of each fiscal quarter of the Borrower, the
Borrower shall prepay the outstanding loans by an amount equal to the excess,
if any, of (i) the aggregate principal amount of loans outstanding at such time
plus the aggregate credit extensions by way of letters of credit outstanding at
such time plus the unreimbursed drawings under letters of credit at such time
over (ii) an amount equal to 75% of the aggregate amount of the Borrower's
Eligible Receivables (determined as of the last day of such fiscal quarter).
"Eligible Receivables" shall mean, at any time, all trade receivables of the
Borrower at such time other than those that are due and owing more than 60 days
from the date of invoice (which date, for purposes of the foregoing, must occur
promptly after the date goods are shipped or service rendered) and other than
those receivable from Medicare or any other governmental, public or
quasi-public account debtor ("Government Receivables") (which Government
Receivables are currently designated as M2 in the Borrower's Receivables
report), to the extent such Government Receivables exceed 20% of Eligible
Receivables.
Notwithstanding anything in this Agreement or any Loan Document to the
contrary, any and all obligations and liabilities incurred under this Agreement
or any Loan Document outstanding on the Final Maturity Date shall be due and
payable on such date.
B. VOLUNTARY
<PAGE> 12
12
The Borrower may on two days notice to the Bank prepay all or a portion (in
minimum principal amounts of $1,000,000 or more) of the outstanding principal
of any domestic dollar loan made hereunder, together with interest due through
the day of such prepayment.
The Borrower shall repay Eurodollar loans on the last day of the Interest
Period therefor, in accordance with the terms of the Note.
IX. INCREASED COSTS; BREAKAGE; CAPITAL ADEQUACY; FEES AND EXPENSES
In the event that a determination is made by the Bank in its sole discretion
that reserves must be maintained with any Federal Reserve Bank of the United
States, with any other governmental authority whatsoever or otherwise pursuant
to any Regulation of the Board of Governors of the Federal Reserve System or
otherwise, in connection with the Eurodollar loans evidenced hereby or the
funding thereof, the undersigned agrees to pay and hold the Bank harmless from
and against the cost of acquiring and/or maintaining any such reserves.
If any principal payment is made under the Note for any reason whatsoever on a
date other than the maturity date, the undersigned (i) shall pay interest
accrued thereon and (ii) shall, in the case of a Eurodollar loan, on demand
indemnify the Bank against all losses, including loss of profit and expenses,
suffered by it in liquidating or otherwise employing deposits acquired to fund
such loans until the stated maturity. A certificate of the Bank as to the
amount required to be paid by the undersigned under this paragraph shall
accompany such demand and shall be, except in the case of manifest error or in
the absence of good faith, final and conclusive.
In the event that a determination is made by the Bank in its sole discretion
that the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Bank with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Bank's capital as a consequence of its obligations to the undersigned or
of the loans to the undersigned evidenced hereby to a level below that which
the Bank could have achieved but for such adoption, change, or compliance, the
undersigned promises to pay on demand to the Bank such additional amount or
amounts as shall compensate the Bank for such reduction. A certificate of the
Bank as to the amount required to be paid by the undersigned under this
paragraph shall accompany such demand and shall be, except in the case of
manifest error or in the absence of good faith, final and conclusive.
Except as provided in Section IV. A. (g) hereof, the Borrower shall pay the
Bank's costs and expenses (including reasonable attorney's fees) incurred in
the administration and enforcement of the Loan Documents and the loans
evidenced thereby. The Borrower agrees that the Bank may debit any of the
Borrower's accounts with the Bank (with prior notice to the Borrower) with
respect to amounts due under the Loan Documents (including, without limitation,
the Bank's commissions and fees) and all charges and expenses paid or incurred
by the Bank in connection with the Commitment.
X. GOVERNING LAW; SUBMISSION TO JURISDICTION
This letter agreement shall be governed by and construed in accordance with the
laws of the State of New York.
<PAGE> 13
13
To the extent permitted by applicable law, any legal action or proceeding with
respect to this Agreement or any other Loan Document and any action for
enforcement of any judgment in respect thereof may be brought in the courts of
the State of New York or of the United States of America for the Southern
District of New York, and, by execution and delivery of this agreement, the
Borrower hereby accepts for itself and in respect of its property, generally
and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and
appellate courts from any thereof to the extent permitted by applicable law,
the Borrower hereby irrevocably waives any objection which it may now or
hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Loan Document brought in the courts referred to above and hereby further
irrevocably waives and agrees, to the extent permitted by applicable law, not
to plead or claim in any such court that any such action or proceeding brought
in any such court has been brought in an inconvenient forum. Nothing herein
shall affect the right of any party hereto to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed in any
other jurisdiction.
Each of the Borrower and the Bank hereby irrevocably waives all right of trial
by jury in any action, proceeding or counterclaim arising out of or in
connection with this Agreement or any other Loan Document or any matter arising
hereunder or thereunder.
Please signify your agreement with the foregoing terms and conditions by
signing and returning to the Bank the enclosed copy of this Agreement together
with the documentation referred to above.
Sincerely yours,
Deutsche Bank AG
Los Angeles Branch/
New York Branch/
Cayman Islands Branch
Michael U. Hotze Christine N. Lane
Managing Director Assistant Vice President
<PAGE> 14
14
AGREED TO AND ACCEPTED BY:
FRESENIUS USA, INC.
By: By:
------------------------ -----------------------
Title: Title:
------------------------ -----------------------
Date: March , 1995
----
<PAGE> 15
15
List of Attached Exhibits and Schedules
Disclosure Schedule
Part A: Existing Debt
Part B: Existing Contingent Liabilities
Exhibit A: Form of Note
Exhibit B: Form of Continuing Letter of Credit Agreement
Exhibit C: Form of Continuing General Security Agreement and Financing
Statement
Exhibit D: Form of Legal Opinion
Exhibit E: Form of Compliance Certificate
Exhibit F: Form of Letter of Credit Application
Exhibit G: Form of Notice of Borrowing
<PAGE> 1
EXHIBIT 11
FRESENIUS USA, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARES
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------
December 31, 1995
Modified Treasury Stock Method
- ------------------------------
<S> <C>
Number of common stock outstanding at 12/31/95 21,465
Total number of shares obtainable at 12/31/95 using
the Treasury Stock Method 5,626
20% of shares outstanding at 12/31/95 4,293
Total proceeds from assumed exercise of options and
warrants $44,911
Assumed number of common stock in excess of
number of common stock repurchased
Primary 2,169
Fully diluted 3,366
Net income $16,387
Weighted average number of shares of common stock
and common stock equivalents used to compute net
income per common and common equivalent share:
Primary 26,647
Fully diluted 27,844
Net income per common and common equivalent share:
Primary $ 0.61
-------
Fully diluted $ 0.59
-------
</TABLE>
<PAGE> 2
EXHIBIT 11
FRESENIUS USA, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARES
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------
December 31, 1994
Modified Treasury Stock Method
- ------------------------------
<S> <C>
Number of common stock outstanding at 12/31/94 21,205
Total number of shares obtainable at 12/31/94 using
the Treasury Stock Method 5,448
20% of shares outstanding at 12/31/94 4,241
Total proceeds from assumed exercise of options and
warrants $41,898
Consideration assumed paid for repurchase of 20% of
outstanding stock at $8.375 per share
(4,241 * $8.375) $35,518
Assumed amount remaining to reduce debt $ 6,380
Effect on net income at an interest rate of 6.36%
($6,380 * 6.36%), net of tax $ 364
Net income $ 7,154
-------
Assumed net income giving effect to payback of debt $ 7,518
-------
Weighted average number of shares of primary and
fully dilutive common stock and common stock
equivalents 23,926
Net income per common share $ 0.31
-------
</TABLE>
<PAGE> 3
EXHIBIT 11
FRESENIUS USA, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARES
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------
December 31, 1993
Treasury Stock Method
- ---------------------
<S> <C>
Net income $ 3,693
Weighted average number of shares of primary and
fully dilutive common stock and common stock
equivalents 20,660
Net income per common share $ 0.18
-------
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors Fresenius USA, Inc.
We consent to incorporation by reference in the registration statements Nos.
2-73600, 2-78286, 2-83978, 33-8001, 33-10481, 33-25522, 33-59999, and 33-61411
on Form S-8 and registration statements Nos. 2-90414, 2-92187, 2-94911, 2-96299,
33-18075 and 33-24874 on Form S-3 of Fresenius USA, Inc. of our report dated
February 2, 1996, related to the consolidated balance sheets of Fresenius USA,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1995, and the related
financial statement schedule, which report appears in the December 31, 1995
annual report on Form 10-K of Fresenius USA, Inc.
KPMG PEAT MARWICK LLP
San Francisco, California
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH YEAR END REPORT IN FORM 10-K FOR QUARTER ENDED
DECEMBER 31, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,330
<SECURITIES> 0
<RECEIVABLES> 58,376
<ALLOWANCES> 1,324
<INVENTORY> 65,706
<CURRENT-ASSETS> 132,940
<PP&E> 80,752
<DEPRECIATION> 32,260
<TOTAL-ASSETS> 224,921
<CURRENT-LIABILITIES> 119,949
<BONDS> 0
0
200
<COMMON> 215
<OTHER-SE> 78,187
<TOTAL-LIABILITY-AND-EQUITY> 224,921
<SALES> 304,964
<TOTAL-REVENUES> 304,964
<CGS> 212,102
<TOTAL-COSTS> 212,102
<OTHER-EXPENSES> 74,985
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,924
<INCOME-PRETAX> 12,953
<INCOME-TAX> (3,434)
<INCOME-CONTINUING> 16,387
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,387
<EPS-PRIMARY> .61
<EPS-DILUTED> .59
</TABLE>
