<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-20584
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ABIOMED, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 04-2743260
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(State of incorporation) (IRS Employer No.)
22 CHERRY HILL DRIVE
DANVERS, MASSACHUSETTS 01923
----------------------------
(Address of principal executive offices, including zip code)
(978) 777-5410
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) or 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 [ ]
As of November 2, 1999, there were 8,662,642 shares outstanding of the
registrant's Common Stock, $.01 par value.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I - Financial Information:
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheets
September 30, 1999 and March 31, 1999 3-4
Consolidated Statements of Operations
Three and Six Months Ended September 30, 1999
and September 30, 1998 5
Consolidated Statements of Cash Flows
Six Months Ended September 30, 1999 and
September 30, 1998 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-19
Item 3. Quantitative and Qualitative Disclosure about
Market Risk 20
Part II - Other Information 21-22
Signatures 23
</TABLE>
2
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 7) $ 5,117,314 $ 9,279,210
Short-term marketable securities (Note 8) 8,543,274 8,902,031
Accounts receivable, net of allowance for doubtful accounts
of $210,000 and $204,000 at September 30, 1999 and March 31,
1999, respectively 6,916,380 6,437,225
Inventories (Note 4) 3,559,112 2,895,857
Prepaid expenses and other current assets 578,774 335,403
----------- -----------
Total current assets 24,714,854 27,849,726
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Property and Equipment, at cost:
Machinery and equipment 5,854,020 5,443,930
Furniture and fixtures 1,036,796 575,166
Leasehold improvements 2,026,496 1,728,351
----------- -----------
8,917,312 7,747,447
Less: Accumulated depreciation and amortization 5,109,700 3,884,088
----------- -----------
3,807,612 3,863,359
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Other Assets, net (Notes 2 and 9) 1,136,334 1,268,536
----------- -----------
$29,658,800 $32,981,621
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(unaudited)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 1,728,964 $ 874,648
Accrued expenses 4,438,945 4,830,620
------------ ------------
Total current liabilities 6,167,909 5,705,268
------------ ------------
Long Term Liabilities 158,775 204,816
Stockholders' Investment (Note 5):
Class B Preferred Stock, $.01 par value-
Authorized 1,000,000 shares
Issued and outstanding-none -- --
Common Stock, $.01 par value-
Authorized 25,000,000 shares
Issued and Outstanding- 8,657,742 shares at
September 30, 1999 and 8,650,802 shares at
March 31, 1999 86,577 86,508
Additional paid-in capital 58,287,537 58,219,906
Accumulated deficit (35,041,998) (31,234,877)
------------ ------------
Total stockholders' investment 23,332,116 27,071,537
------------ ------------
$ 29,658,800 $ 32,981,621
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Products $ 3,594,818 $ 4,352,983 $ 7,615,342 $ 7,877,493
Contracts 573,140 614,443 2,904,648 2,893,176
----------- ------------ ------------ ------------
4,167,958 4,967,426 10,519,990 10,770,669
----------- ------------ ------------ ------------
Costs and expenses:
Cost of product revenues 1,115,303 1,563,346 2,472,455 3,000,211
Research and development 3,450,526 3,950,444 6,842,159 6,984,224
Selling, general and administrative 2,911,648 2,306,439 5,410,000 4,538,306
----------- ------------ ------------ ------------
7,477,477 7,820,229 14,724,614 14,522,741
----------- ------------ ------------ ------------
Loss from operations (3,309,519) (2,852,803) (4,204,624) (3,752,072)
Interest and other income 240,421 369,791 397,503 727,003
----------- ------------ ------------ ------------
Net loss $(3,069,098) $ (2,483,012) $ (3,807,121) $ (3,025,069)
=========== ============ ============ ============
Net loss per share (Note 6):
Basic $ (0.35) $ (0.29) $ (0.44) $ (0.35)
Diluted $ (0.35) $ (0.29) $ (0.44) $ (0.35)
Weighted average shares outstanding (Note 6):
Basic 8,654,262 8,620,861 8,653,108 8,598,869
Diluted 8,654,262 8,620,861 8,653,108 8,598,869
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------
September 30, September 30,
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,807,121) $ (3,025,069)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities-
Depreciation and amortization 1,330,504 763,872
Changes in assets and liabilities-
Accounts receivable (479,155) 194,661
Inventories (663,255) (882,131)
Prepaid expenses and other assets (216,061) (212,506)
Accounts payable 854,316 (813,063)
Accrued expenses (391,675) 287,609
Long-term liabilities (46,041) 23,865
Liabilities of discontinued operations, net -- (56,778)
----------- ------------
Net cash used in operating activities (3,418,488) (3,719,540)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of short-term marketable securities 7,440,457 18,772,594
Purchases of short-term marketable securities (7,081,700) (15,496,494)
Purchases of property and equipment (1,169,865) (1,174,378)
----------- ------------
Net cash provided by (used in) investing activities (811,108) 2,101,722
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and stock issued
under employee stock purchase plan 67,700 651,506
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Net cash provided by financing activities 67,700 651,506
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NET DECREASE IN CASH AND CASH EQUIVALENTS (4,161,896) (966,312)
CASH AND CASH EQUIVALENTS, EXCLUDING MARKETABLE
SECURITIES, AT BEGINNING OF PERIOD 9,279,210 2,683,151
----------- ------------
CASH AND CASH EQUIVALENTS , EXCLUDING MARKETABLE
SECURITIES, AT END OF PERIOD $ 5,117,314 $ 1,716,839
=========== ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
6
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PREPARATION
Our unaudited consolidated financial statements of ABIOMED, Inc. (the
Company), presented herein have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and note
disclosures required by generally accepted accounting principles. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in our latest audited financial
statements. These audited statements are contained in our Form 10-K for the year
ended March 31, 1999 and have been filed with the Securities and Exchange
Commission.
In our opinion, the accompanying consolidated financial statements
include all adjustments (consisting only of normal, recurring adjustments)
necessary to summarize fairly the financial position and results of operations
as of September 30, 1999 and for the six months then ended. The results of
operations for the six months ended September 30, 1999 may not be indicative of
the results that may be expected for the full fiscal year.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries, and the accounts of its majority-owned
subsidiary Abiomed Limited Partnership. All significant intercompany accounts
and transactions have been eliminated in consolidation.
3. ACCOUNTS RECEIVABLE
Accounts receivable includes amounts due from customers, excluding
long-term amounts due from customers under sales-type leases (see Note 9), net
of allowance for doubtful accounts. Accounts receivable also includes amounts
due from government and other third party sources related to our research and
development contracts and grants. These research and development contracts and
grants generally provide for payment on a cost-plus-fixed-fee basis. We seek
funding from third-parties, including government sources, to support our
research and development programs in their early stages and generally limit the
use of our own funds until the scientific risk associated with a potential
discovery or product is reduced. We recognize revenues under government
contracts and grants as work is performed, provided that the government has
appropriated sufficient funds for the work. The Company retains rights to all
technological discoveries and products resulting from these efforts. As of
September 30, 1999, accounts
7
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
3. ACCOUNTS RECEIVABLE (continued)
receivable included approximately $1.9 million due under a government
contract for AbioCor-TM- development scheduled to be collected over the
remaining term of that contract which expires September 30, 2000.
4. INVENTORIES
Inventories include raw materials, work-in-process, and finished goods,
and are priced at the lower of cost (first-in, first-out) or market and consist
of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
---------- ----------
<S> <C> <C>
Raw materials $1,494,188 $1,403,253
Work-in-process 1,121,670 636,125
Finished goods 943,254 856,479
---------- ----------
$3,559,112 $2,895,857
========== ==========
</TABLE>
Finished goods and work-in-process inventories consist of direct material, labor
and overhead.
5. STOCKHOLDERS' INVESTMENT
During the six months ended September 30, 1999, options to purchase
301,000 shares of Common Stock were granted at exercise prices ranging from
$8.875 to $16.000 per share. Options to purchase 21,750 shares were canceled and
2,300 options to purchase shares of Common Stock were exercised at a price of
$8.000 per share during the six month period.
During the six months ended September 30, 1999, 4,640 shares of Common
Stock were issued under the Employee Stock Purchase Plan.
6. NET LOSS PER COMMON SHARE
We calculate net loss per common share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE, which
requires that we present both basic and diluted net loss per share for all
periods presented. Basic net loss per share
8
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
6. NET LOSS PER COMMON SHARE (continued)
("Basic EPS") is computed by dividing net loss by the weighted average number of
common shares outstanding during the period. Diluted net loss per share
("Diluted EPS") is computed by dividing net loss by the weighted average number
of common and common equivalent shares outstanding during the period using the
treasury stock method. In computing Diluted EPS, common equivalent shares are
not considered dilutive in periods in which a net loss is reported because they
are antidilutive. Accordingly, Basic EPS and Diluted EPS are the same for the
periods presented. The number of equivalent shares that otherwise would have
been dilutive for the three and six months ended September 30, 1999 are 275,630
and 283,768, respectively.
7. CASH AND CASH EQUIVALENTS
We classify marketable securities, with a maturity date of 90 days or
less at the time of purchase, as a cash equivalent.
8. MARKETABLE SECURITIES
We classify any security, with a maturity date of greater than 90 days
at the time of purchase, as marketable securities and classify marketable
securities with a maturity date of greater than one year from the balance sheet
date as long-term investments. At September 30, 1999 these marketable securities
consisted primarily of government grade securities and high-grade corporate
bonds. The amortized cost of these securities approximated market value.
9. OTHER ASSETS
Other assets include approximately $130,000 in unamortized purchase
cost of the Company's majority interest of the Abiomed Limited Partnership (the
Partnership). The interest in the Partnership is being amortized over its useful
life of five years. The Partnership was formed in March 1985 and provided
initial funding for the design and development of certain of our products.
Through August 3, 2000, a royalty is owed to the Partnership equal to
5.5% of certain revenues from these products. Because the Company owns 61.7% of
the Partnership, the net royalty expense to the Company is approximately 2.1% of
these product revenues. This royalty formula is subject to certain maximum
amounts and to certain additional
9
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
9. OTHER ASSETS (continued)
adjustments in the event that the Company sells the technology. The Partnership
is inactive except with respect to receiving and distributing proceeds from
these royalty rights.
Also included in other assets are long-term accounts receivable related
to sales-type leases. The terms of these non-cancelable leases are one to three
years. As of September 30, 1999, the total amount due from sales-type leases was
$1,946,000 of which $746,000 was classified as long-term receivables. As of
March 31, 1999, the total amount due from these sales-type leases was $2,263,000
of which $892,000 was classified as long-term receivables.
Other assets also include the unamortized cost of a number of awarded
and pending patents. As of September 30, 1999, the unamortized cost of these
patents approximated $261,000. As of March 31, 1999, the unamortized cost of
these patents approximated $176,000.
10. RECLASSIFICATION OF PRIOR YEAR AMOUNTS
Certain prior year financial statement information has been
reclassified to be consistent with the current year presentation.
11. SEGMENT AND ENTERPRISE WIDE DISCLOSURES
We believe that the Company operates in one business segment; the
research, development, and sale of medical devices, with a primary focus on
cardiac assist and heart replacement systems.
10
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999
NET LOSS
Net loss for the three months ended September 30, 1999, was
approximately $3,069,000, or $0.35 per share. This compares to a net loss of
approximately $2,483,000, or $0.29 per share, in the same period of the previous
year. The net losses for both three month periods were primarily attributable to
costs incurred for the development and pre-clinical testing costs associated
with the AbioCor-TM- implantable replacement heart ("AbioCor").
REVENUES
Product revenues decreased by 17% to $3.6 million in the three months
ended September 30, 1999 from $4.4 million in the three months ended September
30, 1998. The decline in product revenues is primarily attributable to a
reduction in unit sales of BVS systems to new hospital customers partially
offset by increased unit sales and increased average selling prices of BVS
disposable blood pumps reordered by and sold to existing customers. We believe
that the decline in sales to new customers when compared to the prior year was
largely a result of a decision made by the Company at the beginning of its
current fiscal year to shift certain of its sales representatives away from
focusing on BVS system sales to new customers as their primary responsibility to
increasing support of existing customers in an effort to increase reorders of
higher margin BVS blood pumps. Reorders of the Company's blood pumps increased
by 18% during the second quarter of fiscal 2000 when compared to the same period
of the prior year. Domestic sales accounted for 96% of total product revenues in
the three months ended September 30, 1999 compared to 99% for the same period a
year earlier.
Contract and grant revenues were approximately $573,000 in the quarter
ended September 30, 1999 and $614,000 for the same period of the prior year. The
contract and grant revenues in both periods were primarily derived from the
Company's AbioBooster-TM- contract and various government grants. None of the
contract and grant revenue recognized in the three months ended September 30,
1999 and in the three months ended September 30, 1998 was derived from the
Company's AbioCor government contract. Funds allotted by the government for that
contract during fiscal years 2000 and 1999 were fully recognized in the
Company's first fiscal quarters of both years as a result of the accelerated
development of the AbioCor. The Company accounts for revenue under its
government contracts and grants as work
11
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
REVENUES (continued)
is performed, provided that the government has appropriated sufficient funds for
the work. Through September 30, 1999, the government has appropriated all of the
$8.5 million AbioCor contract amount, including the $1.8 million appropriated
and recognized as revenue during the quarter ended June 30, 1999. No amount
remains to be recognized under the AbioCor contract as of September 30, 1999.
As of September 30, 1999, the Company's total backlog of research and
development contracts and grants was $2.7 million, including $1.1 million for
AbioBooster-TM- research and development. Funding for the Company's government
research and development contracts is subject to government appropriation, and
all of these contracts contain provisions that make them terminable at the
convenience of the government. The Company retains rights to all technological
discoveries and products resulting from these efforts.
COSTS AND EXPENSES
Total costs and expenses decreased to $7.5 million, 179% of total
revenues, for the three months ended September 30, 1999, from $7.8 million, 157%
of total revenues, for the three months ended September 30, 1998. The decrease
in total costs was predominately the result of decreased research and
development and cost of product revenues partially offset by increased selling,
general and administrative expenses. Total costs and expenses increased as a
percentage of total revenue due to the decline in revenues as a large portion of
sales, general and administrative charges represent fixed costs.
Cost of product revenues as a percentage of product revenues were 31%
for the three months ended September 30, 1999 and 36% for the three months ended
September 30, 1998. The majority of this decrease in cost of products sold as a
percentage of product revenues was attributable to higher average selling prices
for BVS blood pumps during the quarter ended September 30, 1999 compared to the
same period of the prior year and to an increase in the proportion of higher
margin BVS blood pumps sales relative to lower margin BVS console sales.
Research and development expenses decreased by 13% to $3.5 million, 83%
of total revenues, for the three months ended September 30, 1999, from $4.0
million, 80% of total revenues for the three months ended September 30, 1998.
The decrease primarily reflects the timing of expenditures for materials used in
the manufacture of AbioCor devices used in pre-clinical testing. Research and
development expenses during the three months ended September 30, 1999 included
12
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
COSTS AND EXPENSES (continued)
$2.4 million of expenses incurred in connection with the Company's development
activities for the AbioCor, compared to $3.0 million for the same period of the
prior year. We anticipate that AbioCor expenses will increase in coming fiscal
quarters as materials are scheduled to be received in order for the Company to
manufacture AbioCor systems for various testing purposes.
Selling, general and administrative expenses increased by 26% to
$2.9 million, 70% of total revenues, for the three months ended September 30,
1999, from $2.3 million, 46% of total revenues, for the three months ended
September 30, 1998. This increase is primarily attributed to increased legal
expenses and to increased marketing activities.
INTEREST AND OTHER INCOME
Interest and other income consists primarily of interest on the
Company's investment balances, net of interest and other expenses. Interest and
other income decreased to $240,000 for the three months ended September 30, 1999
from $370,000 for the three months ended September 30, 1998. This decrease was
primarily due to lower average funds available for investment.
Income taxes incurred during these periods were not material and the
Company continues to have significant net tax operating loss and tax credit
carryforwards.
13
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
SIX MONTHS ENDED SEPTEMBER 30, 1999
NET LOSS
Net loss for the six months ended September 30, 1999, was approximately
$3,807,000, or $0.44 per share. This compares to a net loss of approximately
$3,025,000, or $0.35 per share, for the same period of the previous year. The
losses for both six month periods are primarily attributable to costs incurred
for the development and pre-clinical testing costs associated with the AbioCor
implantable replacement heart.
REVENUES
Product revenues decreased by 3% to $7.6 million in the six months
ended September 30, 1999 from $7.9 million in the six months ended September 30,
1998. The decline in product revenues is primarily attributable to a reduction
in unit sales of BVS systems sold to new customers partially offset by increased
units sales and increased average selling prices of BVS disposable blood pumps
reordered by and sold to existing customers. We believe that the decline in
sales to new customers was largely a result of a decision made by the Company at
the beginning of its current fiscal year to shift certain of its sales
representatives away from focusing on sales to new customers as their primary
responsibility to increasing support of existing customers in an effort to
increase reorders of higher margin BVS blood pumps. Reorders of BVS blood pumps
increased by 11% during the six months ended September 30, 1999 compared to the
same period of the prior year. Domestic sales accounted for 97% of total product
revenue in the six months ended September 30, 1999, compared to 96% for the same
period a year earlier.
Contract and grant revenues were $2.9 million during the first six
months of both fiscal 2000 and fiscal 1999. Approximately $1.8 million of the
contract and grant revenue recognized in both years was derived from the
Company's AbioCor government contract. The remaining $1.1 million in contract
and grant revenue recorded during the six months ended September 30, 1999 and
September 30, 1998 was primarily derived from the Company's AbioBooster contract
and other government grants.
14
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
COSTS AND EXPENSES
Total costs and expenses increased to $14.7 million, 140% of total
revenues, for the six months ended September 30, 1999, from $14.5 million, 135%
of total revenues, for the six months ended September 30, 1998. The increase is
primarily due to increased development activities related to new BVS products
and enhancements and increased sales, general and administrative expenses.
Cost of product revenues as a percentage of product revenues were 32%
for the six months ended September 30, 1999 and 38% for the six months ended
September 30, 1998. The majority of this decrease in cost of products sold as a
percentage of product revenues was attributable to higher average selling prices
for BVS blood pumps during the six months ended September 30, 1999 compared to
the same period of the prior year and to an increase in the proportion of higher
margin BVS blood pumps sold relative to lower margin BVS console sales.
Research and development expenses were $6.8 million for the six months
ended September 30, 1999, compared to $7.0 million for the same period of the
previous year. Expenditures remained consistent at 65% of total revenues for
each six month period. During the six months ended September 30, 1999, lower
spending for the development of the AbioCor was offset by increased spending on
new products and enhancements to the BVS. Research and development expenses
during the six months ended September 30, 1999 included $4.7 million of expenses
incurred in connection with our development activities for the AbioCor, compared
to $5.2 million for the same period of the prior year.
Selling, general and administrative expenses increased by 19% to $5.4
million, 51% of total revenues, for the six months ended September 30, 1999,
compared to $4.5 million, 42% of total revenues, for the six months ended
September 30, 1998. This increase is primarily attributed to increased selling
and marketing expenditures as a result of our implementing new programs designed
to improve sales of our disposable blood pumps, and increased legal expenses.
INTEREST AND OTHER INCOME
Interest and other income consists primarily of interest on the
Company's investment balances, net of interest and other expenses. Interest and
other income decreased to $398,000 for the six months
15
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
INTEREST AND OTHER INCOME
ended September 30, 1999 from $727,000 for the six months ended September 30,
1998. This decrease was primarily due to lower average funds available for
investment.
Income taxes incurred during these periods were not material and the
Company continues to have significant net tax operating loss and tax credit
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company's balance in cash and short-term
marketable securities was $13.7 million. The Company also has a $3 million line
of credit from a bank that expires on October 13, 2000, and which was entirely
available at September 30, 1999.
In the six months ended September 30, 1999, operating activities used
cash of $3,418,000. Net cash used by operating activities during this period
resulted from a net loss of $3,807,000 and increases in accounts receivable,
inventory, and prepaid expenses of $479,000, $663,000, and $216,000,
respectively. It also resulted from decreases in accrued expenses and long-term
liabilities of $392,000 and $46,000, respectively. These uses of cash were
partially offset by increases in trade payables of $854,000 and noncash charges
for depreciation and amortization of $1,331,000 included in the net loss. The
increase in inventory is primarily attributable to lower than planned product
sales.
During the six months ended September 30, 1999, investing activities
used $811,000 of cash. Cash used in these activities included purchases of
capital equipment and expenditures for leasehold improvements of $1,170,000,
made primarily in connection with building out and furnishing the Company's new
79,000 square foot facility located in Danvers, Massachusetts. These capital
expenditures were partially offset by $359,000 of cash provided from the sale of
short-term marketable securities, net of purchases of similar securities.
During the six months ended September 30, 1999, financing activities
provided $68,000 of cash from the exercise of employee stock options and from
employee purchases of Common Stock under the Employee Stock Purchase Plan.
16
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
Although the Company does not currently have significant capital
commitments, we believe that we will continue to make significant investments
over the next several years to support the development and commercialization of
new products. In addition, we estimate that we will incur additional costs of
approximately $1,000,000 in 1999 and 2000 to complete construction,
qualification and occupancy of the larger manufacturing area in the Company's
new facility to be used in the manufacture of BVS and AbioCor devices.
On October 14, 1999, the Company entered into an agreement with its
primary bank whereby it will be able to draw up to $1.2 million in term loans
through March 31, 2000 for the acquisition of manufacturing equipment and
leasehold improvements. These promissory notes are subject to various financing
covenants, secured by the acquired equipment and are to be repaid in equal
monthly installments through September 1, 2003. These notes will bear interest
at either the Prime Rate or LIBOR Rate, at the Company's election. Although no
funds have been drawn on this loan facility as of September 30, 1999,
approximately $250,000 expended for leasehold improvements through that date
will be included in the first term loan that we anticipate will be executed in
November 1999. These notes are incremental to and separate from the Company's $3
million line of credit with this bank.
We believe that the Company's revenue and existing resources will be
sufficient to fund our planned operations, including the planned increases in
our internally funded AbioCor and new BVS development and product extension
efforts, for at least the next twelve months. However, we estimate that it will
require significant additional funds in order to complete the development,
conduct clinical trials, and achieve regulatory approvals of the AbioCor and
other products under development over the next several years.
YEAR 2000 READINESS DISCLOSURE
As the year 2000 approaches, it is generally anticipated that
computers, software and other equipment utilizing microprocessors may be unable
to function properly. We have evaluated this potential issue with respect to our
products, our financial and management information systems and our suppliers.
With respect to the our products, the software controlling the BVS drive console
includes internal counters, but the BVS operation is not related in any way to a
specific calendar date. Accordingly, we believe that the BVS will not need any
repair or modification with regard to the Year 2000 issue.
17
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
YEAR 2000 READINESS DISCLOSURE (continued)
With respect to the our financial and management information systems,
we successfully installed and tested a year 2000 upgrade to our primary system
and have completed an assessment of all personal computers ("PCs") and installed
applications. All significant systems have been upgraded or replaced where
necessary. Expenditures for new PCs, software applications, and operating
systems under our Year 2000 plan have amounted to less than $100,000, with no
significant costs remaining before the start of calendar year 2000. We are
completing an assessment of key suppliers begun in fiscal 1999 and have
increased safety stocks of materials inventory where a prolonged loss of
material deliveries would have an adverse impact on our business, financial
condition and results of operations. We have also made inquiries to assess key
service providers such as financial institutions, our payroll service provider,
and our retirement plan administrator as to their year 2000 readiness and have
received assurances that the vendors' critical systems have been updated,
tested, and found to be compliant.
Although we do not expect Year 2000 issues to have a material impact on
our business or future results of operations, there can be no assurance that
there will not be interruptions of operations or other limitations of system
functionality or that we may incur significant costs to avoid such interruptions
or limitations. To the extent that we can not eliminate all Year 2000 issues,
the most reasonably likely worst case year 2000 scenario is systemic failures
beyond the control of the Company, such as a prolonged telecommunications or
electrical failure, or a general disruption in supplies and services provided to
the Company which could have a material adverse effect on the our business,
results of operations and financial condition.
RISK FACTORS WHICH MAY AFFECT FUTURE RESULTS
This document contains forward looking statements, including statements
regarding the anticipated timing and cost of our AbioCor development
activities, enhancements to be made to the BVS, planned expansion of our
manufacturing facilities, adequacy of existing resources and overcoming Year
2000 related issues. The Company's actual results, including our AbioCor
development, BVS new products and enhancements, facility expansion, adequacy
of resources and overcoming Year 2000 issues may differ materially based on a
number of factors, both known and unknown, including: uncertainty of product
development and clinical trials, complex manufacturing, high quality
requirements, unproven demonstration of required reliability of products
under development, dependence on key personnel, risks associated with growing
number of
18
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
RISK FACTORS WHICH MAY AFFECT FUTURE RESULTS (continued)
employees, inability to recruit required human resources on schedule,
competition and technological change, government regulations including the FDA
and other regulatory agencies, reliance on government contracts, dependence on
limited sources of supply, future capital needs and uncertainty of additional
funding, dependence on third-party reimbursement, potential inadequacy of
product liability insurance, dependence on patents and proprietary rights and
other risks detailed in our Form 10-K for the year ended March 31, 1999 which
was filed with the Securities and Exchange Commission. Investors are cautioned
that all such statements involve risks and uncertainties. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date of this document. We undertake no obligation to publicly
release the results of any revisions to these forward-looking statements that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
19
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
The Company does not use derivative financial instruments for
speculative or trading purposes. However, it is exposed to market risk
related to changes in interest rates. The Company maintains an investment
portfolio consisting mainly of federal agency obligations, state and
municipal bonds, and U.S. Treasury notes with maturities of one year or less.
These held-to-maturity securities are subject to interest rate risk and will
fall in value if market interest rates increase. If market interest rates
were to increase immediately and uniformly by 10 percent from levels at
September 30, 1999, the fair market value of the portfolio would decline by
an immaterial amount. The Company has the ability to hold the majority of its
fixed income investments until maturity, and therefore the Company would not
expect its operating results or cash flows to be affected to any significant
degree by the effect of a sudden change in market interest rates on its
securities portfolio.
20
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On January 20, 1998, World Heart Corporation and the Ottawa Heart
Institute Research Corporation filed a complaint in the United States District
Court for the District of Delaware. The complaint seeks damages and injunctive
relief for alleged breaches of contract, misappropriation of trade secrets,
conversion of trade secrets and patent infringement by the Company. These claims
and allegations relate to certain technology used in its transcutaneous energy
transmission system that is a component of the AbioCor under development by the
Company.
On May 7, 1999, the Company filed a motion requesting leave of court to
assert a counterclaim alleging that World Heart Corporation and Ottawa Heart
Institute misappropriated the Company's trade secrets.
On October 20, 1999, World Heart Corporation informed the Company that
their discovery has identified no infringement by the Company of the patent held
by the Ottawa Heart Institute Research Corporation and that their patent
infringement claims and allegations against the Company will be dropped while
World Heart Corporation and the Ottawa Heart Institute Research Corporation
continue to seek evidence regarding their trade secret and breach of contract
allegations.
The Company does not believe that it is infringing nor has ever
infringed any patent, trade secret or other intellectual property rights of the
plaintiffs and is vigorously defending this position. The Company cannot assure
that it will prevail in the defense of the remaining claims and allegation and
the Company cannot assure that it will prevail in its claims or allegations
against World Heart Corporation and the Ottawa Heart Institute Research
Corporation. Further evaluation and discovery is being conducted by all parties
involved. Unless otherwise resolved, the claims by the plaintiff against the
Company are scheduled for trial in early 2000.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
21
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION (continued)
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on August 11,
1999, the stockholders approved the following:
a) Elected two persons to serve as Class I directors as follows:
Director Votes for Votes Withheld
-------- --------- --------------
David M. Lederman 8,119,356 42,600
Desmond H. O'Connell, Jr. 8,120,756 41,200
b) A proposal to amend the Company's 1989 Non-Qualified Stock Option
Plan. The proposal received 7,891,228 votes for and 172,149 votes
against. There were 34,208 abstentions and 64,371 non-voting.
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
Exhibit 10
a) Letter of Agreement between the Company and Fleet National Bank,
dated as of October 14, 1999 with respect to Demand and Term Loans.
b) Form of Change of Control Agreement.*
c) Schedule related to Change of Control Agreement.*
Exhibit 27 - Financial Data Schedule
b) REPORTS ON FORM 8-K
None
* Compensatory plan or arrangement.
22
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION (continued)
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements 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.
ABIOMED, Inc.
Date: November 9, 1999 /s/ David M. Lederman
-----------------------------
David M. Lederman
CEO and President
Date: November 9, 1999 /s/ John F. Thero
-----------------------------
John F. Thero
Senior Vice President Finance
and Treasurer
Chief Financial Officer
Principal Accounting Officer
23
<PAGE>
Exhibit 10(a)
ABIOMED, INC.
22 Cherry Hill Drive
Danvers, ma 01923
October 14, 1999
Fleet National Bank
One Federal Street
Boston, MA 02110
Gentlemen:
This letter agreement will set forth certain understandings between
ABIOMED, Inc., a Delaware corporation (the "Borrower") and Fleet National Bank
(the "Bank") with respect to Demand Loans and Term Loans (each as hereinafter
defined) which may be made by the Bank to the Borrower and with respect to
letters of credit which may hereafter be issued by the Bank for the account of
the Borrower. In consideration of the mutual promises contained herein and in
the other documents referred to below, and for other good and valuable
consideration, receipt and sufficiency of which are hereby acknowledged, the
Borrower and the Bank agree as follows:
I. AMOUNTS AND TERMS
1.1. REFERENCE TO DOCUMENTS. Reference is made to (i) that certain
$3,000,000 face principal amount demand promissory note (the "Demand Note") of
even date herewith made by the Borrower and payable to the order of the Bank,
(ii) that certain $250,000 face principal amount term promissory note (the
"Tranche A Term Note") of even date herewith made by the Borrower and payable to
the order of the Bank, (iii) that certain $400,000 face principal amount term
promissory note (the "Tranche B Term Note") of even date herewith made by the
Borrower and payable to the order of the Bank, (iv) that certain $550,000 face
principal amount term note (the "Tranche C Term Note") made by the Borrower and
payable to the order of the Bank, and (v) that certain Security Agreement
(Equipment) of even date herewith from the Borrower to the Bank (the "Security
Agreement"). This letter agreement and the Demand Note supersede and replace in
its entirety that certain Demand Line of Credit Promissory Note dated October
21, 1998 made by the Borrower and payable to the order of the Bank (the "Prior
Note"). From and after the date hereof the Bank shall not be deemed to have any
obligations or commitments under or in respect of the loan facility evidenced by
the Prior Note. All loans outstanding under the Prior Note at the date of
execution and delivery of this letter agreement shall be deemed refunded and
replaced by Demand Loans hereunder.
1.2. DEMAND LOANS; DEMAND NOTE. Subject to the terms and conditions
hereinafter set forth, the Bank may, in the Bank's discretion, make loans
("Demand Loans") to the Borrower, in such amounts as the Borrower may request,
on any Business Day prior to the first to occur of (i) the Expiration Date, or
(ii) the date of any demand for payment under the Demand Note, or
<PAGE>
(iii) the earlier termination of the within-described financing arrangements
for Demand Loans pursuant to Section 5.2 or Section 6.6; provided, however,
that the aggregate principal amount of the Demand Loans outstanding shall at
no time exceed the Maximum Demand Loan Amount (hereinafter defined) as then
in effect. Within such limit, and subject to the terms and conditions hereof,
the Borrower may obtain Demand Loans, repay Demand Loans and obtain Demand
Loans again on one or more occasions. The Demand Loans shall be evidenced by
the Demand Note. The Borrower hereby irrevocably authorizes the Bank to make
or cause to be made, on a schedule attached to the Demand Note or on the
books of the Bank, at or following the time of making each Demand Loan and of
receiving any payment of principal of a Demand Loan, an appropriate notation
reflecting such transaction and the then aggregate unpaid principal balance
of the Demand Loans. The amount so noted shall constitute presumptive
evidence as to the amount owed by the Borrower with respect to principal of
the Demand Loans. Failure of the Bank to make any such notation shall not,
however, affect any obligation of the Borrower or any right of the Bank
hereunder or under the Demand Note.
1.3. REPAYMENT; RENEWAL OF DEMAND LOAN FACILITY. The Borrower shall
repay in full all Demand Loans and all interest thereon upon the first to
occur of: (i) the Expiration Date, or (ii) the date of any demand for payment
(which demand may be made by the Bank at any time in the Bank's discretion,
whether or not any Default or Event of Default has occurred), or (iii) an
acceleration under Section 5.2(a) following an Event of Default. The
Borrower may repay at any time, without penalty or premium, the whole or any
portion of any Demand Loan. The Bank may, at its sole discretion, renew the
financing arrangements described in Section 1.2 by extending the Expiration
Date in a writing signed by the Bank and accepted by the Borrower. Neither
the inclusion in this letter agreement or elsewhere of covenants relating to
periods of time after the Expiration Date, nor any other provision hereof,
nor any action (except a written extension pursuant to the immediately
preceding sentence), non-action or course of dealing on the part of the Bank
will be deemed an extension of, or agreement on the part of the Bank to
extend, the Expiration Date.
1.4. TERM LOANS; TERM NOTES. In addition to the foregoing, subject
to the terms and conditions of this letter agreement, the Bank will make one
or more term loans (the "Term Loans") to the Borrower. The Term Loans are
available as follows: (1) At the Borrower's request, and subject to the terms
and conditions of this letter agreement, the Bank will make one or more Term
Loans ("Tranche A Term Loans") to the Borrower in an aggregate original
principal amount not to exceed $250,000. Such Tranche A Term Loans may be
made on any Business Day prior to the first to occur of (i) the close of
business on November 30, 1999 or (ii) the earlier termination of the Term
Loan facilities pursuant to Section 5.2 or Section 6.6. (2) In addition, at
the Borrower's request, and subject to the terms and conditions of this
letter agreement, the Bank will make one or more Term Loans ("Tranche B Term
Loans") to the Borrower in an aggregate original principal amount not to
exceed $400,000. Such Tranche B Term Loans may be made on any Business Day
prior to the first to occur of (i) the close of business on January 31, 2000
or (ii) the earlier termination of the Term Loan facilities pursuant to
Section 5.2 or Section 6.6. (3) In addition, at the Borrower's request, and
subject to the terms and conditions of this letter agreement, the Bank will
make one or more Term Loans ("Tranche C Term Loans") to the Borrower in an
aggregate original principal amount not to exceed $550,000. Such Tranche C
Term Loans may be made on any Business Day prior to the first to occur of (i)
the close of business on March 31, 2000 or (ii)
2
<PAGE>
the earlier termination of the Term Loan facilities pursuant to ss.5.2 or
ss.6.6. Thus, the maximum aggregate original principal amounts of the Term Loans
available to the Borrower will be $1,200,000. At the time of each such request,
the Borrower will indicate whether the Borrower requests a Tranche A Term Loan,
a Tranche B Term Loan or a Tranche C Term Loan and the amount of the Term Loan
of such Tranche being requested. A Term Loan of any Tranche (or contemporaneous
Term Loans of two or more Tranches) shall be made, no more than once per month
(unless the Bank shall consent to more frequent Term Loans), in order to finance
costs of Qualifying Equipment acquired by the Borrower within the 60 days
preceding the request for such a Term Loan and/or to finance the costs of
Qualifying Leasehold Improvements incurred by the Borrower during the 60 days
preceding such request. Each such Term Loan shall be in such amount as may be
requested by the Borrower; provided that (i) no Term Loan of any Tranche will be
made after the expiry date for such Tranche set forth above in this ss.1.4; (ii)
the aggregate original principal amounts of the Term Loans of each Tranche shall
not exceed the amount set forth above in this ss.1.4 as the maximum amount for
such Tranche nor will the aggregate original principal amounts of all Term Loans
exceed $1,200,000; (iii) no Term Loan will be in an amount more than 90% of the
invoiced actual costs of the tangible property constituting the items of
Qualifying Equipment and/or Qualifying Leasehold Improvements with respect to
which such Term Loan is made (excluding taxes, shipping, software, installation
charges, training fees and other "soft costs"); except that the Borrower may in
its sole discretion elect to deposit with the Bank and pledge to the Bank cash
equal to 10% of the original principal amount of any Term Loan; and if it so
elects and pursuant to such election deposits with the Bank and pledges to the
Bank (by instruments satisfactory in form and substance to the Bank) cash equal
to 10% of the original principal amount of any Term Loan, then the amount of
such Term Loan (including the amount so pledged) will be 100% of said invoiced
actual costs; and (iv) the aggregate principal amount of all Term Loans made
with respect to Qualifying Leasehold Improvements will not exceed the lesser of
(A) $400,000 or (B) 30% of the total principal amounts of all Term Loans made at
or prior to the date of the making of any such Term Loan for Leasehold
Improvements.
Prior to the making of each Term Loan, and as a precondition thereto,
the Borrower will provide the Bank with: (i) invoices supporting the costs of
the relevant Qualifying Equipment and/or the costs of the relevant Qualifying
Leasehold Improvements, as the case may be; (ii) such evidence as the Bank may
reasonably require showing that each item of Qualifying Equipment has been
delivered to and installed at the Borrower's Danvers, MA premises, has been
accepted by the Borrower, has been paid for by the Borrower and is owned by the
Borrower free of all liens and interests of any other Person (other than the
security interest of the Bank pursuant to the Security Agreement); (iii) such
evidence as the Bank may reasonably require showing that each item of Qualifying
Leasehold Improvements has been constructed at or installed at the Borrower's
Danvers, MA premises, has been paid for by the Borrower and is owned by the
Borrower free of all liens and interests of any other Person (other than the
security interest of the Bank pursuant to the Security Agreement), except that
the Bank acknowledges that certain Qualifying Leasehold Improvements may be so
built into the real estate at the Borrower's Danvers, MA premises that the
Borrower's landlord will, upon termination of the Borrower's lease, have rights
in such Qualifying Leasehold Improvements; (iv) Uniform Commercial Code
financing statements and appropriate supplements to the Security Agreement
reflecting the relevant Qualifying Equipment and/or Qualifying Leasehold
Improvements with respect to which such Term Loan is being made; and (v)
evidence satisfactory to the Bank that
3
<PAGE>
the Qualifying Equipment and the Qualifying Leasehold Improvements are fully
insured against casualty loss, with insurance naming the Bank as secured party
and first loss payee.
The Tranche A Term Loans will be evidenced by the Tranche A Term Note.
The Tranche B Term Loans will be evidenced by the Tranche B Term Note. The
Tranche C Term Loans will be evidenced by the Tranche C Term Note. The Borrower
hereby irrevocably authorizes the Bank to make or cause to be made, on a
schedule attached to the appropriate Term Note or on the books of the Bank, at
or following the time of making each Term Loan and of receiving any payment of
principal of any Term Loan, an appropriate notation reflecting such transaction
and the then aggregate unpaid principal balance of the Term Loans of that
Tranche to which such Term Note relates. The amount so noted on each Term Note
shall constitute presumptive evidence as to the amount owed by the Borrower with
respect to principal of the Term Loans of that Tranche to which such Term Note
relates. Failure of the Bank to make any such notation shall not, however,
affect any obligation of the Borrower or any right of the Bank hereunder or
under any Term Note.
1.5. PRINCIPAL REPAYMENT OF TERM LOANS. The Borrower shall repay
principal of the Tranche A Term Loans in 45 equal consecutive monthly
installments (each in an amount equal to 1/46th of the aggregate principal
amount of the Tranche A Term Loans outstanding at the close of business on
November 30, 1999), such monthly installments to commence on December 1, 1999
and to continue on the first day of each month thereafter through and including
August 1, 2003, PLUS a 46th and final installment due and payable on September
1, 2003 in an amount equal to the entire then outstanding principal balance of
the Tranche A Term Loans and all interest then accrued but unpaid thereon to the
date of payment. The Borrower may prepay, at any time or from time to time,
without premium or penalty, the whole or any portion of the Tranche A Term Loans
to the extent that same are Floating Rate Term Loans; provided that each such
principal prepayment shall be accompanied by payment of all interest on the
amount so prepaid accrued under the Tranche A Term Note but unpaid to the date
of payment. The Borrower may prepay the whole or any portion of any Tranche A
Term Loan which is a LIBOR Term Loan; provided that (i) the Borrower gives the
Bank not less than two (2) Business Days' prior written notice of its intent so
to prepay, (ii) the Borrower pays all interest on each such Tranche A Term Loan
which is a LIBOR Term Loan (or portion thereof) so prepaid accrued to the date
of such prepayment, (iii) any voluntary prepayment with respect to a Tranche A
Term Loan which is a LIBOR Term Loan must be in an integral multiple of $100,000
(provided that, in any event, no Tranche A Loan which is a LIBOR Term Loan will
remain outstanding in a principal amount of less than $100,000), and (iv) if the
Borrower for any reason makes any prepayment of a Tranche A Term Loan which is a
LIBOR Term Loan prior to the last day of the Interest Period applicable thereto,
the Borrower shall forthwith pay all amounts owing to the Bank pursuant to the
provisions of ss.1.9 with respect to such LIBOR Term Loan. Any partial
prepayment of principal of the Tranche A Term Loans will be applied to
installments of principal of the Tranche A Term Loans thereafter coming due in
inverse order of normal maturity. Amounts repaid or prepaid with respect to the
Tranche A Term Loans are not available for reborrowing.
The Borrower shall repay principal of the Tranche B Term Loans in 43
equal consecutive monthly installments (each in an amount equal to 1/44th of the
aggregate principal amount of the
4
<PAGE>
Tranche B Term Loans outstanding on at the close of business on January 31,
2000), such monthly installments to commence on February 1, 2000 and to continue
on the first day of each month thereafter through and including August 1, 2003,
PLUS a 44th and final installment due and payable on September 1, 2003 in an
amount equal to the entire then outstanding principal balance of the Tranche B
Term Loans and all interest then accrued but unpaid thereon to the date of
payment. The Borrower may prepay, at any time or from time to time, without
premium or penalty, the whole or any portion of the Tranche B Term Loans to the
extent that same are Floating Rate Term Loans; provided that each such principal
prepayment shall be accompanied by payment of all interest on the amount so
prepaid accrued under the Tranche B Term Note but unpaid to the date of payment.
The Borrower may prepay the whole or any portion of any Tranche B Term Loan
which is a LIBOR Term Loan; provided that (i) the Borrower gives the Bank not
less than two (2) Business Days' prior written notice of its intent so to
prepay, (ii) the Borrower pays all interest on each such Tranche B Term Loan
which is a LIBOR Term Loan (or portion thereof) so prepaid accrued to the date
of such prepayment, (iii) any voluntary prepayment with respect to a Tranche B
Term Loan which is a LIBOR Term Loan must be in an integral multiple of $100,000
(provided that, in any event, no Tranche B Loan which is a LIBOR Term Loan will
remain outstanding in a principal amount of less than $100,000), and (iv) if the
Borrower for any reason makes any prepayment of a Tranche B Term Loan which is a
LIBOR Term Loan prior to the last day of the Interest Period applicable thereto,
the Borrower shall forthwith pay all amounts owing to the Bank pursuant to the
provisions of ss.1.9 with respect to such LIBOR Term Loan. Any partial
prepayment of principal of the Tranche B Term Loans will be applied to
installments of principal of the Tranche B Term Loans thereafter coming due in
inverse order of normal maturity. Amounts repaid or prepaid with respect to the
Tranche B Term Loans are not available for reborrowing.
The Borrower shall repay principal of the Tranche C Term Loans in 41
equal consecutive monthly installments (each in an amount equal to 1/42nd of the
aggregate principal amount of the Tranche C Term Loans outstanding at the close
of business on March 31, 2000), such monthly installments to commence on April
1, 2000 and to continue on the first day of each month thereafter through and
including August 1, 2003, PLUS a 42nd and final installment due and payable on
September 1, 2003 in an amount equal to the entire then outstanding principal
balance of the Tranche C Term Loans and all interest then accrued but unpaid
thereon to the date of payment. The Borrower may prepay, at any time or from
time to time, without premium or penalty, the whole or any portion of the
Tranche C Term Loans to the extent that same are Floating Rate Term Loans;
provided that each such principal prepayment shall be accompanied by payment of
all interest on the amount so prepaid accrued under the Tranche C Term Note but
unpaid to the date of payment. The Borrower may prepay the whole or any portion
of any Tranche C Term Loan which is a LIBOR Term Loan; provided that (i) the
Borrower gives the Bank not less than two (2) Business Days' prior written
notice of its intent so to prepay, (ii) the Borrower pays all interest on each
such Tranche C Term Loan which is a LIBOR Term Loan (or portion thereof) so
prepaid accrued to the date of such prepayment, (iii) any voluntary prepayment
with respect to a Tranche C Term Loan which is a LIBOR Term Loan must be in an
integral multiple of $100,000 (provided that, in any event, no Tranche C Loan
which is a LIBOR Term Loan will remain outstanding in a principal amount of less
than $100,000), and (iv) if the Borrower for any reason makes any prepayment of
a Tranche C Term Loan which is a LIBOR Term Loan prior to the last day of the
Interest Period applicable thereto, the Borrower shall
5
<PAGE>
forthwith pay all amounts owing to the Bank pursuant to the provisions of ss.1.9
with respect to such LIBOR Term Loan. Any partial prepayment of principal of the
Tranche C Term Loans will be applied to installments of principal of the Tranche
C Term Loans thereafter coming due in inverse order of normal maturity. Amounts
repaid or prepaid with respect to the Tranche C Term Loans are not available for
reborrowing.
1.6. INTEREST RATE FOR TERM LOANS. Except as otherwise provided below
in this ss.1.6, interest on the Term Loans will be payable at a fluctuating rate
per annum (the "Floating Rate") which shall at all times be equal to the Prime
Rate as in effect from time to time (but in no event in excess of the maximum
rate permitted by then applicable law), with a change in such rate of interest
to become effective on each day when a change in the Prime Rate becomes
effective. Subject to the conditions set forth herein, the Borrower may elect
that all or any portion of any Term Loan to be made under ss.1.4 will be made as
a LIBOR Term Loan, that all or any portion of any Floating Rate Term Loan will
be converted to a LIBOR Term Loan and/or that any LIBOR Term Loan will be
continued at the expiration of the Interest Period applicable thereto as a new
LIBOR Term Loan. Such election shall be made by the Borrower giving to the Bank
a written or telephonic notice received by the Bank within the time period and
containing the information described in the next following sentence (a "LIBOR
Term Loan Notice"). The LIBOR Term Loan Notice must be received by the Bank no
later than 10:00 a.m. (Boston time) on that day which is two Business Days prior
to the date of the proposed borrowing, conversion or continuation, as the case
may be, and must specify the amount of the LIBOR Term Loan requested (which
shall be an integral multiple of $100,000), must identify the particular Term
Loan or Loans or portion thereof so to be made, converted or continued, as the
case may be, and must specify the proposed commencement date of the relevant
Interest Period. Notwithstanding anything provided elsewhere in this letter
agreement, the Borrower may not elect to have any installment of a Term Loan
included in a LIBOR Term Loan if the Interest Period applicable thereto would
continue after the due date of such installment. Any LIBOR Term Loan Notice
shall, upon receipt by the Bank, become irrevocable and binding on the Borrower,
and the Borrower shall, upon demand and receipt of a Bank Certificate with
respect thereto, forthwith indemnify the Bank against any loss or expense
incurred by the Bank as a result of any failure by the Borrower to borrow any
requested LIBOR Term Loan, including, without limitation, any loss or expense
incurred by reason of the liquidation or redeployment of deposits or other funds
acquired by the Bank to fund or maintain such LIBOR Term Loan. At the expiration
of each Interest Period applicable to a LIBOR Term Loan, the principal amount of
such LIBOR Term Loan may be continued as a new LIBOR Term Loan to the extent and
on the terms and conditions contained in this letter agreement by delivery to
the Bank of a new LIBOR Term Loan Notice conforming to the requirements set
forth above in this ss.1.6 (and any LIBOR Term Loan not repaid and not so
continued as a new LIBOR Term Loan will be deemed to have been converted into a
Floating Rate Term Loan). Notwithstanding any other provision of this letter
agreement, the Bank need not make any LIBOR Term Loan or allow any conversion of
a Floating Rate Term Loan to a LIBOR Term Loan at any time when there exists any
Default or Event of Default.
The Borrower may request and the Bank may issue caps, collars, swaps
and other rate protection products, using the Bank's then customary
documentation for such transactions. Such caps, collars, swaps and other rate
protection products will be issued for such fees and upon such
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other terms and conditions as may be agreed upon by the Bank and the Borrower at
the time of issuance thereof.
Any request for a LIBOR Term Loan and any election to convert all or
any portion of the Term Loans to a LIBOR Term Loan may be made on behalf of the
Borrower only by a duly authorized officer; provided, however, that the Bank may
conclusively rely upon any written or facsimile communication received from any
individual whom the Bank believes in good faith to be such a duly authorized
officer.
1.7. INTEREST PAYMENTS ON ALL LOANS. The Borrower will pay interest on
the principal amount of the Loans outstanding from time to time, from the date
hereof until payment of the Loans and the Notes in full and the termination of
this letter agreement. Interest on Demand Loans and on Floating Rate Term Loans
will be payable monthly in arrears on the first day of each month. Interest on
each LIBOR Term Loan will be payable in arrears on the Interest Payment Date
applicable to such LIBOR Term Loan. In any event, interest under each Term Note
shall also be paid on the date of payment of such Term Note in full. Interest on
Demand Loans and on Floating Rate Term Loans shall be payable at the Floating
Rate. The rate of interest payable on any LIBOR Term Loan will be the LIBOR
Interest Rate applicable thereto. In any event, after the occurrence and during
the continuance of an Event of Default the Loans shall bear interest at a rate
per annum which at all times shall be equal to the sum of (i) four (4%) percent
per annum PLUS (ii) the Prime Rate in effect from time to time. All interest and
fees payable under this letter agreement and/or under any Note will be
calculated on the basis of a 360-day year for the actual number of days elapsed.
1.8. RATE DETERMINATION PROTECTION. In the event that:
(i) the Bank shall determine that, by reason of circumstances
affecting the London interbank market or otherwise, adequate and
reasonable methods do not exist for ascertaining the LIBOR Interest
Rate which would otherwise be applicable during any Interest Period, or
(ii) the Bank shall determine that:
(A) the making or continuation of any LIBOR Term Loan
has been made impracticable or unlawful by (1) the occurrence
of any contingency that materially and adversely affects the
London interbank market or (2) compliance by the Bank with any
applicable law or governmental regulation, guideline or order
or interpretation or change thereof by any governmental
authority charged with the interpretation or administration
thereof or with any request or directive of any such
governmental authority (whether or not having the force of
law); or
(B) LIBOR (taking into account any adjustment in
respect of any Reserve Rate which may become effective) will
not, in the reasonable determination of the Bank, adequately
and fairly reflect the cost to the Bank of funding the LIBOR
Term Loans for such Interest Period
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then the Bank shall forthwith give notice of such determination (which
shall be conclusive and binding on the Borrower) to the Borrower. In
such event the obligations of the Bank to make LIBOR Term Loans shall
be suspended until the Bank determines that the circumstances giving
rise to such suspension no longer exist, whereupon the Bank shall
notify the Borrower.
1.9. PREPAYMENT OF LIBOR TERM LOANS. The following provisions of this
ss.1.9 shall be effective only with respect to LIBOR Term Loans: If, due to
acceleration of any Term Note or due to voluntary prepayment or mandatory
repayment or prepayment or due to any other reason, the Bank receives payment of
any principal of any LIBOR Term Loan on any date prior to the last day of the
relevant Interest Period or if for any reason any LIBOR Term Loan is converted
to a Floating Rate Term Loan prior to the expiration of the relevant Interest
Period, the Borrower shall, upon demand and receipt of a Bank Certificate from
the Bank with respect thereto, pay forthwith to the Bank a yield maintenance fee
in an amount computed as follows: The current rate for United States Treasury
securities (bills on a discounted basis shall be converted to a bond equivalent)
with a maturity date closest to the last day of the Interest Period applicable
to the affected LIBOR Term Loan shall be subtracted from the "cost of funds"
component (I.E., reserve-adjusted LIBOR) of the LIBOR Interest Rate in effect
with respect to such LIBOR Term Loan at the date of such prepayment or
conversion. If the result is zero or a negative number, there shall be no yield
maintenance fee. If the result is a positive number, then the resulting
percentage shall be multiplied by the amount of the principal balance being
prepaid. The resulting amount shall be divided by 360 and multiplied by the
number of days remaining in the relevant Interest Period. Said amount shall be
reduced to present value calculated by using the number of days remaining in the
relevant Interest Period and by using the above-referenced United States
Treasury securities rate as the discount rate. The resulting amount shall be the
yield maintenance fee due to the Bank upon prepayment or conversion of the
applicable LIBOR Term Loan. Any acceleration of a LIBOR Term Loan due to an
Event of Default will give rise to a yield maintenance fee calculated with the
respect to such LIBOR Term Loan on the date of such acceleration in the same
manner as though the Borrower had exercised a right of prepayment at that date,
such yield maintenance fee being due and payable at that date.
1.10. INCREASED COSTS; CAPITAL ADEQUACY.
(i) If the adoption, effectiveness or phase-in, after the date
hereof, of any applicable law, rule or regulation, 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 (whether or not
having the force of law) of any such authority, central bank or
comparable agency:
(A) shall subject the Bank to any Imposition or other
charge with respect to any LIBOR Term Loan or the Bank's
agreement to make LIBOR Term Loans, or shall change the basis
of taxation of payments to the Bank of the principal of or
interest on any LIBOR Term Loan or any other amounts due under
this letter agreement in respect of the LIBOR Term Loans or
the Bank's
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agreement to make LIBOR Term Loans (except for changes in
the rate of tax on the over-all net income of the Bank); or
(B) shall impose, modify or deem applicable any
reserve, special deposit, deposit insurance or similar
requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal
Reserve System, but excluding, with respect to any LIBOR Term
Loan, any such requirement already included in the applicable
Reserve Rate) against assets of, deposits with or for the
account of, or credit extended by, the Bank or shall impose on
the Bank or on the London interbank market any other condition
affecting any LIBOR Term Loans or the Bank's agreement to make
LIBOR Term Loans
and the result of any of the foregoing is to increase the cost to the
Bank of making or maintaining any LIBOR Term Loan or to reduce the
amount of any sum received or receivable by the Bank under this letter
agreement or under any Term Note with respect to any LIBOR Term Loan by
an amount deemed by the Bank to be material, then (A) the Bank shall
promptly after its determination of such occurrence deliver a Bank
Certificate with respect thereto to the Borrower; and (B) promptly upon
demand by the Bank and receipt of such Bank Certificate from the Bank
with respect thereto, the Borrower shall pay to the Bank such
additional amount or amounts as the Bank certifies to be necessary to
compensate the Bank for such increased cost or reduction in amount
received or receivable.
(ii) If the Bank shall have determined that the adoption,
effectiveness or phase-in after the date hereof of any applicable law,
rule or regulation regarding capital requirements for banks or bank
holding companies, or any change therein after the date hereof, or any
change after the date hereof 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 of such entity
regarding capital adequacy (whether or not having the force of law) has
or would have the effect of reducing the return on the Bank's capital
with respect to any Loan (whether or not then subject to any LIBOR
Interest Rate) or any letter of credit and/or with respect to the
Bank's agreements hereunder to make Loans and/or issue letters of
credit to a level below that which the Bank could have achieved (taking
into consideration the Bank's policies with respect to capital adequacy
immediately before such adoption, effectiveness, phase-in, change or
compliance and assuming that the Bank's capital was then fully
utilized) by any amount deemed by the Bank to be material: (A) the Bank
shall promptly after its determination of such occurrence deliver a
Bank Certificate with respect thereto to the Borrower; and (B) the
Borrower shall pay to the Bank as an additional fee from time to time
on demand such amount as the Bank certifies to be the amount that will
compensate it for such reduction.
(iii) A Bank Certificate of the Bank claiming compensation
under this ss.1.10 shall be conclusive in the absence of manifest
error. Such certificate shall set forth the nature and date of the
occurrence giving rise to such compensation, the additional amount
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or amounts to be paid to the Bank hereunder and the method by which
such amounts are determined. In determining any such amount, the Bank
may use any reasonable averaging and attribution methods.
(iv) No failure on the part of the Bank to demand compensation
on any one occasion shall constitute a waiver of its right to demand
such compensation on any other occasion and no failure on the part of
the Bank to deliver any Bank Certificate in a timely manner shall in
any way reduce any obligation of the Borrower to the Bank under this
ss.1.10; provided, however, that if a Bank Certificate is delivered
more than 180 days after the event or circumstance giving rise thereto,
the Bank shall not be entitled to compensation under this ss.1.10 with
respect to any period more than 180 days prior to the date of delivery
of such Bank Certificate.
1.11. ILLEGALITY OR IMPOSSIBILITY. Notwithstanding any other provision
of this letter agreement, if the introduction of or any change in or in the
interpretation or administration of any law or regulation applicable to the Bank
or the Bank's activities in the London interbank market shall make it unlawful,
or any central bank or other governmental authority having jurisdiction over the
Bank or the Bank's activities in the London interbank market shall assert that
it is unlawful, or otherwise make it impossible, for the Bank to perform its
obligations hereunder to make LIBOR Term Loans or to continue to fund or
maintain LIBOR Term Loans, then on notice thereof and demand therefor by the
Bank to the Borrower, (i) the obligation of the Bank to fund LIBOR Term Loans
shall terminate and (ii) all affected LIBOR Term Loans shall be deemed to have
been converted into Floating Rate Term Loans (with the Borrower to be
responsible for any amount payable under ss.1.9 as a consequence of such
conversion) at the last day on which such LIBOR Term Loans may legally remain
outstanding. Except as provided above in this ss.1.11, the Borrower will have no
right to convert any LIBOR Term Loan to a Floating Rate Term Loan prior to the
end of the Interest Period applicable to such LIBOR Term Loan.
1.12. ADVANCES AND PAYMENTS. The proceeds of all Loans shall be
credited by the Bank to a general deposit account maintained by the Borrower
with the Bank. The proceeds of each Demand Loan shall be used by the Borrower
solely for working capital purposes. At the date of execution and delivery of
this letter agreement, all loans outstanding under the Prior Note are deemed to
be refunded by Demand Loans under this letter agreement. The proceeds of each
Term Loan will be used by the Borrower solely to pay or reimburse acquisition
costs of Qualifying Equipment and/or Qualifying Leasehold Improvements.
The Bank may charge any general deposit account of the Borrower at the
Bank with the amount of all payments of interest, principal and other sums when
same are due, from time to time, under this letter agreement and/or any Note
and/or with respect to any letter of credit; and will thereafter promptly notify
the Borrower of the amount so charged. The failure of the Bank so to charge any
account or to give any such notice shall not affect the obligation of the
Borrower to pay interest, principal or other sums as provided herein or in any
Note or with respect to any letter of credit.
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Whenever any payment to be made to the Bank hereunder or under any Note
or with respect to any letter of credit shall be stated to be due on a day which
is not a Business Day, such payment may be made on the next succeeding Business
Day, and interest payable on each such date shall include the amount thereof
which shall accrue during the period of such extension of time. All payments by
the Borrower hereunder and/or in respect of any Note and/or with respect to any
letter of credit shall be made net of any impositions or taxes and without
deduction, set-off or counterclaim, notwithstanding any claim which the Borrower
may now or at any time hereafter have against the Bank. All payments of
interest, principal and any other sum payable hereunder and/or under any Note
and/or with respect to any letter of credit shall be made to the Bank, in lawful
money of the United States in immediately available funds, at its office at One
Federal Street, Boston, MA 02110 or at such other address as the Bank may from
time to time direct. All payments received by the Bank after 2:00 p.m. on any
day shall be deemed received as of the next succeeding Business Day. All monies
received by the Bank shall be applied first to fees, charges, costs and expenses
payable to the Bank under this letter agreement, any Note and/or any of the
other Loan Documents and/or with respect to any letter of credit, next to
interest then accrued on account of any Loans or letter of credit reimbursement
obligations and only thereafter to principal of the Loans and letter of credit
reimbursement obligations, being applied against the Loans and/or such
obligations in such order as the Borrower may designate (and, failing such
designation, being applied first against the letter of credit reimbursement
obligations, next against any outstanding Demand Loans and thereafter against
installments of the Term Loans in inverse order of normal maturity). All
interest and fees payable hereunder and/or under any Note shall be calculated on
the basis of a 360-day year for the actual number of days elapsed.
1.13. LETTERS OF CREDIT. At the Borrower's request, the Bank may, from
time to time, in its sole discretion issue one or more letters of credit for the
account of the Borrower; provided that at the time of issuance of such letter of
credit and after giving effect thereto, the Aggregate Demand Facility
Liabilities will not exceed $3,000,000. Any such letter of credit will be issued
for such fee and upon such terms and conditions as may be agreed to by the Bank
and the Borrower at the time of issuance. The Borrower hereby authorizes the
Bank, without further request from the Borrower, to cause the Borrower's
liability to the Bank for reimbursement of funds drawn under any such letter of
credit to be repaid from the proceeds of a Demand Loan to be made hereunder. The
Borrower hereby irrevocably requests that such Demand Loan be made.
1.14. CONDITIONS TO ADVANCE. Prior to the making of the initial Loan
hereunder or the issuance of any letter of credit hereunder, the Borrower shall
deliver to the Bank duly executed copies of this letter agreement, the Security
Agreement, the Demand Note, the Tranche A Term Note, the Tranche B Term Note,
the Tranche C Term Note and the documents and other items listed on the Closing
Agenda delivered herewith by the Bank to the Borrower, all of which, as well as
all legal matters incident to the transactions contemplated hereby, shall be
satisfactory in form and substance to the Bank and its counsel.
Without limiting the foregoing, any Loan or letter of credit issuance
(including the initial Loan or letter of credit issuance) is subject to the
further conditions precedent that on the date on which such Loan is made or such
letter of credit is issued (and after giving effect thereto):
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(a) All statements, representations and warranties of the Borrower made
in this letter agreement and/or in the Security Agreement shall continue to be
correct in all material respects as of the date of such Loan or issuance of such
letter of credit, as the case may be.
(b) All covenants and agreements of the Borrower contained herein
and/or in any of the other Loan Documents shall have been complied with in all
material respects on and as of the date of such Loan or issuance of such letter
of credit, as the case may be.
(c) No event which constitutes, or which with notice or lapse of time
or both could constitute, an Event of Default shall have occurred and be
continuing.
(d) No material adverse change shall have occurred in the financial
condition of the Borrower from that disclosed in the financial statements then
most recently furnished to the Bank.
Each request by the Borrower for any Loan or for the issuance of a
letter of credit, and each acceptance by the Borrower of the proceeds of any
Loan or delivery of a letter of credit, will be deemed a representation and
warranty by the Borrower that at the date of such Loan or letter of credit
issuance, as the case may be, and after giving effect thereto all of the
conditions set forth in the foregoing clauses (a)-(d) of this ss.1.14 will be
satisfied.
II. REPRESENTATIONS AND WARRANTIES
2.1. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to
enter into this letter agreement and to make Loans hereunder and/or issue
letters of credit hereunder, the Borrower warrants and represents to the Bank as
follows:
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of Delaware. The Borrower has full corporate
power to own its property and conduct its business as now conducted and as
contemplated to be conducted, to grant the security interests contemplated by
the Security Agreement and to enter into and perform this letter agreement and
the other Loan Documents. The Borrower is duly qualified to do business and in
good standing in Massachusetts and in each other jurisdiction in which the
Borrower maintains any facility, sales office or warehouse and in each other
jurisdiction where the failure so to qualify could (singly or in the aggregate
with all other such failures) have a material adverse effect on the financial
condition, business or prospects of the Borrower, all such jurisdictions, as at
the date of this letter agreement, being listed on item 2.1(a) of the attached
Disclosure Schedule. At the date hereof, the Borrower has no Subsidiaries,
except as shown on said item 2.1(a) of the attached Disclosure Schedule. The
Borrower is not a member of any partnership or joint venture.
(b) At the date of this letter agreement, no Person is known by the
Borrower to own, of record and/or beneficially, more than 5% of the outstanding
shares of any class of the Borrower's capital stock, except as set forth on item
2.1(b) of the attached Disclosure Schedule. The Borrower owns 100% of the
outstanding capital stock of each Subsidiary.
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(c) The execution, delivery and performance by the Borrower of this
letter agreement and each of the other Loan Documents have been duly authorized
by all necessary corporate and other action and do not and will not:
(i) violate any provision of, or require any filings (other
than filings under the Uniform Commercial Code), registration, consent
or approval under, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Borrower;
(ii) violate any provision of the charter or by-laws of the
Borrower, or result in a breach of or constitute a default or require
any waiver or consent under any indenture or loan or credit agreement
or any other material agreement, lease or instrument to which the
Borrower is a party or by which the Borrower or any of its properties
may be bound or affected or require any other consent of any Person; or
(iii) result in, or require, the creation or imposition of any
lien, security interest or other encumbrance (other than in favor of
the Bank), upon or with respect to any of the properties now owned or
hereafter acquired by the Borrower.
(d) This letter agreement and each of the other Loan Documents has been
duly executed and delivered by the Borrower and each is a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its respective terms.
(e) Except as described on item 2.1(e) of the attached Disclosure
Schedule, there are no actions, suits, proceedings or investigations pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
Subsidiary of the Borrower before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
could hinder or prevent the consummation of the transactions contemplated hereby
or call into question the validity of this letter agreement or any of the other
Loan Documents or any other instrument provided for or contemplated by this
letter agreement or any of the other Loan Documents or any action taken or to be
taken in connection with the transactions contemplated hereby or thereby or
which in any single case or in the aggregate could result in any material
adverse change in the business, prospects, condition, affairs or operations of
the Borrower or any such Subsidiary.
(f) The Borrower is not in violation of any term of its charter or
by-laws as now in effect. Neither the Borrower nor any Subsidiary of the
Borrower is in material violation of any term of any mortgage, indenture or
judgment, decree or order, or any other instrument, contract or agreement to
which it is a party or by which any of its property is bound.
(g) The Borrower has filed (and has caused each Subsidiary of the
Borrower to file) all federal, foreign, state and local tax returns, reports and
estimates required to be filed by the Borrower or by any such Subsidiary. All
such filed returns, reports and estimates are proper and accurate and the
Borrower (or the Subsidiary concerned, as the case may be) has paid all taxes,
assessments, impositions, fees and other governmental charges required to be
paid in respect of the periods covered by such returns, reports or estimates. No
deficiencies for any tax,
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assessment or governmental charge have been asserted or assessed, and the
Borrower knows of no material tax liability or basis therefor.
(h) The Borrower is in compliance with (and each Subsidiary of the
Borrower is in compliance with) all requirements of law, federal, state and
local, and all requirements of all governmental bodies or agencies having
jurisdiction over it, the conduct of its business, the use of its properties and
assets, and all premises occupied by it, failure to comply with which could
(singly or in the aggregate with all other such failures) have a material
adverse effect upon the assets, business, financial condition or prospects of
the Borrower or any such Subsidiary. Without limiting the foregoing, the
Borrower has all the franchises, licenses, leases, permits, certificates and
authorizations needed for the conduct of its business and the use of its
properties and all premises occupied by it, as now conducted, owned and used and
as proposed to be conducted, owned and used.
(i) The audited financial statements of the Borrower as at March 31,
1999 and the management-generated financial statements of the Borrower as at
June 30, 1999, each heretofore delivered to the Bank, are complete and accurate
and fairly present the financial condition of the Borrower as at the date
thereof and for the period covered thereby, except that the aforesaid
management-generated statements do not have footnotes and thus do not present
the information which would normally be contained in footnotes to financial
statements and are subject to normal year-end audit adjustments. Neither the
Borrower nor any of the Borrower's Subsidiaries has any liability, contingent or
otherwise, not disclosed in the aforesaid financial statements or in the notes
thereto that could materially affect the financial condition of the Borrower.
Since March 31, 1999, there has been no material adverse development in the
business or condition of the Borrower, and the Borrower has not entered into any
transaction other than in the ordinary course.
(j) The principal place of business and chief executive offices of the
Borrower are located at 22 Cherry Hill Drive, Danvers, MA 01923. All of the
books and records of the Borrower are located at 22 Cherry Hill Drive and/or at
33 Cherry Hill Drive, Danvers, MA 01923. Except as described on item 2.1(j) of
the attached Disclosure Schedule, no Collateral is located at any other address.
Said item 2.1(j) of the attached Disclosure Schedule sets forth the names and
addresses of all record owners of any premises where any material amount of
Collateral is located.
(k) Except as described on item 2.1(k) of attached Disclosure Schedule,
the Borrower owns or has a valid right to use all of the patents, licenses,
copyrights, trademarks, trade names and franchises now being used or necessary
to conduct its business. To the best knowledge of the Borrower, the conduct of
the Borrower's business as now operated does not conflict with valid patents,
licenses, copyrights, trademarks, trade names or franchises of others in any
manner that could materially adversely affect the business or assets or
condition, financial or otherwise, of the Borrower.
(l) To the best knowledge of the Borrower, none of the executive
officers or key employees of the Borrower is subject to any agreement in favor
of anyone other than the Borrower which limits or restricts that person's right
to engage in the type of business activity
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conducted or proposed to be conducted by the Borrower or which grants to anyone
other than the Borrower any rights in any inventions or other ideas susceptible
to legal protection developed or conceived by any such officer or key employee.
(m) The Borrower is not a party to any contract or agreement which now
has or, as far as can be reasonably foreseen by the Borrower at the date hereof,
may have a material adverse effect on the financial condition, business,
prospects or properties of the Borrower.
(n) As used herein, the term "Year 2000 Issue" refers to the concern
that computers, software and other equipment utilizing microprocessors may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date on or after December 31, 1999. The Borrower
has evaluated this potential issue with respect to its products, its financial
and management information systems and its suppliers. With respect to the
Borrower's products, the software controlling the BVS drive console includes
internal counters, but the BVS operation is not related in any way to a specific
calendar date. Accordingly, the Borrower believes that the BVS will not need any
repair or modification with regard to the Year 2000 issue. With respect to the
Borrower's financial and management information systems, the Borrower
successfully installed and tested a Year 2000 upgrade to its primary system and
is currently working on execution of a plan to ensure that all personal
computers ("PCs") and applications are fully assessed and updated to be Year
2000 compliant before the end of 1999. To date, expenditures for new Pcs,
software applications, and operating systems under the Borrower's Year 2000 plan
have amounted to less than $100,000. Remaining expenditures to complete the plan
are expected to be immaterial. With respect to its suppliers, the Borrower is
completing an assessment of vendors begun in fiscal 1999 and is increasing
safety stocks of materials and inventory where a prolonged loss of material and
inventory deliveries would have an adverse impact on the Borrower's business,
financial condition and results of operations. The Borrower has also made
inquiries to assess its key service providers such as its financial
institutions, its payroll service provider, and its retirement plan
administrator as to their Year 2000 readiness and has received assurances that
the vendors' critical systems have been updated, tested, and found to be
compliant.
Although the Borrower's management does not expect Year 2000 Issues to
have a material impact on its business or future results of operations, there
may be interruptions of operations or other limitations of system functionality
or the Borrower may incur significant costs to avoid such interruptions or
limitations. To the extent that the Borrower does not eliminate all Year 2000
Issues, the most likely worst case Year 2000 scenario is systemic failures
beyond the control of the Borrower, such as prolonged telecommunications or
electrical failure, or a general disruption in supplies and services provided to
the Borrower which could have a material adverse effect on the Borrower's
business, results of operations and financial condition.
The Borrower will, at the request of the Bank, provide such reports and
such other information as the Bank may reasonably request in order to evidence
such Year 2000 compliance.
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III. AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS
Without limitation of any covenants and agreements contained in the
Security Agreement or elsewhere, the Borrower agrees that so long as the
financing arrangements contemplated hereby are in effect or any Demand Loan or
any Term Loan or any of the other Obligations shall be outstanding or any letter
of credit issued hereunder shall be outstanding:
3.1. LEGAL EXISTENCE; QUALIFICATION; COMPLIANCE. The Borrower will
maintain (and will cause each Subsidiary of the Borrower to maintain) its
corporate existence and good standing in the jurisdiction of its incorporation.
The Borrower will remain qualified to do business and in good standing in
Massachusetts. The Borrower will qualify to do business and will remain
qualified and in good standing (and will cause each Subsidiary of the Borrower
to qualify and remain qualified and in good standing) in each other jurisdiction
where the Borrower or such Subsidiary, as the case may be, maintains any plant,
sales office, warehouse or other facility and in each other jurisdiction in
which the failure so to qualify could (singly or in the aggregate with all other
such failures) have a material adverse effect on the financial condition,
business or prospects of the Borrower or any such Subsidiary. The Borrower will
comply with (and will cause each Subsidiary of the Borrower to comply with) its
charter documents and by-laws. The Borrower will comply with (and will cause
each Subsidiary of the Borrower to comply with) all applicable laws, rules and
regulations (including, without limitation, ERISA and those relating to
environmental protection) other than (i) laws, rules or regulations the validity
or applicability of which the Borrower or such Subsidiary shall be contesting in
good faith by proceedings which serve as a matter of law to stay the enforcement
thereof and (ii) those laws, rules and regulations the failure to comply with
any of which could not (singly or in the aggregate) have a material adverse
effect on the financial condition, business or prospects of the Borrower or any
such Subsidiary.
3.2. MAINTENANCE OF PROPERTY; INSURANCE. The Borrower will maintain and
preserve (and will cause each Subsidiary of the Borrower to maintain and
preserve) all of its properties in good working order and condition, making all
necessary repairs thereto and replacements thereof. The Borrower will maintain
all such insurance as may be required under the Security Agreement and will also
maintain, with financially sound and reputable insurers, insurance with respect
to its property and business against such liabilities, casualties and
contingencies and of such types and in such amounts as shall be reasonably
satisfactory to the Bank from time to time and in any event all such insurance
as may from time to time be customary for companies conducting a business
similar to that of the Borrower in similar locales.
3.3. PAYMENT OF TAXES AND CHARGES. The Borrower will pay and discharge
(and will cause each Subsidiary of the Borrower to pay and discharge) all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or property, including, without limitation, taxes, assessments, charges
or levies relating to real and personal property, franchises, income,
unemployment, old age benefits, withholding, or sales or use, prior to the date
on which penalties would attach thereto, and all lawful claims (whether for any
of the foregoing or otherwise) which, if unpaid, might give rise to a lien upon
any property of the Borrower or any such Subsidiary, except any of the foregoing
which is being contested in good faith and by appropriate proceedings which
serve as a matter of law to stay the enforcement
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thereof and for which the Borrower has established and is maintaining adequate
reserves. The Borrower will pay, and will cause each of its Subsidiaries to pay,
in a timely manner, all lease obligations, all material trade debt, purchase
money obligations, equipment lease obligations and all of its other material
Indebtedness. The Borrower will perform and fulfill all material covenants and
agreements under any leases of real estate, agreements relating to purchase
money debt, equipment leases and other material contracts. The Borrower will
maintain in full force and effect, and comply with the terms and conditions of,
all permits, permissions and licenses necessary or desirable for its business.
3.4. ACCOUNTS. The Borrower will maintain its principal depository and
operating accounts with the Bank.
3.5. CONDUCT OF BUSINESS. The Borrower will conduct, in the ordinary
course, the business in which it is presently engaged. The Borrower will not,
without the prior written consent of the Bank, directly or indirectly (itself or
through any Subsidiary), enter into any other lines of business, businesses or
ventures.
3.6. REPORTING REQUIREMENTS. The Borrower will furnish to the Bank:
(i) Within 120 days after the end of each fiscal year of the
Borrower, a copy of the annual audit report for such fiscal year for
the Borrower, including therein consolidated and consolidating balance
sheets of the Borrower and Subsidiaries as at the end of such fiscal
year and related consolidated and consolidating statements of income,
stockholders' equity and cash flow for the fiscal year then ended. The
annual consolidated financial statements shall be certified by
independent public accountants selected by the Borrower and reasonably
acceptable to the Bank, such certification to be in such form as is
generally recognized as "unqualified".
(ii) Within 45 days after the end of each fiscal quarter of
the Borrower, consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries and related consolidated and
consolidating statements of income and cash flow, unaudited but
complete and accurate and prepared in accordance with generally
accepted accounting principles fairly presenting the financial
condition of the Borrower as at the dates thereof and for the periods
covered thereby (except that such quarterly statements need not contain
footnotes) and certified as accurate (subject to normal year-end audit
adjustments, which shall not be material) by the chief financial
officer of the Borrower, such balance sheets to be as at the end of
each such fiscal quarter and such statements of income and cash flow to
be for such fiscal quarter and for the fiscal year to date. Such income
statements shall be accompanied by a comparison to budget and a
comparison to the results for the corresponding period of the
immediately prior fiscal year.
(iii) At the time of delivery of each annual or quarterly
statement of the Borrower, a certificate executed by the chief
financial officer of the Borrower stating that he or she has reviewed
this letter agreement and the other Loan Documents and has no knowledge
of any default by the Borrower in the performance or observance of any
of the provisions of this letter agreement or of any of the other Loan
Documents or, if he or she
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has such knowledge, specifying each such default and the nature
thereof. Each such certificate given as at the end of any fiscal
quarter shall also set forth the calculations necessary to evidence
compliance with ss.ss.3.7-3.9.
(iv) Promptly after receipt, a copy of all audits or reports
submitted to the Borrower by independent public accountants in
connection with any annual, special or interim audits of the books of
the Borrower and any "management letter" prepared by such accountants.
(v) Within 120 days after the beginning of each fiscal year, a
copy of the Borrower's income statement and balance sheet projections
for such fiscal year, in detail reasonably satisfactory to the Bank.
(vi) If any securities of the Borrower are publicly traded or
if registration of such securities is being sought, the Borrower will
furnish to the Bank, promptly upon same becoming available, one copy of
each financial statement, report, notice or proxy statement sent by the
Borrower to stockholders or the holders of debt securities generally,
of each press release or other communication disseminated to the public
generally, and of each regular or periodic report and any registration
statement, prospectus or listing application filed by the Borrower with
the National Association of Securities Dealers, any securities exchange
or the Securities and Exchange Commission or any successor agency.
(vii) As soon as possible and in any event within five days of
the occurrence of any Event of Default or any event which, with the
giving of notice or passage of time or both, would constitute an Event
of Default, the statement of the Borrower setting forth details of such
Event of Default or event and the action which the Borrower proposes to
take with respect thereto.
(viii) Promptly after receiving notice of the commencement
thereof, notice of all actions, suits and proceedings before any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, brought against the Borrower or
any Subsidiary of the Borrower; provided, however, that this clause
(viii) will not be deemed to require the Borrower to give notice of FDA
proceedings occurring in the ordinary course of the Borrower's business
(including, without limitation, product recalls in the ordinary course)
which could not reasonably be expected to have a material adverse
effect on the Borrower's financial condition, business or prospects.
(ix) Promptly after the Borrower has knowledge thereof,
written notice of any development or circumstance which may reasonably
be expected to have a material adverse effect on the Borrower or its
business, properties, assets, Subsidiaries or condition, financial or
otherwise.
(x) Promptly upon request, such other information respecting
the financial condition, operations, Receivables, inventory, machinery
or equipment of the Borrower or any Subsidiary as the Bank may from
time to time reasonably request.
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3.7. CAPITAL BASE. The Borrower will maintain, as at the end of each
fiscal quarter of the Borrower (commencing with its results as at June 30,
1999), a consolidated Capital Base which shall not be less than $13,500,000.
3.8. LIQUIDITY. The Borrower will maintain, as at the end of each
fiscal quarter of the Borrower (commencing with its results as at June 30,
1999), a ratio of Net Quick Assets to Total Liabilities, which ratio shall be
not less than 2.0 to 1.
3.9. DEBT SERVICE COVERAGE. As used herein, "Determination Date" means
the last day of each fiscal quarter of the Borrower. The Borrower will maintain
on a consolidated basis, as at each Determination Date (commencing with its
results as at June 30, 1999), a Debt Service Coverage Ratio of not less than 1.5
to 1. As used herein, the "Debt Service Coverage Ratio", as determined as at any
Determination Date, means the ratio of (x) Earnings Available of the Borrower
and Subsidiaries for the 12-month period ending on such Determination Date to
(y) the total of (1) all interest on any Indebtedness (whether senior or
subordinated, long-term or current), which interest was paid or payable or
accrued by the Borrower or any Subsidiary of the Borrower during such 12-month
period ending on such Determination Date, PLUS (2) the aggregate current
maturities of long-term debt of the Borrower and Subsidiaries outstanding at
such Determination Date. Notwithstanding the foregoing, the Borrower need not
comply with the foregoing provisions of this ss.3.9 as at any Determination Date
if the Borrower's Unencumbered Cash Balance as at such Determination Date
exceeds $9,000,000.
3.10. BOOKS AND RECORDS. The Borrower will maintain (and cause each of
its Subsidiaries to maintain) complete and accurate books, records and accounts
which will at all times accurately and fairly reflect in all material respects
all of its transactions in accordance with generally accepted accounting
principles consistently applied. The Borrower will, at any reasonable time and
from time to time upon reasonable notice and during normal business hours (and
at any time and without any necessity for notice following the occurrence of an
Event of Default), permit the Bank, and any agents or representatives thereof,
to examine and make copies of and take abstracts from the records and books of
account of, and visit the properties of the Borrower and any of its
Subsidiaries, and to discuss its affairs, finances and accounts with its
managers, officers or directors and independent accountants, all of whom are
hereby authorized and directed to cooperate with the Bank in carrying out the
intent of this ss.3.10. Each financial statement of the Borrower hereafter
delivered pursuant to this letter agreement will be complete and accurate and
will fairly present in all material respects the financial condition of the
Borrower as at the date thereof and for the periods covered thereby.
3.11. LANDLORD'S WAIVER. Prior to the date of the first Loan hereunder
the Borrower will obtain, and will thereafter maintain in effect at all times,
waivers from the owners of all premises in which any material amount of
Collateral is located, such waivers to be in form and substance satisfactory to
the Bank.
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IV. NEGATIVE COVENANTS
Without limitation of any covenants and agreements contained in the
Security Agreement or elsewhere, the Borrower agrees that so long as the
financing arrangements contemplated hereby are in effect or any Demand Loan or
any Term Loan or any of the other Obligations shall be outstanding or any letter
of credit issued hereunder shall be outstanding:
4.1. INDEBTEDNESS. The Borrower will not create, incur, assume or
suffer to exist any Indebtedness (nor allow any of its Subsidiaries to create,
incur, assume or suffer to exist any Indebtedness), except for:
(i) Indebtedness owed to the Bank, including, without
limitation, the Indebtedness represented by the Notes and any
Indebtedness in respect of letters of credit issued by the Bank;
(ii) Indebtedness of the Borrower or any Subsidiary for taxes,
assessments and governmental charges or levies not yet due and payable;
(iii) unsecured current liabilities of the Borrower or any
Subsidiary (other than for money borrowed or for purchase money
Indebtedness with respect to fixed assets) incurred upon customary
terms in the ordinary course of business;
(iv) purchase money Indebtedness (including, without
limitation, Indebtedness in respect of capitalized equipment leases)
hereafter incurred to equipment vendors and/or lessors for equipment
purchased or leased by the Borrower for use in the Borrower's business;
provided that the total of (A) future Indebtedness permitted under this
clause (iv) plus (B) presently-existing equipment financing permitted
under clause (v) of this ss.4.1 will not exceed $2,200,000 in the
aggregate outstanding at any one time;
(v) other Indebtedness existing at the date hereof, but only
to the extent set forth on item 4.1 of the attached Disclosure
Schedule;
(vi) any guaranties or other contingent liabilities expressly
permitted pursuant to ss.4.3; and
(vii) Subordinated Debt hereafter incurred by the Borrower;
provided that (A) the Bank shall have approved in writing the principal
amount, interest rate and other payment terms for such Subordinated
Debt, such approval not to be unreasonably withheld or delayed, and (B)
the Bank shall have approved in writing the subordination terms for
such Subordinated Debt, which approval may be given or withheld by the
Bank in its sole discretion.
4.2. LIENS. The Borrower will not create, incur, assume or suffer to
exist (nor allow any of its Subsidiaries to create, incur, assume or suffer to
exist) any mortgage, deed of trust, pledge, lien, security interest, or other
charge or encumbrance (including the lien or retained security title of a
conditional vendor) of any nature (collectively, "Liens") upon or with respect
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to any of its property or assets (including, without limitation, any trustee
process affecting any account of the Borrower with the Bank), now owned or
hereafter acquired, except:
(i) Liens for taxes, assessments or governmental charges or
levies on property of the Borrower or any of its Subsidiaries if the
same shall not at the time be delinquent or thereafter can be paid
without interest or penalty, except any of the foregoing which is being
contested in good faith and by an appropriate proceedings which serve
as a matter of law to stay the enforcement thereof and for which the
Borrower has established and is maintaining adequate reserves;
(ii) Liens imposed by law, such as carriers', warehousemen's
and mechanics' liens and other similar Liens arising in the ordinary
course of business for sums not yet due or which are being contested in
good faith and by appropriate proceedings which serve as a matter of
law to stay the enforcement thereof and as to which adequate reserves
have been made and are maintained;
(iii) pledges or deposits under workmen's compensation laws,
unemployment insurance, social security, retirement benefits or similar
legislation;
(iv)Liens in favor of the Bank;
(v) Liens in favor of equipment vendors and/or lessors
securing purchase money Indebtedness to the extent permitted by clause
(iv) of ss.4.1; provided that no such Lien will extend to any property
of the Borrower or any Subsidiary other than the specific items of
equipment financed; or
(vi) other Liens existing at the date hereof, but only to the
extent and with the relative priorities set forth on item 4.2 of the
attached Disclosure Schedule.
Without limitation of the other representations, warranties, covenants and
agreements of the Borrower set forth elsewhere in this letter agreement, the
Borrower (i) represents and warrants that neither the Borrower nor any of its
Subsidiaries is now a party to any Restrictive Agreement and (ii) agrees that
the Borrower will not enter into (nor permit any of its Subsidiaries to enter
into) any Restrictive Agreement, except that (A) the Borrower may enter into a
Restrictive Agreement with the lessor of any equipment or with any Person
providing purchase money financing permitted by clause (iv) of ss.4.1 above;
provided that such Restrictive Agreement relates only to the particular item or
items of equipment so leased or financed, and (B) software licenses under which
the Borrower is the licensee may restrict assignment to any other Person. As
used herein, a "Restrictive Agreement" is any agreement, covenant, undertaking
or understanding which could have the effect of preventing the Borrower or any
Subsidiary from granting a Lien on any of its assets to the Bank.
4.3. GUARANTIES. The Borrower will not, without the prior written
consent of the Bank, assume, guarantee, endorse or otherwise become directly or
contingently liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in any debtor or otherwise to assure
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any creditor against loss) (and will not permit any of its Subsidiaries so to
assume, guaranty or become directly or contingently liable) in connection with
any indebtedness of any other Person, except (i) guaranties by endorsement for
deposit or collection in the ordinary course of business, (ii) currently
existing guaranties described on item 4.3 of the attached Disclosure Schedule
and (iii) guaranties hereafter entered into by the Borrower relating to
Indebtedness not in excess of $100,000 in the aggregate.
4.4. DIVIDENDS. The Borrower will not, without the prior written
consent of the Bank, make any distributions to its shareholders, pay any
dividends (other than dividends payable solely in capital stock of the Borrower)
or redeem, purchase or otherwise acquire, directly or indirectly any of its
capital stock.
4.5. LOANS AND ADVANCES. The Borrower will not make any loans or
advances (and will not permit any of its Subsidiaries to make any loans or
advances) to any Person, including, without limitation, the Borrower's
directors, officers and employees, except advances to directors, officers or
employees with respect to expenses incurred by them in the ordinary course of
their duties and advances against salary, all of which will not exceed, in the
aggregate, $300,000 outstanding at any one time.
4.6. INVESTMENTS. The Borrower will not, without the Bank's prior
written consent, invest in, hold or purchase any stock or securities of any
Person (nor will the Borrower permit any of its Subsidiaries to invest in,
purchase or hold any such stock or securities) except (i) readily marketable
direct obligations of, or obligations guarantied by, the United States of
America or any agency thereof, (ii) other investment grade debt securities,
(iii) mutual funds, the assets of which are primarily invested in items of the
kind described in the foregoing clauses (i) and (ii) of this ss.4.6, (iv)
deposits with or certificates of deposit issued by the Bank and any other
obligations of the Bank or the Bank's parent, (v) deposits with or certificates
of deposit issued by any United States commercial bank having more than
$100,000,000 in capital, (vi) investments in any Subsidiaries now existing or
hereafter created by the Borrower pursuant to ss.4.7 below; provided that in any
event the Tangible Net Worth of the Borrower alone (exclusive of its investment
in Subsidiaries and any debt owed by any Subsidiary to the Borrower) will not be
less than 90% of the consolidated Tangible Net Worth of the Borrower and
Subsidiaries, and (vii) other existing investments described on item 4.6 of the
attached Disclosure Schedule and all such future investments as are permitted by
the Borrower's Investment Policy, a copy of which is included in item 4.6 of the
attached Disclosure Schedule.
4.7. SUBSIDIARIES; ACQUISITIONS. The Borrower will not, without the
prior written consent of the Bank, form or acquire any Subsidiary or make any
other acquisition of the stock of any Person or of all or substantially all of
the assets of any other Person, other than Permitted Acquisitions. The Borrower
will not become a partner in any partnership.
4.8. MERGER. The Borrower will not, without the prior written consent
of the Bank, merge or consolidate with any Person (other than (A) a merger of
any wholly-owned Subsidiary of the Borrower into the Borrower or (B) a merger
made to carry out a Permitted Acquisition, provided that the Borrower is the
surviving entity) or sell, lease, transfer or otherwise dispose of
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any material portion of its assets (whether in one or more transactions), other
than sale of inventory in the ordinary course.
4.9. AFFILIATE TRANSACTIONS. The Borrower will not, without the prior
written consent of the Bank, enter into any transaction, including, without
limitation, the purchase, sale or exchange of any property or the rendering of
any service, with any affiliate of the Borrower, except in the ordinary course
of and pursuant to the reasonable requirements of the Borrower's business and
upon fair and reasonable terms no less favorable to the Borrower than would be
obtained in a comparable arms'-length transaction with any Person not an
affiliate; provided that nothing in this ss.4.9 shall be deemed to prohibit the
payment of salary or other similar payments to any officer or director of the
Borrower at a level consistent with the salary and other payments being paid at
the date of this letter agreement and heretofore disclosed in writing to the
Bank, nor to prevent the hiring of additional officers at a salary level
consistent with industry practice, nor to prevent reasonable periodic increases
in salary. For the purposes of this letter agreement, "affiliate" means any
Person which, directly or indirectly, controls or is controlled by or is under
common control with the Borrower; any officer or director or former officer or
director of the Borrower; any Person owning of record or beneficially, directly
or indirectly, 5% or more of any class of capital stock of the Borrower or 5% or
more of any class of capital stock or other equity interest having voting power
(under ordinary circumstances) of any of the other Persons described above; and
any member of the immediate family of any of the foregoing. "Control" means
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of any Person, whether through ownership
of voting equity, by contract or otherwise.
4.10. CHANGE OF ADDRESS, ETC. The Borrower will not change its name or
legal structure, nor will the Borrower move its chief executive offices or
principal place of business from the address described in the first sentence of
ss.2.1(j) above (except that the Borrower is in the process of moving from 33
Cherry Hill Drive, Danvers, MA to 22 Cherry Hill Drive, Danvers, MA), nor will
the Borrower remove any books or records from such address (except as
aforesaid), nor will the Borrower keep any Collateral at any location other than
at one of the locations described in ss.2.1(j) and/or on item 2.1(j) of the
attached Disclosure Schedule without, in each instance, giving the Bank at least
30 days' prior written notice and providing all such financing statements,
certificates and other documentation as the Bank may request in order to
maintain the perfection and priority of the security interests granted or
intended to be granted pursuant to the Security Agreement. The Borrower will not
change its fiscal year or methods of financial reporting unless, in each
instance, prior written notice of such change is given to the Bank and prior to
such change the Borrower enters into amendments to this letter agreement in form
and substance satisfactory to the Bank in order to preserve unimpaired the
rights of the Bank and the obligations of the Borrower hereunder.
4.11. HAZARDOUS WASTE. Except in compliance with applicable law, the
Borrower will not dispose of or suffer or permit to exist any hazardous material
or oil on any site or vessel owned, occupied or operated by the Borrower or any
Subsidiary of the Borrower, nor (except in compliance with applicable law) shall
the Borrower store (or permit any Subsidiary to store) on any site or vessel
owned, occupied or operated by the Borrower or any such Subsidiary, or transport
or arrange the transport of, any hazardous material or oil (the terms "hazardous
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material", "oil", "site" and "vessel", respectively, being used herein with the
meanings given those terms in Mass. Gen. Laws, Ch. 21E or any comparable terms
in any comparable statute in effect in any other relevant jurisdiction). The
Borrower shall provide the Bank with written notice of (i) any potential or
known release or threat of release of any hazardous material or oil at or from
any site or vessel owned, occupied or operated by the Borrower or any Subsidiary
of the Borrower, and (ii) any incurrence of any expense or loss by any
government or governmental authority in connection with the assessment,
containment or removal of any hazardous material or oil for which expense or
loss the Borrower or any Subsidiary of the Borrower may be liable.
Notwithstanding the foregoing, the Borrower and its Subsidiaries may use, store
and transport, and need not notify the Bank of the use, storage or
transportation of, hazardous materials and oil in the ordinary course of their
respective businesses, as long as in any case the Borrower or the Subsidiary
concerned (as the case may be) has obtained and maintains in effect any
necessary governmental permits, licenses and approvals, complies with all
requirements of applicable federal, state and local law relating to such use,
storage or transportation, follows the protective and safety procedures that a
prudent businessperson conducting a business the same as or similar to that of
the Borrower or such Subsidiary (as the case may be) would follow, and disposes
of such materials (not consumed in the ordinary course) only through licensed
providers of hazardous waste removal services.
4.12. NO MARGIN STOCK. No proceeds of any Loan shall be used directly
or indirectly to purchase or carry any margin security.
4.13. SUBORDINATED DEBT. The Borrower will not directly or indirectly
make any optional or voluntary prepayment or purchase of Subordinated Debt; nor
will the Borrower modify, alter or add any material provisions with respect to
any Subordinated Debt without the prior written consent of the Bank. The
Borrower will not make any payment of any principal of or interest on any
Subordinated Debt in violation of any applicable subordination agreement and,
without limitation of the foregoing, no such payment will be made at any time
when there exists, or if there would result therefrom, any Event of Default
hereunder.
V. DEFAULT AND REMEDIES
5.1. EVENTS OF DEFAULT. Without derogating in any way from the demand
nature of the Demand Loans, the occurrence of any one of the following events
shall constitute an Event of Default hereunder:
(a) The Borrower shall fail to make any payment of principal of or
interest on the Demand Note and/or any Term Note on or before the date when due;
or the Borrower shall fail to pay when due any amount owed to the Bank with
respect to any letter of credit now or hereafter issued by the Bank; or
(b) Any representation or warranty of the Borrower contained herein
shall at any time prove to have been incorrect in any material respect when made
or any representation or warranty made by the Borrower in connection with any
Loan or letter of credit shall at any time prove to have been incorrect in any
material respect when made; or
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(c) The Borrower shall default in the performance or observance of any
agreement or obligation under any of ss.ss.3.1, 3.3, 3.6, 3.7, 3.8 or 3.9 or
Article IV; or
(d) The Borrower shall default in the performance of any other term,
covenant or agreement contained in this letter agreement and such default shall
continue unremedied for 30 days after notice thereof shall have been given to
the Borrower; or
(e) Any default on the part of the Borrower or any Subsidiary of the
Borrower shall exist, and shall remain unwaived or uncured beyond the expiration
of any applicable notice and/or grace period, under any other credit agreement
or other agreement relating to borrowed money or the extension of credit now
existing or hereafter entered into with or for the benefit of the Bank (or any
affiliate of the Bank); or
(f) Any default shall exist and remain unwaived or uncured with respect
to any Subordinated Debt of the Borrower or with respect to any instrument
evidencing, guaranteeing, securing or otherwise relating to any such
Subordinated Debt, or any such Subordinated Debt shall not have been paid when
due, whether by acceleration or otherwise, or shall have been declared to be due
and payable prior to its stated maturity, or any event or circumstance shall
occur which permits, or with the lapse of time or the giving of notice or both
would permit, the acceleration of the maturity of any Subordinated Debt by the
holder or holders thereof; or
(g) Any default shall exist and remain unwaived or uncured with respect
to any Indebtedness for borrowed money of the Borrower or any Subsidiary of the
Borrower in excess of $100,000 in aggregate principal amount or with respect to
any instrument evidencing, guaranteeing, securing or otherwise relating to any
such Indebtedness for borrowed money, or any such Indebtedness for borrowed
money in excess of $100,000 in aggregate principal amount shall not have been
paid when due, whether by acceleration or otherwise, or shall have been declared
to be due and payable prior to its stated maturity, or any event or circumstance
shall occur which permits, or with the lapse of time or the giving of notice or
both would permit, the acceleration of the maturity of any such Indebtedness by
the holder or holders thereof; or
(h) The Borrower shall be dissolved, or the Borrower or any Subsidiary
of the Borrower shall become insolvent or bankrupt or shall cease paying its
debts as they mature or shall make an assignment for the benefit of creditors,
or a trustee, receiver or liquidator shall be appointed for the Borrower or any
Subsidiary of the Borrower or for a substantial part of the property of the
Borrower or any such Subsidiary, or bankruptcy, reorganization, arrangement,
insolvency or similar proceedings shall be instituted by or against the Borrower
or any such Subsidiary under the laws of any jurisdiction (except for an
involuntary proceeding filed against the Borrower or any Subsidiary of the
Borrower which is dismissed within 60 days following the institution thereof);
or
(i) Any final uninsured judgment in excess of $250,000 shall be entered
against the Borrower or any Subsidiary of the Borrower by any court of competent
jurisdiction and such judgment remains undischarged, unstayed or unpaid for 30
days after such entry; or
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(j) The Borrower or any Subsidiary of the Borrower shall fail to meet
its minimum funding requirements under ERISA with respect to any employee
benefit plan (or other class of benefit which the PBGC has elected to insure) or
any such plan shall be the subject of termination proceedings (whether voluntary
or involuntary) and there shall result from such termination proceedings a
liability of the Borrower or any Subsidiary of the Borrower to the PBGC which
would have a material adverse effect upon the financial condition of the
Borrower or any such Subsidiary; or
(k) The Security Agreement or any other Loan Document shall for any
reason (other than due to payment in full of all amounts secured or evidenced
thereby or due to discharge in writing by the Bank) not remain in full force and
effect; or
(l) The security interests and liens of the Bank in and on any of the
Collateral shall for any reason (other than due to payment in full of all
amounts secured thereby or due to written release by the Bank) not be fully
perfected liens and security interests; or
(m) If, at any time, more than 50% of any class of voting stock of the
Borrower shall be held, of record and/or beneficially, by any Person or by any
"group" (as defined in the Securities Exchange Act of 1934, as amended, and the
regulations thereunder), other than by one or more of the Persons listed on item
5.1(m) of the attached Disclosure Schedule; or
(n) There shall occur any other material adverse change in the
condition (financial or otherwise), operations, properties, assets, liabilities
or earnings of the Borrower and its Subsidiaries, taken as a whole.
5.2. RIGHTS AND REMEDIES ON DEFAULT. Without derogating in any way from
the demand nature of the Demand Loans, during the existence of any Event of
Default, in addition to any other rights and remedies available to the Bank
hereunder or otherwise, the Bank may exercise any one or more of the following
rights and remedies (all of which shall be cumulative):
(a) Declare the entire unpaid principal amounts of each of the Loans
then outstanding, all interest accrued and unpaid thereon and all other amounts
payable under this letter agreement and all other Indebtedness of the Borrower
to the Bank to be forthwith due and payable, whereupon the same shall become
forthwith due and payable, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Borrower.
(b) Terminate the Demand Loan financing arrangements and the Term Loan
facilities provided for by this letter agreement.
(c) Exercise all rights and remedies hereunder, under the Demand Note,
under each Term Note, under the Security Agreement and under each and any other
agreement with the Bank; and exercise all other rights and remedies which the
Bank may have under applicable law.
The Borrower expressly acknowledges and agrees that the Demand Loans
are demand obligations and that the Bank may demand payment of same (in which
case same shall be
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immediately due and payable) at any time in the Bank's discretion, whether or
not any Default or Event of Default then exists and whether or not at the end of
any applicable Interest Period.
5.3. SET-OFF. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, the Bank is hereby authorized at any time or
from time to time, without presentment, demand, protest or other notice of any
kind to the Borrower or to any other Person, all of which are hereby expressly
waived, to set off and to appropriate and apply any and all deposits and any
other Indebtedness at any time held or owing by the Bank or any affiliate
thereof to or for the credit or the account of the Borrower against and on
account of the obligations and liabilities of the Borrower to the Bank under
this letter agreement or otherwise, irrespective of whether or not the Bank
shall have made any demand hereunder and although said obligations, liabilities
or claims, or any of them, may then be contingent or unmatured and without
regard for the availability or adequacy of other collateral. As further security
for the Obligations, the Borrower also grants to the Bank a security interest
with respect to all its deposits and all securities or other property in the
possession of the Bank or any affiliate of the Bank from time to time, and, upon
the occurrence of any Event of Default, the Bank may exercise all rights and
remedies of a secured party under the Uniform Commercial Code. ANY AND ALL
RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO
ANY OTHER COLLATERAL WHICH SECURES ANY OF THE OBLIGATIONS PRIOR TO THE EXERCISE
BY THE BANK OF ITS RIGHT OF SET-OFF UNDER THIS SECTION ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.
5.4. LETTERS OF CREDIT. Without limitation of any other right or remedy
of the Bank, (i) if an Event of Default shall have occurred and the Bank shall
have accelerated the Demand Loans, or (ii) if the Bank shall demand payment
under the Demand Note, or (iii) if this letter agreement and/or the Demand Loan
financing arrangements described herein shall have expired or shall have been
earlier terminated by either the Bank or the Borrower for any reason, the
Borrower will forthwith deposit with the Bank in cash a sum equal to the total
of all then undrawn amounts of all outstanding letters of credit issued by the
Bank for the account of the Borrower.
VI. MISCELLANEOUS
6.1. COSTS AND EXPENSES. The Borrower agrees to pay on demand all costs
and expenses (including, without limitation, reasonable legal fees) of the Bank
in connection with the preparation, execution and delivery of this letter
agreement, the Security Agreement, the Demand Note, the Term Notes and all other
instruments and documents to be delivered in connection with any Loan or letter
of credit issued hereunder and any amendments or modifications of any of the
foregoing, as well as the costs and expenses (including, without limitation, the
reasonable fees and expenses of legal counsel) incurred by the Bank in
connection with preserving, enforcing or exercising, upon default, any rights or
remedies under this letter agreement, the Security Agreement, the Demand Note,
the Term Notes and all other instruments and documents delivered or to be
delivered hereunder or in connection herewith, all whether or not legal action
is instituted. In addition, the Borrower shall be obligated to pay any and all
stamp and other taxes payable or determined to be payable in connection with the
execution and
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<PAGE>
delivery of this letter agreement, the Security Agreement, the Demand Note, the
Term Notes and all other instruments and documents to be delivered in connection
with any Obligation. Any fees, expenses or other charges which the Bank is
entitled to receive from the Borrower under this Section shall bear interest
from the date of any demand therefor until the date when paid at a rate per
annum equal to the sum of (i) four (4%) percent PLUS (ii) the Prime Rate (but in
no event in excess of the maximum rate permitted by then applicable law).
6.2. FACILITY FEES; BALANCES. With respect to the within facilities for
Term Loans, the Borrower is paying to the Bank, at the date of execution and
delivery of this letter agreement, a non-refundable facility fee in the amount
of $6,000. In addition, in respect of the within facility for Demand Loans the
Borrower will maintain, from and after the date hereof, in a demand deposit
account at the Bank, average collected balances which shall be equal, at least,
to the sum of (i) $100,000 PLUS (ii) 5% of the average aggregate outstanding
balance of the Demand Loans. Balances shall be averaged monthly on the last day
of each month and on the Expiration Date or date of earlier termination of the
within facility for Demand Loans, and if any deficiency in the amount thereof
specified in the preceding sentence shall occur, such occurrence shall not
constitute an Event of Default, provided that the Borrower shall forthwith make
payment to the Bank of such sum as the Bank would have earned on the amount of
the deficiency, if it had made a loan of such amount outstanding throughout the
month in question and repayable with interest at the rate of interest payable
from time to time on the Demand Loans. Fees and balances described in this
Section are in addition to any fees and balances required by the Bank or any of
its affiliates in connection with any other services now or hereafter made
available to the Borrower.
6.3. OTHER AGREEMENTS. The provisions of this letter agreement are not
in derogation or limitation of any obligations, liabilities or duties of the
Borrower under any of the other Loan Documents or any other agreement with or
for the benefit of the Bank. No inconsistency in default provisions between this
letter agreement and any of the other Loan Documents or any such other agreement
will be deemed to create any additional grace period or otherwise derogate from
the express terms of each such default provision. No covenant, agreement or
obligation of the Borrower contained herein, nor any right or remedy of the Bank
contained herein, shall in any respect be limited by or be deemed in limitation
of any inconsistent or additional provisions contained in any of the other Loan
Documents or in any such other agreement.
6.4. GOVERNING LAW. This letter agreement and the Notes shall be
governed by, and construed and enforced in accordance with, the laws of The
Commonwealth of Massachusetts.
6.5. ADDRESSES FOR NOTICES, ETC. All notices, requests, demands and
other communications provided for hereunder shall be in writing and shall be
mailed or delivered to the applicable party at the address indicated below:
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If to the Borrower:
ABIOMED, Inc.
22 Cherry Hill Drive
Danvers, MA 01923
Attention: John F. Thero, Vice President Finance and Business
Operations
If to the Bank:
Fleet National Bank
High Technology Division
Mail Stop: MA OF D07A
One Federal Street
Boston, MA 02110
Attention: Irina V. Case, Vice President
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall be effective two (2) Business Days after deposit in the
United States mails, if sent postage prepaid, certified or registered mail,
return receipt requested, addressed as aforesaid. If any such notice, request,
demand or other communication is hand-delivered, same shall be effective upon
receipted delivery.
6.6. BINDING EFFECT; ASSIGNMENT; TERMINATION. This letter agreement
shall be binding upon the Borrower, its successors and assigns and shall inure
to the benefit of the Borrower and the Bank and their respective permitted
successors and assigns. The Borrower may not assign this letter agreement or any
rights hereunder without the express written consent of the Bank. The Bank may,
in accordance with applicable law, from time to time assign or grant
participations in this letter agreement, the Loans, the Notes and/or any letters
of credit issued hereunder. Without limitation of the foregoing generality,
(i) The Bank may at any time pledge all or any portion of its
rights under the Loan Documents (including any portion of any Note) to
any of the 12 Federal Reserve Banks organized under Section 4 of the
Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or the
enforcement thereof shall release the Bank from its obligations under
any of the Loan Documents.
(ii) The Bank shall have the unrestricted right at any time
and from time to time, and without the consent of or notice to the
Borrower, to grant to one or more banks or other financial institutions
(each, a "Participant") participating interests in the Bank's
obligation to lend hereunder and/or any or all of the Loans held by the
Bank hereunder. In the event of any such grant by the Bank of a
participating interest to a Participant, whether or not upon notice to
the Borrower, the Bank shall remain responsible for the performance of
its obligations hereunder and the Borrower shall continue to deal
solely and directly with the Bank in connection with the Bank's rights
and obligations hereunder. The Bank may furnish any information
concerning the Borrower in its
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<PAGE>
possession from time to time to prospective assignees and Participants;
provided that the Bank shall require any such prospective assignee or
Participant to agree in writing to maintain the confidentiality of such
information to the same extent as the Bank would be required to
maintain such confidentiality.
The Borrower may terminate this letter agreement and the financing
arrangements made herein by giving written notice of such termination to the
Bank; provided that no such termination will release or waive any of the Bank's
rights or remedies or any of the Borrower's obligations under this letter
agreement or any of the other Loan Documents unless and until the Borrower has
paid in full all Loans and all interest thereon and all fees and charges payable
in connection therewith and all letters of credit issued hereunder have been
terminated.
6.7. CONSENT TO JURISDICTION. The Borrower irrevocably submits to the
non-exclusive jurisdiction of any Massachusetts court or any federal court
sitting within The Commonwealth of Massachusetts over any suit, action or
proceeding arising out of or relating to this letter agreement and/or any Note.
The Borrower irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any such
suit, action or proceeding brought in such a court and any claim that any such
suit, action or proceeding has been brought in an inconvenient forum. The
Borrower agrees that final judgment in any such suit, action or proceeding
brought in such a court shall be enforced in any court of proper jurisdiction by
a suit upon such judgment, provided that service of process in such action, suit
or proceeding shall have been effected upon the Borrower in one of the manners
specified in the following paragraph of this ss.6.7 or as otherwise permitted by
law.
The Borrower hereby consents to process being served in any suit,
action or proceeding of the nature referred to in the preceding paragraph of
this ss.6.7 either (i) by mailing a copy thereof by registered or certified
mail, postage prepaid, return receipt requested, to it at its address set forth
in ss.6.5 or (ii) by serving a copy thereof upon it at its address set forth in
ss.6.5.
6.8. SEVERABILITY. In the event that any provision of this letter
agreement or the application thereof to any Person, property or circumstances
shall be held to any extent to be invalid or unenforceable, the remainder of
this letter agreement, and the application of such provision to Persons,
properties or circumstances other than those as to which it has been held
invalid and unenforceable, shall not be affected thereby, and each provision of
this letter agreement shall be valid and enforced to the fullest extent
permitted by law.
6.9. REPLACEMENT NOTE. Upon receipt of an affidavit of an officer of
the Bank as to the loss, theft, destruction or mutilation of any Note or of any
other Loan Document which is not of public record and, in the case of any such
mutilation, upon surrender and cancellation of such Note or other Loan Document,
the Borrower will issue, in lieu thereof, a replacement Note or other Loan
Document in the same principal amount (as to any Note) and in any event of like
tenor.
6.10. USURY. All agreements between the Borrower and the Bank are
hereby expressly limited so that in no contingency or event whatsoever, whether
by reason of acceleration of maturity of the Notes or otherwise, shall the
amount paid or agreed to be paid to the Bank for the
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<PAGE>
use or the forbearance of the Indebtedness represented by any Note exceed the
maximum permissible under applicable law. In this regard, it is expressly agreed
that it is the intent of the Borrower and the Bank, in the execution, delivery
and acceptance of the Notes, to contract in strict compliance with the laws of
The Commonwealth of Massachusetts. If, under any circumstances whatsoever,
performance or fulfillment of any provision of any of the Notes or any of the
other Loan Documents at the time such provision is to be performed or fulfilled
shall involve exceeding the limit of validity prescribed by applicable law, then
the obligation so to be performed or fulfilled shall be reduced automatically to
the limits of such validity, and if under any circumstances whatsoever the Bank
should ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced by the Notes and not to the payment
of interest. The provisions of this ss.6.10 shall control every other provision
of this letter agreement and of each Note.
6.11. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY MUTUALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS LETTER AGREEMENT, ANY NOTE OR ANY OTHER LOAN DOCUMENTS OR OUT OF ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS
OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE BANK TO
ENTER INTO THIS LETTER AGREEMENT AND TO MAKE LOANS AS CONTEMPLATED HEREIN.
VII. DEFINED TERMS
7.1. DEFINITIONS. In addition to terms defined elsewhere in this letter
agreement, as used in this letter agreement, the following terms have the
following respective meanings:
"Acquisition" - Any purchase or other acquisition made by the Borrower
or any Subsidiary of the Borrower of all or substantially all of the business or
assets of any other corporation or other entity or any line of business of
another corporation or entity, all whether through the acquisition of stock or
assets or otherwise.
"Aggregate Demand Facility Liabilities" - At any time, the sum of (i)
the principal amount of all Demand Loans then outstanding, PLUS (ii) all then
undrawn amounts of letters of credit issued by the Bank for the account of the
Borrower, PLUS (iii) all amounts then drawn on any such letter of credit which
at said date shall not have been reimbursed to the Bank by the Borrower.
"Bank Certificate" - A certificate signed by an officer of the Bank
setting forth any additional amount required to be paid by the Borrower to the
Bank pursuant to ss.1.6, ss.1.9 or ss.1.10 of this letter agreement, which
certificate shall be submitted by the Bank to the Borrower in connection with
each demand made at any time by the Bank upon the Borrower with respect to any
such additional amount, and each such certificate shall, save for manifest
error, constitute presumptive evidence of the additional amount required to be
paid by the Borrower to the Bank
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upon each demand. A claim by the Bank for all or any part of any additional
amount required to be paid by the Borrower may be made before and/or after the
end of the Interest Period to which such claim relates or during which such
claim has arisen and before and/or after any payment hereunder to which such
claim relates. Each Bank Certificate shall set forth in reasonable detail the
basis for and the calculation of the claim to which it relates.
"Business Day" - Any day which is not a Saturday, nor a Sunday nor
another day on which banks in Boston, Massachusetts are authorized or directed
to close; provided however that if the applicable provision relates to a LIBOR
Term Loan, then the term "Business Day" shall not include any day on which
dealings are not carried on in the London interbank market or on which banks are
not open for business in London.
"Capital Base" - At any time, the sum of (i) the consolidated Tangible
Net Worth of the Borrower and Subsidiaries then existing PLUS (ii) the principal
amount of Subordinated Debt of the Borrower then outstanding (nothing contained
herein being deemed to authorize the incurrence of any additional Subordinated
Debt).
"Collateral" - All property now or hereafter owned by the Borrower or
in which the Borrower now or hereafter has any interest which is described as
"Collateral" in the Security Agreement.
"Default" - Any event or circumstance which, with the passage of time
or the giving of notice or both, could become an Event of Default.
"Demand Loans" - As defined in ss.1.2.
"Demand Note" - As defined in ss.1.1.
"Earnings Available" - The consolidated Net Income (or consolidated Net
Loss, as the case may be, expressed as a negative number) of the Borrower and
Subsidiaries for any period, PLUS, without duplication of any item, (i) all
federal and state income taxes (but not taxes in the nature of an AD VALOREM
property tax or a sales or excise tax) paid or accrued by the Borrower and/or
any of its Subsidiaries with respect to such period, (ii) all interest on any
Indebtedness (whether senior debt or subordinated debt) paid or accrued by the
Borrower and/or any of its Subsidiaries for such period and actually deducted on
the consolidated books of the Borrower for the purposes of computation of
consolidated Net Income (or consolidated Net Loss, as the case may be) for the
period involved, and (iii) the amount of the provision for depreciation and/or
amortization actually deducted on the consolidated books of the Borrower for the
purposes of computation of consolidated Net Income (or consolidated Net Loss, as
the case may be) for the period involved, but MINUS all cash taxes paid during
such period by the Borrower and/or any of its Subsidiaries.
"ERISA" - The Employee Retirement Income Security Act of 1974, as
amended.
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<PAGE>
"Eurocurrency Liabilities" - Has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System (or any
successor), as in effect from time to time, or in any successor regulation
relating to the liabilities described in said Regulation D.
"Event of Default" - As defined in ss.5.1.
"Expiration Date" - October 13, 2000.
"FDA" - The United States Food and Drug Administration or any successor
agency.
"Floating Rate" - As defined in ss.1.6.
"Floating Rate Term Loan" - All or any portion of any Term Loan which
bears interest at a rate calculated with reference to the Prime Rate.
"Impositions" - All present and future taxes, levies, duties,
impositions, deductions, charges and withholdings applicable to the Bank with
respect to any LIBOR Term Loan, excluding, however, any taxes imposed directly
on the Bank's income and any franchise taxes imposed on it by the jurisdiction
under the laws of which the Bank is organized or any political subdivision
thereof.
"Indebtedness" - The total of all obligations of a Person, whether
current or long-term, senior or subordinated, which in accordance with generally
accepted accounting principles would be included as liabilities upon such
Person's balance sheet at the date as of which Indebtedness is to be determined,
and shall also include guaranties, endorsements (other than for collection in
the ordinary course of business) or other arrangements whereby responsibility is
assumed for the obligations of others, whether by agreement to purchase or
otherwise acquire the obligations of others, including any agreement, contingent
or otherwise, to furnish funds through the purchase of goods, supplies or
services for the purpose of payment of the obligations of others.
"Interest Payment Date" - As to each LIBOR Term Loan, the Interest
Payment Date will be the last day of Interest Period applicable to such LIBOR
Term Loan.
"Interest Period" - As to each LIBOR Term Loan, the period commencing
with the date of the making of such LIBOR Term Loan and ending three months
thereafter; provided that (A) any such Interest Period which would otherwise end
on a day which is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day occurs in a new calendar month, in which
case such Interest Period shall end on the immediately preceding Business Day,
(B) any such Interest Period which begins on a day for which there is no
numerically corresponding day in the calendar month during which such Interest
Period is to end shall end on the last Business Day of such calendar month, and
(C) no Interest Period may be selected as to any principal amount of any Term
Loan if such Interest Period would end after the regularly-scheduled due date of
such principal amount.
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"LIBOR" - With respect to each Interest Period for a LIBOR Term Loan,
that rate per annum (rounded upward, if necessary, to the nearest 1/32nd of one
percent) which represents the offered rate for deposits in U.S. Dollars, for a
period of time comparable to such Interest Period, which appears on the Telerate
page 3750 as of 11:00 a.m. (London time) on that day that is two (2) London
Banking Days preceding the first day of such Interest Period; provided, however,
that if the rate described above does not appear on the Telerate System on any
applicable interest determination date, LIBOR for such Interest Period shall be
the rate (rounded upwards as described above, if necessary) for deposits in
dollars for a period substantially equal to such Interest Period shown on the
Reuters Page "LIBO" (or such other page as may replace the LIBO Page on that
service for the purpose of displaying such rates), as of 11:00 a.m. (London
Time), on that day that is two (2) London Banking Days prior to the beginning of
such Interest Period. "London Banking Day" shall mean any date on which
commercial banks are open for business in London. If both the Telerate and
Reuters systems are unavailable, then LIBOR for any Interest Period will be
determined on the basis of the offered rates for deposits in U.S. Dollars for a
period of time comparable to such Interest Period which are offered by four
major banks in the London interbank market at approximately 11:00 a.m., London
time, on that day that is two (2) London Banking Days preceding the first day of
such Interest Period, as selected by the Bank. The principal London office of
each of four major London banks will be requested to provide a quotation of its
U.S. Dollar deposit offered rate. If at least two such quotations are provided,
the rate for that date will be the arithmetic mean of the quotations. If fewer
than two quotations are provided as requested, the rate for that date will be
determined on the basis of the rates quoted for loans in U.S. Dollars to leading
European banks for a period of time comparable to such Interest Period offered
by major banks in New York City at approximately 11:00 a.m., New York City time,
on that day that is two London Banking Days preceding the first day of such
Interest Period. In the event that the Bank is unable to obtain any such
quotation as provided above, it will be deemed that LIBOR for the proposed
Interest Period cannot be determined. The Bank shall give prompt notice to the
Borrower of LIBOR as determined for each LIBOR Term Loan and such notice shall
be deemed conclusively correct, absent manifest error.
"LIBOR Interest Rate" - For any Interest Period, an interest rate per
annum, expressed as a percentage, determined by the Bank pursuant to the
following formula:
* LIR = LIBOR + 2.5
-----------
[1.00 - RR]
Where LIR = LIBOR Interest Rate
LIBOR = See definition of LIBOR
RR = Reserve Rate
*LIR to be rounded upwards to the next higher 1/32 of 1%.
The LIBOR Interest Rate will be adjusted during any Interest Period to reflect
any change in the Reserve Rate during such Interest Period.
"LIBOR Term Loan" - All or any portion of a Term Loan which bears
interest at a LIBOR Interest Rate.
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"Loan" - Any Demand Loan or any Term Loan.
"Loan Documents" - Each of this letter agreement, the Demand Note, the
Tranche A Term Note, the Tranche B Term Note, the Tranche C Term Note, the
Security Agreement and each other instrument, document or agreement evidencing,
securing, guaranteeing or relating in any way to any of the Loans or to any of
the letters of credit issued hereunder, all whether now existing or hereafter
arising or entered into.
"Maximum Demand Loan Amount" - At any date as of which same is to be
determined, the amount by which (x) $3,000,000 exceeds (y) the sum of (i) all
then undrawn amounts of letters of credit issued by the Bank for the account of
the Borrower PLUS (ii) all amounts then drawn on any such letter of credit which
at said date shall not have been reimbursed to the Bank by the Borrower.
"Net Income" (or "Net Loss") - The book net income (or book net loss,
as the case may be) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined in accordance with
generally accepted accounting principles consistently applied.
"Net Quick Assets" - Such current assets of the Borrower as consist of
cash, cash-equivalents, readily-marketable securities and Receivables (less an
allowance for bad debt consistent with the Borrower's prior experience).
"Notes" - Collectively, the Demand Note, the Tranche A Term Note, the
Tranche B Term Note and the Tranche C Term Note.
"Obligations" - All Indebtedness, covenants, agreements, liabilities
and obligations, now existing or hereafter arising, made by the Borrower with or
for the benefit of the Bank or owed by the Borrower to the Bank in any capacity.
"PBGC" - The Pension Benefit Guaranty Corporation or any successor
thereto.
"Permitted Acquisition" - Any Acquisition hereafter made by the
Borrower which meets all of the following criteria: (1) the Person so acquired
conducts a business (or the assets so acquired are used to conduct a business)
which is the same as or is substantially related to the business conducted by
the Borrower at the date of this letter agreement; (2) the Board of Directors of
the Person so acquired (as such Board was constituted prior to the commencement
of the Acquisition) has approved the Acquisition; (3) the consideration paid or
payable for such Acquisition by the Borrower must consist solely of capital
stock of the Borrower; (4) the aggregate number of shares of capital stock of
the Borrower issued or transferred as such consideration (computed on a fully
diluted and converted basis) for any one or more Acquisitions during the term of
this letter agreement will not exceed 20% of the total number of shares of
capital stock of the Borrower outstanding at the date of this letter agreement
(computed on a fully diluted and converted basis); (5) at the time of each such
Acquisition and after giving effect thereto there shall be no Default or Event
of Default, with compliance with each of ss.3.7
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and ss.3.8 being measured for this purpose as at the then most recent fiscal
quarter-end, giving effect to such acquisition on a PRO FORMA basis as if it had
occurred immediately prior to such fiscal quarter-end, and with compliance with
ss.3.9 being measured for this purpose as at the then most recent fiscal
quarter-end, giving effect to such acquisition as if it had occurred at the
beginning of the 12-month period ending at said fiscal quarter-end; and (6)
prior to such Acquisition the Borrower provides the Bank with projections
reasonably satisfactory to the Bank showing that the Borrower (giving effect to
such Acquisition) will remain in compliance with each of ss.3.7, ss.3.8 and
ss.3.9 during the fiscal year in which sucH Acquisition takes place and during
the immediately following fiscal year.
"Person" - An individual, corporation, limited liability company,
partnership, limited partnership, joint venture, trust, or unincorporated
organization, or a government or any agency or political subdivision thereof.
"Prime Rate" - That variable rate of interest per annum designated by
the Bank, from time to time, as being its prime rate, it being understood that
such rate is merely a reference rate and does not necessarily represent the
lowest or best rate being charged to any customer.
"Prior Note" - As defined in ss.1.1.
"Qualifying Equipment" - Tangible equipment purchased by the Borrower
for use in the Borrower's business which meets all of the following criteria:
(i) such equipment consists of one of the items shown on the Equipment and
Improvements List heretofore delivered by the Borrower to the Bank or has
otherwise been approved by the Bank for use in supporting a Term Loan, and (ii)
the Bank has a fully perfected first security interest in such equipment.
"Qualifying Leasehold Improvements" - Fixtures and leasehold
improvements purchased by the Borrower which meet all of the following criteria:
(i) such fixtures and leasehold improvements consist of one or more of the items
shown on the Equipment and Improvements List heretofore delivered by the
Borrower to the Bank or have otherwise been approved by the Bank for use in
supporting a Term Loan, and (ii) the Bank has a fully perfected first security
interest in each such item (subject to the interest of the owner of the
Borrower's premises, as described in ss.1.4 above).
"Receivables" - All of the Borrower's accounts and accounts receivable
for goods sold or services rendered.
"Reserve Rate" - The aggregate rate, expressed as a decimal, at which
the Bank would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulation relating to such reserve requirements) against Eurocurrency
Liabilities, as well as any other reserve required of the Bank with respect to
the LIBOR Term Loans. The LIBOR Interest Rate shall be adjusted automatically on
and as of the effective date of any change in the Reserve Rate.
"Security Agreement" - As defined in ss.1.1.
36
<PAGE>
"Subordinated Debt" - Any Indebtedness of the Borrower which is
expressly subordinated, pursuant to a subordination agreement in form and
substance satisfactory to the Bank, to all Indebtedness now or hereafter owed by
the Borrower to the Bank.
"Subsidiary" - Any corporation or other entity of which the Borrower
and/or any of its Subsidiaries, directly or indirectly, owns, or has the right
to control or direct the voting of, fifty (50%) percent or more of the
outstanding capital stock or other ownership interest having general voting
power (under ordinary circumstances).
"Tangible Net Worth" - An amount equal to the total assets of any
Person (excluding (i) the total intangible assets of such Person and (ii) any
assets representing amounts due from any officer, employee or other affiliate of
such Person) minus the total liabilities of such Person. Total intangible assets
shall be deemed to include, but shall not be limited to, the excess of cost over
book value of acquired businesses accounted for by the purchase method,
formulae, trademarks, trade names, patents, patent rights and deferred expenses
(including, but not limited to, unamortized debt discount and expense,
organizational expense, capitalized software costs and experimental and
development expenses).
"Term Loans" - Collectively, the Tranche A Term Loans, the Tranche B
Term Loans and the Tranche C Term Loans.
"Term Notes" - Collectively, the Tranche A Term Note, the Tranche B
Term Note and the Tranche C Term Note.
"Total Liabilities" - All Indebtedness of the Borrower and/or any
Subsidiary of the Borrower (secured or unsecured, senior or subordinated) which
would properly be included in liabilities shown on a balance sheet of the
Borrower prepared in accordance with generally accepted accounting principles.
"Tranche" - Each of Tranche A, Tranche B and Tranche C, as applicable.
"Tranche A" - The facility for Tranche A Term Loans established by
ss.1.4.
"Tranche A Term Loans" - As defined in ss.1.4.
"Tranche A Term Note" - As defined in ss.1.1.
"Tranche B" - The facility for Tranche B Term Loans established by
ss.1.4.
"Tranche B Term Loans" - As defined in ss.1.4.
"Tranche B Term Note" - As defined in ss.1.1.
"Tranche C" - The facility for Tranche C Term Loans established by
ss.1.4.
"Tranche C Term Loans" - As defined in ss.1.4.
37
<PAGE>
"Tranche C Term Note" - As defined in ss.1.1.
"Unencumbered Cash Balance" - At any time, the total of all cash,
cash-equivalents and readily-marketable securities of the Borrower which are not
subject to any pledge, lien, encumbrance or other restriction.
Any defined term used in the plural preceded by the definite article
shall be taken to encompass all members of the relevant class. Any defined term
used in the singular preceded by "any" shall be taken to indicate any number of
the members of the relevant class.
38
<PAGE>
This letter agreement is executed, as an instrument under seal, as of
the day and year first above written.
Very truly yours,
ABIOMED, INC.
By
-------------------------------
Name:
Title:
Accepted and agreed:
FLEET NATIONAL BANK
By
--------------------------------
Name:
Title:
39
<PAGE>
DISCLOSURE SCHEDULE
<TABLE>
<S> <C>
Item 2.1(a) Jurisdictions in which Borrower is qualified; Subsidiaries
Item 2.1(b) Stock ownership
Item 2.1(e) Litigation
Item 2.1(j) Collateral locations of Borrower; Record owners of premises
where Collateral is located
Item 2.1(k) Claims regarding intellectual property
Item 4.1 Existing Indebtedness
Item 4.2 Existing Liens
Item 4.3 Existing Guaranties
Item 4.6 Existing Investments; Investment Policy
Item 5.1(m) Permitted 50% Stockholders
</TABLE>
<PAGE>
EXHIBIT 10(b)
AGREEMENT
AGREEMENT by and between ABIOMED, INC., a Delaware corporation (the
"Company"), and _ (the "Executive"), dated as of the _day of _, 1999.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat, or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall be the first date during
the "Change of Control Period" (as defined in Section 1(b)) on which a Change of
Control occurs. Anything in this Agreement to the contrary notwithstanding, if
the Executive's employment with the Company is terminated or the Executive
ceases to be an officer of the Company prior to the date on which a Change of
Control occurs, and it is reasonably demonstrated that such termination of
employment (1) was at the request of a third party who has taken steps
reasonably calculated to effect the Change of Control or (2) otherwise arose in
connection with or anticipation of the
<PAGE>
Change of Control, then for all purposes of this Agreement the "Effective Date"
shall mean the date immediately prior to the date of such termination of
employment.
(b) The "Change of Control Period" is the period commencing on the date
hereof and ending on the second anniversary of such date; provided, however that
commencing on the date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual anniversary thereof is
hereinafter referred to as the "Renewal Date"), the Change of Control Period
shall be automatically extended without any further action by the Company or the
Executive so as to terminate two years from such Renewal Date; provided,
however, that if the Company shall give notice in writing to the Executive, at
least sixty days prior to the Renewal Date, stating that the Change of Control
Period shall not be extended, then the Change of Control Period shall expire two
years from the last effective Renewal Date.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of Control"
shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), other than David M.
Lederman or any of his affiliates (as defined in the Exchange Act) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty percent or more of the then
outstanding shares of stock of the Company entitled to vote in the
election of directors (the "Outstanding Company Common Stock"), whether
in one transaction or in multiple transactions which in the aggregate
equal or exceed thirty percent of the Outstanding Company Common Stock;
provided, however, that (i) any acquisition by the Company or its
subsidiaries, or any
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<PAGE>
employee benefit plan (or related trust) of the Company or its
subsidiaries of thirty percent or more of Outstanding Company Common
Stock shall not constitute a Change of Control; (ii) any acquisition by
any individual, entity or group of beneficial ownership of thirty
percent or more but less than forty percent of the Outstanding Company
Common Stock may be deemed by the Board of Directors of the Company as
it is constituted as of the date of this Agreement (the "Incumbent
Board"), excluding any members of the Incumbent Board affiliated with
the acquiror, to not constitute a Change of Control, in the Incumbent
Board's sole and absolute discretion; and (iii) any acquisition by a
corporation with respect to which, following such acquisition, more
than fifty percent of the then outstanding shares of common stock of
such corporation, is then beneficially owned, directly or indirectly,
by all or substantially all of the individuals and entities who were
the beneficial owners of the Outstanding Company Common Stock
immediately prior to such acquisition in substantially the same
proportion as their ownership, immediately prior to such acquisition,
of the Outstanding Company Common Stock, shall not constitute a Change
of Control; or
(b) Individuals who, as of the date of this Agreement,
constitute the Board of Directors (the "Board") of the Company (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any individual becoming a director
subsequent to the date of this Agreement whose election, or nomination
for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of
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<PAGE>
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office is in connection with
either an actual or threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on
behalf of a person other than the Board; or
c) Approval by the stockholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to
which all or substantially all of the individuals and entities who were
the beneficial owners of the Outstanding Company Common Stock
immediately prior to such reorganization, merger or consolidation will
not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% of the then
outstanding shares of common stock of the corporation resulting from
such a reorganization, merger or consolidation, other than a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) acquires 30% or more of
Outstanding Company Common Stock; or (ii) the sale or other disposition
of all or substantially all of the assets of the Company, excluding a
sale or other disposition of assets to a subsidiary of the Company and
excluding a sale or license of a portion of the business of the Company
which is deemed by the Incumbent Board, acting in its sole and absolute
discretion, to not constitute a Change of Control.
Anything in this Agreement to the contrary notwithstanding, if an event
that would, but for this paragraph, constitute a Change of Control results from
or arises out of a purchase or
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<PAGE>
other acquisition of the Company, directly or indirectly, by a corporation or
other entity in which the Executive has a greater than ten percent direct or
indirect equity interest, such event shall not constitute a Change of Control.
3. EMPLOYMENT PERIOD. Subject to the terms and conditions hereof, the Company
hereby agrees to continue the Executive in its employ for the period commencing
on the Effective Date and ending on the last day of the twenty-fourth month
following the month in which the Effective Date occurs (the "Employment
Period"). The Executive hereby agrees to remain in the employ of the Company for
the period commencing on the Effective Date and ending on the last day of the
sixth month following the month in which the Effective Date occurs (the "Six
Month Period").
4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) Except as provided in
Section 4(c) below, during the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the one hundred eighty-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than thirty-five miles from such location.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote his full business time to the business and affairs of the
Company and, to the extent necessary to discharge the responsibilities assigned
to the Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the Employment
Period
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<PAGE>
it shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational institutions and
(C) manage personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities to the
Company.
(b) COMPENSATION. (i) BASE SALARY. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable to the Executive by the Company in respect
of the twelve-month period immediately preceding the month in which the
Effective Date occurs. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased.
(ii) ANNUAL BONUS. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year during the Employment Period,
an annual bonus (the "Annual Bonus") in cash at least equal to the average
annualized (for any fiscal year consisting of less than twelve full months or
with respect to which the Executive has been employed by the Company for less
than twelve full months) bonus (the "Average Annual Bonus") paid or payable to
the Executive by the Company in respect of the lesser of the three fiscal years
immediately
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<PAGE>
preceding the fiscal year in which the Effective Date occurs or the
number of full fiscal years for which the Executive has been employed by the
Company immediately preceding the fiscal year in which the Effective Date
occurs. Each such Annual Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus pursuant to deferral plans of the Company.
(iii) At the end of the Six Month Period, if Executive remains
employed by the Company, all unvested stock options or stock appreciation rights
which Executive then holds to acquire securities from the Company shall be
immediately and automatically exercisable as of such date.
(iv) INCENTIVE, SAVINGS AND RETIREMENT PLANS. In addition to
Annual Base Salary and Annual Bonus payable as herein above provided, the
Executive shall be entitled to participate during the Employment Period in all
incentive, savings and retirement plans, practices, policies and programs
applicable to other peer executives of the Company, but in no event shall such
plans practices, policies and programs provide the Executive with incentive,
savings and retirement benefits opportunities, in each case, less favorable, in
the aggregate, than the most favorable of those provided by the Company for the
Executive under such plans, practices, policies and programs as in effect at any
time during the one-year immediately preceding the Effective Date.
(v) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company (including, without
limitation, medical, prescription, dental, disability, salary
-7-
<PAGE>
continuance, employee life, group life, accidental death and travel accident
insurance plans and programs) and applicable to other peer executives of the
Company, but in no event shall such plans, practices, policies and programs
provide benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect at any time
during the one-year period immediately preceding the Effective Date.
(vi) EXPENSES. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in the conduct of the Company's business upon
submission of appropriate accountings in accordance with the most favorable
policies, practices and procedures of the Company in effect at any time during
the one-year period immediately preceding the Effective Date.
(vii) FRINGE BENEFITS. During the Employment Period, the
Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company in effect at
any time during the one-year period immediately preceding the Effective Date. If
at the end of the Employment Period, the Company elects not to continue to
employ Executive for reasons other than for Cause, death or Disability, or if
the Executive shall terminate employment hereunder for Good Reason, the Company
will provide to Executive up to $5,000 in fees paid for out-placement
assistance.
(viii) OFFICE AND SUPPORT STAFF. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company at any time during the one-year period
immediately preceding the Effective Date.
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<PAGE>
(ix) VACATION. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company as in effect at any time during
the one-year period immediately preceding the Effective Date.
(c) SIX MONTH PERIOD. Notwithstanding anything to the contrary in this
Section 4, during the Six Month Period, the Company's obligations under this
Agreement are limited to employing the Executive in any capacity reasonably
assigned to Executive by the Company to assist in the transition caused by the
Change of Control at the location where the Executive was employed immediately
preceding the Effective Date or at any office or location less than thirty-five
miles from such location and providing to the Executive compensation and
benefits, as set forth in Section 4(b) hereof in accordance with the most
favorable plans, practices, policies and programs provided by the Company for
the Executive as in effect at any time during the one year period immediately
preceding the Effective Date.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of "Disability" set forth below), it may give to the Executive
written notice in accordance with Section 11(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the
thirtieth day after receipt of such notice by the Executive (the "Disability
Effective Date"), provided that, within the thirty days after such receipt, the
Executive shall not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" means the absence of the
Executive from the
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<PAGE>
Executive's duties with the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician selected by the
Company or its insurers and acceptable to the Executive or the Executive's
legal representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) CAUSE. The Company may terminate the Executive's employment during
the Employment Period for "Cause". For purposes of this Agreement, "Cause" means
(i) an act or acts of personal dishonesty taken by the Executive and intended to
result in substantial personal enrichment of the Executive at the expense of the
Company, (ii) repeated violations by the Executive of the Executive's
obligations under Section 4(a) of this Agreement (other than as a result of
incapacity due to physical or mental illness) which are demonstrably willful and
deliberate on the Executive's part, which are committed in bad faith or without
reasonable belief that such violations are in the best interests of the Company
and which are not remedied in a reasonable period of time after receipt of
written notice from the Company or (iii) the conviction of the Executive of a
felony involving moral turpitude.
(c) GOOD REASON. The Executive's employment may be terminated during
the Employment Period by the Executive for Good Reason. For purposes of this
Agreement, "Good Reason" means:
(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not
-10-
<PAGE>
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) any failure by the Company to fulfill its obligations to
the Executive during the Six Month Period, as set forth in Section 4(c) of this
Agreement, other than an isolated, insubstantial and inadertent failure not
occurring in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iv) the Company's requiring the Executive to be based at any
office or location other than that described in Section 4(a)(i)(B) hereof;
(v) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(vi) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement.
Notwithstanding the foregoing, during the Six Month Period, "Good
Reason" shall mean (iii), (iv), (v) or (vi) above only. For purposes of this
Section 5(c), any good faith determination of "Good Reason" after the Six Month
Period made by the Executive shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause or
without Cause or by the Executive for Good Reason shall be communicated by
Notice of Termination to the other party hereto given in accordance with Section
11(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the
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<PAGE>
specific termination provision in this Agreement relied upon, if applicable,
(ii) to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than fifteen days
after the giving of such notice). The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company hereunder or preclude the Executive or the Company
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means the date of
receipt of the Notice of Termination or any later date specified therein, as the
case may be; provided however, that (i) if the Executive's employment is
terminated by the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (ii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) DEATH. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than payment of the sum of the following amounts: (i) the
Executive's Annual Base Salary through the Date of Termination to the extent not
theretofore paid, (ii) the product of (A) the greater of (x) the Annual Bonus
paid
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or payable (and annualized for any fiscal year consisting of less than twelve
full months or for which the Executive has been employed for less than twelve
full months) to the Executive for the Company's most recently completed fiscal
year, and (y) the Average Annual Bonus and (B) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, and (iii) any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued bonus amounts or vacation pay, in each case,
to the extent not yet paid by the Company (the amounts described in
subparagraphs (i), (ii), and (iii) are hereafter referred to as "Accrued
Obligations" and shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within sixty days of the Date of Termination.
Subject to the provisions of Section 9 hereof, but, otherwise, anything herein
to the contrary notwithstanding, the Executive's family shall be entitled to
receive benefits at least equal to the most favorable benefits provided by the
Company to surviving families of peer executives of the Company under such
plans, programs, practices and policies relating to family death benefits, if
any, as in effect with respect to other peer executives and their families at
any time during the one year period immediately preceding the Effective Date.
(b) DISABILITY. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations of the Company to the Executive, other
than for payment of the Accrued Obligations (which shall be paid in a lump sum
in cash within sixty days of the Date of Termination). Subject to the provisions
of Section 9 hereof, but, otherwise, anything herein to the contrary
notwithstanding, the Executive shall be entitled after the Disability Effective
Date to receive disability and other benefits at least equal to the most
favorable of those provided by the
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<PAGE>
Company to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect with respect to other peer executives and their families at any time
during the one year period immediately preceding the Effective Date.
(c) CAUSE, OTHER THAN FOR GOOD REASON. If the Executive's employment
shall be terminated by the Company for Cause or by the Executive other than for
Good Reason (and other than by reason of his death or disability) during the
Employment Period, this Agreement shall terminate without further obligations of
the Company to the Executive other than the obligation to pay to the Executive
Annual Base Salary through the Date of Termination, plus the amount of any
compensation previously deferred by the Executive and any accrued and awarded
bonus amounts or vacation pay, in each case, to the extent theretofore unpaid.
In such case, such amounts shall be paid to the Executive in a lump sum in cash
within thirty days of the Date of Termination, except that accrued and awarded
bonus amounts, if any, shall be paid as previously scheduled at the time of the
award. The Executive shall, in such event, also be entitled to any benefits
required by law that are not otherwise provided by this Agreement.
(d) GOOD REASON; OTHER THAN FOR CAUSE OR DISABILITY. If, during the
Employment Period, the Company shall terminate the Executive's employment other
than for Cause, death or Disability, or if the Executive shall terminate
employment under this Agreement for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
sixty days after the Date of Termination the aggregate of the following amounts:
A. all Accrued Obligations; and
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B. the amount (such amount shall be hereinafter referred to as the
"Severance Amount") equal to the product of (I) two and ninety-nine
one-hundredths (2.99) and (II) the Executive's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code").
(ii) the Company shall timely pay and provide, for eighteen months from
the Date of Termination, medical benefits to the Executive and/or the
Executive's family at least equal to those which would have been provided in
accordance with the applicable plans (including the Company's 401(k), match and
profit-sharing plans), programs, practices and policies described in Section
4(b)(v) of this Agreement as if the Executive's employment had not been
terminated in accordance with the most favorable plans, practices, programs or
policies of the Company as in effect and applicable generally to other peer
executives and their families during the one year period immediately preceding
the Effective Date, provided, however, that if the Executive becomes re-employed
with another employer and is eligible to receive medical and dental benefits
under another employer provided plan, the medical and dental benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility and provided, further, that if any Company plan
would not allow Executive to participate, the Company shall provided to
Executive comparable tax-adjusted payments of an equivalent amount; and
(iii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive and/or the Executive's family any other
amounts or benefits required to be paid or provided or which the Executive
and/or the Executive's family is eligible to receive pursuant to this Agreement
and under any plan, program, policy or practice or contract or agreement of the
Company as in effect and applicable generally to other peer executives of the
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<PAGE>
Company and their families, including up to $5,000 in fees paid for
out-placement assistance (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
(iv) all remaining unvested stock options or stock appreciation rights
which Executive then holds to acquire securities from the Company shall be
immediately and automatically exercisable as of the Date of Termination; and
(v) the Company shall pay the Executive in cash a lump sum equal to the
amounts accrued on behalf of the Executive, but not yet vested, under the
Company's profit-sharing plan.
7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Section 6, nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plans, programs,
policies or practices, provided by the Company and for which the Executive may
qualify, nor shall anything herein limit or otherwise affect such rights as the
Executive may have under any other agreements with the Company. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of the Company at or subsequent to
the Date of Termination shall be payable in accordance with such plan, policy,
practice or program except as explicitly modified by this Agreement.
8. FULL SETTLEMENT. (a) The Company's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and, except as provided
in Section
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<PAGE>
6(d)(ii), such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay promptly as incurred, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement, unless a court of competent
jurisdiction determines that the Executive made such effort in bad faith), plus
in each case interest at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
(b) If there shall be any dispute between the Company and the Executive
(i) in the event of any termination of the Executive's employment by the
Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or that the
determination by the Executive of the existence of Good Reason was not made in
good faith, the Company shall pay all amounts, and provide all benefits, to the
Executive and/or the Executive's family or other beneficiaries, as the case may
be, that the Company would be required to pay or provide pursuant to Section
6(d) as though such termination were by the Company without Cause, or by the
Executive with Good Reason; provided, however, that the Company shall not be
required to pay any disputed amount pursuant to this paragraph except upon
receipt of an undertaking by or on behalf of the Executive to repay all such
amounts to which the Executive is ultimately adjudged by such court not to be
entitled.
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<PAGE>
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event that it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 9 (a "Payment"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), the Company shall make an additional payment with respect to such
Excise Tax (a "Gross-Up Payment") to the Executive in an amount such that, after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Arthur
Andersen LLP (or its successor), unless such firm shall be the accounting firm
of the individual, entity or group effecting the Change of Control or any
affiliate of the Company at the Date of Termination, in which case such
determinations shall be made by an accounting firm of national standing agreed
to by the Company and the Executive, or, if the Company does not so agree within
10 days of the Date of Termination, such an accounting firm shall be selected by
the Executive, (the "Accounting Firm") which shall provide
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<PAGE>
detailed supporting calculations both to the Company and the Executive within
fifteen business days of the date such firm is selected or such earlier time as
is requested by the Company. All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence, accuracy-related or similar penalty. Any such
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine that amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
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<PAGE>
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim; provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest
-20-
<PAGE>
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
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<PAGE>
10. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
In addition, the Executive shall be entitled, upon exercise of any outstanding
stock options or stock appreciation rights of the Company, to receive in lieu of
shares of the Company's stock, shares of such stock or other securities of such
successor as the holders of shares of the Company's stock received pursuant to
the terms of the merger, consolidation or sale.
11. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect.
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<PAGE>
This Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
[ ]
[ ]
[ ]
If to the Company:
ABIOMED, Inc.
33 Cherry Hill Drive
Danvers, MA 01923
Attention: [ ]
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision thereof.
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<PAGE>
(f) This Agreement and the employment agreement between the Company and
the Executive (the "Employment Agreement") contain the entire understanding of
the Company and the Executive with respect to the subject matter hereof and by
entering into this Agreement the Executive waives all rights he may have under
the Company's separation policy, provided that if the Company's separation
policy would provide greater benefits to the Executive than this Agreement, than
the Executive may elect to receive benefits under the Company's separation
policy in lieu of the benefits provided hereunder. In the event of any conflict
between a provision of the Employment Agreement and a provision of this
Agreement, the provision of this Agreement shall control. Without limiting the
generality of the foregoing, it is expressly acknowledged that the definition of
"Cause" in this Agreement shall be controlling in all respects with respect to
Executive's employment following the Effective Date.
(g) The Executive and the Company acknowledge that, except as may
otherwise be provided under the Employment Agreement, prior to the Effective
Date and following the end of the Employment Period, the employment of the
Executive by the Company is "at will" and may be terminated by either the
Executive or the Company at any time. Moreover, if prior to the Effective Date,
the Executive's employment with the Company terminates, then the Executive shall
have no further rights under this Agreement. Notwithstanding anything contained
herein, if, during the Employment Period, the Executive shall terminate
employment with the Company other than for Good Reason, the Executive shall have
no liability to the Company.
(h) As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business or assets as aforesaid
which assumes and agrees to perform this Agreement by operation of law, or
otherwise.
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<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
ABIOMED, INC.
By:
--------------------------------
Name:
Title:
EXECUTIVE
-----------------------------------
<PAGE>
EXHIBIT 10 (c)
SCHEDULE RELATED TO CHANGE OF CONTROL AGREEMENT
The Company entered into change of control agreements with the following
executives effective August 9, 1999.
NAME TITLE
David M. Lederman, Ph.D. President and Chief Executive Officer
Robert T.V. Kung, Ph.D. Senior Vice President, Chief Scientific
Officer
Eugene D. Rabe Senior Vice President Worldwide Sales and
Services
John F. Thero Senior Vice President-Finance, Treasurer
and Chief Financial Officer
Anthony W. Bailey Vice President Engineering, Director of
the AbioCor Program
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (IDENTIFY
SPECIFIC FINANCIAL STATEMENTS HERE) THE COMPANY'S CONSOLIDATED INCOME STATEMENT,
CONSOLIDATED BALANCE SHEET, AND CONSOLIDATED STATEMENT OF CASH FLOWS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000815094
<NAME> ABIOMED, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,117,314
<SECURITIES> 8,543,274
<RECEIVABLES> 7,126,081
<ALLOWANCES> 209,701
<INVENTORY> 3,559,112
<CURRENT-ASSETS> 24,714,854
<PP&E> 8,917,312
<DEPRECIATION> 5,109,700
<TOTAL-ASSETS> 29,658,800
<CURRENT-LIABILITIES> 6,167,909
<BONDS> 0
0
0
<COMMON> 86,577
<OTHER-SE> 23,245,539
<TOTAL-LIABILITY-AND-EQUITY> 29,658,800
<SALES> 10,519,990
<TOTAL-REVENUES> 10,519,990
<CGS> 9,314,614
<TOTAL-COSTS> 14,724,614
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (397,503)
<INCOME-PRETAX> (3,807,121)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,807,121)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,807,121)
<EPS-BASIC> (.44)
<EPS-DILUTED> (.44)
</TABLE>
