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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996 Commission File No. 0-24072
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MEDISENSE, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
Massachusetts 04-2728017
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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266 Second Avenue, Waltham, Massachusetts 02154
(Address, including zip code, of principal executive offices)
(617) 895-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. /X/
The aggregate market value of Voting Stock held by non-affiliates of the
Registrant was approximately $7,335,135 based on the June 10, 1996 closing price
of the Common Stock on the Nasdaq National Market as reported in The Wall Street
Journal.
The number of shares outstanding of each of the Registrant's classes of common
stock as of June 10, 1996 was:
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Class Outstanding
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Common Stock, $.01 par value per share 20,024,084
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MEDISENSE, INC.
TABLE OF CONTENTS
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PAGE(S)
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PART I
Item 1. BUSINESS 3-12
Item 2. PROPERTIES 13
Item 3. LEGAL PROCEEDINGS 13
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS 14
Item 6. SELECTED FINANCIAL DATA 14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 15-19
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 19
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 19
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 20-21
Item 11. EXECUTIVE COMPENSATION 22-24
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 25
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 26
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 27
EXHIBIT INDEX 28
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1
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PART I
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ITEM 1. BUSINESS
MediSense, Inc. (the Company or MediSense) is a Massachusetts
corporation formed in 1981. The Company and its subsidiaries develop,
manufacture and market blood glucose monitoring systems that enable people with
diabetes to manage their disease more effectively. The Company believes that its
ExacTech(R), MediSense(R) 2 and recently introduced Precision
Q-I-D(TM) meters and disposable test strips are among the most
technologically advanced personal blood glucose monitoring systems available.
MediSense's monitoring systems are based on MediSense's proprietary biosensor
technology and are compact, fast and easy-to-use. The Company's products are
sold in 55 countries by its sales and marketing organization, and are
manufactured in facilities located in Abingdon, England and Waltham,
Massachusetts. Approximately 98.4% of MediSense's Common Stock on a fully
diluted basis was purchased by Abbott Laboratories on May 2, 1996.
DIABETES
Diabetes is a chronic, life threatening disease for which there is no
known cure. It is the fourth leading cause of death by disease in the United
States. Over 16 million people in the United States (one in 20) have diabetes
and more than 650,000 new cases are diagnosed each year. It is estimated that
there are at least 90 million people with diabetes worldwide. Type I (or
juvenile) diabetes, the most severe form of the disease, comprises 10% of
diabetes cases in the United States and requires daily treatment with insulin to
sustain life. Type II (or adult onset) diabetes comprises the other 90% of
diabetes cases in the United States and is usually managed by diet and exercise
but may require treatment with insulin or other medication.
Diabetes affects the body's ability to control naturally the level of
blood glucose. Normally, the carbohydrates in food are broken down into glucose
which is circulated in the bloodstream to the cells of the body. The cells then
convert this glucose into energy. The concentration of glucose in the
bloodstream must be controlled within a relatively tight range to maintain
normal health. Insulin, which is secreted by the pancreas, is the primary
regulatory mechanism by which the body reduces blood glucose levels. A normal
pancreas produces the amount of insulin required to maintain a person's blood
glucose at proper levels. In Type I diabetes, an autoimmune reaction in the body
destroys insulin-producing cells, which results in uncontrolled blood glucose.
In Type II diabetes, the body may have defects in the insulin-producing cells, a
reduced number of those cells, a resistance to insulin by the recipient cells or
various combinations of these factors.
BLOOD GLUCOSE MONITORING
According to the American Diabetes Association, people with Type I
diabetes must have daily treatment with insulin to control blood glucose levels.
A person's blood glucose level will vary depending upon food intake, insulin
availability, exercise, stress and illness. Blood glucose testing several times
a day enables people with diabetes to manage their disease better by keeping
their blood glucose levels in a narrow range. This may be accomplished through
diet, physical activity and insulin dosage. Prior to the availability of
personal blood glucose monitoring systems, people with diabetes relied on urine
glucose testing to monitor their status and make appropriate adjustments to
their treatment. Because glucose appears in the urine only after a significant
period of elevated blood glucose, urine tests are inadequate for tight control
of blood glucose. Patients were also able to obtain an occasional blood glucose
test after referral by a healthcare provider to a clinical laboratory. These
tests were ordered infrequently as part of a physician office visit, and results
were typically not available for immediate discussion and intervention.
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Beginning in the late 1970s, the availability of compact, easy-to-use
monitoring systems that provided fast and accurate blood glucose measurements
gave people with diabetes a tool to manage the disease more effectively and to
improve the quality of care. Worldwide sales of personal blood glucose
monitoring systems have increased dramatically. According to Boston Biomedical
Consultants, the worldwide market for blood glucose monitoring products grew
from approximately $860 million in 1990 to an estimated $1.8 billion in 1995. In
the United States, the market for blood glucose monitoring products grew from
approximately $470 million in 1990 to an estimated $1.1 billion in 1995.
The Diabetes Control and Complications Trial ("DCCT"), the results of
which were published in 1993 in The New England Journal of Medicine, has
confirmed that management of glucose to near normal levels can prevent the onset
and the progression of complications from diabetes. This landmark trial,
sponsored by the National Institutes of Health at a cost of $165 million over a
nine-year period, studied more than 1,400 people with Type I diabetes. The
intent of the trial was to determine whether control of blood glucose levels
would prevent the onset or slow the progression of eye, kidney and nerve
complications from diabetes.
The study demonstrated that maintaining blood glucose levels as close
as possible to normal reduces by approximately 60% the risk for development and
progression of diabetes complications. The results of the study were so
compelling that the study was terminated, earlier than planned, because those
conducting the study felt that to continue conventional treatment for the
control group would deprive its participants of the benefits of the study's
findings. Because the intensive therapy that the DCCT study recommends involves
testing at least four times a day, the Company believes that the DCCT has
increased awareness among people with diabetes of the benefits of frequent
testing and will be a key factor in changing diabetes management. The Company
estimates that people with diabetes, on average, test their blood glucose
levels less than once per day. Although the DCCT included only people with Type
I diabetes, the American Diabetes Association has stated that there is no
reason to believe the effects of better control of blood glucose levels would
not apply to people with Type II diabetes.
HOME BLOOD GLUCOSE MONITORING TECHNOLOGIES
Currently available personal blood glucose monitoring systems are
generally based on either photometric or the more recently introduced biosensor
technology. Both photometric and biosensor technologies generally employ a
disposable reagent test strip in conjunction with a battery-powered,
microprocessor-controlled meter. With either system, the user must obtain a
small amount of blood to conduct the test, typically by using a lancet to prick
the finger to produce a drop of blood. The blood is then applied directly from
the finger onto the test strip. Test strips are designed for use with the
particular meter or meters.
Photometric Technology
The earliest efforts to adapt laboratory equipment for use in personal
blood glucose monitoring systems employed photometric technology, which remains
the primary technology used by the Company's competitors. With photometric
technology, the blood migrates into a reaction layer located on the test strip.
Some photometric systems then require the user to blot the blood away and wait
approximately 45 seconds for the reagents in the test strip to react with
glucose to produce a color change. The portion of the test strip containing the
blood sample is then inserted into the meter, which analyzes the color change to
measure the blood glucose level. The meter then displays the result. Prior to
1988, all commercially available personal blood glucose monitoring systems
employed photometric technology.
Biosensor Technology
MediSense introduced biosensor technology to the personal blood glucose
monitoring market in 1988. Biosensor technology uses electrical currents to
measure blood glucose. One end of the test strip is inserted into the meter and
a drop of blood is placed on the other end of the test strip. Once the blood is
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placed on the test strip, a biochemical reaction begins that generates a small
electrical current. The amount of electrical current is directly proportional to
the amount of glucose in the blood. After the test is completed, the meter
measures the amount of electrical current and displays the blood glucose level.
In 1988, the Company introduced its first personal blood glucose
monitoring system based on biosensor technology and has shipped approximately
2.1 million meters to date. The Company is aware of only two other companies
that market personal blood glucose monitoring systems based on biosensor
technology. A third company has announced its intention to develop and market a
new biosensor system. The Company estimates that, while it accounts for less
than 10% of worldwide personal blood glucose monitoring system sales, it has
substantially higher sales than any other company in the market for blood
glucose monitoring systems that employ biosensor technology.
Noninvasive Technology
The goal of noninvasive glucose monitoring is to measure glucose levels
without drawing blood. Research in this area has focused primarily on infrared
spectroscopy. To date, no personal glucose monitor using this technology is in
commercial use and the chief obstacle to successful commercial introduction
appears to be analytical performance and calibration. However, two companies
have announced instruments in this area, and in 1995 one of these companies made
a 510(k) submission to the FDA to have the product approved for commercial use.
The FDA withheld approval pending additional data that demonstrates the
performance of the device. The Company believes that a commercially successful
personal product using this technology will be at least several years away. The
Company currently conducts active research in noninvasive technology. See
" -- Research and Development."
Other companies have announced research in minimally invasive
techniques involving measuring glucose in interstitial fluid. The Company
believes that products utilizing this technique are also several years away.
BUSINESS STRATEGY
Since fiscal 1992, the Company has assembled a new senior management
team with extensive experience in the healthcare and consumer products
industries. The Company has implemented the following market-driven business
strategies to increase revenue and improve the Company's margins and operating
income:
- PLACE METERS WITH PEOPLE WHO ACTIVELY TEST THEIR BLOOD GLUCOSE LEVELS
The Company seeks to place its meters with active testers, in order to
promote long-term and frequent usage of the Company's test strips. The
Company targets active testers through referring physicians and other
healthcare professionals and its retail marketing efforts.
- INCREASE AWARENESS OF THE ADVANTAGES OF MEDISENSE'S PRODUCTS
MediSense seeks to make its customers and potential customers aware of
the reliability, speed, discreteness and convenience of its products.
The Company believes that its products offer significant advantages
relative to both photometric blood glucose monitoring systems and
biosensor-based blood glucose monitors made by other manufacturers.
MediSense believes that the convenience and simplicity of its products
facilitate more frequent testing and are significant factors in
keeping the user as a loyal MediSense customer with sustained strip
usage.
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- INCREASE FREQUENCY OF TESTING AMONG CURRENT USERS OF MEDISENSE'S
PRODUCTS
MediSense currently receives through its toll-free service more than
3,300 calls per week from customers whom the Company advises with
regard to its monitoring systems and their appropriate use in the
management of their condition. The Company is now beginning to use its
substantial experience in communicating directly with people with
diabetes to initiate regular contact with its customers to educate
them about the benefits of frequent testing. Currently, over 1,000
out-bound calls to customers are made each week. The Company believes
that frequent contact with end-users, consisting of education and
encouragement, will improve their compliance with established diabetes
management protocols. The Company believes that frequent testing by
people with diabetes will lead to better care and better results at
lower costs.
- EXPAND THE USE OF MEDISENSE'S PRODUCTS IN PROFESSIONAL ENVIRONMENTS
The Company seeks to increase the use of its products in professional
healthcare environments, such as in physicians' offices, hospitals and
long-term care facilities. The Company believes that promoting the use
of its products in such settings will not only increase sales of its
strips to professional healthcare organizations, but will also
increase product referrals by healthcare professionals.
- PENETRATE NEW GEOGRAPHIC MARKETS
The Company has recently expanded its direct sales force both in the
United States and other major markets throughout the world. The
Company intends to continue to expand distribution of its products
into new geographic markets, particularly East Asia and, to a lesser
extent, Eastern Europe and other emerging markets.
- MAINTAIN LEADERSHIP IN BIOSENSOR TECHNOLOGY
The Company is the leader in the application of biosensor technology
to personal blood glucose monitoring. The Company introduced its first
personal blood glucose monitoring systems based on biosensor
technology three to five years ahead of its competitors. MediSense
seeks to maintain this leadership through continued enhancement of the
functionality, convenience and performance of its existing products.
Additionally, the Company is focusing its research and development
activities on adapting its existing biosensor technology to additional
tests for use by people with diabetes.
MEDISENSE'S PRODUCTS
MediSense develops, manufactures and markets home blood glucose
monitoring systems that enable people with diabetes to quickly determine their
blood glucose levels. The Company's monitoring systems, ExacTech(R),
MediSense(R) 2 and Precision Q-I-D(TM) meters, all with disposable test strips,
are compact, fast and easy-to-use. These factors give the Company's systems
important competitive advantages. In order to support its presence among
healthcare providers, the Company also offers blood glucose monitoring products
for the professional market.
Home Blood Glucose Systems
The Company's home blood glucose monitoring systems consist of a meter
and disposable test strips that are designed to be used with that meter. The
strips consist of three areas: the target area where the blood is placed and the
chemical reaction occurs, the electrode tracks that carry the electrons to the
meter, and the contact bars that are inserted into the meter. The systems are
typically sold in a kit that includes the meter, a box of 10 or 25 test strips,
a lancing device, lancets, a user's manual and a carrying
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case. MediSense's meters have a warranted four-year life. Each box of test
strips contains a strip with which the user can quickly calibrate the meter for
the entire box of test strips. The Company also offers a control solution that
allows the user to confirm that the meter and test strips are functioning
properly.
The Company currently sells three home blood glucose monitoring
systems. The ExacTech(R) system was the Company's first system. The ExacTech
Card meter is the approximate size and shape of a thick credit card and has a
large screen on which test results are displayed. After the user has placed the
blood on the test strip, the test is initiated by pushing a button on the meter.
The meter displays a 30-second countdown and then silently presents the user's
blood glucose result. The meter turns off automatically after an additional 30
seconds. During the measurement, the meter continuously checks the progress of
the test and displays a specific error message should a problem occur. The
ExacTech system can also recall the user's last test reading.
Introduced in 1991, the MediSense(R) 2 (formerly known as Companion 2)
is the Company's second generation of home blood glucose monitors and represents
improvements on the basic technology incorporated in the ExacTech System.
Although similar in function to the ExacTech product, the MediSense 2 is
available in two models. The Card, which is similar to the ExacTech Card and the
Pen model, which is the size and shape of a pen, incorporate a number of
enhanced features. The MediSense 2 system performs a test in 20 seconds (versus
30 seconds for ExacTech), making it one of the fastest home blood glucose
monitoring systems currently on the market. The MediSense 2 has an automatic
start feature: the test is initiated as soon as the blood is applied to the
target area on the end of the test strip. MediSense 2 uses a biosensor test
strip with three electrodes that can measure a wider range of glucose
concentration while requiring less blood than the ExacTech models. MediSense 2
stores the last ten test readings for review by the user at a later time.
In June, 1995 in the United States and July, 1995 in Europe, MediSense
started shipping the Precision Q-I-D(TM) system, a hand-held blood glucose
monitor, and a MICROFLO(TM) test strip. The Precision Q-I-D system delivers
enhanced accuracy and convenience. This new hand-held blood glucose monitor with
MICROFLO test strips allows patient testing that is unaffected by movement or
touch. It was designed and developed to promote compliance with current
treatment recommendations.
MediSense's unique 3-electrode technology limits interference from
uric acid, ascorbic acid, and therapeutic doses of aspirin and acetaminophen to
provide accurate blood glucose readings. This means accurate performance of the
Precision Q-I-D system in the presence of disease conditions such as gout and in
the presence of therapeutic doses of many medicines currently used to treat Type
II diabetes, arthritis and the common cold.
Professional Products
Blood glucose is the most frequently ordered test in hospitals,
clinics, physicians' offices and alternate care centers. The recently introduced
Precision G and the SensorLink Blood Glucose Testing Systems specifically
address the needs of healthcare professionals. The Precision G and SensorLink
Systems deliver data management capabilities in small (approximately 10" x 4" x
6"), portable systems designed for multi-user testing. The glucose measurement
technology used in the Precision G and Sensor Link Systems is similar to that
used in the Company's MediSense 2 home glucose meter. Both systems provide
printouts of test results (up to 300), operator and patient identification
numbers and test strip lot number, along with the date and time of the tests.
The Company believes that although not a significant part of total sales, the
professional products are important to support its presence among healthcare
providers.
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SALES
The Company sells its products through a sales organization of 294
individuals in 16 countries: the United States, Canada, Japan, Germany, Great
Britain, France, The Netherlands, Belgium, Sweden, Norway, Denmark, Finland,
Austria, Switzerland, Australia and Spain. Direct sales efforts are targeted to
the needs and requirements of each market. In addition to its direct sales
force, the Company uses independent distributors in over 40 foreign markets
including Italy, Taiwan, Korea, Israel, Greece, Portugal, Turkey, Malaysia,
Singapore, and the United Arab Emirates. The Company is planning a Latin
American introduction in late 1996 or early 1997. Technical support services
located in Abingdon, England and Waltham, Massachusetts support worldwide sales
by providing technical training to sales representatives and product
specialists.
In the United States, the Company's sales organization consist of 119
individuals. The sales force is divided into two groups: the Medical
Professional and the Corporate Account Sales Groups. The primary focus of the
Medical Professional Sales Group is on healthcare professionals who recommend
blood glucose monitoring systems, and whose acceptance of the Company's products
can affect sales at the retail pharmacy. This group calls primarily on general
practitioners, family practitioners, internists, diabetes nurse educators and
diabetologists, who in the aggregate treat and diagnose 83% of all people with
diabetes and who the Company believes exert significant influence in the buying
decision. The Corporate Account Group focuses on sales to large chain drug
stores, food and drug combination stores, mass merchandisers and wholesalers.
Major national accounts include wholesalers, such as Bergen Brunswig and
McKesson, drug store chains, such as Osco Drugs, Walgreens and Wal-Mart and
specialty providers such as Chronimed.
The European sales organization totals 152 individuals and is
organized by country and region. In Europe, MediSense focuses on key opinion
leaders in hospitals, among physicians and in pharmacy distributors according to
each country's reimbursement system. In Asia/Pacific, the Company focuses
primarily on hospital and pharmacy sectors which are currently the principal
sales volume markets.
See Note 8 of the Notes to Consolidated Financial Statements for the
year ended March 31, 1996 contained in Item 8 herein, for the Company's
geographic segment information.
MANUFACTURING
The Company's manufacturing activities involve the production of the
two major components of its blood glucose monitoring systems: meters and
single-use test strips. The Company manufactures the test strips at its facility
in Abingdon, England and assembles and tests the meters in its facility in
Waltham, Massachusetts. At March 31, 1996, the Company employed 408 people in
its manufacturing facilities, 317 of whom were in England and 91 of whom were in
the United States.
As a pioneer in the field of biosensor technology, the Company has
developed an innovative, high-volume, low-cost method for producing its test
strips in which a series of reagents and conductive inks are sequentially
layered onto a plastic substrate using a proprietary thick film deposition
process. The Company has invested significant resources in the development of
custom manufacturing equipment and process control systems. The Company
continually works to improve its manufacturing capabilities to reduce costs and
increase yield, and has significantly reduced the strip cost while increasing
output since the product was launched in 1988.
The Company optimizes its manufacturing capabilities through
just-in-time techniques, materials requirement planning, good manufacturing
practices and process quality teams. The Company employs quality control systems
and is actively engaged in a vendor quality program to assure compliance with
the Company's quality standards. Its manufacturing facilities and practices are
subject to regulatory requirements and periodic review by the FDA. See
"--Government Regulation."
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Of the numerous raw materials, parts and components purchased for use
in the Company's products, most are off-the-shelf items readily available from
alternate vendors. Several, however, are custom made for the Company to meet its
specifications and applications. Single source materials include a pair of
custom integrated circuits used in the MediSense(R) 2 and Precision Q-I-D(TM)
models and certain reagents and inks used in the production of the Company's
test strips. The Company believes that in most of these cases alternate sources
of supply are available or could be developed within a reasonable period of
time. To date, the Company has been able to obtain adequate supplies of all
materials and components from its suppliers. The Company maintains a strategic
inventory of certain key components and raw materials currently obtained from
single-source suppliers; however, there can be no assurance that such
inventories would be adequate to meet the Company's production needs during any
interruption of supply. The inability to develop alternate supply sources, if
required, or a reduction or stoppage in supply could adversely affect the
Company's operations.
RESEARCH AND DEVELOPMENT
The Company's research and development staff comprised 98 persons at
March 31, 1996. The largest group consists of 56 persons engaged in development
of test strips, located in Abingdon, England. The engineering group with 28
persons concentrates on meter development and is located in Waltham,
Massachusetts. The research group, also located in Waltham, has 14 persons
involved with research for new tests and improvements in blood glucose
monitoring technology. Although MediSense primarily relies on its own research
and development staff, the Company also works with consultants.
For fiscal 1996, 1995 and 1994, the Company's expenditures for
research and development were $11.7 million, $9.2 million and $6.5 million,
respectively. The Company expects to add approximately 15 persons to research
and development in fiscal 1997 with corresponding increases in expenditures over
fiscal 1996.
The Company is confident that it possesses the engineering and
manufacturing capabilities to deliver marketable products on a timely basis. The
Company's core biosensor expertise is complemented by staff members with
knowledge in spectroscopy, the science underlying noninvasive testing. All of
these resources are focused on a number of initiatives to enhance existing
products and develop new products. In particular, the Company is focusing on the
development of a next generation glucose biosensor with accuracy equivalent to
laboratory standards.
The Company is also developing additional biosensor-based personal
home healthcare analytical products. These new tests will monitor and thereby
help to manage chronic disorders related to diabetes by measuring the
concentration of substances other than glucose in human blood. One application
of biosensor technology currently under development by the Company is a test to
measure ketones, high levels of which may indicate the onset of diabetic
ketoacidosis ("DKA"). DKA, a life-threatening but reversible complication of
Type I diabetes, is considered a medical emergency requiring treatment in a
medical intensive care unit or equivalent setting. According to the American
Diabetes Association, there are 74,000 cases of DKA each year, 70% of which are
preventable. It is generally recommended that people with diabetes who are
pregnant or who have consistently high glucose levels check their ketone level
at least once per day.
Researchers have for many years pursued noninvasive monitoring of
glucose levels in people with diabetes. Noninvasive monitoring would reduce or
eliminate the need to draw blood to measure glucose concentration. In the last
several years, a great deal of research has been performed in this area. A
promising area of noninvasive research is the multivariate analysis of the
near-infrared (NIR) spectra obtained from transmission or reflectance from
blood-containing tissue. NIR spectroscopy involves illuminating body tissue
(e.g., through a finger) with NIR radiation. Some of this radiation is absorbed
by the tissue and that absorbency is related to the concentration of
constituents in the tissue. Different constituents will have different
absorbencies at different wavelengths. Using computer analysis of absorbency at
different wavelengths, it is possible to measure glucose concentration. This
measurement is
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difficult because many substances (e.g., water that makes up 50% of tissue)
interfere with the glucose measurement. Thus, complex computer analysis and
elaborate calibration (perhaps specific to each person) are required. The
Company continues to review relevant research in noninvasive monitoring and
believes that widespread noninvasive home monitoring remains at least several
years away. However, the demand for such a product is high and research shows
promise. The Company has ongoing internal research to explore and validate both
noninvasive and minimally invasive glucose monitoring techniques. It is also
funding an external research program to develop for commercialization a
noninvasive analyzer primarily for the diagnosis and treatment of diabetes and
related conditions. However, there can be no certainty that this research will
lead to a commercial product.
PATENTS AND PROPRIETARY RIGHTS
Patents are important to the Company's business. The Company also
relies heavily upon other proprietary rights including trade secrets and
know-how to develop and maintain its competitive position. The Company pursues,
owns and maintains patents on a worldwide basis. The Company's principal patents
in Europe and the United States relate to its electrode test strips and the use
of ferrocene mediator compounds in biosensor electrodes.
COMPETITION
The Company encounters significant competition from major companies
such as Johnson & Johnson, Boehringer Mannheim and Bayer/Miles in the sale of
its home blood glucose monitoring systems. These major competitors in the home
blood glucose monitoring market have extensive research, marketing and
manufacturing capabilities. Companies in the home blood glucose monitoring
market compete on the basis of ease of product use, price, product reliability,
innovative technology and healthcare professional and consumer acceptance. In
the market for meters, price competition involves marketing tactics such as
rebates, trade-in offers and volume purchase incentive programs. In the market
for test strips, a competitor has indicated an intent to sell a generic strip in
the United Sates for use with MediSense's ExacTech(R) meter, and this could
cause loss of market share.
The Company believes that its continued competitive success will
depend upon its ability to create and deliver advanced technology to expand its
product lines and markets, to develop unique products and to attract and retain
qualified personnel.
GOVERNMENT REGULATION
The medical devices manufactured and marketed by the Company are
subject to regulation in the United States by the FDA and, in many instances,
by comparable agencies in foreign countries where these devices are
manufactured or distributed. Under the Federal Food, Drug, and Cosmetic Act, as
amended (the "FDC Act") and the Safe Medical Devices Act of 1990 (the "SMDA")
and subsequent amendments, manufacturers of medical devices must comply with
applicable provisions of these acts and certain associated regulations
governing the testing, manufacturing, labeling, marketing and distribution of
medical devices and the reporting of certain information regarding the safety
of medical devices. Both the FDC Act and the SMDA require certain clearances
from the FDA before medical devices, such as the Company's blood glucose
monitoring systems, may be legally marketed.
FDA permission to distribute a new device can be obtained in one of
two ways. If a new or significantly modified device is "substantially
equivalent" to an existing legally marketed device, the new device can be
commercially introduced after submission of a premarket notification (a "510(k)
Submission") to the FDA, and after the subsequent issuance by the FDA of an
order permitting commercial distribution. Changes to existing devices that do
not significantly affect safety or effectiveness can be made by the Company
without a 510(k) Submission.
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The second more comprehensive approval process applies to a new device
that is not substantially equivalent to an existing product. First, the Company
must conduct clinical trials in compliance with testing protocols approved by an
institutional review board for the participating research institution. Second,
the Company must submit to the FDA a Premarket Approval ("PMA") application that
contains, among other things, the results of the clinical trials. The PMA
application also contains other information required under the FDC Act such as a
full description of the device and its components, a full description of the
methods, facilities and controls used for manufacturing and proposed labeling.
Finally, the manufacturing site for the product subject to the PMA must pass an
FDA premarketing approval inspection.
All of the Company's current home blood glucose monitoring products
have been deemed to meet the standards set forth under the 510(k) procedures,
and therefore MediSense has the necessary FDA clearance to market these
products in the United States. While the Company believes most of its future
products will also qualify for 510(k) clearance, no assurance can be given that
such future products may not instead require PMA clearance. There is no
guarantee that regulatory marketing clearances will be obtained in the future
on a timely basis, if at all. Delays in receiving such clearances could have a
significant adverse effect on the Company's business, financial condition and
results of operations.
Certain other countries require the Company to obtain clearances for
its products prior to marketing the products in those countries. In addition,
certain other countries impose product specifications that differ from those
mandated in the United States. These requirements may significantly affect the
efficiency and timeliness of international market introduction of the Company's
products.
The Company is inspected on a routine basis for compliance with the
FDC Act and applicable regulations, in particular the FDA's Good Manufacturing
Practices ("GMP") regulations. These regulations require that the Company
manufacture its products and maintain its documents in a prescribed manner with
respect to manufacturing, testing and control activities. Further, the Company
is required to comply with various FDA requirements for labeling.
The Company's Precision G and SensorLink systems are subject to the
Clinical Laboratories Improvement Act of 1967, the Medicare program and the
Clinical Laboratory Improvement Amendments of 1988 ("CLIA"). CLIA requires the
U.S. Department of Health and Human Services ("HHS") to establish certification
standards for any laboratory that performs tests on human specimens and issue
certificates to laboratories that meet the standards. The Precision G and
SensorLink systems are classified as moderately complex procedures and therefore
must contain certain features that allow the laboratories that use them to
comply with CLIA.
If the FDA believes that the Company is not in compliance with the FDC
Act, SMDA or their associated regulations, it can institute proceedings to
detain or seize the Company's products, require a recall, enjoin future
violations and assess civil and criminal penalties against the Company, its
directors, officers or employees. The FDA may also withdraw market approval for
the Company's products or require the Company to repair, replace or refund the
cost of any device manufactured or distributed by the Company. Although the
Company believes that it is in substantial compliance with all relevant
regulations, the commencement of any action described above against the Company
could have a significant impact on its business, financial condition and results
of operations.
THIRD-PARTY REIMBURSEMENT
Third-party payors such as private insurance companies, self-insured
employers, health maintenance organizations, national health services, and
governmental payors under Medicare and Medicaid programs are a source of
reimbursement to users of blood glucose monitoring systems and related products,
but there is no uniform policy on reimbursement among third-party payors. The
Medicare program reimburses people with diabetes for one meter and for one box
of 100 strips each month. In 1994, the Health Care Financing Administration
("HCFA"), which sets rates for the Medicare
11
<PAGE> 12
program, reduced the maximum reimbursement rates for a box of 50 test strips
from $63 to between $32 to $37, depending on the state in which the
reimbursement is sought. The Office of the Inspector General of the United
States Department of Health and Human Services (the "OIG") is conducting a
survey to determine more economical methods of providing blood glucose test
strips to Medicare beneficiaries. Also, in January, 1995 HCFA established a
special payment limit of $58.71 on personal blood glucose meters, down from a
maximum $179. Such proposals may lead to increased pricing pressures among
manufacturers of blood glucose meters and test strips. Frequent testers who
currently receive reimbursement may seek alternative, lower-priced off-brand
test strips that are currently available in the U.S. market for use in
photometric systems. Because the Company's systems operate only on its
proprietary test strips, users may seek alternative meters for which there are
lower cost alternatives. The Company's business, financial condition and results
of operations could be adversely affected by the continuing efforts of
governmental and private payors to reduce the costs of healthcare by lowering
reimbursement rates.
As a provider of products that are reimbursed by Medicare, Medicaid
and other third-party payors, the Company is subject to the anti-kickback
provisions of the Medicare and Medicaid fraud and abuse laws and similar state
laws. These laws prohibit the exchange of remuneration for referrals of services
or products reimbursed by Medicare, Medicaid or other third-party payors.
Violations of these prohibitions may result in civil and criminal penalties and
exclusion from the Medicare and Medicaid programs. In a December 1992 study of
discounts and rebates offered to consumers by the home blood glucose monitoring
industry, the OIG concluded that claims for reimbursement for these devices
submitted to the Medicare program often did not reflect manufacturers' rebates.
As a result, OIG recommended that HCFA take appropriate action, including
implementing fee schedules, identifying and addressing abusive practices as well
as recovering Medicare overpayments. The Company believes that it is in
substantial compliance with the federal anti-kickback statute and related safe
harbor regulations regarding the disclosure of discounts and rebates.
Recent healthcare cost containment initiatives in the United States
and in Europe that have focused on reduction in reimbursement levels may affect
the Company negatively. Emphasis on preventative measures to reduce the overall
costs to the healthcare system of complications from diabetes could, however,
lead to more frequent testing and use of the Company's test strips. The Company
is unable to predict the outcome or the effect on its business of the
healthcare reform initiatives.
PRODUCTS LIABILITY
The testing, marketing and selling of human healthcare products entail
an inherent risk of product liability claims and there can be no assurance that
product liability claims will not be asserted against the Company. Although the
Company maintains product liability insurance, there can be no assurance that
product liability claims will not exceed such insurance coverage limits or that
such insurance will be available in the future on commercially reasonable terms,
if at all. The Company is currently involved in two proceedings arising in the
normal course of business from product liability claims. The Company believes
the outcome of these suits will not have a material adverse effect on the
Company's financial position, cash flow, or results of operations.
EMPLOYEES
At March 31, 1996, the Company had 1,014 employees, including 408 in
operations, 108 in administration, 98 in research and development and 400 in
selling, marketing and related administrative support. Of the 1,014 employees,
641 were employed outside the United States. The Company believes that the
success of its business will depend, in part, on its ability to attract and
retain qualified personnel.
The Company's employees are not covered by collective bargaining
agreements. Management considers its relations with the Company's employees to
be good.
12
<PAGE> 13
PART I
- --------------------------------------------------------------------------------
ITEM 2. PROPERTIES
The Company's principal executive office and central manufacturing
facility for meters is located in a 95,000 square foot building in Waltham,
Massachusetts. The Waltham facility is sub-leased. The sublease expires on
September 30, 1996. The Company intends to relocate its executive office and
meter manufacturing facility from Waltham to a 150,000 square foot facility in
Bedford, Massachusetts. The Bedford facility will be leased for a base term of
ten years commencing August, 1996. The Company also leases a total of 105,000
square feet in six buildings in the Abingdon Industrial Park in Abingdon,
England. These leases have expiration dates maturing between 2003 and 2011. The
Abingdon facilities are used for the development and the manufacture of the
Company's test strips.
The Company maintains 15 sales offices around the world, all of which
are leased. The Company believes that its facilities will provide sufficient
space suitable for all of the Company's present and planned activities, and that
sufficient additional space will be available on reasonable terms, if needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings,
other than ordinary routine litigation incidental to its business. The Company
believes that none of these proceedings, if adversely determined, would have a
material adverse effect on the Company's financial position, cash flow or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE> 14
PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
During fiscal 1996 and 1995, the Company's Common Stock was traded on
the Nasdaq National Market under the symbol "MSNS." The price ranges presented
below represent the high and low sale prices for each quarter, as reported by
the consolidated reporting system. The Company's Common Stock ceased being
listed on the Nasdaq National Market on June 12, 1996.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
--------------------------- --------------------------
HIGH LOW HIGH LOW
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
First quarter * $ 20 $ 13-7/8 $ 12-1/4 $ 12
Second quarter 27-1/4 17 20-3/8 12
Third quarter 32 19-7/8 26 16-3/4
Fourth quarter 46-1/2 24 25-1/8 18-5/8
</TABLE>
* First quarter of fiscal 1995 is from June 30, 1994.
At June 10, 1996, there were approximately 58 holders of record of the Company's
Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended March 31, 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenue $ 173,756 $ 140,958 $ 110,384 $ 93,186 $ 89,782
Cost of revenue 57,146 47,221 38,651 37,661 37,470
Gross profit 116,610 93,737 71,733 55,525 52,312
Selling, general and administrative 71,112 60,002 51,154 46,445 52,586
Research and development 11,696 9,164 6,537 6,163 7,824
Restructuring charge -- -- -- 2,001 --
Total operating expenses 82,808 69,166 57,691 54,609 60,410
Income (loss) from operations 33,802 24,571 14,042 916 (8,098)
Interest income (expense), net 1,589 (965) (5,070) (6,364) (5,224)
Foreign currency exchange gain (loss) (20) 1,817 (979) 3,845 637
Net income (loss) 31,834 21,978 6,203 (2,515) (12,985)
Net income per share (1) $ 1.70 $ 1.34 $ 0.61 -- --
Weighted average shares outstanding 18,698 16,349 15,684 -- --
Balance Sheet Data:
Working capital (deficiency) $ 61,678 $ 37,024 $ 8,586 $ (1,706) $ (3,334)
Total assets 121,182 82,008 43,516 45,626 56,196
Revolving line of credit 2,207 -- 700 8,895 10,067
Other long-term debt, net of current portion 218 436 555 1,027 2,321
Notes payable to stockholders -- -- 48,330 49,108 45,213
Total stockholders' equity/(deficit) (2) 83,826 48,823 (31,324) (37,801) (30,687)
</TABLE>
(1) Net income per share for the year ended March 31, 1994 is presented on a
supplemental basis. Pro forma net income per share for the year ended March
31, 1994 was $.51. Historical net income per share for the periods prior to
fiscal 1995 have not been presented as such information is not considered
meaningful.
See Notes 1 (n), (o) and (p) of the Notes to Consolidated Financial
Statements included in Item 8 herein.
(2) No cash dividends were declared or paid during the periods presented on the
Company's Common Stock.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MERGER AGREEMENT
The Company, Abbott Laboratories (Abbott), and AAC Acquisition
Corporation, Inc. (AAC), a wholly owned subsidiary of Abbott entered into a
merger agreement on March 29, 1996 that provided for the acquisition of
MediSense by Abbott for $45.00 per share in cash. Under the terms of the
agreement, AAC made a tender offer to acquire all of the outstanding shares of
MediSense common stock and Class B common stock. MediSense became a subsidiary
of Abbott on May 2, 1996 when AAC accepted for payment 19,861,081 shares of
common stock, including all shares of Class B common stock, that had been
tendered pursuant to the offer, which constituted approximately 98.4% of the
Company's common stock outstanding on a fully diluted basis. AAC paid
approximately $876 million, net of the exercise price of existing options for
the Company's shares, which it will obtain from Abbott.
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF REVENUE INCREASE
FOR FISCAL YEAR FROM PRIOR
ENDED MARCH 31, FISCAL YEAR
------------------------------------- -----------------------
1996 1995 1994 1996 1995
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 23.3% 27.7%
Gross Profit 67.1 66.5 65.0 24.4 30.7
Total Operating Expenses 47.6 49.1 52.3 19.7 19.9
Income From Operations 19.5 17.4 12.7 37.6 75.0
</TABLE>
YEAR ENDED MARCH 31, 1996 VS. YEAR ENDED MARCH 31, 1995
Revenue increased $32.8 million, or 23.3%, to $173.8 million in the
fiscal year ended March 31, 1996 (fiscal 1996), from $141.0 million in the
fiscal year ended March 31, 1995 (fiscal 1995). Strip unit volume increased
22.2% with a corresponding 22.7% increase in strip revenue. The increase in
strip revenue was attributable to the demand created by increasing the number of
meters in use, growth in premium line strips and marketing programs focused on
increasing usage. Meter revenue increased 30.5% due to a 54.0% unit volume
increase, partially offset by a decline in meter average selling prices. The
decline in meter selling prices was caused by the introductory pricing offered
on the Precision Q-I-D(TM) meter and competitive pressures.
International revenue increased $28.7 million, or 31.4%, to $120.4
million in fiscal 1996, from $91.7 million in fiscal 1995. This increase was
primarily due to an increase in strip unit volume and a favorable foreign
exchange impact of $5.7 million. Domestic revenue increased $4.0 million or 8.2%
to $53.3 million in fiscal 1996, from $49.3 million in fiscal 1995. This
increase was attributable to increased meter sales from the Precision Q-I-D
introduced in June, 1995 and an increase in strip unit volume, partially offset
by a reduction in average strip selling prices. The decline in domestic average
strip selling prices was caused by special introductory pricing offered on
Precision Q-I-D strips, promotional pricing offered to chain stores and
wholesalers, and the establishment of a service allowance program for durable
medical equipment dealers.
Gross profit as a percent of revenue improved to 67.1% in fiscal 1996
from 66.5% in fiscal 1995. Gross profit was favorably impacted by foreign
exchange and product cost reductions, and unfavorably impacted by increased
meter sales and the previously mentioned reductions in average selling prices.
15
<PAGE> 16
Operating expenses increased $13.6 million, or 19.7%, to $82.8
million, but decreased as a percent of revenue to 47.6% from 49.1%, in fiscal
1996 as compared to fiscal 1995. The $11.1 million, or 18.5% increase in
selling, general and administrative expense was due to expenses associated with
the Precision Q-I-D(TM) product launch, increased staffing, higher legal
expenses and an unfavorable foreign exchange impact of $1.8 million. Research
and development expenses increased $2.5 million, or 27.6% to $11.7 million in
fiscal 1996, from $9.2 million in fiscal 1995. The increase was due to the
Company's continued expansion of the research and development organization and
increases in spending for the development of enhancements and extensions of the
current product line, and additional tests for monitoring diabetes. The Company
plans to increase research and development expenses in future periods.
The Company incurred a foreign currency exchange loss of $20,000 in
fiscal 1996. The loss was due primarily to the remeasurement of certain
intercompany accounts with its foreign subsidiaries. In fiscal 1995, the Company
recorded an exchange gain of $1.8 million due primarily to the remeasurement of
certain intercompany accounts as the U.S. Dollar weakened against the
Australian, Japanese, and European currencies and the British Pound weakened
against the Dutch Guilder.
Interest income increased substantially in fiscal 1996 to $1.7
million, from $0.4 million in fiscal 1995. The increase was attributable to the
growth in cash, cash equivalents and marketable securities to an average balance
of approximately $32.6 million in fiscal 1996, from an average balance of
approximately $11.5 million in fiscal 1995.
Interest expense decreased to $0.1 million in fiscal 1996, from $1.4
million in fiscal 1995, as a result of the repayment of all loans from
stockholders and bank debt during the second quarter of fiscal 1995. The Company
maintained this position until its subsidiary borrowed $2.2 million on its line
of credit in the fourth quarter of fiscal 1996.
For fiscal 1996, income taxes were provided at an effective worldwide
rate of 10.0%. For fiscal 1995, the effective worldwide rate was 13.6%. The
decrease in the rate from the prior period was primarily due to an increase in
earnings by certain of the Company's foreign subsidiaries that were able to
utilize their net operating loss carryforwards to reduce taxable income. See
Note 6 of Notes to the Consolidated Financial Statements, included herein, for a
reconciliation to the statutory rate and additional information concerning the
Company's tax situation.
YEAR ENDED MARCH 31, 1995 VS. YEAR ENDED MARCH 31, 1994
Revenue increased 27.7% in fiscal 1995 to $141.0 million from $110.4
million in fiscal 1994. The increase in revenue was primarily due to a 24.2%
increase in strip unit volume. Strip revenue increased 28.9% in fiscal 1995 over
the prior year, resulting primarily from the demand created by increasing the
number of meters in use, growth in premium line strips, and marketing programs
focused on increasing usage. International revenue increased 31.2% during fiscal
1995 to $91.7 million (65.0% of revenue) from $69.9 million (63.3% of revenue)
in fiscal 1994. This increase was primarily due to a 22.4% increase in strip
unit volume, a $5.2 million favorable foreign exchange impact, and the
commencement of sales activity by the Company's Australian subsidiary in January
1994, which increased revenue by $3.6 million. Domestic revenue increased 21.7%
in fiscal 1995 to $49.3 million from $40.5 million in fiscal 1994. This sales
growth was primarily attributable to increased strip volume resulting from the
restructuring and refocusing of the U.S. sales force and expansion of
distribution channels.
Gross profit as a percentage of revenue improved to 66.5% in fiscal
1995 from 65.0% in fiscal 1994. This increase was primarily due to a shift in
the revenue mix to strips which yield a higher gross margin than meters and, to
a lesser extent, a reduction in the unit cost to manufacture strips.
16
<PAGE> 17
Selling, general and administrative expenses increased 17.3% to $60.0
million in fiscal 1995 from $51.2 million in fiscal 1994, but decreased as a
percentage of revenues to 42.6% in fiscal 1995 from 46.3% in fiscal 1994. The
increase in dollars reflects the continued expansion of the Company's domestic
and international sales and marketing organizations and increases in the number
of promotional meter placements. The foreign exchange impact increased expenses
by $1.7 million in fiscal 1995, as compared to fiscal 1994. Fiscal 1994 included
$2.9 million of prepaid royalty amortization, which ended in December 1993.
The Company significantly increased its investment in research and
development by $2.6 million in fiscal 1995 as compared to fiscal 1994. The
increase reflects the expansion of the research and development organization and
an increase in spending for the development of noninvasive measurement
technology and additional tests for monitoring diabetes.
Interest expense decreased to $1.4 million in fiscal 1995 from $5.2
million in fiscal 1994. The decline was principally a result of the repayment of
long-term notes payable to stockholders and all bank debt during fiscal 1995.
The Company reported a foreign exchange gain of $1.8 million in fiscal
1995 versus a foreign exchange loss of $1.0 million in fiscal 1994. These
amounts result principally from the remeasurement of intercompany account
balances arising from inventory purchases. The Company manufactures strips in
England and intercompany sales of strips to the United States and Europe are
denominated in British Pounds. Gains over the prior year reflect a weakening in
the U.S. Dollar versus European, Japanese, and Australian currencies in which
the Company holds significant foreign currency denominated intercompany assets.
In addition, gains resulted from a stronger Dutch Guilder versus the British
Pound in which the Company, through its Dutch rebilling center, holds
significant intercompany liabilities denominated in British Pounds.
For fiscal 1995, income taxes were provided at an effective worldwide
rate of 13.6%. For fiscal 1994, the effective worldwide rate was 22.4%. The
decrease in the rate from the prior period was primarily due to an increase in
earnings by the Company's domestic operations and certain foreign subsidiaries
that are able to utilize their net operating loss carryforwards to reduce
taxable income, partially offset by an increase in the provision for income
taxes in states which disallow the benefit of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities increased significantly during the
year, increasing to $33.8 million in fiscal 1996, from $19.6 million in fiscal
1995. Cash, cash equivalents and short-term investments totaled $51.1 million at
March 31, 1996 compared to $26.0 million at March 31, 1995. Working capital
increased $24.7 million to $61.7 million at the end of fiscal 1996 from $37.0
million at the end of fiscal 1995.
Capital expenditures during fiscal 1996 were approximately $11.4
million and were funded by cash flow from operations. Management anticipates
that capital expenditures for the next 12 months will be approximately $16.0
million and will consist primarily of leasehold improvements and additions to
manufacturing equipment. The Company expects to fund fiscal 1997 capital
expenditures with cash on hand and cash flow from operations.
The increase in other assets was due to a $2.0 million minority
investment in a strategically related healthcare business made by the Company in
August, 1995.
During fiscal 1996, the Company received $5.5 million from the
issuance of approximately 552,000 shares of Common Stock under stock option and
stock purchase plans. In conjunction with the
17
<PAGE> 18
previously mentioned merger, 2.3 million of the options outstanding were
exercised in April, 1996 and the remainder are expected to be exercised in July,
1996, and the shares tendered as part of the merger.
The Company has a revolving line of credit agreement with a bank which
expires on January 9, 1997. On January 9, 1995, the bank line of credit was
increased from $8.5 million to $20 million, of which a maximum of $10 million
may be a foreign commitment. Under the amended line of credit, borrowings accrue
interest at the bank's base rate, LIBOR plus 1 1/2%, or the applicable foreign
branch cost of funds, plus 1 1/2%. Borrowings are secured by all assets in the
United States and inventory in the United Kingdom. As of March 31, 1996, no
amounts were outstanding under this revolving line of credit.
In addition, one of the Company's subsidiaries has a revolving
line-of-credit agreement with a bank in the amount of approximately $2.2
million. This line of credit expires on February 27, 1997, and borrowings accrue
interest at LIBOR plus 35 basis points. Borrowings are fully cash secured
(reported as "restricted cash" on the balance sheet) in an amount at least equal
to 115% of the outstanding principal. At March 31, 1996, the subsidiary had
fully utilized the line of credit and had an outstanding loan balance of
$2,207,000.
At March 31, 1996, the Company had net domestic operating loss
carryforwards for federal tax and financial reporting purposes of approximately
$37.1 million and $24.3 million, respectively. The Company's foreign
subsidiaries also had net operating loss carryforwards of approximately $15.7
million. In addition, the Company has available federal tax credit carryforwards
of approximately $1.3 million at March 31, 1996. These carryforwards may be used
to offset future taxable income and future tax liabilities, respectively, if
any, and are subject to review and possible adjustment. The Tax Reform Act of
1986 limits the amount of domestic net operating loss and credit carryforwards
that companies may utilize in any one year in the event of cumulative changes in
ownership over a three-year period in excess of 50%. As a result of a change of
ownership during fiscal 1995 and based on the valuation of the Company at that
time, the annual limitation imposed on utilization of the domestic net operating
loss carryforwards is approximately $23 million.
The previously mentioned exercise of options in April, 1996 generated
an additional net operating loss for tax purposes of $68.6 million. This loss,
combined with the Company's income for the period, resulted in a net operating
loss carryforward for federal tax purposes of $102.1 million as of May 4, 1996.
In addition, a second ownership change was triggered by the acquisition of the
Company by Abbott Laboratories. Therefore, based on the value of the Company on
that date, the annual limitation imposed on the utilization of the additional
net domestic operating loss carryforwards will be approximately $49.8 million.
During fiscal years 1996 and 1995, international revenue accounted
for approximately 69.3% and 65.0%, respectively, of total revenue. The
Company's international revenue is primarily denominated in foreign currencies.
In addition, the Company's strip manufacturing facility is in England and the
Company has 14 international sales subsidiaries. Accordingly, there are
significant intercompany transactions, and the resulting intercompany balances
are denominated in currencies other than the U.S. Dollar. The Company has
established two centralized billing centers that are intended to mitigate the
foreign currency transaction exposure of the international sales subsidiaries.
In addition, the Company attempts to minimize the net intercompany balances
denominated in currencies other than the U.S. Dollar by increasing the
capitalization of certain subsidiaries and managing the transfer of cash between
subsidiaries. To date, the Company has not entered into any financial
instruments to hedge either foreign currency denominated transactions or net
investments in foreign subsidiaries. While the Company continues to monitor
foreign currency markets and takes those actions it deems prudent and within its
control, the Company will continue to be subject to foreign currency
fluctuations.
The Company expects that with its cash flow from operations, and the
financial resources of Abbott Laboratories to have sufficient funds to meet its
cash needs for working capital, debt service and capital expenditures for at
least one year. The Company's working capital and capital requirements are
18
<PAGE> 19
subject to change and will depend upon numerous factors including the level of
capital expenditures, research and development activities, competitive and
technological developments and the availability for purchase or other
acquisition by the Company of complementary products and technologies.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121. Accounting for
the Impairment of Long-Lived Assets to be Disposed of (SFAS 121) was issued in
March, 1995 by the Financial Accounting Standards Board. It requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. SFAS 121
is required to be adopted for fiscal years beginning after December 15, 1995.
Adoption of SFAS 121 by the Company is not expected to have a significant effect
on the consolidated financial statements.
Statement of Financial Accounting Standards No. 123. Accounting for
Stock-Based Compensation (SFAS 123) was issued by the Financial Accounting
Standards Board in October, 1995. SFAS 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans as well as
transactions in which an entity issues its equity instruments to acquire goods
or services from non-employees. This statement defines a fair value based method
of accounting for employee stock options or similar equity instruments, and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost for those plans using the intrinsic value-based
method of accounting prescribed by APB Opinion No. 25, Accounting for Stock
Issued to Employees. Entities electing to remain with the accounting in Opinion
25 must make proforma disclosures of net income and, if presented, earnings per
share, as if the fair value based method of accounting defined by SFAS 123 had
been applied. SFAS 123 is applicable to fiscal years beginning after December
15, 1995. The Company currently accounts for its equity instruments using the
accounting prescribed by Opinion 25. The Company does not currently expect to
adopt the accounting prescribed by SFAS 123; however, the Company will include
the disclosures required by SFAS 123 as required in future consolidated
financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Financial Statements and Index to Financial Statement
Schedule appearing on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names of the current directors and executive officers of the
Company, their ages as of May 2, 1996, and certain other information about them
are set forth below.
<TABLE>
<CAPTION>
Name Age Position
------------------------ --- -----------------------------------------------------
<S> <C> <C>
Robert L. Coleman, Ph.D. 50 President, Chief Executive Officer and Director
John H. Chiricotti 48 Corporate Vice President and Chief Financial Officer
Peter C. Gonze 47 Corporate Vice President-- Sales and Marketing, North
America
Lawrence W. Huffman 51 Corporate Vice President-- International Sales and
Marketing
Geoffrey H. Jenkins 44 Corporate Vice President-- Operations
Donald L. Pieper, Ph.D. 55 Corporate Vice President-- Research and Development
Gerald J. Bojas 59 Corporate Controller and Treasurer
Gary P. Coughlan 52 Director
Jose M. de Lasa 54 Director
Miles D. White 41 Director
</TABLE>
The executive officers of the Company are elected annually by the Board
of Directors following the annual meeting of stockholders and serve at the
discretion of the Board of Directors.
Dr. Coleman has served as President, Chief Executive Officer and a
Director of the Company since September 1991. From April 1976 to May 1991, Dr.
Coleman served as President and Chief Executive Officer and from May 1991 until
late 1991, Dr. Coleman was Chairman of the Board of NOVA Biomedical Corporation,
a manufacturer of clinical laboratory equipment. Dr. Coleman has a Ph.D. in
Analytical Chemistry from the University of Tennessee.
Mr. Chiricotti has served as Corporate Vice President and Chief
Financial Officer of the Company since February 1993. Beginning in 1984 and
until joining the Company, he was at Boston Scientific Corporation, a medical
device manufacturer, principally as Vice President -- Finance and Chief
Financial Officer. Mr. Chiricotti has an M.B.A. from DePaul University.
Mr. Gonze has served as Corporate Vice President -- Sales and
Marketing, North America for the Company since January 1996. Prior to that, he
was President of The Griffin Group, a business consulting firm. From 1990 to
1994, Mr. Gonze served as Vice President of Business Development, Vice President
of Product Management and as a member of the Management Board of Johnson &
Johnson, Advanced Care Products Division. Mr. Gonze has a degree in Strategic
Marketing Management from the Harvard Business School.
Mr. Huffman has served as Corporate Vice President -- International
Sales and Marketing for the Company since November 1995. Prior to that, he was
President of AmSou, Inc., a distributor of medical and consumer health products.
From 1993 to 1994, he served as President of Leocor, Inc., a manufacturer of
medical devices. From 1989 to 1992, he was General Manager of Robert et
Carriere-Lederle, a French pharmaceutical and medical device company. Mr.
Huffman has an M.B.A. from the Wharton Graduate School of Business.
20
<PAGE> 21
Mr. Jenkins has served as Corporate Vice President -- Operations in
charge of the Company's worldwide manufacturing activities since 1991. From 1987
to 1991, he was Vice President of U.S. Operations. From 1984 to 1987, he was
Manager of Electronic Development for the Company. From 1981 to 1984, he was
Project Director, Medical Products, at Sontek Industries, Inc., a manufacturer
of medical products. Mr. Jenkins has a B.S. in Engineering from Clarkson
University.
Dr. Pieper has served as Corporate Vice President -- Research and
Development of the Company since October 1993. He served as Vice President of
Product Development at NOVA Biomedical Corporation from 1990 to 1992. From 1989
to 1990, he served as President and General Manager of Automatic, Inc., a
manufacturer of machine vision systems, and from 1980 to 1989 as its Vice
President of Research and Development. He holds a Ph.D. in Mechanical
Engineering from Stanford University.
Mr. Bojas has served as Corporate Controller and Treasurer of the
Company since 1991. He served as Chief Financial Officer of the Company from
April 1990 to December 1991. From 1981 to April 1990, Mr. Bojas was Corporate
Controller at Compugraphic Corporation, a supplier of computerized
photocomposition systems. Mr. Bojas attended the M.B.A. program at the
University of Michigan.
Mr. Coughlan has served as Senior Vice President, Finance and Chief
Financial Officer of Abbott Laboratories for at least the past five years.
Mr. de Lasa has served as Senior Vice President, Secretary and General
Counsel of Abbott Laboratories since 1994. From 1991 to 1994, he served as Vice
President and Associate General Counsel of Bristol-Myers Squibb Company. In 1994
he also became Secretary of such company.
Mr. White has served as Senior Vice President, Diagnostic Operations of
Abbott Laboratories since 1994. From 1993 to 1994, he served as Vice President,
Diagnostic Systems and Operations, from 1992 to 1993, he served as Divisional
Vice President and General Manager, Diagnostic Systems and Operations. Prior to
1992, he served as Divisional Vice President and General Manager, Hospital
Laboratory Sector.
21
<PAGE> 22
ITEM 11. EXECUTIVE COMPENSATION
The table below sets forth information with respect to the compensation
of each of the chief executive officer and the four other most highly paid
executive officers of the Company in fiscal 1996 (collectively, the "Named
Executive Officers"). No options were granted to the Named Executive Officers in
fiscal 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------- ------------
SECURITIES ALL
OTHER ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
POSITION
- --------------------------- ---- ------------ -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Coleman .... 1996 $350,000 $245,000 -- 200,000 $2,423 (2)
President and 1995 $300,194 $210,000 -- -- --
Chief Executive 1994 $251,603 $175,000 -- 725,000 --
Officer
John H. Chiricotti ..... 1996 $257,847 (1) $ 60,000 -- 80,000 $4,610 (2)
Corporate Vice 1995 $246,916 (1) $ 68,149 -- -- $4,601 (2)
President and 1994 $226,122 (1) $ 47,000 -- 37,500 $2,733 (2)
Chief Financial
Officer
Geoffrey H. Jenkins ... 1996 $201,537 $ 90,000 -- 80,000 $4,606 (2)
Corporate Vice 1995 $188,412 $113,047 -- -- $4,709 (2)
President 1994 $171,909 $ 78,000 -- 266,500 $6,478 (2)
-- Operations
Donald L. Pieper ....... 1996 $184,575 $100,000 -- 80,000 $4,862 (2)
Corporate Vice 1995 $172,587 $103,552 -- -- $4,106 (2)
President of Research 1994 (3) $ 72,692 $ 37,500 -- 180,000 --
and Development
Gerald J. Bojas .......... 1996 $125,000 $ 25,000 -- 9,000 $4,277 (2)
Corporate Controller 1995 $117,027 $ 37,554 -- -- $4,526 (2)
and Treasurer 1994 $110,705 $ 11,071 -- 15,000 $3,390 (2)
</TABLE>
- ---------------------------
(1) Includes a guaranteed minimum annual bonus of $50,000.
(2) Represents Company matching contribution to the MediSense 401(k) Plan.
(3) Mr. Pieper joined the Company in October, 1993.
22
<PAGE> 23
OPTIONS GRANTED IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERMS (1)
OPTIONS EMPLOYEES PRICE PER EXPIRATION
NAME GRANTED (2) IN FY 1996 SHARE (3) DATE 5% 10%
- ------------- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert Coleman 200,000 17.3% $15.8125 14-May-05 $1,988,896 $5,040,076
John Chiricotti 80,000 6.9% $15.8125 14-May-05 $795,559 $2,016,031
Geoffrey Jenkins 80,000 6.9% $15.8125 14-May-05 $795,559 $2,016,031
Donald Pieper 80,000 6.9% $15.8125 14-May-05 $795,559 $2,016,031
Gerald Bojas 9,000 0.8% $15.8125 14-May-05 $89,500 $226,803
</TABLE>
(1) Illustrates value that might be realized upon exercise of options
immediately prior to the expiration of their term, assuming specified
compounded rates of appreciation of MediSense Common Stock over the term of
the option. Assumed rates of appreciation are not necessarily indicative of
future stock performance
(2) Options were granted to the above individuals on May 15, 1995 with initial
vesting six months from date of grant and quarterly thereafter; and expire
ten years from date of grant.
(3) The exercise price per share is the fair market value of a share of
MediSense Common Stock on the date of grant.
(4) Employees were granted options to purchase 1,157,750 shares of Common Stock
in FY 1996.
The following table sets forth for the Named Executive Officers certain
information regarding stock options held at March 31, 1996 and stock option
exercises during fiscal 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS
ON FISCAL YEAR-END (#) * AT FISCAL YEAR-END ($)
EXERCISE VALUE ------------------------- ------------------------
(#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
-------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert L. Coleman -- $ -- 479,105 / 195,895 $16,958,680 / $5,778,507
John H. Chiricotti -- $ -- 127,500 / 70,000 $ 4,489,594 / $2,012,500
Geoffrey H. Jenkins 103,000 $809,595 82,900 / 78,100 $ 2,894,586 / $2,302,176
Donald L. Pieper 90,000 $717,751 70,000 / 100,000 $ 2,433,250 / $3,085,375
Gerald J. Bojas 5,000 $ 46,000 35,601 / 11,624 $ 1,265,285 / $ 360,487
</TABLE>
* All of the above options were exercised in April, 1996 as part of the Merger
Agreement with Abbott Laboratories.
23
<PAGE> 24
EMPLOYMENT AGREEMENTS
On September 24, 1991, Dr. Coleman entered into a one-year employment
agreement with the Company that automatically extends for successive one-year
terms on each anniversary date unless terminated by either party on ninety days'
notice. Under the agreement, the Company agrees to pay Dr. Coleman a base salary
of $225,000 subject to annual review by the Board of Directors, and a bonus
based on Company performance in the range of 35% to 70% of the base salary as
then in effect. The base salary for fiscal 1996 was $350,000. The agreement
granted Dr. Coleman an option to purchase 500,000 shares of Common Stock and
contains a clause prohibiting Dr. Coleman from competing for a period of two
years following termination of employment. In the event Dr. Coleman is
terminated without cause (as defined in the agreement), the Company is obligated
to pay his base salary for a period of twelve months from the date of
termination.
Mr. Jenkins has entered into an employment agreement with the Company
dated September 9, 1992. The agreement, which expired on March 31, 1993, is
automatically extended for one-year periods commencing on its expiration date
unless terminated by either party on ninety days' notice. Mr. Jenkins is
entitled to receive base salary at the rate of $145,000 per year, subject to
annual review by the Board, and a cash bonus of up to 40% of his base salary
based on the achievement of specific performance goals. Mr. Jenkins' base salary
for fiscal 1996 was $201,537. With respect to the options outstanding prior to
the date of the agreement, the agreement provides for automatic vesting with
respect to 75% of the shares covered thereby in the event of the termination by
the Company of Mr. Jenkins' employment without cause (as defined in the
agreement) or in the event of a change in control of the Company. The agreement
contains a clause prohibiting Mr. Jenkins from competing for a period of one
year following termination of employment. In the event Mr. Jenkins is terminated
without cause, the Company is obligated to pay his base salary for twelve months
following the date of termination.
Mr. Pieper entered into an employment agreement with the Company on
February 2, 1995 that governs his employment relationship from the commencement
of his employment (October 6, 1993). The agreement automatically extends for
successive one-year terms on October 6 of each year unless terminated by
either party on ninety days' notice. The agreement sets Mr. Pieper's base
compensation of $172,500 per year, subject to increase in the sole judgment of
the Board of Directors. Mr. Pieper's base salary for fiscal 1996 was $184,575.
In addition, each year Mr. Pieper will receive a bonus of between 30% and 60% of
his base compensation based upon the achievement of specific performance goals.
In the event of termination other than for cause, the Company will pay Mr.
Pieper base compensation for twelve months and a bonus prorated for the year in
which termination occurs. For options outstanding on February 2, 1995, the
agreement provides for automatic vesting of all shares covered thereby in the
event of a merger, consolidation, liquidation, dissolution or sale of all or
substantially all of the Company's assets. For options subsequently granted, the
agreements provide for automatic vesting as to 75% of the shares in such events.
Mr. Pieper's agreement prohibits him from competing with the Company for a
period of 24 months following termination.
Mr. Chiricotti's written offer of employment contained a provision
which provides that, if terminated, he will receive one year of severance pay.
In addition, the offer letter guarantees Mr. Chiricotti an annual bonus of at
least $50,000.
Gerald J. Bojas, Corporate Controller and Treasurer entered into an
agreement with the Company on November 15, 1990. Pursuant to this agreement, Mr.
Bojas will be entitled to receive a lump sum payment equal to two times his base
salary in the event that he is terminated after a Change in Control of the
Company or if he resigns for certain specified reasons after such a Change in
Control. A "Change in Control" is defined in the agreement as any of several
events, including the replacement of a majority of the directors of the Company
as a result of a tender offer, the acquisition by an entity (or a group of
entities acting together) of securities representing 30% of the voting power of
the Company and the execution of an agreement providing for any of the
transactions described in the definition of "Change in Control". To the extent
that any payments under the agreement are not deductible by the Company pursuant
to Section 280G of the Internal Revenue Code of 1986, as amended, such payments
will be reduced to the extent necessary to avoid the loss of the deduction.
24
<PAGE> 25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and notes thereto set forth certain information
with respect to the beneficial ownership of the Common Stock as of June 10, 1996
by (i) each person who is known to the Company to beneficially own more than 5%
of the outstanding shares of Common Stock, (ii) each of the chief executive
officers and the four other most highly paid executive officers of the Company
in fiscal 1996 (collectively, the "Named Executive Officers") and each director
of the Company, and (iii) all executive officers and directors of the Company as
a group. Except as otherwise indicated, each of the stockholders named below has
sole voting and investment power with respect to the shares of Common Stock
beneficially owned.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED
--------------------------------
PERCENT OF
NUMBER OF OUTSTANDING
5% STOCKHOLDERS SHARES SHARES (1)
--------------------------------------------- ---------- -----------
<S> <C> <C>
AAC Acquisition, Inc. 19,861,081 98.4
A wholly owned subsidiary of
Abbott Laboratories
100 Abbott Park Road
Abbott Park, Illinois 60064
NAMED EXECUTIVE OFFICERS
---------------------------------------------
Robert L. Coleman - 0 - - 0 -
John H. Chiricotti - 0 - - 0 -
Geoffrey H. Jenkins - 0 - - 0 -
Donald L. Pieper - 0 - - 0 -
Gerald J. Bojas - 0 - - 0 -
DIRECTORS
---------------------------------------------
Gary P. Coughlan - 0 - - 0 -
Jose M. de Lasa - 0 - - 0 -
Miles D. White - 0 - - 0 -
All directors and executive officers as a 160,000 0.8
group (10 persons) (1)
</TABLE>
- --------------------
(1) Includes shares of Common Stock underlying options held by the executive
officers. All such options became exercisable upon consummation of the
merger.
25
<PAGE> 26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company, Abbott Laboratories (Abbott), and AAC Acquisition
Corporation, Inc. (AAC), a wholly owned subsidiary of Abbott Laboratories,
entered into a merger agreement on March 29, 1996 that provided for the
acquisition of MediSense by Abbott for $45.00 per share in cash. Under the terms
of the agreement, AAC made a tender offer to acquire all of the outstanding
shares of MediSense Common Stock and Class B Common Stock. On May 2, 1996, AAC
accepted for payment 19,861,081 shares of Common Stock, including all shares of
Class B Common Stock, that had been tendered pursuant to the offer, which
constituted approximately 98.4% of the Company's Common Stock outstanding on a
fully diluted basis. AAC paid approximately $876 million, net of the exercise
price of existing options for the Company's shares, which it will obtain from
Abbott.
Pursuant to the merger agreement, a wholly-owned subsidiary of AAC
will be merged with and into the Company with the Company as the surviving
corporation in the merger. As a result of the merger, each outstanding share of
Common Stock will be converted into the right to receive $45.00 per share in
cash. An information statement relating to the merger will be mailed to
shareholders in advance of a special shareholders meeting that will be called
to approve the merger. As a result of Abbott's 98.4% ownership of the Common
Stock, approval of the merger at the special shareholders meeting is assured.
26
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS
(1) The financial statements contained in the accompanying Index
to Consolidated Financial Statements covered by the
Independent Auditor's Report are filed as part of this Report
(see Page F-1).
(2) FINANCIAL STATEMENT SCHEDULE
The financial statement schedule contained in the accompanying
Index to Consolidated Financial Statements covered by the
Independent Auditor's Report are filed as part of this Report
(see Page F-1).
(3) EXHIBITS
The exhibits contained in the Index to Exhibits are filed as
part of this Report (see page 28).
(b) REPORTS ON FORM 8-K
During the last Quarter of Fiscal 1996, Form 8-K, dated March
29, 1996, reported the following:
Item 5. Other Events - Abbott Laboratories and MediSense,
Inc. announce definitive agreement through which
Abbott will acquire MediSense.
Item 7. Exhibits - Agreement and Plan of Merger dated as of
March 29, 1996 (the "Merger Agreement") among Abbott,
AAC Acquisition, Inc., and the Company.
27
<PAGE> 28
EXHIBIT INDEX
Description
2.1 -- Agreement and Plan of Merger dated as of March 29, 1996 (the
"Merger Agreement") among Abbott Laboratories, AAC Acquisition,
Inc., and the Company (8)
2.2 -- Amendment to Agreement and Plan of Merger dated as of May
30,1996 (1)
3.1 -- Second Restated Articles of Organization (6)
3.2 -- By-Laws of the Company (6)
4.1 -- Specimen Common Stock Certificate (4)
10.1 -- Amended and Restated Revolving Credit Agreement dated as of
January 9, 1995 among MediSense, Inc., MediSense Import/Export,
Inc., MediSense International, Inc. and the First National Bank
of Boston (6)
10.2 -- 1983 Stock Option Plan (2)+
10.3 -- 1992 Directors' Stock Option Plan (2)+
10.4 -- 1993 Stock Option Plan (2)+
10.5 -- Employment Agreement between the Company and Robert L. Coleman
as amended (4)+
10.6 -- Employment Agreement between the Company and George O. Joseph
(2)+
10.7 -- Employment Agreement between the Company and Geoffrey H.
Jenkins (2)+
10.8 -- Employment Letter between the Company and John H. Chiricotti (2)+
10.10 -- Sublease of 266 Second Avenue, Waltham, MA from Helix
Technology Corporation to MediSense, Inc. (2)
10.11 -- Voting Agreement between Baxter and certain stockholders of
MediSense (2)
10.12 -- Voting Agreement between Morgan Capital Corporation and
MediSense (2)
10.13 -- Registration Rights Agreement (2)
10.15 -- 1995 Directors' Stock Option in Lieu of Retainer Plan (7)+
10.16 -- Lease of 2-14 Crosby Drive, Bedford, MA from Bedford Business
Park Limited Partnership to MediSense, Inc. (1)
10.17 -- Agreement between the Company and Gerald J. Bojas (1)+
10.18 -- Employment Agreement between the Company and Donald L. Pieper
(1)+
11. -- Statement of Computation of Net Income Per Share (1)
21. -- Subsidiaries of the Registrant (5)
27. -- Financial Data Schedule (1)
- ------------
(1) Filed herewith.
28
<PAGE> 29
(2) Filed with the Registrant's Registration Statement on Form S-1 (No.
33-78686) filed with the Commission on May 6, 1994.
(3) Filed with the Registrant's Pre-Effective Amendment No. 1 to
Registration Statement on Form S-1 (No. 33-78686) filed with the
Commission on May 26, 1994.
(4) Filed with the Registrant's Pre-Effective Amendment No. 2 to
Registration Statement on Form S-1 (No. 33-78686) filed with the
Commission on June 10, 1994.
(5) Filed with the Registrant's Pre-Effective Amendment No. 3 to
Registration Statement on Form S-1 (No. 33-78686) filed with the
Commission on June 21, 1994.
(6) Filed with the Registrant's Registration Statement on Form S-1 (No.
33-88774) filed with the Commission on January 26, 1995.
(7) Filed with the Registrant's Form 10-Q for the quarterly period ended
December 30, 1995.
(8) Filed with the Registrant's Form 8-K dated March 29, 1996.
+ Indicates management or compensatory contract or arrangement.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: June 20, 1996 MEDISENSE, INC.
By /S/ JOHN H. CHIRICOTTI
----------------------------
JOHN H. CHIRICOTTI
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Exhange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ ROBERT L. COLEMAN Director, President and Chief June 20, 1996
- ------------------------------------ Executive Officer (Principal
ROBERT L. COLEMAN Executive Officer)
/s/ JOHN H. CHIRICOTTI Chief Financial Officer (Principal June 20, 1996
- ------------------------------------ Financial Officer)
JOHN H. CHIRICOTTI
/s/ GERALD J. BOJAS Treasurer (Principal Accounting June 20, 1996
- ------------------------------------ Officer)
GERALD J. BOJAS
/s/ GARY P. COUGHLAN Director June 20, 1996
- ------------------------------------
GARY P. COUGHLAN
/s/ JOSE M. de LASA Director June 20, 1996
- ------------------------------------
JOSE M. DE LASA
/s/ MILES D. WHITE Director June 20, 1996
- ------------------------------------
MILES D. WHITE
</TABLE>
30
<PAGE> 31
MEDISENSE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of March 31, 1995 and 1996 F-3
Consolidated Statements of Operations for the Years Ended
March 31, 1994, 1995 and 1996 F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended March 31, 1994, 1995 and 1996 F-5
Consolidated Statements of Cash Flows for the Years
Ended March 31, 1994, 1995 and 1996 F-6
Notes to Consolidated Financial Statements F-7
FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Schedule F-24
Schedule II--Valuation and Qualifying Accounts Years
Ended March 31, 1996, 1995 and 1994 F-25
Exhibit 11--Calculation of Shares Used in Determining
Net Income and Pro Forma Net Income per Share F-26
F-1
<PAGE> 32
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MediSense, Inc.:
We have audited the accompanying consolidated balance sheets of MediSense, Inc.
(a Massachusetts corporation) and subsidiaries as of March 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended March
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MediSense, Inc. and
subsidiaries as of March 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 10, 1996
F-2
<PAGE> 33
MEDISENSE, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31,
1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 24,114,000 $ 10,210,000
Marketable securities (Note 1(g)) 26,984,000 15,781,000
Accounts receivable, less reserves of approximately
$1,091,000 and $1,057,000 at March 31, 1996 and 1995,
respectively 27,130,000 24,572,000
Other receivables 1,980,000 1,413,000
Inventories (Note 1(h)) 14,634,000 14,758,000
Other current assets 2,372,000 1,816,000
------------ -----------
Total current assets 97,214,000 68,550,000
------------ -----------
38,901,000 29,592,000
PROPERTY AND EQUIPMENT, AT COST (Note 1(i))
Less--Accumulated depreciation and amortization 19,662,000 16,498,000
------------ -----------
19,239,000 13,094,000
------------ -----------
OTHER ASSETS:
Restricted cash 2,617,000 137,000
Other assets 2,112,000 227,000
------------ -----------
4,729,000 364,000
------------ -----------
$121,182,000 $82,008,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit (Note 2) $ 2,207,000 $ --
Current portion of long-term debt (Note 3) 203,000 540,000
Accounts payable 7,178,000 9,664,000
Accrued expenses (Note 9) 25,948,000 21,322,000
------------ -----------
Total current liabilities 35,536,000 31,526,000
------------ -----------
DEFERRED INCOME TAXES 1,602,000 1,223,000
------------ -----------
LONG-TERM DEBT, NET OF CURRENT PORTION (Note 3) 218,000 436,000
------------ -----------
COMMITMENTS (Notes 3 and 7)
STOCKHOLDERS' EQUITY (Note 4):
Convertible preferred stock, $.01 par value-
Authorized--1,000,000 shares
Issued--no shares at March 31, 1996 and 1995 -- --
Common stock, $.01 par value-
Authorized--30,000,000 shares
Issued and outstanding--16,792,849 and 16,240,633
shares at March 31, 1996 and 1995, respectively 168,000 162,000
Class A common stock, $.01 par value-
Authorized--3,000,000 shares
Issued and outstanding--no shares at March 31, 1996
and 1995 -- --
Class B nonvoting common stock, $.01 par value-
Authorized--1,500,000 shares
Issued and outstanding--897,340 shares at March 31,
1996 and 1995 9,000 9,000
Additional paid-in capital 158,262,000 152,769,000
Accumulated deficit (67,509,000) (99,343,000)
Unrealized loss on available-for-sale securities (41,000) --
Cumulative translation adjustment (7,063,000) (4,774,000)
------------ -----------
Total stockholders' equity 83,826,000 48,823,000
------------ -----------
$121,182,000 $82,008,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE> 34
MEDISENSE, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
YEARS ENDED MARCH 31,
1996 1995 1994
<S> <C> <C> <C>
REVENUE $173,756,000 $140,958,000 $110,384,000
COST OF REVENUE 57,146,000 47,221,000 38,651,000
----------- ----------- ----------
Gross profit 116,610,000 93,737,000 71,733,000
----------- ----------- ----------
OPERATING EXPENSES:
Selling, general and administrative 71,112,000 60,002,000 51,154,000
Research and development 11,696,000 9,164,000 6,537,000
----------- ----------- ----------
82,808,000 69,166,000 57,691,000
----------- ----------- ----------
Income from operations 33,802,000 24,571,000 14,042,000
INTEREST INCOME 1,716,000 406,000 108,000
INTEREST EXPENSE (127,000) (1,371,000) (5,178,000)
FOREIGN CURRENCY EXCHANGE GAIN (LOSS) (20,000) 1,817,000 (979,000)
----------- ----------- ----------
Income before provision for income 35,371,000 25,423,000 7,993,000
taxes
PROVISION FOR INCOME TAXES 3,537,000 3,445,000 1,790,000
----------- ----------- ----------
Net income $31,834,000 $21,978,000 $6,203,000
=========== =========== ==========
NET INCOME PER COMMON AND COMMON EQUIVALENT $ 1.70 $ 1.34
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 18,698,000 16,349,000
=========== ===========
PRO FORMA NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ .51
==========
PRO FORMA WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING 12,223,000
==========
SUPPLEMENTAL NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ .61
==========
SUPPLEMENTAL WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 15,684,000
==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE> 35
MEDISENSE, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
NUMBER $.01 NUMBER $.01
OF SHARES PAR VALUE OF SHARES PAR VALUE
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993 572,686 $ 6,000 - $ -
Issuance of common stock
under stock option and
purchase plans - - - -
Compensation associated with
the grant of stock options - - - -
Amortization of deferred
compensation - - - -
Forfeiture of restricted stock - - - -
Translation adjustment - - - -
Repurchase of common stock - - - -
Common stock issued in
connection with warrant
exchange - - - -
Net income - - - -
-------- ------- ---------- --------
BALANCE, MARCH 31, 1994 572,686 6,000 - -
Issuance of common stock
under stock option and
purchase plans - - 1,205,218 12,000
Compensation associated with
the grant of stock options - - - -
Repurchase of stockholders'
rights - - - -
Exercise of Class A Common
Stock warrant through the
surrender of Series D
Preferred Stock (93,333) (1,000) - -
Issuance of common stock in
initial public offering,
net of expenses - - 4,575,000 46,000
Issuance of common stock in
secondary public offering,
net of expenses - - 50,000 -
Payment of preferred stock
dividends - - - -
Conversion of Class B common
stock into common stock - - 423,125 4,000
Conversion of preferred stock
into Class A and Class B
common stock (479,353) (5,000) - -
Conversion of Class A Common
Stock into common stock - - 9,987,290 100,000
Translation adjustment - - - -
Net income - - - -
-------- ------- ---------- --------
BALANCE, MARCH 31, 1995 - - 16,240,633 162,000
Sale of common stock under
stock option and purchase
plans - - 552,216 6,000
Unrealized loss on
available-for-sale
securities - - - -
Translation adjustment - - - -
Net income - - - -
-------- ------- ---------- --------
BALANCE, MARCH 31, 1996 - $ - 16,792,849 $168,000
======== ======= ========== ========
</TABLE>
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
NUMBER $.01 NUMBER $.01
OF SHARES PAR VALUE OF SHARES PAR VALUE
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993 869,229 $ 8,000 637,550 $ 6,000
Issuance of common stock
under stock option and
purchase plans 4,179 - - -
Compensation associated with
the grant of stock options - - - -
Amortization of deferred
compensation - - - -
Forfeiture of restricted stock (107) - - -
Translation adjustment - - - -
Repurchase of common stock (3,806) - - -
Common stock issued in
connection with warrant
exchange 86,911 1,000 147,785 2,000
Net income - - - -
---------- -------- -------- -------
BALANCE, MARCH 31, 1994 956,406 9,000 785,335 8,000
Issuance of common stock
under stock option and 2,300 - - -
purchase plans
Compensation associated with
the grant of stock options - - - -
Repurchase of stockholders'
rights - - - -
Exercise of Class A Common
Stock warrant through the
surrender of Series D
Preferred Stock 206,000 2,000 - -
Issuance of common stock in
initial public offering,
net of expenses - - - -
Issuance of common stock in
secondary public offering,
net of expenses - - - -
Payment of preferred stock
dividends - - - -
Conversion of Class B common
stock into common stock - - (423,125) (4,000)
Conversion of preferred stock
into Class A and Class B
common stock 832,750 9,000 535,130 5,000
Conversion of Class A Common
Stock into common stock (1,997,456) (20,000) - -
Translation adjustment - - - -
Net income - - - -
---------- -------- -------- -------
BALANCE, MARCH 31, 1995 - - 897,340 9,000
Sale of common stock under
stock option and purchase
plans - - - -
Unrealized loss on
available-for-sale
securities - - - -
Translation adjustment - - - -
Net income - - - -
---------- -------- -------- -------
BALANCE, MARCH 31, 1996 - $ - 897,340 $ 9,000
========== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 36
MEDISENSE, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
LOSS ON TOTAL
ADDITIONAL AVAILABLE- CUMULATIVE STOCKHOLDERS'
PAID-IN ACCUMULATED FOR-SALE TRANSLATION DEFERRED EQUITY
CAPITAL DEFICIT SECURITIES ADJUSTMENT COMPENSATION (DEFICIT)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993 $ 95,993,000 $(127,524,000) $ - $(6,272,000) $(18,000) $(37,801,000)
Issuance of common stock
under stock option and
purchase plans 122,000 - - - - 122,000
Compensation associated with
the grant of stock options 3,000 - - - - 3,000
Amortization of deferred
compensation - - - - 18,000 18,000
Forfeiture of restricted stock (6,000) - - - - (6,000)
Translation adjustment - - - 305,000 - 305,000
Repurchase of common stock (167,000) - - - - (167,000)
Common stock issued in
connection with warrant
exchange (4,000) - - - - (1,000)
Net income - 6,203,000 - - - 6,203,000
------------ ------------- -------- ----------- -------- ------------
BALANCE, MARCH 31, 1994 95,941,000 (121,321,000) - (5,967,000) - (31,324,000)
Issuance of common stock
under stock option and
purchase plans 11,299,000 - - - - 11,311,000
Compensation associated with
the grant of stock options 22,000 - - - - 22,000
Repurchase of stockholders'
rights (56,000) - - - - (56,000)
Exercise of Class A Common
Stock warrant through the
surrender of Series D
Preferred Stock (1,000) - - - - -
Issuance of common stock in
initial public offering,
net of expenses 50,011,000 - - - - 50,057,000
Issuance of common stock in
secondary public offering,
net of expenses 491,000 - - - - 491,000
Payment of preferred stock
dividends (4,849,000) - - - - (4,849,000)
Conversion of Class B common
stock into common stock - - - - - -
Conversion of preferred stock
into Class A and Class B
common stock (9,000) - - - - -
Conversion of Class A Common
Stock into common stock (80,000) - - - - -
Translation adjustment - - 1,193,000 - 1,193,000
Net income - 21,978,000 - - - 21,978,000
------------ ------------- -------- ----------- -------- ------------
BALANCE, MARCH 31, 1995 152,769,000 (99,343,000) - (4,774,000) - 48,823,000
Sale of common stock under
stock option and purchase
plans 5,493,000 - - - - 5,499,000
Unrealized loss on
available-for-sale
securities - - (41,000) - - (41,000)
Translation adjustment - - - (2,289,000) - (2,289,000)
Net income - 31,834,000 - - 31,834,000
------------ ------------- -------- ----------- -------- ------------
BALANCE, MARCH 31, 1996 $158,262,000 $ (67,509,000) $(41,000) $(7,063,000) $ - $ 83,826,000
============ ============= ========= =========== ======== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 37
MEDISENSE, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED MARCH 31,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $31,834,000 $21,978,000 $6,203,000
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 4,325,000 3,670,000 3,348,000
Amortization of prepaid royalties to a
stockholder -- -- 2,851,000
Compensation associated with stock issued
under deferred compensation plan -- -- 18,000
Compensation associated with the grant of
stock options -- 22,000 3,000
Deferred income taxes 473,000 (397,000) 665,000
Foreign currency exchange (gain) loss (152,000) (1,947,000) 932,000
Changes in current assets and liabilities-
Accounts receivable (3,494,000) (7,503,000) (1,518,000)
Accounts receivable from stockholder -- -- 1,781,000
Other receivables (598,000) 372,000 (657,000)
Inventories (667,000) (3,959,000) 1,291,000
Other current assets (690,000) (151,000) (719,000)
Accounts payable (2,246,000) 755,000 (1,219,000)
Accrued expenses 5,033,000 5,572,000 2,246,000
Accrued interest on notes payable to
stockholders -- 1,191,000 4,150,000
----------- ----------- ----------
Net cash provided by operating
activities 33,818,000 19,603,000 19,375,000
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (11,394,000) (5,930,000) (2,883,000)
Retirement of property and equipment 144,000 15,000 117,000
Purchase of marketable securities (48,313,000) (15,670,000) --
Sales and maturities of marketable
securities 37,155,000 -- --
(Increase) decrease in restricted cash (2,485,000) 12,000 453,000
(Increase) decrease in other assets (1,892,000) 28,000 465,000
Unrealized loss on available-for-sale
securities (41,000) -- --
----------- ----------- ----------
Net cash used in investing activities (26,826,000) (21,545,000) (1,848,000)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under revolving
lines of credit 2,207,000 (700,000) (8,195,000)
Net payments on notes payable and accrued
interest to stockholders -- (49,520,000) (5,000,000)
Payments on long-term debt (531,000) (327,000) (1,012,000)
Repurchase of stockholders' rights -- (56,000) --
Payment of dividend on preferred stock -- (4,849,000) --
Initial public offering of common stock -- 50,057,000 --
Secondary public offering of common stock -- 491,000 --
Issuance of common stock under stock
option and purchase plans 5,499,000 11,311,000 122,000
Repurchase of common stock -- -- (168,000)
----------- ----------- ----------
Net cash provided by (used in)
financing activities 7,175,000 6,407,000 (14,253,000)
----------- ----------- ----------
EXCHANGE RATE EFFECTS (263,000) 442,000 (277,000)
----------- ----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 13,904,000 4,907,000 2,997,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,210,000 5,303,000 2,306,000
----------- ----------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $24,114,000 $10,210,000 $5,303,000
=========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for-
Interest $ 158,000 $9,926,000 $6,031,000
========== ========== ==========
Income taxes $1,487,000 $2,093,000 $ 376,000
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Increase in capital lease obligations $ - $ 152,000 $ 55,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE> 38
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(1) OPERATIONS AND ACCOUNTING POLICIES
MediSense, Inc. (the Company or MediSense) and subsidiaries develop,
manufacture and market blood glucose monitoring systems that enable people
with diabetes to manage their disease more effectively.
The accompanying consolidated financial statements reflect the application
of certain accounting policies described below and elsewhere in these notes
to consolidated financial statements. The Company is subject to a number of
risks which are inherent in a company in this industry and in this stage of
its development, including protection of proprietary rights, government
regulation, reimbursement by third-party payors and product liability.
(a) Merger Agreement
The Company and AAC Acquisition Corporation, Inc. (AAC), a wholly owned
subsidiary of Abbott Laboratories (Abbott), entered into a merger
agreement on March 29, 1996 that provided for the acquisition of
MediSense by Abbott for $45.00 per share in cash. Under the terms of
the agreement, AAC made a tender offer to acquire all of the
outstanding shares of MediSense common stock and Class B common stock.
On May 2, 1996, AAC accepted for payment 19,861,081 shares of common
stock, including all shares of Class B common stock, that had been
tendered pursuant to the offer, which constituted approximately 98.37%
of the Company's common stock outstanding. AAC paid approximately $876
million, net of the exercise price of existing options for the
Company's shares, which it will obtain from Abbott. On May 2, 1996, the
Company became a subsidiary of Abbott.
(b) Initial Public Offering
The Company closed its initial public offering of 4,500,000 shares of
common stock on July 8, 1994. Certain selling stockholders sold 600,000
shares, and the Company sold 3,900,000 newly issued shares and received
net proceeds of $42.5 million. On August 5, 1994, the Company's
underwriters exercised their overallotment option to purchase an
additional 675,000 shares of common stock from which the Company
received net proceeds of $7.5 million. The net proceeds were used to
pay a $4.8 million cumulative preferred stock dividend and $45.2
million of long-term notes payable to stockholders.
F-7
<PAGE> 39
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(1) OPERATIONS AND ACCOUNTING POLICIES (Continued)
(c) Secondary Public Offering
On February 24, 1995, the Company closed a secondary public offering of
5,320,000 shares, and on March 16, 1995, the underwriters exercised
their overallotment option to purchase an additional 349,900 shares. In
total, certain stockholders sold 5,619,900 shares, and the Company sold
50,000 newly issued shares. The Company received net proceeds of
approximately $3.5 million, including proceeds received from the
exercise of 321,219 stock options held by certain selling stockholders.
(d) Principles of Consolidation
The accompanying consolidated financial statements reflect the accounts
of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(f) Restatements
The consolidated balance sheet as of March 31, 1995 and the statements
of cash flows for the years ended March 31, 1995 and 1994 have been
restated to reflect the reclassification of certain items.
(g) Cash and Cash Equivalents and Marketable Securities
Effective April 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investments
in Debt and Equity Securities. The adoption of this pronouncement did
not have a material impact on the Company's financial position or
results of operations. In accordance with this statement, the Company
has classified its marketable debt and equity securities into
held-to-maturity and available-for-sale categories. Held-to-maturity
securities represent those securities for which the Company has the
intent and
F-8
<PAGE> 40
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(1) OPERATIONS AND ACCOUNTING POLICIES (Continued)
(g) Cash and Cash Equivalents and Marketable Securities (Continued)
ability to hold to maturity and are reported at amortized cost.
Available-for-sale securities represent those securities that do not
meet the classification of held-to-maturity, are not actively traded
and are reported at fair market value with unrealized gains and losses
included in stockholders' equity.
<TABLE>
Cash and cash equivalents, which are carried at cost which approximates
market, consisted of the following at March 31, 1996 and 1995:
<CAPTION>
1996 1995
<S> <C> <C>
Cash $7,945,000 $6,142,000
Cash equivalents-
Money market 12,682,000 881,000
Commercial paper 3,487,000 3,187,000
----------- -----------
$24,114,000 $10,210,000
=========== ===========
</TABLE>
<TABLE>
Marketable securities consisted of the following at March 31, 1996 and
1995:
<CAPTION>
1996
--------------------------------
NET
AMORTIZED UNREALIZED FAIR
COST LOSS VALUE
<S> <C> <C> <C>
Held-to-maturity-
Corporate debt
securities $12,616,000 $(31,000) $12,585,000
=========== ======== ===========
Available-for-sale-
Corporate debt
securities 10,150,000 (12,000) 10,138,000
Equity securities 1,024,000 (21,000) 1,003,000
U.S. Treasury note 2,735,000 (8,000) 2,727,000
Other 500,000 - 500,000
----------- --------- -----------
$14,409,000 $(41,000) $14,368,000
=========== ======== ===========
</TABLE>
F-9
<PAGE> 41
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(1) OPERATIONS AND ACCOUNTING POLICIES (Continued)
<TABLE>
(g) Cash and Cash Equivalents and Marketable Securities (Continued)
<CAPTION>
1995
----------------------------------
NET
AMORTIZED UNREALIZED FAIR
COST GAIN VALUE
<S> <C> <C> <C>
Held-to-maturity-
Corporate debt
securities $15,781,000 $5,000 $15,786,000
=========== ====== ===========
</TABLE>
(h) Inventories
<TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or
market and include materials, labor and manufacturing overhead.
Inventories consist of the following at March 31, 1996 and 1995:
<CAPTION>
1996 1995
<S> <C> <C>
Raw materials $ 3,746,000 $ 4,962,000
Work-in-progress 2,516,000 3,395,000
Finished goods 8,372,000 6,401,000
----------- -----------
$14,634,000 $14,758,000
=========== ===========
</TABLE>
<TABLE>
The components of property and equipment at March 31, 1996 and 1995 are
as follows:
<CAPTION>
1996 1995
<S> <C> <C>
Production equipment $13,564,000 $11,622,000
Leasehold improvements 7,752,000 6,569,000
Equipment under capital leases 638,000 1,386,000
Furniture and fixtures 9,772,000 7,007,000
Laboratory equipment 1,967,000 1,289,000
Construction-in-progress 5,208,000 1,719,000
----------- -----------
$38,901,000 $29,592,000
=========== ===========
</TABLE>
F-10
<PAGE> 42
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(1) OPERATIONS AND ACCOUNTING POLICIES (Continued)
(i) Property and Equipment (Continued)
The Company provides for depreciation and amortization utilizing the
straight-line method in amounts estimated to allocate the cost of the
assets over their estimated useful lives, as follows:
ESTIMATED
CLASSIFICATION USEFUL LIFE
Production equipment 5 Years
Leasehold improvements Life of lease
Equipment under capital leases Life of lease
Furniture and fixtures 3-10 Years
Laboratory equipment 5 Years
(j) Foreign Currency Translation
The Company translates its foreign currency denominated assets and
liabilities and the financial statements of its foreign subsidiaries in
accordance with SFAS No. 52, Foreign Currency Translation. In
translating the accounts of the foreign subsidiaries into U.S. dollars,
certain intercompany accounts and stockholders' equity and deficits are
translated at historical rates, while all other assets and liabilities
are translated at the rate of exchange in effect at year-end. Revenue
and expense accounts are translated using the weighted average exchange
rate in effect during the year. Cumulative translation gains or losses
are reflected as a component of stockholders' equity. Foreign currency
exchange gains and losses, including the gains and losses resulting
from the remeasurement of certain assets and liabilities, are reflected
in the accompanying consolidated statements of operations.
(k) Revenue Recognition
Revenue from product sales is recognized upon shipment.
(l) Warranty
The Company provides a four-year warranty on certain of its products.
Estimated costs related to the warranty are accrued at the time of
product shipment.
(m) Research and Development Expenses
The Company charges research and development expenses to operations as
incurred.
F-11
<PAGE> 43
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(1) OPERATIONS AND ACCOUNTING POLICIES (Continued)
(n) Net Income per Common and Common Equivalent Share
Net income per common and common equivalent share for the years ended
March 31, 1996 and 1995 has been determined by dividing net income by
the weighted average common and common equivalent shares outstanding
during the period, computed in accordance with the treasury stock
method. In addition, the number of common and common share equivalents
for the fiscal 1995 period prior to the closing of the Company's
initial public offering includes the number of common shares issued to
generate sufficient proceeds for the payment of $4.8 million of
convertible preferred stock dividends paid upon the consummation of the
initial public offering (see Note 1(b)) and, as required by rules
promulgated by the Securities and Exchange Commission, the dilutive
effect of options issued at prices below the offering price in the year
before the Company's initial public offering using the treasury stock
method.
Historical net income (loss) per common and common equivalent share for
periods prior to fiscal 1995 has not been presented, as such
information is not considered meaningful.
(o) Pro Forma Net Income per Common and Common Equivalent Share
Pro forma net income per common and common equivalent share for the
year ended March 31, 1994 has been determined by dividing net income by
the weighted average common and common equivalent shares outstanding
during the period, computed in accordance with the treasury stock
method, plus the number of shares of common stock issued upon
conversion of preferred stock and the number of shares of common stock
issued pursuant to the initial public offering, sufficient to generate
proceeds for the payment of $4.8 million of convertible preferred stock
dividends paid upon consummation of the initial public offering. As
required by rules promulgated by the Securities and Exchange
Commission, shares or options issued at prices below the offering price
in the year before the Company's initial public offering have been
included in the calculation as if outstanding for all periods presented
using the treasury stock method.
(p) Supplemental Net Income per Common and Common Equivalent Share
Supplemental net income per common and common equivalent share for the
year ended March 31, 1994 has been determined by dividing net income,
increased by the effect of reduced interest expense associated with the
assumed repayment of indebtedness to stockholders, as of the beginning
of the period, from the net proceeds of the Company's initial public
offering, by the pro forma weighted average common and common
equivalent shares outstanding increased by the shares to be issued
pursuant to the initial public offering in excess of the number of
shares issued to fund the payment of $4.8 million of convertible
preferred stock dividends.
F-12
<PAGE> 44
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(1) OPERATIONS AND ACCOUNTING POLICIES (Continued)
(q) Postretirement Benefits
The Company has no obligations under SFAS No. 106, Employers'
Accounting for Post-retirement Benefits Other Than Pensions, as it does
not currently offer such benefits.
(r) Concentration of Credit Risk
The Company has no significant off-balance-sheet concentration of
credit risk such as foreign exchange contracts, option contracts or
other foreign hedging arrangements. The Company's accounts receivable
credit risk is not concentrated within any geographical area, and no
single customer accounts for greater than 10% of revenues or represents
a significant credit risk to the Company.
(2) REVOLVING LINE OF CREDIT
The Company has a revolving line-of-credit agreement with a bank which
expires on January 9, 1997. On January 9, 1995, the line of credit was
amended to provide for borrowings not to exceed $20,000,000, of which a
maximum of $10,000,000 may be a foreign commitment. Borrowings accrue
interest at the bank's base rate, LIBOR plus 1-1/2%, or the applicable
foreign branch cost of funds plus 1-1/2%. Borrowings are secured by all
assets in the United States and inventory in the United Kingdom. The
Company is required to comply with certain financial covenants that require
minimum amounts of net worth, operating cash flow and net income. At March
31, 1996, no amounts were outstanding on this revolving line of credit.
In addition, one of the Company's subsidiaries has a revolving
line-of-credit agreement with a bank in the amount of $2,207,000. This line
of credit expires on February 27, 1997, and borrowings accrue interest at
LIBOR plus 35 basis points. Borrowings are fully cash secured in an amount
at least equal to 115% of the outstanding principal. At March 31, 1996, the
subsidiary had fully utilized the line of credit and had an outstanding
loan balance of $2,207,000.
F-13
<PAGE> 45
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(3) LONG-TERM DEBT
<TABLE>
Long-term debt consists of the following at March 31, 1996 and 1995:
<CAPTION>
1996 1995
<S> <C> <C>
Capital lease obligation $421,000 $865,000
Amount due to a university - 111,000
-------- --------
421,000 976,000
Less--Current portion 203,000 540,000
-------- --------
$218,000 $436,000
======== ========
</TABLE>
<TABLE>
The Company leases certain equipment under capital lease arrangements
expiring through December 1998. Future minimum lease commitments under
these capital leases are as follows:
<CAPTION>
<S> <C>
Year Ending March 31,
1997 $240,000
1998 157,000
1999 81,000
--------
478,000
Less--Amount representing interest 57,000
--------
Present value of minimum lease payments $421,000
--------
</TABLE>
(4) STOCKHOLDERS' EQUITY
(a) Capital Stock Amendment
On June 1, 1994, the Company's stockholders approved an amendment to
the Company's Articles of Organization to increase the authorized
shares of common stock to 34,500,000 shares of common stock, which are
divided into 30,000,000 shares of common stock, 3,000,000 shares of
Class A Common Stock and 1,500,000 shares of Class B Common Stock. The
Company's stockholders also approved an amendment to the rights and
preferences of the Class A Common Stock. As amended, each share of
Class A Common Stock may not be sold or transferred except for certain
limited, permitted transfers and will automatically convert into five
shares of
F-14
<PAGE> 46
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(4) STOCKHOLDERS' EQUITY (Continued)
(a) Capital Stock Amendment (Continued)
Common Stock upon the earliest of (i) 90 days after the date on which
the Common Stock is registered as a class under the Securities Exchange
Act of 1934, (ii) the date on which a registration statement filed
under the Securities Act of 1933 covering such shares of Class A Common
Stock becomes effective under the Securities Act, and (iii) the date on
which the Board of Directors has voted to release the restrictions on
shares of Class A Common Stock pro rata among all holders of Class A
Common Stock. In addition, the Company's Board of Directors approved a
five-for-one Class B Common Stock split effected in the form of a
dividend. This amendment and the stock split became effective on June
29, 1994 upon the filing of the amendment. The accompanying
consolidated financial statements and notes have been retroactively
adjusted to reflect the stock split.
In connection with the Initial Public Offering, 120,000 shares of Class
A Common Stock were converted to 600,000 shares of common stock, and on
September 27, 1994, all remaining shares of Class A Common Stock were
automatically converted into 9,387,290 shares of common stock.
(b) Common Stock
The Class B Common Stock is entitled to all rights of the Common Stock
and Class A Common Stock, with the exception of voting rights. Holders
of Class A Common Stock are entitled to one vote for each share of
common stock into which Class A Common Stock would convert while
holders of common stock are entitled to one vote per share.
The Company has reserved shares of Common Stock for the conversion of
Class B Common Stock. During fiscal 1995, a total of 423,125 shares of
Class B Common Stock were converted into Common Stock.
(5) EMPLOYEE BENEFIT PLANS
(a) Pension and Profit Sharing Plans
The Company maintains a profit sharing retirement plan (the 401(k)
Plan) covering substantially all U.S. employees. Participants in the
401(k) Plan may contribute up to 15% of their compensation to the
401(k) Plan. The Company matches employee contributions up to 3% of
each employee's salary. The Company also maintains a UK defined
contribution pension plan
F-15
<PAGE> 47
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(5) EMPLOYEE BENEFIT PLANS (Continued)
(a) Pension and Profit Sharing Plans (Continued)
covering qualified UK employees. Contributions under the pension plan
equal 3% of the eligible annual wages of qualified employees. In
addition, the Company maintains defined contribution plans in Canada
and certain European countries. During fiscal 1996, 1995 and 1994, the
Company contributed $714,000, $595,000 and $445,000, respectively, to
these plans. The Company may terminate the plans at any time.
(b) Stock Option Plans
In fiscal 1994, the stockholders approved the 1993 Stock Option Plan
under which the Board of Directors may grant options to purchase up to
2,000,000 shares of common stock to attract and retain employees,
consultants or advisers who are in a position to make significant
contributions to the success of the Company. In August 1995, at the
Annual Meeting of Stockholders, the stockholders approved an amendment
to the 1993 Stock Option Plan (the Option Plan) to add 1,000,000 shares
to the number of shares available under the Option Plan, setting the
total number of shares of common stock available for issuance under the
Option Plan at 3,000,000 shares. In addition, during fiscal 1996, the
Board of Directors approved the MediSense, Inc. Executive Share Option
Scheme (the UK Share Scheme) which allows the Board of Directors to
grant options to employees.
The number of shares and the terms under which shares granted under
these plans vest are determined by the Board of Directors at the time
of grant. As of March 31, 1996, options to purchase 1,351,080 shares of
common stock remain available for future grant under these two plans.
Substantially all options granted under these plans become exercisable
over a three- to six-year period from the date of grant.
In fiscal 1993, the Board of Directors approved the 1992 Directors'
Stock Option Plan under which the Company may grant options to purchase
shares of common stock to nonemployee directors and official observers.
In June 1994, the stockholders approved this plan, which allows for the
grant of options to purchase up to 600,000 shares of common stock. In
August 1995, the stockholders approved the 1995 Directors' Stock Option
In Lieu of Retainer Plan, which allows for the grant of options to
purchase up to 150,000 shares of common stock. Under the plan during
fiscal 1996, nonemployee directors of the Company received one-half of
their annual retainer in the form of an option to purchase shares of
common stock, which vests six months following the date of grant. As of
March 31, 1996, options to purchase 212,765 shares remain available for
future grants under these plans.
F-16
<PAGE> 48
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(5) EMPLOYEE BENEFIT PLANS (Continued)
(b) Stock Option Plans (Continued)
<TABLE>
The following table summarizes all stock option activity under existing
and terminated plans as well as specific grants by the Board of
Directors for the three years ended March 31, 1996:
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE
<S> <C> <C>
Balance outstanding, March 31, 1993 2,209,935 $ 2.00-$12.00
Granted 2,383,175 8.80- 12.00
Exercised (6,080) 2.00
Terminated (1,418,180) 2.00- 12.00
--------- -------------
Balance outstanding, March 31, 1994 3,168,850 2.00- 12.00
Granted 141,500 8.80- 23.12
Exercised (1,206,239) 2.00- 14.50
Terminated (73,535) 3.50- 14.50
--------- -------------
Balance outstanding, March 31, 1995 2,030,576 2.00- 23.12
Granted 1,169,985 15.81- 24.50
Exercised (532,431) 2.00- 18.88
Terminated (174,235) 8.80- 18.88
--------- -------------
Balance outstanding, March 31, 1996 2,493,895 $ 3.00-$24.50
========= =============
Exercisable, March 31, 1996 1,350,790 $ 3.00-$24.50
========= =============
</TABLE>
Subsequent to year-end and in conjunction with the merger discuused in
Note 1(a), 2,333,395 options were exercised and the shares were
tendered as part of the merger.
(c) Employee Stock Purchase Plans
The Company has adopted an Employee Stock Purchase Plan (the Plan)
under which the Board of Directors may grant each eligible employee, on
the first day of each semiannual plan period, an option to purchase
shares of the Company's common stock on the last day of each semiannual
plan period. The option price per share is equal to 85% of the fair
value of the common stock on either the first or last day of each
semiannual plan period, whichever is lower. The maximum
F-17
<PAGE> 49
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(5) EMPLOYEE BENEFIT PLANS (Continued)
(c) Employee Stock Purchase Plans (Continued)
number of shares purchased by each eligible employee is limited to the
number of shares that could be purchased with 10% of their respective
compensation, as defined, on the first day of each semiannual plan
period. The maximum fair value of options outstanding for each eligible
employee cannot exceed $25,000. During fiscal 1994, the Board of
Directors suspended stock purchases under the Plan as of April 1, 1994
and adopted the 1994 Employee Stock Purchase Plan (the 1994 Plan). A
total of 250,000 shares of common stock have been reserved for issuance
under the 1994 Plan. As of March 31, 1996, 212,541 shares of common
stock reserved for issuance remain available for future grants.
(6) INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, Accounting for
Income Taxes.
<TABLE>
The provision for income taxes shown in the accompanying consolidated
statements of operations consists of the following at March 31, 1996, 1995
and 1994:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current-
Federal $1,189,000 $ 530,000 $ 110,000
State 200,000 959,000 160,000
Foreign 1,675,000 2,353,000 855,000
---------- ---------- ----------
3,064,000 3,842,000 1,125,000
Deferred
(prepaid)-
Federal - - -
State - - -
Foreign 473,000 (397,000) 665,000
---------- ---------- ----------
$3,537,000 $3,445,000 $1,790,000
========== ========== ==========
</TABLE>
The foreign tax provision represents the provision for income taxes in
countries where the Company does not have available net operating loss
carryforwards. Federal and state income taxes have been provided in fiscal
1996, 1995 and 1994, as the Company is subject to federal alternative
minimum tax and is subject to tax in certain states which do not allow the
carryforward of net operating losses.
F-18
<PAGE> 50
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(6) INCOME TAXES (Continued)
<TABLE>
A reconciliation of the federal statutory rate to the Company's effective
rate at March 31, 1996, 1995 and 1994 is as follows:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Income tax provision at federal statutory rate 35.0% 35.0% 35.0%
Increase (decrease) in tax resulting from-
Utilization of net operating loss (22.5) (33.4) (22.7)
carryforward
Utilization of foreign subsidiaries' net (10.1) - -
operating loss
Taxes provided for foreign subsidiaries in
excess - 2.7 4.5
of federal rate
State tax provision, net of federal benefit .6 3.4 2.0
Other 7.0 5.9 3.6
---- ---- ----
Effective tax rate 10.0% 13.6% 22.4%
==== ==== ====
</TABLE>
At March 31, 1996, the Company had a net domestic operating loss
carryforward for federal tax purposes and financial reporting purposes of
approximately $37,089,000 and $24,280,000, respectively. The primary
difference represents a deduction of approximately $12,809,000 in fiscal
1995 and 1996 from the exercise of certain stock options. The tax benefit
of approximately $4,500,000 will be reflected as a component of additional
paid-in capital upon the utilization of the tax operating loss
carryforward. In addition, the Company has available federal tax credit
carryforwards of approximately $1,276,000 at March 31, 1996. These
carryforwards may be used to offset future taxable income and future tax
liabilities, respectively, if any, and are subject to review and possible
adjustment by the Internal Revenue Service. The Tax Reform Act of 1986 (the
Reform Act) limits the amount of domestic net operating loss and credit
carryforwards that companies may utilize in any one year in the event of
cumulative changes in ownership over a three-year period in excess of 50%.
As a result of the public offering, the Company had a cumulative change in
ownership over a three-year period. Based on the valuation of the Company
at the time of this ownership change, the annual limitation imposed on
utilization of the net domestic operating loss carryforwards is
approximately $23 million. The Company anticipates that this limitation
will not impair its ability to fully utilize its existing net domestic
operating loss and tax credit carryforwards.
F-19
<PAGE> 51
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(6) INCOME TAXES (Continued)
<TABLE>
The Company's wholly owned foreign subsidiaries have net operating loss
carryforwards of approximately $15,700,000, of which $5,409,000 is not
subject to expiration. The expiration dates of the Company's net operating
loss carryforwards are as follows:
<CAPTION>
NET OPERATING
LOSS CARRYFORWARDS
EXPIRES FEDERAL FOREIGN
<S> <C> <C>
March 31,
1997 $ - $ 1,440,000
1998 - 4,282,000
1999 - 1,506,000
2000 - 1,916,000
2001 - 261,000
2002 - 669,000
2003 - 143,000
2004 - 2,000
2005 16,828,000 72,000
2006 13,764,000 -
2007 4,056,000 -
2008 2,441,000 -
----------- -----------
Total $37,089,000 $10,291,000
=========== ===========
</TABLE>
<TABLE>
The components of deferred income tax assets and liabilities and the
valuation allowance at March 31, 1996 and 1995 are as follows:
<CAPTION>
1996 1995
<S> <C> <C>
Domestic-
Assets-
Operating loss carryforwards $ 12,981,000 $ 19,482,000
Tax credit carryforwards 1,276,000 898,000
Temporary differences-
Warranty reserve 1,615,000 1,209,000
Allowance for doubtful 137,000 107,000
accounts
Inventory valuation allowance 1,050,000 1,201,000
Other 2,251,000 2,449,000
------------ ------------
19,310,000 25,346,000
Valuation allowance (18,636,000) (24,720,000)
------------ ------------
674,000 626,000
Liabilities-
Capital lease expense (674,000) (626,000)
------------ ------------
$ - $ -
============ ============
</TABLE>
F-20
<PAGE> 52
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(6) INCOME TAXES (Continued)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Foreign-
Assets-
Operating loss carryforwards $ 5,495,000 $ 9,345,000
Valuation allowance (5,495,000) (9,345,000)
----------- ----------
- -
Liabilities-
Depreciation 372,000 116,000
Foreign exchange 635,000 703,000
Other 595,000 404,000
----------- ----------
$ 1,602,000 $1,223,000
=========== ==========
</TABLE>
The Reform Act also expanded the corporate alternative minimum tax (AMT).
Under the Reform Act, the Company's federal tax liability is the greater of
its regular tax or AMT liability. The Company's foreign deferred tax
liability represents the tax effect of accelerating foreign tax deductions
relating to property and equipment and deferring taxable income relating to
foreign exchange gains. Because the level and the jurisdiction of future
taxable income is uncertain, the Company has recorded a valuation allowance
equal to the net deferred tax asset. The decrease in the valuation
allowance for fiscal 1995 is due primarily to the utilization of the
domestic net operating loss carryforward and the effect of certain items
being deductible for tax purposes and financial reporting purposes in
different periods.
(7) COMMITMENTS
<TABLE>
The Company conducts its operations in leased facilities and leases office
equipment and vehicles under various operating lease agreements that expire
through 2011. Rental expense charged to operations was approximately
$3,533,000, $3,417,000 and $2,580,000 in fiscal 1996, 1995 and 1994,
respectively. Future minimum lease commitments under these operating leases
are as follows:
<CAPTION>
EQUIPMENT
FACILITIES AND TOTAL
VEHICLES
<S> <C> <C> <C>
Year Ending March 31,
1997 $ 2,379,000 $1,362,000 $ 3,741,000
1998 2,506,000 891,000 3,397,000
1999 2,388,000 491,000 2,879,000
2000 2,342,000 159,000 2,501,000
2001 1,934,000 4,000 1,938,000
Thereafter 14,020,000 23,000 14,043,000
----------- ---------- -----------
$25,569,000 $2,930,000 $28,499,000
=========== ========== ===========
</TABLE>
F-21
<PAGE> 53
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(7) COMMITMENTS (Continued)
Restricted cash of $2,617,000 and $137,000 in the accompanying consolidated
balance sheets at March 31, 1996 and 1995, respectively, represents funds
restricted for use under the subsidiary line of credit and certain facility
leases.
(8) GEOGRAPHIC SEGMENT INFORMATION
The Company conducts its operations in two significant geographic segments,
the United States and Europe. During the years ended March 31, 1996, 1995
and 1994, international revenues, including export sales, represented
69.3%, 65.0% and 63.3% of revenues, respectively.
<TABLE>
<CAPTION>
1996 UNITED EUROPE OTHER ELIMINATIONS TOTAL
STATES
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers-
Domestic $53,312,000 $ 90,979,000 $27,328,000 $ -- $171,619,000
Export 2,137,000 -- -- -- 2,137,000
Intercompany sales 21,245,000 177,798,000 47,000 (199,090,000) --
----------- ----------- ----------- ------------- ------------
Total $76,694,000 $268,777,00 $27,375,000 $(199,090,000) $173,756,000
=========== ============ =========== ============= ============
Income (loss) from
operations $16,288,000 $ 13,802,000 $ 6,498,000 $ (2,786,000) $ 33,802,000
=========== ============ =========== ============= ============
Identifiable assets $67,845,000 $ 50,734,000 $10,822,000 $ (8,219,000) $121,182,000
=========== ============ =========== ============= ============
<CAPTION>
1995 UNITED EUROPE OTHER ELIMINATIONS TOTAL
STATES
Sales to unaffiliated
customers-
Domestic $49,291,000 $ 68,824,000 $ 21,094,000 $ -- $139,209,000
Export 1,749,000 -- -- -- 1,749,000
Intercompany sales 22,353,000 137,183,000 -- (159,536,000) --
----------- ------------ ------------ ------------- ------------
Total $73,393,000 $206,007,000 $ 21,094,000 $(159,536,000) $140,958,000
=========== ============ ============ ============= ============
Income (loss) from
operations $18,241,000 $ 9,595,000 $ (1,027,000) $ (2,238,000) $ 24,571,000
=========== ============ ============ ============= ============
Identifiable assets $36,604,000 $ 40,896,000 $ 9,931,000 $ (5,423,000) $ 82,008,000
=========== ============ ============ ============= ============
<CAPTION>
1994 UNITED EUROPE OTHER ELIMINATIONSTOTAL TOTAL
STATES
Sales to unaffiliated
customers-
Domestic $40,498,000 $ 52,888,000 $12,476,000 $ -- $105,862,000
Export 4,522,000 -- -- -- 4,522,000
Intercompany sales 14,282,000 101,049,000 -- (115,331,000) --
----------- ------------ ------------ ----------- ------------
Total $59,302,000 $153,937,000 $12,476,000 $(115,331,000) $110,384,000
=========== ============ ============ ============= ============
Income (loss) from
operations $ 7,956,000 $ 7,472,000 $ (92,000) $ (1,294,000) $ 14,042,000
=========== ============ ============ ============= ============
Identifiable assets $10,419,000 $ 28,999,000 $ 7,355,000 $ (3,257,000) $ 43,516,000
=========== ============ ============ ============= ============
</TABLE>
F-22
<PAGE> 54
MEDISENSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(9) ACCRUED EXPENSES
<TABLE>
Accrued expenses consist of the following at March 31, 1996 and 1995:
<CAPTION>
1996 1995
<S> <C> <C>
Payroll and $ 8,683,000 $ 7,413,000
payroll-related costs
Accrued income taxes 5,142,000 3,638,000
Warranty reserve 4,613,000 3,454,000
Accrued marketing program 2,507,000 2,044,000
Other accrued expenses 5,003,000 4,773,000
----------- -----------
$25,948,000 $21,322,000
=========== ===========
</TABLE>
(10) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
The quarterly financial results for the years ended March 31, 1996 and 1995
are as follows (in thousands, except per share data):
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31, DECEMBER 31, OCTOBER 1, JULY 2,
1996 1995 1995 1995
<S> <C> <C> <C> <C>
REVENUE $44,072 $44,811 $44,184 $40,689
GROSS PROFIT 30,081 29,836 29,411 27,282
INCOME FROM OPERATIONS 9,611 8,736 7,748 7,707
NET INCOME 9,358 8,107 6,925 7,444
======= ======= ======= =======
NET INCOME PER SHARE $.49 $.43 $.37 $.41
==== ==== ==== ====
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------
MARCH 31, DECEMBER 25, SEPTEMBER 25, JUNE 26,
1995 1994 1994 1994
REVENUE $38,081 $37,100 $34,626 $31,151
GROSS PROFIT 25,279 24,923 22,506 21,029
INCOME FROM OPERATIONS 7,334 6,440 5,708 5,089
NET INCOME 7,343 5,549 5,088 3,998
======= ======= ======= =======
NET INCOME PER SHARE $.41 $.31 $.30 $.32
==== ==== ==== ====
</TABLE>
F-23
<PAGE> 55
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To MediSense, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of MediSense, Inc. included in MediSense,
Inc.'s annual report to stockholders incorporated by reference in this Form 10-K
and have issued our report thereon dated May 10, 1996. Our audits were made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in Item 14(a) is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and in our opinion, fairly states in
all material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 10, 1996
F-24
<PAGE> 56
SCHEDULE II
MEDISENSE, INC. AND SUBSIDIARIES
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
<CAPTION>
BALANCE, CHARGED TO BALANCE,
ALLOWANCE FOR BEGINNING COST OR CHARGED TO DEDUCTIONS END OF
DOUBTFUL ACCOUNTS OF PERIOD EXPENSE OTHER (1) (WRITE-OFFS) PERIOD
<S> <C> <C> <C> <C> <C>
FISCAL 1996 $1,057,000 $557,000 $(41,000) $(482,000) $1,091,000
FISCAL 1995 669,000 497,000 65,000 (174,000) 1,057,000
FISCAL 1994 420,000 327,000 (7,000) (71,000) 669,000
<FN>
(1) Represents the effect of the fluctuation in foreign currency exchange rates
on translation of amounts denominated in foreign currencies into U.S.
dollars.
</TABLE>
F-25
<PAGE> 1
EXHIBIT 2.2
-----------
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
AMENDMENT dated as of May 30, 1996, among MediSense, Inc., a
Massachusetts corporation (the "Company"), Abbott Laboratories, an Illinois
corporation ("Parent"), AAC Acquisition, Inc., a Massachusetts corporation and a
wholly owned subsidiary of Parent ("Acquisition") and AAC Merger, Inc., a
Massachusetts corporation and a wholly owned subsidiary of Acquisition ("AAC
Merger").
WHEREAS, Parent, Acquisition, AAC Merger and the Company wish to amend
the Agreement and Plan of Merger dated as of March 29, 1996 among Parent,
Acquisition and the Company (the "Merger Agreement") to provide that AAC Merger
will be merged with and into the Company;
WHEREAS, the respective Boards of Directors of the Company, Acquisition
and AAC Merger have each approved this Amendment and the transactions
contemplated hereby, including the merger of AAC Merger with and into the
Company in accordance with the General Laws of the Commonwealth of Massachusetts
("Massachusetts Law") upon the terms and subject to the conditions set forth in
the Merger Agreement as amended by this Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company, Parent, Acquisition and AAC Merger hereby agree as follows;
1. The term "Merger" as used in the Merger Agreement shall be deemed to mean
the merger of AAC Merger with and into the Company.
2. Section 2.1 of the Merger Agreement is hereby restated in its entirety as
follows:
Section 2.1 THE MERGER. At the Effective Time (as defined
below) and upon the terms and subject to the conditions of this
Agreement and Massachusetts Law, AAC Merger shall be merged with and
into the Company whereupon the separate corporate existence of AAC
Merger shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation"). At Acquisition's option, the
Merger may be structured so that any direct or indirect subsidiary of
Parent is merged with and into the Company.
<PAGE> 2
In the event of such election, the parties agree to execute an
appropriate amendment to this Agreement in order to reflect such
election.
3. Section 2.3 of the Merger Agreement is hereby restated in its entirety as
follows:
Section 2.3 EFFECTS OF THE MERGER; SUBSEQUENT ACTIONS. (a) The
Merger shall have the effects set forth in Massachusetts Law. Without
limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the properties, rights, privileges, powers and
franchises of the Company and AAC Merger shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and
AAC Merger shall become the debts, liabilities and duties of the
Surviving Corporation.
(b) If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things
are necessary or desirable to vest, perfect or confirm of record or
otherwise in the Surviving Corporation its right, title or interest in,
to or under any of the rights, properties or assets of the Company or
AAC Merger acquired or to be acquired by the Surviving Corporation as a
result of or in connection with the Merger, or otherwise to carry out
this Agreement, the officers and directors of the Surviving Corporation
shall be authorized to execute and deliver, in the name and on behalf
of the Company or AAC Merger, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on
behalf of each of such corporations or otherwise, all such other
actions and things as may be necessary or desirable to vest, perfect or
confirm of record or otherwise any and all right, title and interest
in, to and under such rights, properties or assets of the Surviving
Corporation or otherwise to carry out this Agreement.
4. Section 2.4 of the Merger Agreement is hereby restated in its entirety as
follows:
-2-
<PAGE> 3
Section 2.4 ARTICLES OF ORGANIZATION; BY-LAWS. (a) Subject to
Section 6.5, at the Effective Time, the Articles of Organization of AAC
Merger in effect immediately prior to the Effective Time shall be the
Articles of Organization of the Surviving Corporation until amended in
accordance with applicable law; PROVIDED, however, that at the
Effective Time, Article I of the Articles of Organization of the
Surviving Corporation shall be amended to read as follows: "The name by
which the corporation shall be known is MediSense, Inc."
(b) The By-Laws of AAC Merger in effect at the
Effective Time shall be the By-Laws of the Surviving Corporation until
amended in accordance with applicable law.
(c) The Articles of Organization of the Surviving
Corporation shall state that the purpose of the Surviving Corporation
shall be to carry on any manufacturing, mercantile, selling,
management, service or other business, operation or activity which may
be lawfully carried on by a corporation organized under Massachusetts
Law. The Surviving Corporation initially shall be authorized to issue
up to 1,000 shares of its common stock, par value $0.01 per share.
5. Section 2.7 of the Merger Agreement is hereby restated in its entirety as
follows:
Section 2.7 CONVERSION OF SECURITIES. At the Effective Time,
by virtue of the Merger and without any action on the part of Parent,
Acquisition, AAC Merger, the Company or the holder of any of the
following securities:
(a) Each Share issued and outstanding immediately
prior to the Effective Time (other than Shares to be cancelled pursuant
to Section 2.7(b) hereof and Dissenting Shares (as defined in Section
3.1)), shall by virtue of the Merger and without any action on the part
of the holder thereof be cancelled and extinguished and be converted
into the right to receive an amount equal to the Per Share Amount (the
"Merger Consideration").
-3-
<PAGE> 4
(b) Each Share issued and outstanding immediately
prior to the Effective Time and owned by Parent, Acquisition, AAC
Merger or any direct or indirect subsidiary of Parent, Acquisition or
AAC Merger, or which is held in the treasury of the Company or any of
its subsidiaries, shall be cancelled and retired and no payment of any
consideration shall be made with respect thereto.
(c) Each share of common stock, par value $0.01 per
share, of AAC Merger issued and outstanding immediately prior to the
Effective Time shall be converted into and become one validly issued,
fully paid and nonassessable share of common stock, par value $0.01 per
share, of the Surviving Corporation.
6. Section 2.10 of the Merger Agreement is hereby restated in its entirety as
follows:
Section 2.10 STOCKHOLDERS' MEETING. If approval by the
Company's stockholders is required by applicable law to consummate the
Merger, the Company, acting through the Board, shall in accordance with
applicable law and subject to the fiduciary duties of the Board under
applicable law (as determined in good faith after consultation with
independent counsel), as soon as practicable following the consummation
of the Offer:
(a) duly call, give notice of, convene and hold an
annual or special meeting of its stockholders (the
"Stockholders' Meeting") for the purpose of considering and
taking action upon this Agreement;
(b) include in the Proxy Statement (as defined in
Section 4.7) the recommendation of the Board that stockholders
of the Company vote in favor of the approval and adoption of
this Agreement and the transactions contemplated hereby; and
(c) use its reasonable best efforts (A) to obtain and
furnish the information
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<PAGE> 5
required to be included by it in the Proxy Statement and,
after consultation with Parent, respond promptly to any
comments made by the SEC with respect to the Proxy Statement
and any preliminary version thereof and cause the Proxy
Statement to be mailed to its stockholders at the earliest
practicable time following the consummation of the Offer and
(B) to obtain the necessary approvals by its stockholders of
this Agreement and the transactions contemplated hereby.
At such meeting, Parent, Acquisition and AAC Merger will vote
all Shares owned by them in favor of this Agreement and the
transactions contemplated hereby.
7. Section 3.2 of the Merger Agreement is hereby amended by replacing
subparagraph (b) of such section in its entirety with the following:
(b) When and as needed, Parent, Acquisition or AAC Merger
shall deposit, or cause to be deposited, in trust with the Paying Agent
the Merger Consideration to which holders of Shares shall be entitled
at the Effective Time pursuant to Section 2.7(a) hereof.
8. This Amendment shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts applicable to contracts executed in
and to be performed in that State.
9. This Amendment may be executed in two or more counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and the
same agreement.
10. Except as expressly amended hereby, the Merger Agreement shall remain in
full force and effect.
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<PAGE> 6
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed on its behalf by its representatives thereunto duly authorized, all as
of the day and year first above written.
[CORPORATE SEAL] ABBOTT LABORATORIES
Attest by: ____________________ By: _______________________
Title: Title:
Attest by: ____________________ By: _______________________
Title: Title:
[CORPORATE SEAL] AAC ACQUISITION, INC.
Attest by: ____________________ By: _______________________
Title: Title:
Attest by: ____________________ By: _______________________
Title: Title:
[CORPORATE SEAL] AAC MERGER, INC.
Attest by: ____________________ By: _______________________
Title: Title:
Attest by: ____________________ By: _______________________
Title: Title:
[CORPORATE SEAL] MEDISENSE, INC.
Attest by: ____________________ By: _______________________
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<PAGE> 7
Title: Title:
Attest by: ____________________ By: _______________________
Title: Title:
-7-
<PAGE> 1
EXHIBIT 10.16
-------------
BEDFORD BUSINESS PARK
2-14 CROSBY DRIVE
BEDFORD, MASSACHUSETTS
LEASE DATED MARCH 27, 1996
THIS INSTRUMENT IS AN INDENTURE OF LEASE in which the Landlord and the
Tenant are the parties hereinafter named, and which relates to space in a
certain complex (the "Complex") known as Bedford Business Park, and with an
address at, 2-14 Crosby Drive, Bedford, Massachusetts.
The parties to this Indenture of Lease hereby agree with each other as
follows:
ARTICLE I
---------
REFERENCE DATA
--------------
<TABLE>
1.1 Subjects Referred To:
Each reference in this Lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this
Article:
<CAPTION>
<S> <C>
LANDLORD: Bedford Business Park Limited Partnership, a
Massachusetts limited partnership.
LANDLORD'S ORIGINAL c/o Boston Properties, Inc.
ADDRESS: 8 Arlington Street
Boston, Massachusetts 02116
LANDLORD'S CONSTRUCTION James C. Rosenfeld, John J. Baraldi or
REPRESENTATIVE: John D. Camera
TENANT: MediSense, Inc., a Massachusetts corporation.
TENANT'S ORIGINAL 266 Second Avenue
ADDRESS: Waltham, Massachusetts 02154
TENANT'S CONSTRUCTION Timothy Murphy
REPRESENTATIVE:
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
LANDLORD'S WORK: As defined in Section 3.1 hereof.
SCHEDULED TERM July 1, 1996
COMMENCEMENT DATE:
OUTSIDE COMPLETION September 15, 1996
DATE:
SUBSTANTIALLY COMPETED As defined in Section 3.2.
OR SUBSTANTIALLY
COMPLETE:
TENANT PLAN DELIVERY March 1, 1996
DATE:
COMMENCEMENT DATE: As defined in Sections 2.4 and 3.2.
ORIGINAL TERM: One hundred twenty (120) calendar months (plus
the partial month, if any, immediately following the
Commencement Date) unless extended or sooner
terminated as provided in this Lease.
EXTENSION OPTIONS: Two (2) periods of five (5) years each as provided
in and on the terms set forth in Section 8.20 hereof.
TERM (OR "LEASE TERM"): The Original Term and if extended pursuant to Section
8.20 hereof, the Original Term as so extended by the
applicable Extended Term(s).
THE SITE: That certain parcel of land known as and numbered
2-14 Crosby Drive, Bedford, Middlesex County,
Massachusetts, being more particularly described in
Exhibit A attached hereto plus any additions or
reductions thereto resulting from the change of any
abutting street line.
BUILDING A: The building in the "Complex" (as hereinafter
defined in this Section 1.1) known as Building A
and appropriately labeled on Exhibit A-1 attached
hereto and hereby made a part hereof.
BUILDING B: The building in the Complex known as Building B
and appropriately labeled on Exhibit A-1 attached
hereto and hereby made a part hereof.
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
BUILDING C: The building in the Complex known as Building C
and which is appropriately labeled on Exhibit A-1
attached hereto and hereby made a part hereof.
THE BUILDING: Building A, Building B or Building C, as may apply
to the context.
THE BUILDINGS: Building A, Building B and Building C collectively.
THE ADDITIONAL The buildings in the Complex known
BUILDINGS: as Buildings D, E, F, G and H and which are
appropriately labeled on Exhibit A-1.
THE COMPLEX: The Buildings and the Additional Buildings
together with all parking areas and the Site.
BUILDING A PREMISES: The entire rentable floor area of Building A. Said
premises are shown on the floor plans attached
hereto as Exhibit A-2.
BUILDING B PREMISES: The entire rentable floor area of Building B. Said
premises are shown on the floor plans attached
hereto as Exhibit A-2.
BUILDING C PREMISES: The entire rentable floor area of Building C. Said
premises are shown on the floor plans attached
hereto as Exhibit A-2.
PREMISES (SOMETIMES The Building A Premises, the Building B Premises
ALSO REFERRED TO AS and the Building C Premises collectively.
"TENANT'S SPACE"):
NUMBER OF Four Hundred Nine (409) including therein
PARKING SPACES: the "Reserved Spaces" subject to and in accordance
with the provisions of Section 2.2.1.
ANNUAL FIXED RENT: (a) During the Original Term of this Lease at
the following annual rates:
(i) For the period beginning on the
Commencement Date and continuing
through the last day of the thirty
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C> <C>
sixth (36th) full calendar month
following the Commencement Date, at
the annual rate of $1,087,500.00
(being the product of (x) $7.25 and
(y) the "Rentable Floor Area of the
Premises" (hereinafter defined));
and
(ii) For the period beginning on the
first day of the thirty seventh
(37th) full calendar month
following the Commencement Date and
continuing through the last day of
the seventy second (72nd) full
calendar month following the
Commencement Date, at the annual
rate of $1,162,500.00 (being the
product of (x) $7.75 and (y) the
Rentable Floor Area of the
Premises); and
(iii) For the period beginning on the
first day of the seventy third
(73rd) full calendar month
following the Commencement Date and
continuing through the remainder of
the Original Term, at the annual
rate of $1,275,000.00 (being the
product of (x) $8.50 and (y) the
Rentable Floor Area of the
Premises).
(b) During the extension option periods (if
exercised) as determined pursuant to Section
8.20).
ALLOWANCE: As provided in Section 2.5.1.
TENANT ELECTRICITY: As provided in Section 2.8.
ADDITIONAL RENT: All payments, charges and amounts due from
Tenant under this Lease other than Annual Fixed
Rent.
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
RENTABLE FLOOR AREA 150,000 square feet, being the sum of (i) the
OF THE PREMISES Rentable Floor Area of the Building A Premises,
(SOMETIMES ALSO CALLED (ii) the Rentable Floor Area of the Building B
"RENTABLE FLOOR AREA Premises and (iii) the Rentable Floor Area of the
OF TENANT'S SPACE"): Building C Premises.
RENTABLE FLOOR 50,000 square feet.
AREA OF BUILDING A:
RENTABLE FLOOR 50,000 square feet.
AREA OF BUILDING B:
RENTABLE FLOOR 50,000 square feet.
AREA OF BUILDING C:
TOTAL RENTABLE FLOOR 150,000 square feet.
AREA OF THE BUILDINGS:
TOTAL RENTABLE FLOOR 323,704 square feet.
AREA OF THE ADDITIONAL
BUILDINGS:
TOTAL RENTABLE FLOOR 473,704 square feet.
AREA OF THE COMPLEX:
PERMITTED USES: For (i) general office purposes and (ii) subject to the
provisions of Section 5.3(B) hereof, light
manufacturing, software assembly and research and
development purposes and (iii) for warehouse and
distribution purposes but only as accessory to the
uses set forth in item (ii) above.
INITIAL MINIMUM $5,000,000.00 combined single limit per occurrence
LIMITS OF TENANT'S on a per location basis.
COMMERCIAL GENERAL
LIABILITY INSURANCE:
RECOGNIZED BROKERS: Spaulding & Slye
125 High Street
Boston, Massachusetts 02110
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C> <C>
And
Whittier Partners
155 Federal Street
Boston, Massachusetts 02111
LEGAL REQUIREMENTS: All statutes, codes, ordinances, by-laws, rules,
regulations, orders, judgments or decrees of
governmental authorities, agencies, officials,
departments and officers which now or at any time
hereafter may be applicable to the Complex or any
part of it.
</TABLE>
1.2 Exhibits. There are incorporated as part of this Lease:
EXHIBIT A Description of Site
EXHIBIT A-1 Site Plan of Complex
EXHIBIT A-2 Floor Plans of Building A, Building B and Building C
EXHIBIT B Landlord's Work
EXHIBIT B-1 Tenant's Initial Equipment, Machinery and Fixtures
EXHIBIT C Intentionally Omitted
EXHIBIT D Broker Determination
EXHIBIT E Commencement Date Agreement
EXHIBIT F Schedule of Existing Leases
EXHIBIT G Title Matters
EXHIBIT H Zoning Matters
1.3 Table of Articles and Sections
- 6 -
<PAGE> 7
ARTICLE I-REFERENCE DATA
1.1 Subjects Referred To
1.2 Exhibits
1.3 Table Of Articles And Sections
ARTICLE II-THE BUILDINGS, PREMISES, TERM AND RENT
2.1 The Premises
2.1.1 Tenant's Right Of First Offer
2.2 Rights To Use Common Facilities
2.2.1 Tenant's Parking
2.3 Landlord's Reservations
2.4 Habendum
2.4.1 Tenant's Termination Right
2.5 Monthly Fixed Rent Payments
2.5.1 Allowance
2.6 Adjustment For Operating Expenses
2.7 Adjustment For Real Estate Taxes
2.8 Tenant Electricity
ARTICLE III-CONSTRUCTION
3.1 Delivery OF Premises
3.2 Landlord's And Tenant's Construction
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<PAGE> 8
3.3 Alterations And Additions
3.4 General Provisions Applicable To Construction
ARTICLE IV-LANDLORD'S COVENANTS; INTERRUPTIONS AND DELAYS;
AND RESTRICTION ON LANDLORD'S LEASING
4.1 Landlord's Covenants
4.1.1 Services Furnished By Landlord
4.1.2 Additional Services Available To Tenant
4.1.3 Roof, Exterior Wall, Floor Slab And Common Facility
Repairs
4.1.4 Roofs And Building Systems
4.2 Interruptions And Delays In Services And Repairs, Etc.
4.3 Restriction On Landlord's Leasing
4.4 Landlord's Hazardous Materials Indemnity
ARTICLE V-TENANT'S COVENANTS
5.1 Payments
5.2 Repair And Yield Up
5.3 Use
5.4 Obstructions; Items Visible From Exterior; Rules And
Regulations
5.5 Safety Appliances; Licenses
5.6 Assignment; Sublease
5.7 Indemnity; Insurance
5.8 Personal Property At Tenant's Risk
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<PAGE> 9
5.9 Right Of Entry
5.10 Floor Load; Prevention Of Vibration And Noise
5.11 Personal Property Taxes
5.12 Compliance With Laws
ARTICLE VI-CASUALTY AND TAKING
6.1 Fire And Casualty-Termination Or Restoration; Rent Adjustment
6.2 Uninsured Casualty
6.3 Eminent Domain-Termination Or Restoration
6.4 Eminent Domain Damages Reserved
ARTICLE VII-DEFAULT
7.1 Tenant's Default
7.2 Landlord's Default
ARTICLE VIII-MISCELLANEOUS PROVISIONS
8.1 Extra Hazardous Use
8.2 Waiver
8.3 Cumulative Remedies
8.4 Quiet Enjoyment
8.5 Notice To Mortgagee And Ground Lessor
8.6 Assignment Of Rents
8.7 Surrender
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<PAGE> 10
8.8 Brokerage
8.9 Invalidity Of Particular Provisions
8.10 Provisions Binding, Etc.
8.11 Recording
8.12 Notices
8.13 When Lease Becomes Binding
8.14 Section Headings
8.15 Rights Of Mortgagee
8.16 Status Report
8.17 Self-Help
8.18 Holding Over
8.19 Non-Subrogation
8.20 Extension Options
8.21 Signage
8.22 Late Payment
8.23 Miscellaneous
8.24 Title And Zoning
8.25 Governing Law
- 10 -
<PAGE> 11
ARTICLE II
BUILDING, PREMISES, TERM AND RENT
---------------------------------
2.1 Landlord hereby demises and leases to Tenant, and Tenant hereby hires
and accepts from Landlord, the Premises (excluding exterior faces of
exterior walls, the common stairways and stairwells, if any, fan rooms,
and pipes, ducts, conduits, wires and appurtenant fixtures serving
exclusively or in common the Additional Buildings).
2.1.1 (A) Tenant shall have a right of first offer to lease one (1) or more
of the Additional Buildings in the Complex as set forth in this Section
2.1.1.
The provisions of this Section 2.1.1 shall apply only to the entirety
of any of the individual "Additional Buildings" (defined in Section 1.1
hereof). Tenant acknowledges that the Additional Buildings are
presently leased to other tenants. The terms of such leases, including,
but not limited to, the original lease terms thereof, options to extend
the lease terms thereof, amendments thereto, rights of first offer to
lease additional space, rights of first refusal to lease additional
space and other expansion rights contained therein as of the date of
execution of this Lease are hereinafter individually and collectively
called the "Existing Leases" and the tenants under the Existing Leases
are hereinafter individually and collectively called the "Existing
Tenants". The "Existing Leases" are identified in Exhibit F attached
hereto. Subject to the Existing Leases and the rights of the Existing
Tenants thereunder all of which rights are hereby made prior to the
rights of Tenant under this Section 2.1.1 and subject to the terms of
this Section 2.1.1, Landlord agrees not to enter into a lease(s) to
relet any Additional Building without first giving to Tenant an
opportunity to lease such entire Additional Building as hereinafter set
forth, provided that at the time such Additional Building becomes so
available hereunder for reletting and on the date of exercise of rights
hereunder by Tenant (i) there exists no Event of Default under Section
7.1(a)(i) of this Lease, (ii) this Lease is still in full force and
effect, (iii) Tenant has not assigned this Lease nor sublet more than
one third (1/3rd) of the Rentable Floor Area of the Premises in the
aggregate (other than an assignment or subletting permitted pursuant to
Section 5.6.1).
(B) Each and every time an Additional Building becomes available for
reletting upon the foregoing conditions, Landlord shall notify Tenant
in writing of the availability of such Additional Building and shall
advise Tenant of the business terms upon which Landlord is willing so
to lease such Additional Building including the Annual Fixed Rent,
lease term and extension options (if any), landlord work to be
performed and tenant improvement allowance (collectively the "Business
Terms") provided, however, that such Business Terms shall be consistent
with the then current market terms for comparable space as reasonably
determined by Landlord. If Tenant wishes to exercise Tenant's right of
first offer, Tenant shall do so by giving Landlord notice of Tenant's
desire to lease such
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<PAGE> 12
space on such terms within twenty (20) days after Landlord's notice to
Tenant of the availability of such Additional Building and of such
terms. If Tenant shall give such notice, the same shall constitute an
agreement between Landlord and Tenant to enter into a lease within
twenty (20) days following Tenant's acceptance upon the terms set forth
in Landlord's notice. The form of such lease shall be the form of this
Lease except for the Business Terms which shall be those set forth in
Landlord's notice and such other terms as may not be consistent with
the then transaction. If Tenant shall not so exercise such right within
such period or if Tenant shall timely give an acceptance to Landlord
but shall not enter into a lease upon the terms set forth in Landlord's
notice within said twenty (20) day period (time being of the essence in
respect of such exercise), Landlord shall be free at any time
thereafter to enter into a lease(s) of space in the offered Additional
Building with another prospective tenant(s) provided that if Landlord
shall not have leased the entire Additional Building which was the
subject of Landlord's notice within one hundred eighty (180) days after
the expiration of the applicable period hereinabove set forth, then
Landlord shall reoffer the remaining space in such Additional Building
to Tenant in accordance with and subject to the terms of this Section
2.1.1 prior to leasing such space to another tenant or tenants provided
that in offering such space to Tenant pursuant to the terms of this
Section 2.1.1, Landlord's offer shall only be with respect to such
remaining space.
(C) In the event of the delay or wrongful failure of Landlord to enter
into any such lease with Tenant as above provided or to comply with the
provisions of this Section 2.1.1, Tenant's sole remedy shall be to seek
specific performance or other equitable relief directing Landlord to so
enter into such lease with Tenant or to comply with the provisions of
this Section 2.1.1, as the case may be. Further, in no event shall the
obligations of Tenant under this Lease be subject to termination, nor
shall the Annual Fixed Rent and Additional Rent and other charges
payable hereunder be subject to set off, deduction or abatement, or
otherwise be affected by the failure or inability of Landlord to
perform the agreements contained in this Section 2.1.1.
(D) If Tenant shall exercise any such right of first offer and if,
thereafter, the then occupant of the premises with respect to which
Tenant shall have so exercised such right wrongfully fails to deliver
possession of such premises at the time when its tenancy is scheduled
to expire, Landlord shall use reasonable efforts (which shall be
limited to the commencement and prosecution thereafter of eviction
proceedings and to the payment of legal fees and other expenses
reasonably associated with such proceedings but which shall not require
the taking of any appeal) to evict such occupant from the applicable
space and to deliver possession of the applicable space to Tenant as
soon as may be practicable. Commencement of the term of Tenant's
occupancy, payment of rent and the lease of such additional space
shall, in the event of such holding over by such occupant, be deferred
until actual possession of the additional space is delivered to Tenant;
provided, however, that if Landlord shall not have delivered actual
possession of the
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<PAGE> 13
additional space to Tenant within ninety (90) days following the date
set forth in the applicable lease or lease amendment for the delivery
of such additional space to Tenant, then Tenant may, by written notice
given to Tenant at any time prior to (but not on or after) delivery of
actual possession of such additional space to Tenant, terminate its
expansion space election for such additional space and such termination
right as to the applicable additional space shall be Tenant's sole
right and remedy. Notwithstanding anything herein contained, the
failure of the then occupant of such premises to so vacate or Tenant's
exercise of its termination right as to the then applicable additional
space shall not give Tenant any right to terminate this Lease or to
deduct from, offset against or withhold Annual Fixed Rent, Additional
Rent or other charges due under this Lease (or any portions thereof).
(E) Notwithstanding anything in this Section 2.1.1 to the contrary,
Tenant may not exercise any rights under this Section during the last
three (3) years of the Lease Term unless, concurrently with such
exercise, Tenant also exercises its next available extension option
pursuant to Section 8.20 hereof, provided, however, that Tenant shall
not have the right to exercise any first offer rights under this
Section 2.1.1 during the last three (3) years of the second Extended
Term.
2.2 Tenant shall have the exclusive right to use, subject to reasonable
rules from time to time made by Landlord of which Tenant is given
notice, the passenger elevator(s), freight elevator(s), loading
platforms of the Buildings, and the toilets, corridors and lobbies of
Buildings. Further, Tenant shall have, as appurtenant to the Premises,
the non-exclusive right to use in common with others, subject to
reasonable rules of general applicability to tenants of the Buildings
from time to time made by Landlord of which Tenant is given notice (a)
common stairways and stairwells, if any, and the pipes, ducts,
conduits, wires and appurtenant meters and equipment serving the
Premises in common with any Additional Buildings and (b) common
walkways and driveways necessary for access to the Buildings.
2.2.1 In addition, Tenant shall have the right to use the Number of Parking
Spaces (referred to in Section 1.1), in common with use by other
tenants from time to time of the Complex, of the parking area,
provided, however, that Landlord shall not be obligated to furnish
stalls or spaces on the Site specifically designated for Tenant's use.
Notwithstanding the foregoing, Tenant shall have the exclusive right to
use those spaces labeled on Exhibit A-1 as "Tenant's Reserved Spaces"
(which Tenant's Reserved Spaces are within the Total Number of Parking
Spaces) provided, however, that Landlord shall not be obligated in any
way to police or otherwise enforce such reserved spaces. Tenant
covenants and agrees that it and all persons claiming by, through and
under it, shall at all times abide by all reasonable rules and
regulations promulgated by Landlord with respect to the use of the
parking areas on the Site of which Tenant has been given Notice. The
parking privileges granted herein are non-transferrable except to an
assignee or subtenant referred
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<PAGE> 14
to in Section 5.6.1 or to an assignee or subtenant whose assignment or
sublease is consented to pursuant to Section 5.6.3. Further, Landlord
assumes no responsibility whatsoever for loss or damage due to fire,
theft or otherwise to any automobile(s) parked on the Site or to any
personal property therein, unless caused by the gross negligence of
Landlord or its agents and Tenant covenants and agrees, upon request
from Landlord from time to time, to notify its officers, employees,
agents and invitees of such limitation of liability. Tenant
acknowledges and agrees that a license only is hereby granted, and no
bailment is intended or shall be created.
2.3 Landlord reserves the right from time to time, without unreasonable
interference with Tenant's use and without substantial affect on the
Premises or Tenant's security system: (a) to install, use, maintain,
repair, replace and relocate for service to the Buildings or parts or
to the Additional Buildings, pipes, ducts, conduits, wires and
appurtenant fixtures, wherever located in the Buildings or the
Additional Buildings (including, but not limited to the installation,
running, use, maintenance, repair, replacement and relocation of
telephone, data transmission and other communications lines, wires,
cables and other facilities serving any Additional Buildings), and (b)
to alter or relocate any other common facility, provided that
substitutions are substantially equivalent or better. Installations,
replacements and relocations referred to in clause (a) above shall be
located so far as practicable in the central core area of the
Buildings, above ceiling surfaces, below floor surfaces or within
perimeter walls of the Premises.
2.4 Tenant shall have and hold the Premises for a period commencing on the
earlier of (a) that date on which the Premises are ready for occupancy
as provided in Section 3.2 or (b) that date on which Tenant commences
its business operations in any portion of the Premises for the
Permitted Uses (the "Commencement Date") and continuing for the Term
unless sooner terminated as provided in Article VI or Article VII or
unless extended as provided in Section 8.20.
However, if Landlord shall not have "Substantially Completed" (defined
in Section 3.2 hereof) the Landlord's Work by August 1, 1996 for a
reason other than any "Tenant Delay" or any "Landlord's Force Majeure"
(both defined in Section 3.2 hereof), Tenant may elect to postpone both
its actual occupancy and the Commencement Date to October 1, 1996
provided that Tenant gives written notice thereof to Landlord not later
than August 1, 1996. Notwithstanding the foregoing, if Tenant occupies
the Premises or any portion thereof, the date Tenant first occupies
same shall be the Commencement Date.
Landlord hereby acknowledges and approves of the work, equipment,
machinery and trade fixtures set forth on Exhibit B-1 hereof. Tenant
shall have access to the Premises prior to the Commencement Date to
install and test its equipment and business operations systems. Any
such installation and testing shall be coordinated with any work being
performed by Landlord and in such manner as to maintain harmonious
labor relations and
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<PAGE> 15
not to damage the Buildings or Site or interfere with the performance
by Landlord of its construction work.
Notwithstanding anything contained in this Section 2.4 to the contrary,
Tenant's moving of its furniture or equipment into the Premises
construction work by Tenant in installing its fixtures and equipment
shall not constitute Tenant's commencement of its business operations
in the Premises (or portions thereof) for the Permitted Uses.
As soon as may be convenient after the date has been determined on
which the Term commences as aforesaid, Landlord and Tenant agree to
join with each other in the execution of a written Declaration, in the
form of Exhibit E, in which the date on which the Term commences as
aforesaid and the Term of this Lease shall be stated. If Tenant fails
to execute such Declaration, the Commencement Date shall be as
reasonably determined by Landlord in accordance with term of this
Lease.
2.4.1 (A) Tenant may at its option, by written notice ("Tenant's Termination
Notice") given by Tenant to Landlord not later than the last day of the
seventy second (72nd) full calendar month of the Original Term (time
being of the essence), elect to cancel and terminate this Lease with
respect to the Premises prior to the scheduled expiration of the Term
effective on the last day of the eighty fourth (84th) full calendar
month of the Original Term (the "Early Termination Date") but in no
event earlier than said date; provided, however, that as conditions
precedent to such cancellation and termination, (i) with respect to the
Premises Tenant shall pay to Landlord all Annual Fixed Rent, Tenant's
share of operating costs and taxes, other Additional Rent and other
amounts due from Tenant (including, but not limited to, all past due
amounts thereof) as such amounts and payments become due and payable in
accordance with the requisite provisions of this Lease through the
Early Termination Date, (ii) there shall be no "Event of Default" (as
defined in Section 7.1) on the Early Termination Date, (iii) on the
Early Termination Date, Tenant shall quit and vacate the Premises and
surrender the same to Landlord in the condition required by the
applicable provisions of this Lease and (iv) in addition Tenant shall
pay to Landlord a termination payment of $725,000.00 (the "Termination
Payment") which the parties acknowledge and agree is not a penalty but
which is compensation for the privilege of terminating this Lease with
respect to the Premises prior to the scheduled expiration of the Term.
Tenant acknowledges and agrees that the Termination Payment shall not
be applied to or on account of any Annual Fixed Rent or Additional Rent
including without limitation, real estate tax payments, operating cost
payments and electricity charges. Tenant shall deliver one half of the
Termination Payment to Landlord (being $362,500.00) in good funds
together with Tenant's Termination Notice and Tenant shall deliver the
balance of the Termination Payment to Landlord (also being $362,500.00)
on or before the Early Termination Date. All of the conditions set
forth in this Section 2.4.1(A) must be timely satisfied in order for
the lease to so terminate. In the event that any of the amounts
required to be paid by Tenant pursuant to item (i) above are not
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finally determined as of the Early Termination Date, Tenant shall make
payment on account as reasonably estimated by Landlord if so requested
by Landlord, and Tenant shall make final payment of any remaining
amounts due within ten (10) days after final billing by Landlord. In
the event of overpayment by Tenant on account of any of such foregoing
amounts Landlord shall promptly refund to Tenant the amount in excess
of the amount due by Tenant. The provisions of the preceding two
sentences shall survive the termination of the Lease.
(B) In the event that Tenant shall have exercised any first offer right
pursuant to Section 2.1.1 hereto ("First Offer Exercise") prior to
exercising its termination right under this Section 2.4.1 and if
subsequent to the First Offer Exercise Tenant desires to exercise its
termination right under this Section 2.4.1, such termination exercise
shall be upon all of the same terms and conditions as set forth in the
immediately preceding paragraph except that:
(i) The termination shall be available to and shall apply
only to the original Premises demised under this
Lease as defined in Section 1.1 in the definition of
"Premises" (herein called the "Original Premises")
but shall not apply or be available to the premises
leased pursuant to any First Offer Exercise (the
"Exercised First Offer Space"). In furtherance
thereof and for purposes of this Subsection (B) all
references in Subsection (A) to the "Premises" shall
be deemed to be references to the Original Premises.
(ii) In the event of the application of this Subsection
(B), this Lease shall continue in accordance with its
terms but only as to the Exercised First Offer Space
which after the Early Termination Date shall be
deemed to be the Premises under the Lease provided
(a) that the Annual Fixed Rent shall be the Annual
Fixed Rent as determined pursuant to Section 2.1.1 as
to the Exercised First Offer Space, (b) that the
Rentable Floor Area of the Premises shall be the
Rentable Floor Area of the Exercised First Offer
Space and appropriate adjustments shall be made to
reflect the change in Rentable Floor Area of the
Premises after the effective date of termination and
(c) the parking provided for in Sections 1.1 and
2.2.1 shall be revised to be equal to 2.7 spaces per
1,000 square feet of rentable floor area of the
Exercised First Offer Space and there shall be no
"Tenant's Reserved Spaces" (defined in Section 2.2.1
hereof).
2.5 Tenant agrees to pay to Landlord, or as directed by Landlord, at
Landlord's Original Address specified in Section 1.1 hereof, or at such
other place as Landlord shall from time to time designate by notice,
(1) on the Commencement Date (defined in Section 1.1 hereof) and
thereafter monthly, in advance, on the first day of each and every
calendar month during the Original Term, a sum equal to one twelfth
(1/12th) of the Annual Fixed
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<PAGE> 17
Rent (sometimes hereinafter referred to as "fixed rent") and (2) on the
first day of each and every calendar month during the applicable
extension option period (if exercised), a sum equal to one twelfth
(1/12th) of the applicable annual fixed rent as determined in Section
8.20 for the applicable extension option period. Until notice of some
other designation is given, fixed rent and all other charges for which
provision is herein made shall be paid by remittance to or for the
order of Boston Properties, Inc., Agents, at 8 Arlington Street,
Boston, Massachusetts 02116, and all remittances received by Boston
Properties, Inc., as Agents as aforesaid, or by any subsequently
designated recipient, shall be treated as payment to Landlord.
Annual Fixed Rent for any partial month shall be paid by Tenant to
Landlord at such rate on a pro rata basis, and, if the Commencement
Date is a day other than the first day of a calendar month, the first
payment which Tenant shall make to Landlord shall be a payment equal to
a proportionate part of such monthly Annual Fixed Rent for the partial
month from the Commencement Date to the first day of the succeeding
calendar month.
Other charges payable by Tenant on a monthly basis, as hereinafter
provided, likewise shall be prorated, and the first payment on account
thereof shall be determined in similar fashion but shall commence on
the Commencement Date; and other provisions of this Lease calling for
monthly payments shall be read as incorporating this undertaking by
Tenant.
The Annual Fixed Rent and all other charges for which provision is
herein made shall be paid by Tenant to Landlord, without offset,
deduction or abatement except as otherwise specifically set forth in
this Lease.
2.5.1 Provided and on the condition that there shall not be in existence an
"Event of Default" (defined in Section 7.1(a) hereof) and this Lease
shall be in full force and effect, Landlord shall provide to Tenant an
allowance of $750,000.00 (the "Allowance") which shall be used and
applied to the actual cost of construction by or for Tenant of tenant
improvements in and to the Premises including without limitation the
actual cost of architectural and engineering services incurred by
Tenant in planning, designing and engineering such improvements
(collectively called "Tenant Improvements and Space Planning") but
specifically excluding costs associated with the Landlord's Work
including, without limitation, architectural and engineering services
associated with Landlord's Work. Tenant shall from time to time but not
more frequently than once every thirty (30) days submit reasonable
documentation to Landlord ("Tenant's Submission") respecting the amount
and cost of Tenant Improvements and Space Planning performed and
incurred by Tenant since the date of the previous Tenant's Submission.
Landlord shall have the right to review each Tenant's Submission.
Within seven (7) days after Landlord's receipt of a Tenant's
Submission, Landlord may request additional information or
clarification respecting any Tenant's Submission and Landlord
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<PAGE> 18
shall have the right to object to a Tenant's Submission in the
circumstance where it does not cover or relate to Tenant Improvements
and Space Planning. If Landlord shall not so request additional
information or clarification or shall not so object to a Tenant's
Submission in the circumstance set forth in the preceding sentence,
Landlord shall reimburse Tenant for the amount set forth in the
applicable Tenant's Submission within said seven (7) day period. Any
unused portion of the Allowance shall be credited against Annual Fixed
Rent due from Tenant from and after the Commencement Date.
Notwithstanding anything herein contained, in no event shall the total
amount of the Allowance exceed $750,000.00.
2.6 "Landlord's Operating Expenses" means (subject to the exclusions and
provisions hereinafter set forth) the cost of operation of the
Buildings and the Site which shall exclude costs of special services
rendered to tenants (including Tenant) for which a separate charge is
made, but shall include, without limitation, the following: reasonable
premiums for insurance carried by Landlord with respect to Buildings
and the Site (including, without limitation, liability insurance,
insurance against loss in case of fire or casualty and insurance of
monthly installments of fixed rent and any additional rent which may be
due under this Lease and other leases of space in the Buildings for not
more than twelve (12) months in the case of both fixed rent and
additional rent and if there be any first mortgage of the Complex,
including such insurance as may be required by the holder of such first
mortgage); compensation and all fringe benefits, workmen's compensation
insurance premiums and payroll taxes paid to, for or with respect to
all persons engaged in the operating, maintaining or cleaning of the
Buildings or Site, water, sewer, electric, gas, oil and common area and
elevator telephone charges (excluding utility charges separately
chargeable to tenants for additional or special services); cost of
building and cleaning supplies and equipment; cost of maintenance,
cleaning and repairs (other than repairs not properly chargeable
against income or reimbursed from contractors under guarantees); cost
of snow removal and care of landscaping; payments under service
contracts with independent contractors; management fees at reasonable
rates consistent with the type of occupancy and the services(s)
rendered; and all other reasonable and necessary expenses paid in
connection with the operation, cleaning and maintenance of the
Buildings and the Site and properly chargeable against income,
provided, however, there shall be included depreciation for all capital
expenditures made by Landlord to the Buildings and Site plus an
interest factor, reasonably determined by Landlord, as being the
interest rate then charged for long term mortgages by institutional
lenders on like properties within the locality in which the Buildings
are located subject however to the provisions of Section 4.1.4 hereof.
Depreciation shall be determined by dividing the original cost of such
capital expenditure by the number of years of useful life of the
capital item acquired and the useful life shall be reasonably
determined by Landlord in accordance with generally accepted real
estate accounting principles and practices in effect at the time of
acquisition of the capital item.
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<PAGE> 19
The following shall be excluded from Landlord's Operating Expenses: (a)
any costs attributable to increasing the rentable square footage of or
otherwise expanding the Buildings or Additional Buildings, (b) the cost
of the work for which Landlord is required to pay pursuant to Section
3.1 hereof, (c) late charges, past due date interest or other penalties
or expenses incurred as a result of the negligence or misconduct of
Landlord or its employees, agents or contractors, (d) charges incurred
by Landlord for services, supplies or equipment not benefitting the
Buildings or the Site, (e) attorneys' fees, leasing commissions, sale
commissions and other costs, fees and expenses incurred in connection
with any leasing of space in the Complex, any sale of the Complex or
any mortgage financing respecting the Complex, (f) costs and expenses
incurred by Landlord arising from violations by Landlord of this Lease
or other leases of space in the Complex, (g) expenses for services
provided solely to other tenants and occupants of the Complex and not
to Tenant and for which a separate charge is made to such other tenants
and occupants, (h) overhead and profit increment paid to Landlord or
its subsidiaries or affiliates for services to the extent the same
exceeds the costs of such services rendered by other unaffiliated third
parties (except, however, with respect to management fees which shall
be included as provided in the immediately preceding paragraph), (i)
interest, principal, points and fees on debt or amortization on any
mortgage encumbering all or any portion of the Complex, (j) advertising
and promotional expenditures, (k) costs incurred by Landlord for repair
or restoration to the extent Landlord is reimbursed by fire or casualty
insurance or from condemnation proceeds and (l) any costs incurred in
cleaning the interior or the exterior of the Buildings or the
Additional Buildings (but not excluding costs incurred in cleaning the
Site).
"Operating Expenses Allocable to the Premises" shall mean (a) one
hundred percent (100%) of Landlord's Operating Expenses for and
pertaining to the Buildings PLUS (b) the same proportion of Landlord's
Operating Expenses for and pertaining to the Site as the Rentable Floor
Area of the Premises bears to the Total Rentable Floor Area of the
Complex which as of the date of this Lease is 31.71% plus (c) in the
case of shared Landlord's Operating Expenses for and pertaining to both
the Buildings and any Additional Buildings (as, for example, relating
to a boiler shared between one (1) of the Buildings and one (1) of the
Additional Buildings) ("Landlord's Shared Operating Expenses"), the
same proportion of Landlord's Shared Operating Expenses as the Rentable
Floor Area of the Building(s) involved therein bears to the Rentable
Floor Area of the Additional Building(s) involved therein.
For each calendar year falling within the Lease Term, Tenant shall pay
to Landlord, as Additional Rent, the Operating Expenses Allocable to
the Premises (as defined hereinabove) and for each fraction of a
calendar year falling within the Lease Term at the beginning or end
thereof, Tenant shall pay to Landlord, as Additional Rent, the product
of such fraction and the Operating Expenses Allocable to the Premises
for the full calendar year in which such fraction of a calendar year
occurs. The payments required to be paid
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<PAGE> 20
by Tenant as provided in the preceding sentence are herein called
"Tenant's Operating Cost Payments". Tenant's Operating Cost Payments
shall be paid to Landlord, as Additional Rent, on or before the
thirtieth (30th) day following receipt by Tenant of the statement
referred to below in this Section 2.6. Payments by Tenant on account of
Tenant's Operating Cost Payments shall be made monthly at the time and
in the fashion herein provided for the payment of Annual Fixed Rent.
The amount so to be paid to Landlord shall be an amount from time to
time reasonably estimated by Landlord to be sufficient to cover, in the
aggregate, a sum equal to Tenant's Operating Cost Payments for each
calendar year during the Lease Term. No later than ninety (90) days
after the end of the first calendar year or fraction thereof ending
December 31 and of each succeeding calendar year during the Lease Term
or fraction thereof at the end of the Lease Term, Landlord shall render
Tenant a statement in reasonable detail and according to usual real
estate accounting practices certified by a duly authorized officer or
other representative of Landlord, showing for the preceding calendar
year or fraction thereof, as the case may be, Landlord's Operating
Expenses and the Operating Expenses Allocable to the Premises. Said
statement to be rendered to Tenant also shall show for the preceding
year or fraction thereof, as the case may be, the amounts already paid
by Tenant on account of Tenant's Operating Cost Payments and the amount
of Tenant's Operating Cost Payments remaining due from, or overpaid by,
Tenant for the year or other period covered by the statement. If such
statement shows, or if such review of Landlord's records reveal, a
balance remaining due to Landlord, Tenant shall pay same to Landlord on
or before the thirtieth (30th) day following receipt by Tenant of said
statement. Any balance shown as due to Tenant on such statement, or
revealed by such review of Landlord's records, shall be credited
against Annual Fixed Rent next due, or refunded to Tenant if the Lease
Term has then expired and Tenant has no further obligation to Landlord.
Tenant, at its expense, shall have the right, within six (6) months
from the date of receipt of the certified year-end statement and upon
reasonable advance written notice to Landlord, to audit Landlord's
books and records relating to Landlord's Operating Expenses for the
year covered by such statement to confirm that the Operating Expenses
billed to Tenant are proper and conform to this Section 2.6. If such
audit by Tenant reveals that Tenant has been overcharged then Tenant
shall be entitled to a refund of any such amount so overpaid by Tenant.
In addition, if such audit reveals that Tenant has been overcharged by
more than ten percent (10%), Landlord shall reimburse Tenant for
reasonable out of pocket cost of the audit actually incurred by Tenant
within fifteen (15) days after receipt of a written demand therefor. If
Tenant fails to initiate any such audit within six (6) months after
receipt of a year-end statement, then such statement shall be deemed to
be final and binding on Landlord and Tenant. Nothing contained in this
paragraph shall postpone the payments required by the preceding
provisions of this Section 2.6 but Tenant shall have the audit right on
the terms set forth in this paragraph notwithstanding the payments by
Tenant.
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<PAGE> 21
2.7 For each full Tax Year falling within the Lease Term, Tenant shall pay
to Landlord, as Additional Rent, Landlord's Tax Expenses Allocable to
the Premises (as hereinafter defined) and for each fraction of a "Tax
Year" (as hereinafter defined) falling within the Lease Term either at
the beginning or end thereof, Tenant shall pay to Landlord, as
Additional Rent, the product of such fraction and Landlord's Tax
Expenses Allocable to the Premises for the full Tax Year in which such
fraction of the Tax Year occurs. The payments required to be paid by
Tenant as provided in the preceding sentence are herein called
"Tenant's Tax Payments". Payments by Tenant on account of Tenant's Tax
Payments shall be made monthly at the time and in the fashion herein
provided for the payment of Annual Fixed Rent. The amount so to be paid
to Landlord shall be an amount from time to time reasonably estimated
by Landlord to be sufficient to provide Landlord, in the aggregate, a
sum equal to Tenant's Tax Payments, ten (10) days at least before that
day on which tax payments by Landlord would become delinquent. Not
later than ninety (90) days after Landlord's Tax Expenses Allocable to
the Premises are determinable for the first such Tax Year or fraction
thereof and for each succeeding Tax Year or fraction thereof during the
Lease Term, Landlord shall render Tenant a statement in reasonable
detail certified by a duly authorized officer and representative of
Landlord showing for the preceding year or fraction thereof, as the
case may be, "Landlord's Tax Expenses" (as hereinafter defined),
abatements and refunds, if any, of any such taxes and assessments,
expenditures incurred in obtaining such abatement or refund, the amount
of Tenant's Tax Payments, the amount thereof already paid by Tenant and
the amount thereof overpaid by, or remaining due from Tenant for the
period covered by such statement. At the request of Tenant, Landlord
shall provide Tenant a copy of the tax bill for such Tax Year. Within
thirty (30) days after the receipt of such statement, Tenant shall pay
any sum remaining due. Any balance shown as due to Tenant shall be
credited against Annual Fixed Rent next due, or refunded to Tenant if
the Lease Term has then expired and Tenant has no further obligation to
Landlord. Expenditures for legal fees and for other expenses incurred
in obtaining an abatement or refund may be charged against the
abatement or refund before the adjustments are made for the Tax Year.
To the extent that real estate taxes shall be payable to the taxing
authority in installments with respect to periods less than a Tax Year,
the foregoing statement shall be rendered and payments made on account
of such installments.
If Tenant reasonably believes that Landlord should attempt to obtain an
abatement for any Tax Year for which Landlord has not filed an
abatement, Tenant may so notify Landlord and Landlord shall enter into
good faith discussions with Tenant regarding whether such an abatement
should be filed.
Terms used herein are defined as follows:
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<PAGE> 22
(i) "Tax Year" means the twelve-month period beginning
July 1 each year during the Term or if the
appropriate governmental tax fiscal period shall
begin on any date other than July 1, such other date.
(ii) "Landlord's Tax Expenses Allocable to the Premises"
shall mean the same proportion of Landlord's Tax
Expenses as the Rentable Floor Area of the Premises
bears to the Total Rentable Floor Area of the Complex
which as of the date of this Lease is 31.71%.
(iii) "Landlord's Tax Expenses" with respect to any Tax
Year means the aggregate real estate taxes on the
Buildings, the Additional Buildings and the Site with
respect to that Tax Year, reduced by any abatement
receipts with respect to that Tax Year.
(iv) "Real estate taxes" means all taxes and special
assessments of every kind and nature assessed by any
governmental authority on the Buildings, the
Additional Buildings or Site which the Landlord shall
become obligated to pay because of or in connection
with the ownership, leasing and operation of the
Site, the Buildings, the Additional Buildings and the
Complex (including without limitation, if applicable,
the excise prescribed by Mass Gen Laws (Ter Ed)
Chapter 121A, Section 10 and amounts in excess
thereof paid to the Town of Bedford pursuant to
agreement (a "121A Agreement") between Landlord and
the Town) and reasonable expenses of any proceedings
for abatement of taxes. The amount of special taxes
or special assessments to be included shall be
limited to the amount of the installment (plus any
interest, other than penalty interest, payable
thereon) of such special tax or special assessment
required to be paid during the year in respect of
which such taxes are being determined. There shall be
excluded from such taxes all income, estate,
succession, inheritance and transfer taxes; provided,
however, that if at any time during the Term the
present system of ad valorem taxation of real
property shall be changed so that in lieu of the
whole or any part of the ad valorem tax on real
property there shall be assessed on Landlord a
capital levy or other tax on the gross rents received
with respect to the Site or Buildings the Additional
Buildings or the Complex, or a federal, state,
county, municipal, or other local income, franchise,
excise or similar tax, assessment, levy or charge
(distinct from any now in effect in the jurisdiction
in which the Complex is located) measured by or
based, in whole or in part, upon any such gross
rents, then any and all of such taxes, assessments,
levies or charges, to the extent so measured or
based, shall be deemed to be included within the term
"real estate taxes" but only to the extent that the
same would be payable if the Site and Buildings, the
Additional Buildings were the only
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<PAGE> 23
property of Landlord. Landlord represents and
warrants to Tenant that as of the date of this Lease
there is no 121A Agreement in effect between Landlord
and the Town of Bedford.
2.8 Tenant covenants and agrees to take all steps required by the
appropriate utility company to provide for the direct billing to Tenant
of the electricity serving all of the Premises including, without
limitation, making application(s) to such utility company in connection
therewith and making any deposits (including, but not limited to,
letters of credit) as such utility company shall require. Tenant
covenants and agrees to pay, punctually as and when due, all
electricity charges and rates for and relating to the Premises during
the Term hereof and from time to time if requested by Landlord to
provide Landlord with evidence of payment to, and good standing with,
such utility company as Landlord may reasonably require. Tenant
covenants and agrees to defend, save harmless and indemnify Landlord
against all liability, cost and damage arising out of or in any way
connected to Tenant's payment, non-payment or late payment of any and
all charges and rates and deposits to such utility company relating to
the Premises and the foregoing shall survive the expiration or early
termination of this Lease.
ARTICLE III
-----------
CONSTRUCTION
------------
3.1 Landlord, at its sole cost and expense shall perform the work described
in the outline specifications attached hereto as Exhibit B in a good
and workmanlike manner in accordance with applicable Legal Requirements
(sometimes herein called "Landlord's Work"). However, Landlord shall
have no responsibility for the installation or connection of Tenant's
computer, telephone or other communications equipment, systems or
wiring.
3.2 Landlord agrees to use due diligence to complete the work described in
Section 3.1 on or before the Scheduled Term Commencement Date. Landlord
shall not be required to install any improvements which are not in
conformity with the specifications for Landlord's Work attached hereto
as Exhibit B or which are not approved by Landlord's architect. In case
of delays due to governmental regulation, flood, war, unusually severe
weather conditions, labor difficulties, fire, casualty or other causes
reasonably beyond Landlord's control (collectively, "Landlord's Force
Majeure"), the Scheduled Term Commencement Date shall be extended for
the period of such delays. The Premises shall be deemed ready for
occupancy on the later of (i) the date on which the work described in
Section 3.1, together with all common facilities for access and service
to the Premises, has been substantially completed ("Substantially
Completed") as reasonably determined by Tenant's architect, R. E.
Dinneen Architects & Planners except for items of work and
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<PAGE> 24
adjustment of equipment and fixtures which can be completed within
forty five (45) days after occupancy thereof has been taken without
causing substantial interference with Tenant's use of the Premises
(i.e. so-called "punch list" items) and items of work for which there
is a long lead time in obtaining the materials therefor or which are
specially or specifically manufactured, produced or milled for the work
in or to the Premises and require additional time for receipt or
installation ("long lead" items) and (ii) the date a certificate of
occupancy, temporary or permanent, shall have been issued by applicable
governmental authority, to the extent required by law, permitting
occupancy by Tenant of the Premises. Landlord shall complete the punch
list items within forty five (45) days after Tenant takes actual
occupancy of the Premises and if Landlord shall not so complete the
punch list items within said period, then Tenant may cause the
incomplete punch list items to be completed and Landlord shall promptly
reimburse Tenant for the reasonable out of pocket costs thereof
actually incurred by Tenant. Further, Landlord shall complete as soon
as conditions practically permit the long lead items and Tenant shall
not use the Premises in such manner as will increase the cost of
completion of the punch list items or the long lead items. If in
connection with the construction of the Initial Tenant Improvements,
Tenant shall employ a contractor (other than Boston Properties, Inc.,
an affiliate of Landlord) pursuant to the requirements of Section 3.3,
upon execution of this Lease by both parties, Tenant shall have
reasonable access to the portions of the Premises then vacant and not
occupied by other tenants for construction of the Initial Tenant
Improvements; provided, however that said construction shall be
coordinated with and shall not interfere with or delay Landlord's
performance of Landlord's Work.
If, however, Landlord shall have failed to Substantially Complete the
work to be performed by Landlord in accordance with Section 3.1
(excluding punch list items and long lead items) on or before the
Outside Completion Date (which date shall be extended automatically for
such periods of time as Landlord is prevented from proceeding with or
completing the same by reason of Landlord's Force Majeure or any act or
failure to act of Tenant which materially interferes with Landlord's
construction of the Premises, without limiting Landlord's other rights
on account thereof), Tenant shall have the right to terminate this
Lease by giving notice to Landlord of Tenant's desire to do so within
the time period from the Outside Completion Date (as so extended) until
the date which is thirty (30) days subsequent to the Outside Completion
Date (as so extended); and, upon the giving of such notice, the Term of
this Lease shall cease and come to an end without further liability or
obligation on the part of either party unless, within thirty (30) days
after Landlord's receipt of Tenant's notice Landlord substantially
completes the work to be performed by Landlord under Section 3.1
(except for punch list items and long lead items) and such right of
termination shall be Tenant's sole and exclusive remedy at law or in
equity or otherwise for Landlord's failure so to complete such work
within such time.
Tenant agrees that no delay by it, or anyone employed by it, in
performing work to prepare the Premises for occupancy (including,
without limitation, the work in installing
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<PAGE> 25
telephones and other communications equipment or systems and other
"Initial Tenant Improvements" (defined in Section 3.3 hereof) and
delays or interference with the performance of Landlord's Work
occasioned by the performance of the Initial Tenant Improvements) shall
delay commencement of the Term or the obligation to pay rent,
regardless of the reason for such delay or whether or not it is within
the control of Tenant or any such employee (herein collectively called
"Tenant Delays") unless such delay results from delays or material
interference by Landlord or its contractors, agents or employees
excepting; however, punch list items and long lead items (both of which
are provided for above) and Landlord's Force Majeure. The failure of
Tenant to deliver to Landlord by the Tenant Plan Delivery Date the
proposed plans for Tenant's Initial Tenant Improvements also shall
constitute a "Tenant Delay".
If, because of any act or omission of Landlord, any lien, charge, or
order for the payment of money is filed against the Premises, Landlord
shall, at its expense, cause the lien or liens to be discharged of
record or bonded within ninety (90) days after it receives written
notice from Tenant of their filing. In that event, Landlord shall
indemnify and save harmless Tenant against and from all costs,
liabilities, suits, penalties, claims, attorneys and expert fees and
demands. If Landlord fails to cause the liens to be discharged or
bonded within the required ninety (90) day period, or if before that
period expires, Tenant's quiet enjoyment of the Premises is materially
affected as a result thereof and Landlord shall not cause the lien or
liens to be discharged of record or bonded within fifteen (15) days
after Landlord receives written notice thereof from Tenant, then Tenant
may cause the liens to be discharged.
3.3 This Section 3.3 shall apply before and during the Term including, but
not limited to, the construction by or for Tenant of its initial tenant
improvements as set forth in Exhibit B-1 attached hereto (the "Initial
Tenant Improvements"). Landlord hereby approves all of the work,
equipment, machinery and trade fixtures set forth in said Exhibit B-1.
Tenant shall not make alterations and additions to Tenant's Space
except in accordance with plans and specifications therefor first
approved by Landlord, which approval shall not be unreasonably withheld
or delayed. Landlord shall not be deemed unreasonable for withholding
approval of any alterations or additions which (a) involve or might
affect any structural or exterior element of the Buildings, any area or
element outside of the Premises, or any facility serving any area of
the Buildings outside of the Premises, or (b) will delay completion of
the Premises or Buildings, or will require unusual expense to readapt
the Premises to normal office/ research and development use on Lease
termination or increase the cost of construction or of insurance or
taxes on the Buildings or of the services called for by Section 4.1
unless Tenant first gives assurance reasonably acceptable to Landlord
for payment of such increased cost and that such readaptation will be
made prior to such termination without expense to Landlord.
Notwithstanding the foregoing, Landlord's approval shall not be
required for any single interior, alteration or improvement costing
less than $5,000.00, and not affecting structural items or building
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<PAGE> 26
systems other than reasonable electrical and/or plumbing work
associated with such alteration or improvement and performed by a duly
licensed and qualified electrician or plumber, as the case may be,
and/or reasonable heating, ventilating and air-conditioning work
("Associated HVAC Work") associated with such alteration or improvement
provided such Associated HVAC Work is performed by a duly qualified
HVAC contractor first approved by Landlord (not to be unreasonably
withheld or delayed) and in all such cases with all appropriate
permits, licenses and approvals. In the case of any alterations or
improvements which require approval Tenant shall deliver to Landlord
reasonable plans and specifications showing and describing any such
alterations and improvements. In the case of alterations or
improvements which do not require approval as above provided, Tenant
shall deliver to Landlord promptly following completion of such work
reasonable plans and specifications showing and describing any such
alterations and improvements as constructed. Landlord's review and
approval of any such plans and specifications and consent to perform
work described therein shall not be deemed an agreement by Landlord
that such plans, specifications and work conform with applicable Legal
Requirements and requirements of insurers of the Building (herein
called "Insurance Requirements") nor deemed a waiver of Tenant's
obligations under this Lease with respect to applicable Legal
Requirements and Insurance Requirements nor impose any liability or
obligation upon Landlord with respect to the completeness, design
sufficiency or compliance of such plans, specifications and work with
applicable Legal Requirements and Insurance Requirements. All
alterations and additions which are structurally affixed shall be part
of the Buildings unless and until Landlord shall specify the same for
removal pursuant to Section 5.2. All of the Initial Tenant
Improvements, Tenant's alterations and additions and installation of
furnishings shall be coordinated with any work being performed by
Landlord and in such manner as to maintain harmonious labor relations
and not to damage the Buildings or Site or interfere with construction
or operation of the Buildings and other improvements to the Site and,
except for installation of furnishings, shall be performed by
Landlord's general contractor or by contractors or workmen first
approved by Landlord, which approval shall not be unreasonably withheld
or delayed. Except for work by Landlord's general contractor, Tenant,
before its work is started, shall secure all licenses and permits
necessary therefor; deliver to Landlord a statement of the names of all
its contractors and subcontractors and the estimated cost of all labor
and material to be furnished by them and security satisfactory to
Landlord protecting Landlord against liens arising out of the
furnishing of such labor and material; and cause each contractor to
carry workmen's compensation insurance in statutory amounts covering
all the contractor's and subcontractor's employees and reasonable
commercial general liability insurance or comprehensive general
liability insurance with a broad form comprehensive liability
endorsement with such limits as Landlord may reasonably require, but in
no event less than $1,000,000.00 combined single limit per occurrence
on a per location basis (all such insurance to be written in companies
approved by Landlord and naming and insuring Landlord as an additional
insured and insuring Tenant as well as the contractors), and to deliver
to Landlord certificates of all
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such insurance. Tenant agrees to pay promptly when due the entire cost
of any work done on the Premises by Tenant, its agents, employees, or
independent contractors, and not to cause or permit any liens for labor
or materials performed or furnished in connection therewith to attach
to the Premises or the Buildings or the Site and immediately to
discharge any such liens which may so attach. Tenant shall pay, as
additional rent, 100% of any increase in real estate taxes on the
Complex which shall, at any time after commencement of the Term, result
from any alteration, addition or improvement to the Premises made by
Tenant excluding the Initial Tenant Improvements.
All trade fixtures, signs, equipment, furniture, or other personal
property of whatever kind and nature kept or installed on the Premises
by Tenant shall not become the property of Landlord or a part of the
realty no matter how affixed to the Premises and may be removed by
Tenant at any time and from time to time during the entire term of this
Lease and Tenant shall repair any damage done in such removal. Upon
request of Tenant or its assignees or any subtenant, Landlord shall
execute and deliver any real estate consent or waiver forms submitted
by any vendors, lessors, chattel mortgagees, or holders or owners of
any trade fixtures, signs, equipment, furniture, or other personal
property of any kind and description kept or installed on the Premises
setting forth that Landlord waives, in favor of the vendor, lessor,
chattel mortgagee, or any holder or owner, any superior lien, claims,
interest or other right therein. Landlord shall further acknowledge
that property covered by the consent or waiver forms is personal
property and is not to become a part of the realty no matter how
affixed thereto, and that such property may be removed from the
Premises by the vendor, lessor, chattel mortgagee, owner, or holder at
any time upon default in the terms of such chattel mortgagee or other
similar documents, free and clear of any claim or lien of Landlord.
3.4 All construction work required or permitted by this Lease shall be done
in a good and workmanlike manner and in compliance with all Legal
Requirements and Insurance Requirements now or hereafter in force. Each
party may inspect the work of the other at reasonable times and shall
promptly give notice of observed defects. Each party authorizes the
other to rely in connection with design and construction upon approval
and other actions on the party's behalf by any Construction
Representative of the party named in Article I or any person hereafter
designated in substitution or addition by notice to the party relying.
ARTICLE IV
----------
LANDLORD'S COVENANTS;
CERTAIN TENANT COVENANTS; INTERRUPTIONS AND DELAYS
--------------------------------------------------
4.1 Landlord covenants:
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4.1.1 Subject to reimbursement in accordance with Section 2.6 and subject to
the provisions of Section 4.1.4 respecting the roofs of the Buildings
and the "Subject Building Systems" (defined in said Section 4.1.4) and
except as otherwise provided in Article VI, to furnish services,
utilities, facilities and supplies necessary to provide hot and cold
water, heating, ventilating and air conditioning during the appropriate
season, sewer and electrical service to the Premises which are
reasonably adequate for the conduct of the Permitted Use but in no
event shall Tenant exceed the capacity of or overload any such
services.
4.1.2 To furnish, at Tenant's expense, reasonable additional Building
operation services which are usual and customary in similar
office/research and development buildings in the Boston Northwest
Suburban Market upon reasonable advance request of Tenant at reasonable
and equitable rates from time to time established by Landlord.
4.1.3 (A) Subject to the reimbursement provisions of Section 2.6 and subject
to the provisions of Section 4.1.4 respecting the roofs of the
Buildings and the "Building Systems" (defined in said Section 4.1.4)
and except as otherwise provided in Article VI, (i) to make such
repairs to the exterior walls, floor slabs and common areas and
facilities as may be necessary to keep them in good and serviceable
condition and (ii) to maintain the Building (exclusive of Tenant's
responsibilities under this Lease) in a first class manner comparable
to the maintenance of similar office/research and development
properties in the Boston Northwest Suburban Market.
(B) Notwithstanding anything contained in this Lease to the contrary,
in no event shall Landlord have any obligation to clean the interior or
exterior of the Buildings including, without limitation, the interior
and exterior of any windows or doors of the Buildings (collectively
herein called "Cleaning of the Buildings").
4.1.4 (A)(1) On or before the Commencement Date, Landlord shall cause the
electrical, heating, ventilating, air conditioning and other mechanical
systems serving the Buildings (collectively the "Subject Building
Systems") to be reconditioned to the extent necessary to put them in
good operating order and condition on the Commencement Date to provide
satisfactory HVAC and electric service to the Premises consistent with
the capacity of the applicable Subject Building Systems. Upon the
request of Tenant, Landlord shall permit Tenant or a duly qualified
employee or building systems consultant of Tenant to participate in
Landlord's inspection of the Subject Building Systems.
(A)(2) Subject to the provisions of Article VI hereof and subject to
reimbursement in accordance with Section 2.6 hereof (except as
otherwise provided in this Section 4.1.4(A)), during the Term of this
Lease Landlord shall maintain the Subject Building Systems in good
operating order and condition normal use excepted. Notwithstanding
anything in this Section or Section 2.6 to the contrary (but except as
otherwise provided in Section 4.1.4(A)(3) hereof), if any maintenance,
repairs or replacements to or affecting
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the Subject Building Systems are performed during the first three
hundred sixty five (365) days of the Original Term of this Lease, the
cost of all labor, parts, materials and equipment shall be borne and
paid entirely by Landlord and no portion of said costs shall be
included in Landlord's Operating Costs.
(A)(3) Notwithstanding anything herein contained, Tenant shall be
solely responsible, at its cost and expense, to make or pay for any
repairs to the Subject Building Systems required as a result of the
negligence, omission, fault, wilful act or breach of this Lease, or any
repairs, alterations or improvements made, by Tenant or its employees,
licenses, agents or contractors.
(B)(1) On or before the Commencement Date, Landlord shall cause the
roofs of the Buildings to be repaired to the extent necessary to put
them in good condition, reasonable wear and tear excepted. Upon request
of Tenant, Landlord shall permit Tenant or a duly qualified employee or
roofing consultant of Tenant to participate in Landlord's inspection of
the roofs.
(B)(2) Subject to the provisions of Article VI hereof and subject to
reimbursement in accordance with Section 2.6 hereof (except as
otherwise provided in this Section 4.1.4(B)), during the Term of this
Lease Landlord shall maintain the roofs of the Buildings in good and
serviceable condition reasonable wear and tear excepted.
Notwithstanding anything in this Section or Section 2.6 to the contrary
(but except as otherwise provided in Sections 4.1.4(B)(3) and
4.1.4(B)(4)), if any maintenance or repairs to the roof are performed
during the first three (3) years of the Original Term of this Lease
beginning on the Commencement Date, the cost of all labor, parts,
materials and equipment for such maintenance and repairs shall be borne
and paid entirely by Landlord and no portion of said costs shall be
included in Landlord's Operating Costs. The foregoing sentence shall
not apply to replacement of any of the roofs of the Buildings
(provision for which is made in Section 4.1.4(B)(3)) or to those
matters covered by Section 4.1.4(B)(4) hereof.
(B)(3)(a) In the event that Tenant shall reasonably believe that any
one (1) or more of the three (3) roofs on the Buildings can no longer
be repaired and that the only feasible way in which to deal with a
roofing problem is to completely replace a roof (a "Roof Replacement"),
Tenant shall give written notice to Landlord thereof stating that a
Roof Replacement is requested by Tenant which notice shall include
reasonable written documentation including any reports of roofing
consultants engaged by Tenant supporting and substantiating that the
only feasible manner to deal with the then particular roofing matter is
to provide a Roof Replacement ("Tenant's Roof Replacement Request"). If
Landlord shall not agree with Tenant's Roof Replacement Request and if
within thirty (30) days after Landlord's receipt of Tenant's Roof
Replacement Request Landlord and Tenant have not reached mutual
agreement on the course of action to be
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followed respecting the roof or roofs which are the subject of such
notice, Landlord and Tenant, both acting reasonably and in good faith,
shall jointly designate a duly qualified and experienced roofing
consultant to make the determination as to whether the roof or roofs
which are the subject of Tenant's Roof Replacement Request can no
longer be repaired and must be completely replaced.
(B)(3)(b) Subject to the provisions of Article VI and subject to
reimbursement in accordance with Section 2.6 hereof (except as
otherwise hereinafter provided in this Section 4.1.4(B)(3), in the
event that during the Term of this Lease any Roof Replacement(s) is
(are) made whether by Landlord or pursuant to Section 4.1.4(B(3)(a)
above, (i) the cost thereof shall be amortized on a straight line basis
over the number of years of useful life of the Roof Replacement and the
useful life shall be reasonably determined by Landlord in accordance
with generally accepted real estate accounting principles and practices
in effect at the time of the then applicable Roof Replacement (the
"Annual Roof Amortization Amount") and (ii) the Annual Roof
Amortization Amount plus an interest factor at the rate determined in
accordance with Section 2.6 shall be included in the annual Landlord's
Operating Expenses (defined in Section 2.6) relating to the Buildings.
Notwithstanding the foregoing, there shall not be included any Annual
Roof Amortization Amount (or interest thereon) in Landlord's Operating
Expenses for the period beginning on the Commencement Date and ending
on the last day of the sixtieth (60th) calendar month of the Original
Term
(B)(4) Notwithstanding anything herein contained, Tenant shall be
solely responsible, at its cost and expense, to make any and all roof
repairs and replacements (i) resulting from penetrations to or through
any of the roofs of the Buildings made by or for Tenant and, further,
Tenant shall perform a regular and periodic maintenance program
respecting the areas of penetrations to the roofs and any such program
shall be approved by Landlord, such approval not to be unreasonably
withheld or delayed, and (ii) resulting from the negligence, omission,
fault, wilful act or breach of this Lease, or from any repairs,
alterations or improvements made, by Tenant or its employees,
licensees, agents or contractors.
4.2 Landlord shall not be liable to Tenant for any compensation or
reduction of rent by reason of any immaterial inconvenience or
annoyance or for loss of business arising from the necessity of
Landlord or its agents entering the Premises for any of the purposes in
this Lease authorized, or for repairing the Premises or any portion of
the Building however the necessity may occur. In case Landlord is
prevented or delayed from making any repairs, alterations or
improvements, or furnishing any services or performing any other
covenant or duty to be performed on Landlord's part, by reason of any
cause reasonably beyond Landlord's control, including without
limitation the causes set forth in Section 3.2 hereof as being
reasonably beyond Landlord's control, Landlord shall not be liable to
Tenant therefor, nor, except as expressly otherwise provided in Article
VI, shall
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Tenant be entitled to any abatement or reduction of rent by reason
thereof, nor shall the same give rise to a claim in Tenant's favor that
such failure constitutes actual or constructive, total or partial,
eviction from the Premises.
Landlord reserves the right to stop any service or utility system, when
necessary by reason of accident or emergency, or until necessary
repairs have been completed; provided, however, that in each instance
of stoppage, Landlord shall exercise its best efforts to eliminate the
cause thereof. Except in case of emergency repairs, Landlord will give
Tenant reasonable advance notice of any contemplated stoppage and will
use reasonable efforts to avoid material inconvenience to Tenant by
reason thereof and to avoid material interference with Tenant's
business operations.
4.3 Provided that, on the condition that and only so long as (i) there
shall not have occurred an Event of Default (defined in Section 7.1(a)
hereof), (ii) Tenant or an assignee under Section 5.6.1 (as the case
may be) shall be in actual occupancy of the Premises and be developing
and manufacturing home or office diabetes monitoring devices in the
Premises and (iii) Tenant shall not have assigned this Lease (except
for an assignment under Section 5.6.1 hereof), (a) Landlord shall not
hereafter directly enter into a lease of other space in the Complex
with any of the "Named Companies" (hereinafter defined), or with a
tenant (other than Tenant) whose primary business to be conducted at
such other space in the Complex will be the development or
manufacturing of home or office diabetes monitoring devices or (b) in
the case of a "Future Lease" (hereinafter defined) where the tenant
thereunder proposes to assign its interest thereunder or to sublet the
premises leased thereby to a person or entity whose primary business to
be conducted at such premises will be the development or manufacturing
of home or office diabetes monitoring devices and which Future Lease
contains a clause which requires Landlord's consent to an assignment or
subletting and provides that Landlord may withhold such consent as a
result of the use of such premises for the development or manufacturing
of home or office diabetes monitoring devices, Landlord will not grant
its consent to such an assignment or subletting (the "Assignment and
Subletting Restriction Clause"). Landlord shall use reasonable efforts
to include in any Future Lease the Assignment and Subletting
Restriction Clause; provided, however, that Landlord shall satisfy such
requirement to use reasonable efforts if the first draft of any Future
Lease includes the Assignment and Subletting Restriction Clause, and in
no event shall the execution by Landlord of a Future Lease which does
not include the Assignment and Subletting Restriction Clause be a
default of Landlord hereunder or give Tenant a right to terminate this
Lease or to withhold or offset against Annual Fixed Rent, additional
rent or any other amounts due under this Lease. Notwithstanding the
foregoing, the provisions of this Section 4.3 shall not apply (i) to
the Existing Leases set forth in Exhibit F hereto or to any business
operations or other activities of the holders of the tenant(s)
interest(s) in the Existing Leases or of the subtenants or assignees
under the Existing Leases or (ii) to a tenant other than the Named
Companies who is engaged in whole or in part in the business of
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<PAGE> 32
developing or manufacturing home or office diabetes monitoring devices
but who will not engage in such use as its primary business in space
leased to it in the Complex. The "Named Companies" are Lifescan,
Ames/Miles/Bayer, Boehringer Manheim, Nova Biomedical and Self-Care. A
"Future Lease" shall be a lease entered into after the date of this
Lease for space in the Complex between Landlord, as landlord and a
person or entity (other than Tenant), as tenant, but excluding the
Existing Leases and the implementation of the provisions of the
Existing Leases.
4.4 Subject to the provisions of Sections 4.2 and 8.4 hereof, Landlord
shall indemnify Tenant with regard to any loss or liability that Tenant
may actually incur with regard to any "Hazardous Materials" (defined in
Section 5.3(A) hereof) including, without limitation, the reasonable
and documented out of pocket fees and expenses of attorneys and
environmental consultants and experts, court costs and all reasonable
out of pocket costs of assessment, monitoring, cleanup, containment,
removal, remediation or restoration. However, the foregoing indemnity
shall not apply to any activities of Tenant including those matters
referred to in Section 5.3 hereof that are located in or adjacent to,
the Buildings as of the Date of this Lease.
ARTICLE V
---------
TENANT'S COVENANTS
------------------
Tenant covenants during the term and such further time as Tenant
occupies any part of the Premises:
5.1 To pay when due all fixed rent and additional rent and all charges for
utility services rendered to the Premises and all costs related to
cleaning and security services and, as further Additional Rent, all
charges for additional services rendered pursuant to Section 4.1.2.
5.2 (A) Except as otherwise provided in Article VI and Section 4.1.3 to
keep the Premises in good order, repair and condition, reasonable wear
and tear only excepted, and all glass in windows (including glass in
exterior walls) and doors of the Premises whole and in good condition
with glass of the same type and quality as that injured or broken,
damage by fire, other casualty or taking under the power of eminent
domain only excepted, and at the expiration or termination of this
Lease peaceably to yield up the Premises all construction, work,
improvements, and all alterations and additions thereto but excluding
trade fixtures, equipment, machinery and signs in good order, repair
and condition, reasonable wear and tear only excepted, first removing
all goods and effects of Tenant and, to the extent specified by
Landlord by notice to Tenant given at least ten (10) days before such
expiration or termination, the wiring for Tenant's computer, telephone
and
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other communication systems and equipment and all alterations and
additions made by Tenant and all partitions, and repairing any damage
caused by such removal and restoring the Premises and leaving them
clean and neat. Tenant shall not permit or commit any waste, and Tenant
shall be responsible for the cost of repairs which may be made
necessary by reason of damage to common areas in the Buildings, to the
Site or to the Additional Buildings caused by Tenant, Tenant's
independent contractors, Tenant's employees or Tenant's invitees.
(B) Notwithstanding anything in this Lease to the contrary, Tenant
shall, at its sole cost and expense, perform the "Cleaning of the
Buildings" (defined in Section 4.1.3(B)) regularly and periodically
during the Lease Term, the same to be done in a good and workmanlike
manner so as to maintain the Buildings in a neat and clean condition
consistent with first class office and research and development
buildings.
5.3 (A) To use and occupy the Premises for the Permitted Uses only, and not
to injure or deface the Premises, the Buildings, the Additional
Buildings, the Site or any other part of the Complex nor to permit in
the Premises or on the Site any auction sale, vending machine, or
inflammable fluids or chemicals (except for substances produced in the
ordinary course of Tenant's business in connection with the Permitted
Uses, Tenant agreeing to comply with all laws, by-laws, rules and
regulations applicable to the production, storage, handling, treatment,
transport or disposal thereof or otherwise relating thereto including,
without limitation, those hereinafter set forth in this Section 5.3),
or nuisance, or the emission from the Premises of any materially
objectionable noise or odor, nor to use or devote the Premises or any
part thereof for any purpose other than the Permitted Uses, nor any use
thereof which is inconsistent with the maintenance of the Building as
an office/research and development building of the first class in the
quality of its maintenance, use and occupancy, or which is improper,
contrary to law, by-law, rule or regulation or liable to invalidate or
increase the premiums for any insurance on the Buildings or their
contents (unless in the case of increases in insurance premiums, Tenant
agrees to pay for any increase in insurance premiums related to such
use) or liable to render necessary any alteration or addition to the
Buildings. Further, except as otherwise specifically provided above,
Tenant shall not nor shall Tenant permit its employees, invitees or
contractors to engage in any activity which may produce a hazardous
material, waste or substance (collectively "Hazardous Materials"), or
keep or maintain any substance which is or may hereafter be classified
a Hazardous Material under federal, state or local laws, rules and
regulations, including, without limitation, 42 U.S.C. Section 6901 et
seq, 42 U.S.C. Section 9601 et seq, 42 U.S.C. Section 2601 et seq, 49
U.S.C. Section 1802 et seq and Massachusetts General Laws, Chapter 21E
and the rules and regulations promulgated under any of the foregoing,
as such laws, rules and regulations may be amended from time to time
("Hazardous Material Laws") and, further, Tenant shall comply and shall
cause its employees, invitees, agents and contractors to comply with
each of the foregoing. Landlord acknowledges that Tenant's intended use
of the
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Premises for a research and light manufacturing facility for the
development and production of medical devices including, without
limitation, home blood glucose monitoring systems (collectively the
"Medical Device Uses") is deemed to be a Permitted Use subject,
however, to Tenant's compliance with the requirements of Sections
5.3(A) and 5.3(B) hereof and does not increase the cost of Landlord's
insurance.
(B) With respect to light manufacturing, research and development
software assembly and accessory warehouse and distribution portions of
the Permitted Uses and the Medical Device Uses Landlord agrees that
Tenant may use the Premises for such purposes provided, on the
condition and only so long as (i) such uses are permitted under
applicable laws, by-laws, rules and regulations from time to time in
effect including, but not limited to, the Zoning By-Law of the Town of
Bedford, Massachusetts from time to time in effect and the requirements
of the Americans with Disabilities Act and the regulations thereunder
all as from time to time in effect (collectively "Governmental
Requirements, (ii) Tenant shall comply with all Governmental
Requirements, (iii) such uses shall not create, cause or produce undue
noise or odor, any nuisance and shall not interfere with the uses of
other portions of the Complex and (iv) such use shall not impose any
cost, material risk or liability on Landlord (other than increasing the
cost of Landlord's insurance but not resulting in a cancellation of any
of Landlord's insurance), Tenant agreeing to be responsible for any and
all such increased costs which shall be paid promptly by Tenant.
(C) Temporary discontinuance (not beyond any period set forth in
applicable Governmental Requirements) of business due to strikes,
lockouts, fire, casualty, remodeling, Legal Requirements or other
causes beyond Tenant's reasonable control (but specifically excluding
financial reasons) shall not be deemed a breach of this Section 5.3.
5.4 Not to obstruct in any manner any portion of the Buildings not hereby
leased or any portion thereof or of the Additional Buildings or of the
Site used by Tenant in common with others; not without prior consent of
Landlord to permit the painting or placing of any signs, (except as
provided in Section 8.21 hereof) curtains, blinds, shades, awnings,
aerials or flagpoles, or the like, visible from outside the Premises;
and to comply with all reasonable Rules and Regulations hereafter made
by Landlord, of which Tenant has been given notice, for the care and
use of the Buildings and the Site and their facilities and approaches;
Landlord shall not be liable to Tenant for the failure of other
occupants of the Buildings to conform to such Rules and Regulations.
5.5 To keep the Premises equipped with all safety appliances required by
any public authority because of any use made by Tenant other than
normal office/research and development use, and to procure all licenses
and permits so required because of such use and, if requested by
Landlord, to do any work so required because of such use, it being
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understood that the foregoing provisions shall not be construed to
broaden in any way Tenant's Permitted Uses.
5.6 Except as otherwise expressly provided herein, Tenant covenants and
agrees that it shall not assign, mortgage, pledge, hypothecate or
otherwise transfer this Lease and/or Tenant's interest in this Lease or
sublet (which term, without limitation, shall include granting of
concessions, licenses or the like) the whole or any part of the
Premises. Any assignment, mortgage, pledge, hypothecation, transfer or
subletting not expressly permitted in or consented to by Landlord under
Sections 5.6.1 - 5.6.6 shall be void, ab initio; shall be of no force
and effect; and shall confer no rights on or in favor of third parties.
In addition, Landlord shall be entitled to seek specific performance of
or other equitable relief with respect to the provisions of hereof.
5.6.1 Notwithstanding the foregoing provisions of Section 5.6 above and
without the need for Landlord's consent, but subject, however, to the
provisions of Sections 5.6.4, 5.6.5 and 5.6.6, Tenant shall have the
right to assign this Lease or to sublet the Premises (in whole or in
part) to (i) any parent or subsidiary corporation of Tenant, (ii) any
affiliated entity in common control with Tenant or (iii) any
corporation into which Tenant may be converted or with which it may
merge.
5.6.2 Notwithstanding the provisions of Section 5.6 above, BUT subject to the
provisions of this Section 5.6.2 and the provisions of Sections 5.6.4,
5.6.5 and 5.6.6 below, Tenant may sublease less than fifty percent
(50%) of the Rentable Floor Area of the Premises in the aggregate
provided that in each instance Tenant first obtains the express prior
written consent of Landlord, which consent shall not be unreasonably
withheld or delayed. Landlord shall not be deemed to be unreasonably
withholding its consent to such a proposed subleasing if:
(a) the proposed subtenant is not of a character
consistent with the operation of a first class
office, research and development building (by way of
example, Landlord shall not be deemed to be
unreasonably withholding its consent to an assignment
or subleasing to any governmental agency), or
(b) the subtenant proposes to use the Premises (or part
thereof) for a purpose other than the purpose for
which the Premises may be used as stated in Section
1.1 hereof, or
(c) the character of the business to be conducted or the
proposed use of the Premises by the proposed
subtenant or assignee shall (i) be likely to
materially increase Operating Expenses for the
Complex beyond that which Landlord now incurs for use
by Tenant or (ii) be likely to materially increase
the burden on elevators, Building(s) systems or
equipment over
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the burden prior to such proposed subletting in the
case where any of the Buildings are to be occupied by
more than one (1) tenant and/or other occupant(s) or
(iii) would violate provisions or restrictions
contained in this Lease relating to use or occupancy
including, but not limited to Section 5.3(B) hereof,
or
(d) there shall be existing an Event of Default (defined
in Section 7.1).
5.6.3 Notwithstanding the provisions of Section 5.6 above, BUT subject to the
provisions of this Section 5.6.3 and the provisions of Sections 5.6.4,
5.6.5 and 5.6.6 below, Tenant covenants and agrees not to assign this
Lease or to sublet fifty percent (50%) or more of the Rentable Floor
Area of the Premises (which shall be deemed to include, without
limitation, any proposed subleasing which together with prior
subleasings would result in an area equal to or greater than fifty
percent (50%) of the Rentable Floor Area of the Premises in the
aggregate being the subject of one or more subleases) without, in each
instance having first obtained the prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed. Landlord
shall not be deemed to be unreasonably withholding its consent to such
a proposed assignment or subleasing if:
(a) the proposed assignee or subtenant is not of a
character consistent with the operation of a first
class office, research and development building (by
way of example Landlord shall not be deemed to be
unreasonably withholding its consent to an assignment
or subleasing to any governmental agency), or
(b) the proposed assignee or subtenant does not possess
reasonably adequate net worth, financial capability
and liquidity to perform the Tenant obligations as
and when due or required under this Lease, or
(c) the assignee or subtenant proposes to use the
Premises (or part thereof) for a purpose other than
the purpose for which the Premises may be used as
stated in Section 1.2 hereof, or
(d) the character of the business to be conducted or the
proposed use of the Premises by the proposed
subtenant or assignee shall (i) be likely to increase
Operating Expenses for the Complex beyond that which
Landlord now incurs for use by Tenant; (ii) be likely
to increase the burden on elevators or other Building
systems or equipment over the burden prior to such
proposed subletting or assignment in the case where
any of the Buildings are to be occupied by more than
one (1) tenant and/or other occupant(s); or (iii)
would violate any provisions or restrictions
contained
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<PAGE> 37
herein relating to the use or occupancy of the
Premises including, but not limited to Section 5.3(B)
hereof, or
(e) there shall be existing an Event of Default (defined
in Section 7.1), or
(f) in the case of a proposed assignment, Landlord
elects, at its option, by notice given within thirty
(30) days after receipt of Tenant's notice given
pursuant to Section 5.6.4 below, to terminate this
Lease as of a date which shall not be earlier than
sixty (60) days nor later than one hundred twenty
(120) days after Landlord's notice to Tenant;
provided, however, that upon the termination date as
set forth in Landlord's notice, all of Landlord's and
Tenant's obligations relating to the period after
such termination date (but not those relating to the
period before such termination date) shall cease, or
(g) in the case of a proposed subleasing which together
with prior subleasings would result in an area equal
to fifty percent (50%) or more of the rentable floor
area of the Premises being the subject of one or more
subleases, Landlord elects, at its option, by notice
given within thirty (30) days after receipt of
Tenant's notice given pursuant to Section 5.6.4
below, to terminate this Lease as to such portions of
the Premises proposed to be sublet which would if
made, result in an area greater than fifty percent
(50%) of the rentable floor area of the Premises
being sublet (herein called the "Terminated Portion
of the Premises") as of a date which shall be not
earlier than sixty (60) days nor later than one
hundred twenty (120) days after Landlord's notice to
Tenant; provided, however that upon the termination
date as set forth in Landlord's notice, all of
Landlord's and Tenant's obligations as to the
Terminated Portion of the Premises relating to the
period after such termination date (but not those
relating to the period before such termination date)
shall cease and provided, further, that this Lease
shall remain in full force and effect as to the
remainder of the Premises, except that from and after
the termination date the rentable floor area of the
Premises shall be reduced to the rentable floor area
of the remainder of the Premises and after such
termination all references in this Lease to the
"Premises" or the "rentable floor area of the
Premises" shall be deemed to be references to the
remainder of the Premises and accordingly Tenant's
payments for Annual Fixed Rent, operating costs and
real estate taxes shall be reduced on a pro rata
basis to reflect the size of the remainder of the
Premises, and provided further that Landlord shall
have the right at Landlord's sole cost and expense to
make such alterations and improvements as may be
required to separately demise the Terminated Portion
of the Premises.
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<PAGE> 38
5.6.4 Tenant shall give Landlord notice of any proposed sublease or
assignment, and said notice shall specify the provisions of the
proposed assignment or subletting, including (a) the name and address
of the proposed assignee or subtenant, (b) in the case of a proposed
assignment or subletting pursuant to Section 5.6.2 or Section 5.6.3,
such information as to the proposed assignee's or proposed subtenant's
net worth and financial capability and standing as may reasonably be
required for Landlord to make the determination referred to in Sections
5.6.2 or 5.6.3 above (provided, however, that Landlord shall hold such
information confidential having the right to release same to its
officers, accountants, attorneys and mortgage lenders on a confidential
basis), (c) all of the terms and provisions upon which the proposed
assignment or subletting is to be made, (d) in the case of a proposed
assignment or subletting pursuant to Sections 5.6.2 or 5.6.3 all other
information necessary to make the determination referred to in Sections
5.6.2 or 5.6.3 above and (e) in the case of a proposed assignment or
subletting pursuant to Section 5.6.1 above, such information as may be
reasonably required by Landlord to determine that such proposed
assignment or subletting complies with the requirements of said Section
5.6.1.
If Landlord shall consent to the proposed assignment or subletting, as
the case may be, then, in such event, Tenant may thereafter sublease
(the whole but not part of the Premises) or assign pursuant to Tenant's
notice, as given hereunder; provided, however, that if such assignment
or sublease shall not be executed and delivered to Landlord within
ninety (90) days after the date of Landlord's consent, the consent
shall be deemed null and void and the provisions of Sections 5.6.2 and
5.6.3 again shall be applicable.
5.6.5 Intentionally Omitted.
5.6.6 (A) It shall be a condition of the validity of any assignment or
subletting of right under Section 5.6.1 above, or consented to under
Section 5.6.3 above that the assignee or sublessee agrees directly with
Landlord, in form reasonably satisfactory to Landlord, to be bound by
all the obligations of the Tenant hereunder, including, without
limitation, the obligation to pay the rent and other amounts provided
for under this Lease (but in the case of a partial subletting pursuant
to Section 5.6.1, such subtenant shall agree on a pro rata basis to be
so bound) including the provisions of Section 5.6 through 5.6.6 hereof,
but such assignment or subletting shall not relieve the Tenant named
herein of any of the obligations of the Tenant hereunder, and Tenant
shall remain fully and primarily liable therefor and the liability of
Tenant and such assignee (or subtenant, as the case may be) shall be
joint and several. Further, and notwithstanding the foregoing, the
provisions hereof shall not constitute a recognition of the assignment
or the assignee thereunder or the sublease or the subtenant thereunder,
as the case may be, and at Landlord's option, upon the termination of
the Lease, the assignment or sublease shall be terminated.
(B) Intentionally Omitted.
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<PAGE> 39
(C) If this Lease be assigned, or if the Premises or any part thereof
be sublet or occupied by anyone other than Tenant, Landlord may upon
prior notice to Tenant, at any time and from time to time, collect rent
and other charges from the assignee, sublessee or occupant and apply
the net amount collected to the rent and other charges herein reserved,
but no such assignment, subletting, occupancy or collection shall be
deemed a waiver of this covenant, or a waiver of the provisions of
Sections 5.6 through 5.6.3 hereof, or the acceptance of the assignee,
sublessee or occupant as a tenant or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained, the Tenant herein named to remain primarily liable under
this Lease.
(D) The consent by Landlord to an assignment or subletting under any of
the provisions of Sections 5.6.2 or 5.6.3 shall in no way be construed
to relieve Tenant from obtaining the express consent in writing of
Landlord to any further assignment or subletting.
5.7 To defend with counsel first approved by Landlord (which approval shall
not be unreasonably withheld or delayed, it being agreed, however, that
for claims covered by insurance for which the insurer selects counsel,
such counsel shall be deemed approved by Landlord), save harmless, and
indemnify Landlord from any liability for injury, loss, accident or
damage to any person or property, and from any claims, actions,
proceedings and expenses and costs in connection therewith (including
without limitation reasonable counsel fees) (i) arising from or claimed
to have arisen from (a) the omission, fault, willful act, negligence or
other misconduct of Tenant or Tenant's contractors, licensees,
invitees, agents, independent contractors or employees or (b) any use
made or thing done or occurring on the Premises after the date that
possession of the Premises is first delivered to Tenant and until the
end of the Lease Term and thereafter, so long as Tenant is in occupancy
of any part of the Premises not due to the omission, fault, willful
act, negligence or other misconduct of Landlord or Landlord's
contractors, servants, agents, representatives or employees, or (ii)
resulting from the failure of Tenant to perform and discharge its
covenants and obligations under this Lease; to maintain with
responsible companies qualified to do business, and in good standing,
in Massachusetts commercial general liability insurance or
comprehensive general liability insurance with a broad form
comprehensive liability endorsement covering the Premises insuring
Landlord (as an additional insured) as well as Tenant with limits which
shall, at the commencement of the Term, be at least equal to those
stated in Section 1.1 and from time to time during the Term shall be
for such higher limits, if any, as are customarily carried in Greater
Boston with respect to similar properties or which may reasonably be
required by Landlord (it being agreed that Landlord shall not seek to
increase such limits for a period of two (2) years from the
Commencement Date), and workers compensation insurance with statutory
limits covering all of Tenant's employees working in the Premises, and
to deposit with Landlord on or before the Commencement Date and
concurrent with all renewals thereof, certificates for such insurance
bearing the endorsement that the policies will not be canceled until
after thirty (30) days' written notice to Landlord. If and so long
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<PAGE> 40
as the insurance which Tenant is required to maintain under this
Section is in full force and effect and the insurer does not deny
coverage or liability, Landlord agrees that it will look to such
insurance for satisfaction of a claim covered by Tenant's insurance but
only to the extent of the insurance coverage.
Subject to the provisions of Section 2.2.1, Landlord agrees to
indemnify and save Tenant harmless from and against injuries arising
from or claimed to have arisen from the negligence of Landlord, its
agents or employees occurring after the Commencement Date and until the
expiration or earlier termination of the Term; provided, however, that
Landlord shall not be responsible or liable for any loss or damage to
fixtures, improvements or personal property or equipment of Tenant.
Landlord shall maintain in full force from the date upon which Tenant
first enters the Premises for any reason, throughout the Term, and
thereafter so long as Tenant is in occupancy of any part of the
Premises, a policy of insurance upon the Buildings and Landlord's
furniture, fixtures, and other equipment insuring against all risks of
physical loss or damage under an All Risk coverage endorsement in an
amount at least equal to the full replacement value of the property
insured (as reasonably determined by Landlord), with an Agreed Amount
endorsement to satisfy co-insurance requirements, as well as insurance
against breakdown of boilers and other machinery as customarily insured
against. Upon request of Tenant from time to time, a certificate of
such insurance shall be delivered to Tenant. Such insurance may be
written with a deductible as determined by Landlord. Further, if at any
time during the Term all risk type insurance coverage shall cease to be
written, then the type of fire and casualty insurance and amount of
coverage shall be as determined by Landlord. Landlord may also maintain
such other insurance as may from time to time be required by any
mortgagee holding a first mortgage lien on the Site. In addition,
Landlord may also maintain such insurance against loss of Annual Fixed
Rent and Additional Rent and such other risks and perils as Landlord
deems proper. Any and all such insurance together with the liability
insurance required or permitted to be carried under this Lease by
Landlord may be maintained under a blanket policy affecting other
premises of Landlord and/or affiliated business organizations.
5.8 That all of the furnishings, fixtures, equipment, effects and property
of every kind, nature and description of Tenant and of all persons
claiming by, through or under Tenant which, during the continuance of
this Lease or any occupancy of the Premises by Tenant or anyone
claiming under Tenant, may be on the Premises or elsewhere in the
Buildings or on the Site, shall be at the sole risk and hazard of
Tenant, and if the whole or any part thereof shall be destroyed or
damaged by fire, water or otherwise, or by the leakage or bursting of
water pipes, steam pipes, or other pipes, by theft or from any other
cause, no part of said loss or damage is to be charged to or be borne
by Landlord unless due to Landlord's gross negligence, except that
Landlord shall in no event be indemnified or
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<PAGE> 41
held harmless or exonerated from any liability to Tenant or to any
other person, for any injury, loss, damage or liability to the extent
such indemnity, hold harmless or exoneration is prohibited by law.
5.9 To permit Landlord and its agents to examine the Premises at reasonable
times and, if Landlord shall so elect, to make any repairs or
replacements Landlord may deem necessary; to remove, at Tenant's
expense, any alterations, additions, signs, curtains, blinds, shades,
awnings, aerials, flagpoles, or the like not consented to in writing;
and to show the Premises to prospective tenants during the eleven (11)
months preceding expiration of the Term and to prospective purchasers
and mortgagees at all reasonable times. Except in the case of
emergencies, such examination and entry shall be upon reasonable
advance notice to Tenant and in a manner not to materially interfere
with Tenant's business, not to violate Tenant's security requirements
and not to materially offset Tenant's quiet enjoyment.
5.10 Not to place a load upon the Premises exceeding an average rate of 100
pounds of live load per square foot of floor area (partitions shall be
considered as part of the live load); and not to move any safe, vault
or other heavy equipment in, about or out of the Premises except in
such manner and at such time as Landlord shall in each instance
authorize; Tenant's business machines and mechanical equipment which
cause vibration or noise that may be transmitted to the Building
structure or to any other space in the Building shall be so installed,
maintained and used by Tenant so as to eliminate such vibration or
noise.
5.11 To pay promptly when due all taxes which may be imposed upon personal
property (including, without limitation, fixtures and equipment) in the
Premises to whomever assessed excluding Landlord's personal property
and excluding any personal property taxes for which Tenant has filed
for an abatement with respect to until a decision is rendered.
5.12 To comply with all applicable Legal Requirements now or hereafter in
force which shall impose a duty on Landlord or Tenant relating to or as
a result of the use or occupancy of the Premises; provided that Tenant
shall not be required to make any alterations or additions to the
structure, roof, exterior and load bearing walls, foundation,
structural floor slabs and other structural elements of the Buildings
unless the same are required by such Legal Requirements as a result of
or in connection with Tenant's use or occupancy of the Premises beyond
normal use of space of this kind. Tenant shall promptly pay all fines,
penalties and damages that may arise out of or be imposed because of
its failure to comply with the provisions of this Section 5.12.
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ARTICLE VI
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CASUALTY AND TAKING
-------------------
6.1 In case during the Lease Term any of the Buildings or the Site are
damaged by fire or other casualty and such fire or casualty damage
cannot, in the ordinary course, reasonably be expected to be repaired
within two hundred ten (210) days from the time that repair work would
commence, Landlord may, at its election, terminate this Lease by notice
given to Tenant within sixty (60) days after the date of such fire or
other casualty, specifying the effective date of termination. The
effective date of termination specified by Landlord shall not be less
than thirty (30) days nor more than forty-five (45) days after the date
of notice of such termination.
In case during the Lease Term, the Premises are damaged by fire or
other casualty and such fire or casualty damage cannot, in the ordinary
course, reasonably be expected to be repaired within two hundred ten
(210) days (and/or as to special work or work which requires long lead
time then if such work cannot reasonably be expected to be repaired
within such additional time as is reasonable under the circumstances
given the nature of the work) from the time that repair work would
commence, Tenant may, at its election, terminate this Lease by notice
given to Landlord within sixty (60) days after the date of such fire or
other casualty, specifying the effective date of termination. The
effective date of termination specified by Tenant shall be not less
than thirty (30) days nor more than forty-five (45) days after the date
of notice of such termination.
In addition, if during the last year of the Original Term (i) Tenant
shall be actively using a substantial portion of the Premises for
manufacturing purposes consistent with the Permitted Uses (the
"Manufacturing Portion of the Premises") and (ii) the Manufacturing
Portion of the Premises are damaged by fire or other casualty which
materially and substantially affects such manufacturing use and (iii)
Tenant, acting in good faith after consultation with a qualified and
experienced commercial engineer or construction company, determines
that the damage to the Premises cannot, in the ordinary course,
reasonably be expected to be repaired within one hundred and twenty
(120) days from the time that repair work would commence and (iv)
Tenant did not prior to the date of such fire or other casualty
exercise its first extension option as provided in Section 8.20, then
Tenant may, at its election, terminate this Lease by notice given to
Landlord within sixty (60) days after the date of such fire or other
casualty, specifying the effective date of termination. The effective
date of termination specified by Tenant shall not be less than thirty
(30) days nor more than forty-five (45) days after the date of notice
of such termination provided, however, that if within thirty (30) days
after the receipt of such notice by Landlord, Landlord makes available
to Tenant comparable temporary space upon the same business terms as
this Lease for the period of the restoration of the
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Premises (if Landlord shall not have elected to terminate the Lease in
accordance with this Section 6.1), then such termination by Tenant
shall be deemed null and void.
Unless terminated pursuant to the foregoing provisions, this Lease
shall remain in full force and effect following any such damage
subject, however, to the following provisions.
If any of the Buildings or any part thereof are damaged by fire or
other casualty and this Lease is not so terminated, or Landlord or
Tenant have no right to terminate this Lease, and in any such case the
holder of any mortgage which includes the Buildings as a part of the
mortgaged premises or any ground lessor of any ground lease which
includes the Site as part of the demised premises allows the net
insurance proceeds to be applied to the restoration of the damaged
Building(s), Landlord promptly after such damage and the determination
of the net amount of insurance proceeds available shall use due
diligence to restore the Premises and the damaged Building(s) in the
event of damage thereto (excluding any furniture, fixtures or equipment
of Tenant, or any other items installed, or paid for, by Tenant) into
proper condition for use and occupation for the Permitted Uses and a
just proportion of the Annual Fixed Rent, Tenant's share of Operating
Costs and Tenant's share of real estate taxes according to the nature
and extent of the injury to the Premises shall be abated until the
Premises shall have been put by Landlord substantially into such
condition except for punch list items and long lead items. Landlord
represents that as of the date of this Lease there is no such ground
lease in effect.
Unless such restoration is completed within two hundred forty (240)
days from the date that repair work actually commences, such period to
be subject, however, to extension where the delay in completion of such
work is due to causes beyond Landlord's reasonable control (but in no
event beyond two hundred seventy (270) days from the date that repair
work actually commences), Tenant shall have the right to terminate this
Lease at any time after the expiration of such 240 day (as extended)
period until the restoration is substantially completed, such
termination to take effect as of the thirtieth (30th) day after the
date of receipt by Landlord of Tenant's notice, with the same force and
effect as if such date were the date originally established as the
expiration date hereof unless, within thirty (30) days after Landlord's
receipt of Tenant's notice, such restoration is substantially
completed, in which case Tenant's notice of termination shall be of no
force and effect and this Lease and the Lease Term shall continue in
full force and effect.
6.2 Notwithstanding anything to the contrary contained in this Lease, if
any of the Buildings shall be substantially damaged by fire or casualty
as the result of a risk not covered by the forms of casualty insurance
at the time maintained by Landlord and such fire or casualty damage
cannot, in the ordinary course, reasonably be expected to be repaired
within one hundred eighty (180) days from the time that repair work
would commence, Landlord or Tenant may, at its election, terminate the
Term of this Lease by notice to the other given
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within thirty (30) days after such loss. If Landlord or Tenant shall
give such notice, then this Lease shall terminate as of the date of
such notice with the same force and effect as if such date were the
date originally established as the expiration date hereof.
6.3 If the entirety of the Buildings, or such portion of the Premises as to
render the balance (if reconstructed to the maximum extent practicable
in the circumstances) unsuitable for Tenant's purposes, shall be taken
by condemnation or right of eminent domain, Landlord or Tenant shall
have the right to terminate this Lease by notice to the other of its
desire to do so, provided that such notice is given not later than
thirty (30) days after Tenant has been deprived of possession. If
either party shall give such notice, then this Lease shall terminate as
of the date of such notice with the same force and effect as if such
date were the date originally established as the expiration date
hereof. Any payments made by Tenant respecting Annual Fixed Rent,
Operating Expenses Allocable to the Premises or Landlord's Tax Expenses
Allocable to the Premises relating to the period after the date of
termination shall be promptly refunded to Tenant unless Tenant has any
unsatisfied obligations to Landlord.
Should any part of the Premises be so taken or condemned during the
Lease Term hereof, and should this Lease not be terminated in
accordance with the foregoing provisions, and the holder of any
mortgage which includes the Premises as part of the mortgaged premises
or any ground lessor of any ground lease which includes the Site as
part of the demised premises allows the net condemnation proceeds to be
applied to the restoration of the Building(s) so taken or condemned,
Landlord agrees that after the determination of the net amount of
condemnation proceeds available to Landlord, Landlord shall use due
diligence to put what may remain of the Premises into proper condition
for use and occupation for the Permitted Uses as nearly like the
condition of the Premises prior to such taking as shall be practicable
(excluding any furniture, fixtures or equipment of Tenant, or any other
items installed or paid for by Tenant). Landlord represents that as of
the date of this Lease there is no such ground lease in effect.
If the Premises shall be affected by any exercise of the power of
eminent domain, then the Annual Fixed Rent, Tenant's Operating Costs
Payments and Tenant's Tax Payments shall be justly and equitably abated
and reduced according to the nature and extent of the loss of use
thereof suffered by Tenant taking into account Tenant's ability to
operate in the Premises for the Permitted Uses; and in case of a taking
which permanently reduces the Rentable Floor Area of the Premises, a
just proportion of the Annual Fixed Rent, Tenant's Operating Costs
Payments and Tenant's Tax Payments shall be abated for the remainder of
the Lease Term.
6.4 Landlord shall have and hereby reserves to itself any and all rights to
receive awards made for damages to the Premises, the Building, the
Buildings, the Additional Buildings, the Complex and the Site and the
leasehold hereby created, or any one or more of them,
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accruing by reason of exercise of eminent domain or by reason of
anything lawfully done in pursuance of public or other authority.
Tenant hereby grants, releases and assigns to Landlord all Tenant's
rights to such awards, and covenants to execute and deliver such
further assignments and assurances thereof as Landlord may from time to
time request.
Nothing contained herein shall be construed to prevent Tenant from
prosecuting in any condemnation proceeding a claim for the value of any
of Tenant's usual trade fixtures installed in the Premises by Tenant at
Tenant's expense and for relocation and moving expenses and Tenant's
business loss whether or not this Lease is terminated; provided,
however, that in no case shall same be construed to include or mean any
of the awards reserved exclusively to Landlord as set forth in the
immediately preceding paragraph of this Section 6.4 and provided,
further, that such action and any resulting award shall not affect or
diminish the amount of compensation otherwise recoverable by Landlord
from the taking authority.
ARTICLE VII
-----------
DEFAULT
-------
7.1 (a) If at any time subsequent to the date of this Lease any one or more
of the following events (herein sometimes called an "Event of Default")
shall occur:
(i) Tenant shall fail to pay any Annual Fixed Rent
payment, Additional Rent or other charges for which
provision is made herein on or before the date on
which the same become due and payable, and the same
continues for ten (10) days after notice from
Landlord thereof, or
(ii) Intentionally Omitted
(iii) Tenant shall neglect or fail to perform or observe
any other covenant herein contained on Tenant's part
to be performed or observed and Tenant shall fail to
remedy the same within thirty (30) days after notice
to Tenant specifying such neglect or failure, or if
such failure is of such a nature that Tenant cannot
reasonably remedy the same within such thirty (30)
day period, Tenant shall fail to commence promptly to
remedy the same and to prosecute such remedy to
completion with diligence and continuity; or
(iv) Tenant's leasehold interest in the Premises shall be
taken on execution or by other process of law
directed against Tenant and the same is not vacated
or discharged within sixty (60) days after the entry
of the order therefor unless such order is being
diligently contested by Tenant; or
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<PAGE> 46
(v) Tenant shall make an assignment for the benefit of
creditors or shall file a voluntary petition in
bankruptcy or shall be adjudicated bankrupt or
insolvent, or shall file any petition or answer
seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar
relief for itself under any present or future
Federal, State or other statute, law or regulation
for the relief of debtors, or shall seek or consent
to or acquiesce in the appointment of any trustee,
receiver or liquidator of Tenant or of all or any
substantial part of its properties, or shall admit in
writing its inability to pay its debts generally as
they become due; or
(vi) A petition shall be filed against Tenant in
bankruptcy or under any other law seeking any
reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar
relief under any present or future Federal, State or
other statute, law or regulation and shall remain
undismissed or unstayed for an aggregate of sixty
(60) days (whether or not consecutive), or if any
debtor in possession (whether or not Tenant) trustee,
receiver or liquidator of Tenant or of all or any
substantial part of its properties or of the Premises
shall be appointed without the consent or
acquiescence of Tenant and such appointment shall
remain unvacated or unstayed for an aggregate of
sixty (60) days (whether or not consecutive)--
then, and in any of said cases (notwithstanding any license of a former
breach of covenant or waiver of the benefit hereof or consent in a
former instance), Landlord lawfully may, immediately or at any time
thereafter, and without demand or further notice terminate this Lease
by notice to Tenant, specifying a date not less than fifteen (15) days
after the giving of such notice on which this Lease shall terminate,
and this Lease shall come to an end on the date specified therein as
fully and completely as if such date were the date herein originally
fixed for the expiration of the Lease Term (Tenant hereby waiving any
rights of redemption), and Tenant will then quit and surrender the
Premises to Landlord, but Tenant shall remain liable as hereinafter
provided.
(b) If this Lease shall have been terminated as provided in this
Article, then Landlord may, without notice, re-enter the Premises,
either by summary proceedings, ejectment or otherwise, and remove and
dispossess Tenant and all other persons and any and all property from
the same, as if this Lease had not been made.
(c) In the event that this Lease is terminated under any of the
provisions contained in Section 7.1 (a) or shall be otherwise
terminated by breach of any obligation of Tenant, Tenant covenants and
agrees forthwith to pay and be liable for, on the days originally fixed
herein for the payment thereof, amounts equal to the several
installments of rent and other charges reserved as they would, under
the terms of this Lease, become due if this Lease had not been
terminated or if Landlord had not entered or re-entered, as aforesaid,
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and whether the Premises be relet or remain vacant, in whole or in
part, or for a period less than the remainder of the Term, and for the
whole thereof, but in the event the Premises be relet by Landlord,
Tenant shall be entitled to a credit in the net amount of rent and
other charges received by Landlord in reletting, after deduction of all
reasonable expenses incurred in reletting the Premises (including,
without limitation, remodeling costs, brokerage fees and the like), and
in collecting the rent in connection therewith, in the following
manner:
Amounts received by Landlord after reletting shall first be applied
against such Landlord's expenses, until the same are recovered, and
until such recovery, Tenant shall pay, as of each day when a payment
would fall due under this Lease, the amount which Tenant is obligated
to pay under the terms of this Lease (Tenant's liability prior to any
such reletting and such recovery not in any way to be diminished as a
result of the fact that such reletting might be for a rent higher than
the rent provided for in this Lease); when and if such expenses have
been completely recovered, the amounts received from reletting by
Landlord as have not previously been applied shall be credited against
Tenant's obligations as of each day when a payment would fall due under
this Lease, and only the net amount thereof shall be payable by Tenant.
Further, amounts received by Landlord from such reletting for any
period shall be credited only against obligations of Tenant allocable
to such period, and shall not be credited against obligations of Tenant
hereunder accruing subsequent or prior to such period; nor shall any
credit of any kind be due for any period after the date when the term
of this Lease is scheduled to expire according to its terms.
(d)(i) At any time after such termination and whether or not Landlord
shall have collected any damages as aforesaid, as liquidated final
damages and in lieu of all other damages beyond the date of notice from
Landlord to Tenant, at Landlord's election, Tenant shall pay to
Landlord such a sum as at the time of the giving of such notice
represents the amount of the excess, if any, of the present value of
the total rent and other benefits which would have accrued to Landlord
under this Lease from the date of such notice for what would be the
then unexpired Lease Term if the Lease terms had been fully complied
with by Tenant over and above the then cash rental value (in advance)
of the Premises for the balance of the Lease Term.
(d)(ii) For the purposes of this Article, if Landlord elects to require
Tenant to pay damages in accordance with the immediately preceding
paragraph, the total rent shall be computed by assuming that Tenant's
share of taxes, Tenant's share of operating costs and Tenant's share of
electrical costs would be, for the balance of the unexpired Term from
the date of such notice, the amount thereof (if any) for the
immediately preceding annual period payable by Tenant to Landlord.
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(e) In case of any Event of Default, re-entry, dispossession by summary
proceedings or otherwise, Landlord may (i) re-let the Premises or any
part or parts thereof, either in the name of Landlord or otherwise, for
a term or terms which may at Landlord's option be equal to or less than
or exceed the period which would otherwise have constituted the balance
of the Term of this Lease and may grant concessions or free rent to the
extent that Landlord considers reasonably advisable or necessary to
re-let the same and (ii) may make such alterations, repairs and
decorations in the Premises as Landlord in its sole judgment considers
advisable or necessary for the purpose of reletting the Premises; and
the making of such alterations, repairs and decorations shall not
operate or be construed to release Tenant from liability hereunder as
aforesaid. Landlord shall use reasonable efforts to relet the Premises
after Tenant vacates following an Event of Default, termination of this
Lease and appropriate court order if any but the failure to relet
and/or the terms, conditions and provisions of any reletting shall not
give rise to any defense, claim, action or counterclaim by Tenant nor
release, limit or otherwise modify Tenant's liability. Also Landlord
shall in no event be liable in any way whatsoever for failure to re-let
the Premises, or, in the event that the Premises are re-let, for
failure to collect the rent under re-letting. Tenant hereby expressly
waives any and all rights of redemption granted by or under any present
or future laws in the event of Tenant being evicted or dispossessed, or
in the event of Landlord obtaining possession of the Premises, by
reason of the occurrence of an Event of Default by Tenant.
(f) The specified remedies to which Landlord may resort hereunder are
not intended to be exclusive of any remedies or means of redress to
which Landlord may at any time be entitled lawfully, and Landlord may
invoke any remedy (including the remedy of specific performance)
allowed at law or in equity as if specific remedies were not herein
provided for. Further, nothing contained in this Lease shall limit or
prejudice the right of Landlord to prove for and obtain in proceedings
for bankruptcy or insolvency by reason of the termination of this
Lease, an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which,
the damages are to be proved, whether or not the amount be greater,
equal to, or less than the amount of the loss or damages referred to
above.
7.2 Landlord shall in no event be in default in the performance of any of
Landlord's obligations hereunder unless and until Landlord shall have
failed to perform such obligations within thirty (30) days, or such
additional time as is reasonably required to correct any such default,
after notice by Tenant to Landlord properly specifying wherein Landlord
has failed to perform any such obligation.
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ARTICLE VIII
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8.1 Tenant covenants and agrees that Tenant will not do or permit anything
to be done in or upon the Premises, or bring in anything or keep
anything therein, which shall increase the rate of insurance on the
Premises, the Building or on the Buildings above the standard rate
applicable to premises being occupied for the use to which Tenant has
agreed to devote the Premises; and Tenant further agrees that, in the
event that Tenant shall do any of the foregoing, Tenant will promptly
pay to Landlord, within thirty (30) days after demand, any such
increase resulting from, which shall be due and payable as additional
rent thereunder. Landlord shall give notice to Tenant of any such
increase promptly after Landlord receives knowledge of the same,
provided that Tenant shall be responsible for any such increases
applicable to both the period prior to and after any such notice.
8.2 Failure on the part of Landlord or Tenant to complain of any action or
non-action on the part of the other, no matter how long the same may
continue, shall never be a waiver by Tenant or Landlord, respectively,
of any of its rights hereunder. Further, no waiver at any time of any
of the provisions hereof by Landlord or Tenant shall be construed as a
waiver of any of the other provisions hereof, and a waiver at any time
of any of the provisions hereof shall not be construed as a waiver at
any subsequent time of the same provisions. The consent or approval of
Landlord or Tenant to or of any action by the other requiring such
consent or approval shall not be construed to waive or render
unnecessary Landlord's or Tenant's consent or approval to or of
subsequent similar act by the other.
No payment by Tenant, or acceptance by Landlord, of a lesser amount
than shall be due from Tenant to Landlord shall be treated otherwise
than as a payment on account. The acceptance by Landlord of a check for
a lesser amount with an endorsement or statement thereon, or upon any
letter accompanying such check, that such lesser amount is payment in
full, shall be given no effect, and Landlord may accept such check
without prejudice to any other rights or remedies which Landlord may
have against Tenant.
8.3 Subject to the provisions of the second paragraph of Section 8.4
hereof, the specific remedies to which Landlord or Tenant may resort
under the terms of this Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which such party
may be lawfully entitled in case of any breach or threatened breach by
Tenant or Landlord of any provisions of this Lease. In addition to the
other remedies provided in this Lease, each of Landlord and Tenant
shall be entitled to the restraint by injunction of the violation or
attempted or threatened violation of any of the covenants, conditions
or provisions of this Lease or to a decree compelling specific
performance of any such covenants, conditions or provisions.
8.4 Tenant, subject to the terms and provisions of this Lease on payment of
the rent and observing, keeping and performing all of the terms and
provisions of this Lease on
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Tenant's part to be observed, kept and performed, shall lawfully,
peaceably and quietly have, hold, occupy and enjoy the Premises during
the Term, without hindrance or ejection by any persons lawfully
claiming under Landlord to have title to the Premises superior to
Tenant, subject, however, to the terms of this Lease; the foregoing
covenant of quiet enjoyment is in lieu of any other covenant, express
or implied; and it is understood and agreed that this covenant and any
and all other covenants of Landlord contained in this Lease shall be
binding upon Landlord and Landlord's successors only with respect to
breaches occurring during Landlord's or Landlord's successors'
respective ownership of Landlord's interest hereunder, as the case may
be.
Further, Tenant specifically agrees to look solely to Landlord's then
equity interest in the Complex at the time owned, or in which Landlord
holds an interest as ground lessee, for recovery of any judgment from
Landlord; it being specifically agreed that neither Landlord (original
or successor), nor any beneficiary of any Trust of which any person
holding Landlord's interest is Trustee, nor any partner of Landlord
(original or successor) shall ever be personally liable for any such
judgment, or for the payment of any monetary obligation to Tenant. The
provision contained in the foregoing sentence is not intended to, and
shall not, limit any right that Tenant might otherwise have to obtain
injunctive relief against Landlord or Landlord's successors in
interest, or any action not involving the personal liability of
Landlord (original or successor), any successor Trustee to the persons
named herein as Landlord, or any beneficiary of any Trust of which any
person holding Landlord's interest is Trustee, or any partner of
Landlord (original or successor) to respond in monetary damages from
Landlord's assets other than Landlord's equity interest aforesaid in
the Buildings. In no event shall Landlord ever be liable to Tenant for
any indirect or consequential damages suffered by Tenant from whatever
cause. Landlord represents that as of the date of this Lease there is
no mortgage encumbering the Complex nor any ground lease of the
Complex.
8.5 After receiving notice from any person, firm or other entity that it
holds a mortgage which includes the Premises as part of the mortgaged
premises, or that it is the ground lessor under a lease with Landlord,
as ground lessee, which includes the Premises as a part of the demised
premises, no notice from Tenant to Landlord shall be effective unless
and until a copy of the same is given to such holder or ground lessor,
and the curing of any of Landlord's defaults by such holder or ground
lessor within the period set forth in this Lease for Landlord to cure
such defaults shall be treated as performance by Landlord. For the
purposes of this Section 8.5 or Section 8.15, the term "mortgage"
includes a mortgage on a leasehold interest of Landlord (but not one on
Tenant's leasehold interest).
8.6 With reference to any assignment by Landlord of Landlord's interest in
this Lease, or the rents payable hereunder, conditional in nature or
otherwise, which assignment is made to the holder of a mortgage or
ground lease on property which includes the Premises, Tenant agrees:
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<PAGE> 51
(a) That the execution thereof by Landlord, and the
acceptance thereof by the holder of such mortgage or
the ground lessor, shall never be treated as an
assumption by such holder or ground lessor of any of
the obligations of Landlord hereunder, unless such
holder, or ground lessor, shall, by notice sent to
Tenant, specifically otherwise elect; and
(b) That, except as aforesaid, such holder or ground
lessor shall be treated as having assumed Landlord's
obligations hereunder only upon foreclosure of such
holder's mortgage and the taking of possession of the
Premises, or, in the case of a ground lessor, the
assumption of Landlord's position hereunder by such
ground lessor.
In no event shall the acquisition of title to the
Buildings and the land on which the same is located
by a purchaser which, simultaneously therewith,
leases the entire Buildings or such land back to the
seller thereof be treated as an assumption by such
purchaser-lessor, by operation of law or otherwise,
of Landlord's obligations hereunder, but Tenant shall
look solely to such seller-lessee, and its successors
from time to time in title, for performance of
Landlord's obligations hereunder subject to the
provisions of Section 8.4 hereof. In any such event,
this Lease shall be subject and subordinate to the
lease to such purchaser provided that such purchaser
agrees to recognize this Lease and the right of
Tenant to use and occupy the Premises upon the
payment of rent and other charges payable by Tenant
under this Lease and the performance by Tenant under
this Lease and the performance by Tenant of Tenant's
obligations hereunder and provided that Tenant agrees
to attorn to such purchaser. For all purposes, such
seller-lessee, and its successors in title, shall be
the landlord hereunder unless and until Landlord's
position shall have been assumed by such
purchaser-lessor.
8.7 No act or thing done by Landlord during the Lease Term shall be deemed
an acceptance of a surrender of the Premises, and no agreement to
accept such surrender shall be valid, unless in writing signed by
Landlord. No employee of Landlord or of Landlord's agents shall have
any power to accept the keys of the Premises prior to the termination
of this Lease. The delivery of keys to any employee of Landlord or of
Landlord's agents shall not operate as a termination of the Lease or a
surrender of the Premises.
8.8 (A) Tenant warrants and represents that Tenant has not dealt with any
broker in connection with the consummation of this Lease other than the
Recognized Brokers designated in Section 1.1 hereof; and in the event
any claim is made against the Landlord relative to dealings by Tenant
with brokers other than the Recognized Brokers designated in Section
1.1 hereof, Tenant shall defend the claim against Landlord with counsel
of
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Tenant's selection first approved by Landlord (which approval will not
be unreasonably withheld) and save harmless and indemnify Landlord on
account of loss, cost or damage which may arise by reason of such
claim.
(B) Landlord warrants and represents that Landlord has not dealt with
any broker in connection with the consummation of this Lease other than
the Recognized Brokers designated in Section 1.1 hereof; and in the
event any claim is made against the Tenant relative to dealings by
Landlord with brokers other than the Recognized Brokers designated in
Section 1.1 hereof, Landlord shall defend the claim against Tenant with
counsel of Landlord's selection reasonably approved by Tenant and save
harmless and indemnify Tenant on account of loss, cost or damage which
may arise by reason of such claim. Landlord agrees that it shall be
solely responsible for the payment of brokerage commissions to the
Recognized Brokers designated in Section 1.1 hereof.
8.9 If any term or provision of this Lease, or the application thereof to
any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such
term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and
be enforced to the fullest extent permitted by law.
8.10 The obligations of this Lease shall run with the land, and except as
herein otherwise provided, the terms hereof shall be binding upon and
shall inure to the benefit of the successors and assigns, respectively,
of Landlord and Tenant and, if Tenant shall be an individual, upon and
to his heirs, executors, administrators, successors and assigns. Each
term and each provision of this Lease to be performed by Tenant shall
be construed to be both a covenant and a condition. The reference
contained to successors and assigns of Tenant is not intended to
constitute a consent to subletting or assignment by Tenant.
8.11 Tenant agrees not to record the within Lease, but each party hereto
agrees, on the request of the other, to execute a so-called Notice of
Lease or short form lease in form recordable and complying with
applicable law and reasonably satisfactory to both Landlord's and
Tenant's attorneys. In no event shall such document set forth rent or
other charges payable by Tenant under this Lease; and any such document
shall expressly state that it is executed pursuant to the provisions
contained in this Lease, and is not intended to vary the terms and
conditions of this Lease.
8.12 Whenever, by the terms of this Lease, notice shall or may be given
either to Landlord or to Tenant, such notice shall be in writing and
shall be sent by registered or certified mail postage prepaid:
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If intended for Landlord, addressed to Landlord at the address
set forth on the first page of this Lease (or to such other
address or addresses as may from time to time hereafter be
designated by Landlord by like notice) with a copy to
Landlord, Attention: General Counsel.
If intended for Tenant, addressed to Tenant at the address set
forth on the second page of this Lease except that from and
after the Commencement Date the address of Tenant shall be
Bedford Business Park, 2 Crosby Drive, Bedford, Massachusetts
01730 Building A Attention: Chief Executive Officer with a
copy to Tenant at such address Attention: General Counsel (or
to such other address or addresses as may from time to time
hereafter be designated by Tenant by like notice).
Except as otherwise provided herein, all such notices shall be
effective when received; provided, that (i) if receipt is refused,
notice shall be effective upon the first occasion that such receipt is
refused or (ii) if the notice is unable to be delivered due to a change
of address of which no notice was given, notice shall be effective upon
the date such delivery was attempted.
Where provision is made for the attention of an individual or
department, the notice shall be effective only if the wrapper in which
such notice is sent is addressed to the attention of such individual or
department.
8.13 Neither the employees or agents of Landlord or Tenant have any
authority to make or agree to make a lease or any other agreement or
undertaking in connection herewith. The submission of this document for
examination and negotiation does not constitute an offer to lease, or a
reservation of, or option for, the Premises, and this document shall
become effective and binding only upon the execution and delivery
hereof by both Landlord and Tenant. All negotiations, considerations,
representations and understandings between Landlord and Tenant are
incorporated herein and may be modified or altered only by written
agreement between Landlord and Tenant, and no act or omission of any
employee or agent of Landlord shall alter, change or modify any of the
provisions hereof. No changes, additions or interlineations made to
this Lease shall be binding unless signed by both parties.
8.14 The titles of the Articles throughout this Lease are for convenience
and reference only, and the words contained therein shall in no way be
held to explain, modify, amplify or aid in the interpretation,
construction or meaning of the provisions of this Lease.
8.15 This Lease shall be subject and subordinate to any mortgage now or
hereafter on the Site, the Buildings or the Complex, and to each
advance made or hereafter to be made under any mortgage, and to all
renewals, modifications, consolidations, replacements and
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extensions thereof and all substitutions therefor provided that the
holder of such mortgage agrees to recognize the rights of Tenant under
this Lease (including the right to use and occupy the Premises) upon
the payment of rent and other charges payable by Tenant under this
Lease and the performance by Tenant of Tenant's obligations hereunder.
In confirmation of such subordination and recognition, Tenant shall
execute and deliver promptly such instruments of subordination and
recognition as such mortgagee may reasonably request. In the event that
any mortgagee or its respective successor in title shall succeed to the
interest of Landlord, then, this Lease shall nevertheless continue in
full force and effect and Tenant shall and does hereby agree to attorn
to such mortgagee or successor and to recognize such mortgagee or
successor as its landlord and this Lease shall be recognized by such
mortgagee or successor, as the case may be. If any holder of a mortgage
which includes the Premises, executed and recorded prior to the date of
this Lease, shall so elect, this Lease and the rights of Tenant
hereunder, shall be superior in right to the rights of such holder,
with the same force and effect as if this Lease had been executed,
delivered and recorded, or a statutory Notice hereof recorded, prior to
the execution, delivery and recording of any such mortgage. The
election of any such holder shall become effective upon either written
notice from such holder to Tenant in the same fashion as notices from
Landlord to Tenant are to be given hereunder or by the recording in the
appropriate registry or recorder's office of an instrument in which
such holder subordinates its rights under such mortgage to this Lease.
8.16 Recognizing that both parties may find it necessary to establish to
third parties, such as accountants, banks, mortgagees or the like, the
then current status of performance hereunder, either party, on the
request of the other made from time to time, will promptly furnish to
Landlord, or the holder of any mortgage encumbering the Premises, or to
Tenant, as the case may be, a statement of the status of any matter
pertaining to this Lease, including, without limitation,
acknowledgments that (or the extent to which) each party is in
compliance with its obligations under the terms of this Lease. Any such
statement delivered by Landlord or Tenant pursuant to this Section 8.16
may be relied upon by any prospective purchaser or mortgagee of the
Premises or any prospective assignee of any mortgagee of the Premises.
8.17 (A) In the case of any Event of Default Landlord shall have the right,
but shall not be obligated, to enter upon the Premises and to perform
such obligation notwithstanding the fact that no specific provision for
such substituted performance by Landlord is made in this Lease with
respect to such default. In performing such obligation, Landlord may
make any payment of money or perform any other act. All sums so paid by
Landlord (together with interest at the rate of two and one-half
percentage points over the then prevailing prime rate in Boston as set
by The First National Bank of Boston) and all costs and expenses in
connection with the performance of any such act by Landlord, shall be
deemed to be additional rent under this Lease and shall be payable to
Landlord
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immediately on demand. Landlord may exercise the foregoing rights
without waiving any other of its rights or releasing Tenant from any of
its obligations under this Lease.
(B) In the event Landlord fails to make such repairs as are required of
Landlord under this Lease or to perform any other obligations of
Landlord hereunder within thirty (30) days after written notice from
Tenant to Landlord and to the holder of any mortgage on the Property of
which Tenant has been given written notice by Landlord specifying the
nature of such repairs or other obligations or if such repairs or other
obligations are of the type which cannot be made or performed within
such thirty (30) days, then if Landlord or the holder of any such
mortgage (at the option of such mortgagee) fails to (i) commence making
such repairs within thirty (30) days after such written notice from
Tenant and (ii) thereafter prosecute such repairs or other obligations
to completion with due diligence given the nature of such repairs or
other obligations, then thereafter at any time prior to Landlord's
commencing such repairs or other obligations, Tenant may, but need not,
make such repairs or perform such other obligations and may make a
demand on Landlord for payment of the reasonable out of pocket cost
thereof and Landlord shall pay the reasonable out of pocket cost
thereof; provided, however, if within thirty (30) days after receipt of
such demand, Landlord shall not have paid same, then Tenant shall have
the right to bring suit in a court of competent jurisdiction in the
Commonwealth of Massachusetts seeking payment of the sum so claimed in
Tenant's demand. If Tenant shall be successful in any such court action
then Landlord shall pay to Tenant Tenant's reasonable out of pocket
legal fees actually incurred in connection with such litigation.
However, in no event shall Tenant have the right to offset against,
withhold or deduct from Annual Fixed Rent, or any Additional Rent or
other charges payable under this Lease nor shall Landlord's failure to
pay Tenant's demand be a default of Landlord or give Tenant the right
to terminate this Lease, Tenant's right being to bring suit as
aforesaid.
8.18 Unless otherwise approved in writing by Landlord, any holding over by
Tenant after the expiration of the term of this Lease shall be treated
as a tenancy at sufferance at double the rents and other charges herein
(prorated on a daily basis) and shall otherwise be on the terms and
conditions set forth in this Lease, as far as applicable; provided,
however, that neither the foregoing nor any other term or provision of
this Lease shall be deemed to permit Tenant to retain possession of the
Premises or hold over in the Premises after the expiration or earlier
termination of the Lease Term.
8.19 Any insurance carried by either party with respect to the Premises or
property therein or occurrences thereon shall, if it can be so written
without additional premium or with an additional premium which the
other party agrees to pay, include a clause or endorsement denying to
the insurer rights of subrogation against the other party to the extent
rights have been waived by the insured prior to occurrence of injury or
loss. Each party, notwithstanding any provisions of this Lease to the
contrary, hereby waives any rights of
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recovery against the other for injury or loss due to hazards covered by
such insurance to the extent of the indemnification received
thereunder.
8.20 (A) Provided that at the time of exercise of the applicable option to
extend and at the commencement date of the applicable extension option
period (i) there exists no Event of Default (defined in Section 7.1)
and (ii) this Lease is still in full force and effect, Tenant shall
have the right to extend the Term hereof upon all the same terms,
conditions, covenants and agreements herein contained (except for the
Annual Fixed Rent which shall be adjusted for each option period as
hereinbelow set forth) for two (2) successive periods of five (5) years
each as hereinafter set forth. Each option period is sometimes herein
referred to as an "Extended Term".
(B)(i) If Tenant desires to exercise the then applicable option to
extend the Term, then Tenant shall give notice to Landlord, not earlier
than eighteen (18) months nor later than twelve (12) months prior to
the expiration of the then current Term of this Lease, of Tenant's
request for Landlord's quotation to Tenant of a proposed annual rent
for the applicable Extended Term. If at the expiration of thirty (30)
days after the date when Landlord receives Tenant's written request as
aforesaid (the "Negotiation Period"), Landlord and Tenant have not
reached agreement on a determination of an annual rental for the
applicable Extended Term and executed a written instrument extending
the Term of this Lease pursuant to such agreement, then Tenant shall
have the right, for thirty (30) days following the expiration of the
Negotiation Period, to make a request to Landlord for a broker
determination (the "Broker Determination") of the Prevailing Market
Rent (as defined in Exhibit D) for the applicable Extended Term, which
Broker Determination shall be made in the manner set forth in Exhibit
D.
(B)(ii) If Tenant timely shall have requested the Broker Determination,
then in order to exercise its right to extend the Term of this Lease
for the then applicable Extended Term, Tenant, within thirty (30) days
after receipt of the Broker Determination, shall give written notice to
Landlord of Tenant's exercise of its right to extend the Lease Term for
the then applicable Extended Term pursuant to this subsection
8.20(B)(ii), in which case the Annual Fixed Rent for the Extended Term
shall be ninety five percent (95%) of the Prevailing Market Rent as
determined by the Broker Determination. Upon the giving of notice by
Tenant within said thirty (30) day period as provided in this
subsection (B)(ii) then this Lease and Term hereof shall be extended
for an additional term of five (5) years upon all of the same terms,
conditions, covenants and agreements contained in this Lease except
that the Annual Fixed Rent for the applicable Extended Term shall be
the rent determined as described in this subparagraph.
(C) Upon the giving of notice by Tenant to Landlord exercising Tenant's
option to extend the Lease Term in accordance with the provisions of
either subsection B(i) or B(ii) above, then this Lease and the Lease
Term hereof shall be extended, for the applicable Extended
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Term, without the necessity for the execution of any additional
documents, except that Landlord and Tenant agree to enter into an
instrument in writing setting forth the Annual Fixed Rent for the
applicable Extended Term as determined in the relevant manner set forth
in this Section 8.20, and in such event all references herein to the
Lease Term or the term of this Lease shall be construed as referring to
the Lease Term, as so extended, unless the context clearly otherwise
requires, and except that there shall be no further option to extend
the Lease Term beyond the two (2), five (5) year extension options
provided for in this Section 8.20. Notwithstanding anything contained
in this Lease to the contrary, in no event shall the Lease Term hereof
be extended for more than ten (10) years after the expiration of the
Original Term hereof, nor shall Tenant have the right to exercise more
than one extension option at a time nor shall Tenant have the right to
exercise its second extension option unless it has duly and timely
exercised its first extension option and the conditions set forth in
Section 8.20(A) are satisfied and complied with. Landlord and Tenant
hereby covenant and agree that time is of the essence with respect to
the provisions of this Section 8.20.
8.21 Landlord has previously installed a sign on Crosby Drive identifying
tenants from time to time in the Complex. Landlord shall list
MediSense, Inc. at the top thereof. Tenant shall be permitted, at
Tenant's expense, to erect not more than two (2) signs containing
Tenant's name on the Buildings in a location first approved by
Landlord. Such sign shall be of a size and design mutually agreeable to
Landlord and Tenant. Further, at the expiration or earlier termination
of the Term of this Lease, as it may be extended, Tenant shall remove
the signage provided to Tenant hereunder, at Tenant's expense,
repairing any damage caused by such removal. Tenant's right to install
such sign(s) shall be subject to (i) the applicable provisions of the
Zoning By-Laws of the Town of Bedford and all other applicable laws,
by-laws, rules and regulations and Tenant obtaining all permits,
licenses and approvals therefor at Tenant's sole cost and expense
(collectively "Sign Permits") and (ii) Tenant acknowledges and agrees
that Tenant's right to corporate signage on the Site pursuant to this
Section 8.21 is not on an exclusive basis and that Landlord may grant
other tenants in the Complex the right to signage on the Site. The
failure or inability of Tenant to obtain any Sign Permits or to comply
with any of the matters listed in item (i) above shall not give Tenant
any right to terminate this Lease or any right to a reduction in Annual
Fixed Rent or any Additional Rent.
8.22 If Landlord shall not have received any payment or installment of rent
on or before the date (the "Due Date") on which the same first becomes
payable under this Lease, the amount of such payment or installment
shall bear interest from the Due Date through and including the date
such payment or installment is received by Landlord, at a rate equal to
the lesser of (i) the rate announced by The First National Bank of
Boston from time to time as its prime or base rate (or if such rate is
no longer available, a comparable rate reasonably selected by
Landlord), plus two percent (2%), or (ii) the maximum applicable
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legal rate, if any. Such interest shall be deemed additional rent and
shall be paid by Tenant to Landlord upon demand.
8.23 All terms used in this Lease, regardless of the number or gender in
which they are used, shall be deemed and construed to include any other
number, singular or plural, and by other gender, masculine, feminine,
or neuter, as the context or sense of this Lease or any section,
subsection, or clause herein may require as if such terms had been
fully and properly written in such number or gender.
This Lease supersedes all agreements previously made between the
parties relating to its subject matter. There are no other
understandings or agreements between them.
8.24 (A) Landlord warrants that as of February 29, 1996 the Premises and
appurtenances thereto are subject to and with the benefit of the title
matters set forth in Exhibit G attached hereto and that the other space
in the Complex is leased to tenants and subtenants as set forth in
Exhibit F attached hereto.
(B) Further, Landlord represents that, based on that certain map
entitled "Zoning Districts, town of Bedford, Massachusetts Prepared For
The Bedford Planning Board By The Bedford Department Of Public Works"
dated February 1995 and bearing the notation as amended through the
March 1991 Annual Town Meeting, the Site is located in an Industrial
Park (A) zoning district. Landlord makes no representation as to
whether or not the Site is located within any overlay district.
Attached hereto as Exhibit H is a copy of Sections 3 and 4 and Table 1
of the "Town of Bedford, Massachusetts Zoning By-Laws" as amended
through the Annual Town Meeting of 1995 (the "Zoning By-Law") which
sets forth, inter alia, the uses permitted in an Industrial Park (A)
zoning district.
(C) Landlord also represents that it has full power and authority to
execute this Lease.
8.25 This Lease shall be governed exclusively by the provisions hereof and
by the law of the Commonwealth of Massachusetts, as the same may from
time to time exist.
[Here ends this page]
- 58 -
<PAGE> 59
EXECUTED as a sealed instrument in two or more counterparts each of
which shall be deemed to be an original.
LANDLORD:
BEDFORD BUSINESS PARK LIMITED
PARTNERSHIP
BY: BBP, INC., ITS GENERAL
PARTNER
By /s/ Mortimer B. Zuckerman
---------------------------------
WITNESS: Name MORTIMER B. ZUCKERMAN
------------------------------
Title PRESIDENT AND TREASURER
-----------------------------
/s/ C.W. Probert HEREUNTO DULY AUTHORIZED
- ----------------------------------
TENANT:
MEDISENSE, INC.
By /s/ Robert L. Coleman
--------------------------------------
ATTEST: Name ROBERT L. COLEMAN
-----------------------------------
Title PRESIDENT AND
----------------------------------
CHIEF EXECUTIVE OFFICER
----------------------------------
By /s/ Cheryl K. Lawton HEREUNTO DULY AUTHORIZED
--------------------------------
Name CHERYL K. LAWTON
-----------------------------
Title ASSISTANT CLERK
----------------------------
(CORPORATE SEAL)
- 59 -
<PAGE> 60
EXHIBIT A
---------
DESCRIPTION OF SITE
Those certain parcels of land (with the buildings thereon) situated in Bedford,
Middlesex County, Massachusetts bounded and described as follows:
PARCELS 1 and 2
- ---------------
Two certain parcels of land situated in Bedford, Middlesex County,
Massachusetts, shown as Lot 1 and 2 on a plan entitled "Plan of Land in Bedford,
Mass." dated March 1, 1962 by Raymond C. Pressey, Inc., recorded with Middlesex
South District Deeds as Plan No. 487 of 1962 in Book 10022, Page 278, and
together bound and described as follows:
<TABLE>
<S> <C>
SOUTHWESTERLY by Crosby Road by three lines measuring respectively two hundred
eighty-three and 01/100 (283.01) feet, twenty-one and 27/100
(21.27) feet and four hundred eighty-three and 43/100 (483.43)
feet; thence
SOUTHERLY by said Crosby Road by a curved line, one hundred nineteen and
36/100 (119.36) feet; thence
SOUTHEASTERLY
SOUTHERLY and
SOUTHWESTERLY by said Crosby Road by several lines measuring respectively two
hundred ninety-three and 04/100 (293.04) feet, three hundred fifty-
three and 04/100 (353.04) feet and two hundred twenty and 97/100
(220.97) feet; thence
NORTHEASTERLY by the parcel marked "Reserved for Town of Bedford" on said
plan, sixteen hundred forty-six and 81/100 (1646.81) feet; and
thence
NORTHWESTERLY by land now or late of The Worcester Corp., by two lines
measuring respectively 305.23 feet and 294.24 feet and by land
now or late of Douglas by two lines measuring respectively 170.33
feet and 64.34 feet, to the place of beginning.
</TABLE>
For Title see Deed recorded with the Middlesex South District Registry of Deeds
in Book 12926, Page 233.
<PAGE> 61
PARCEL 3
- --------
A certain parcel of land situated in said Bedford, shown on a plan of
land in Bedford, Mass. Dated June 5, 1961 by Raymond C. Pressey, Inc.,
Registered Land Surveyors, recorded with Middlesex South District Registry of
Deeds at the end of Book 9844, bounded and described as follow:
<TABLE>
<S> <C>
SOUTHWESTERLY by Crosby Road, two hundred ninety-eight and 63/100 (298.63)
feet;
NORTHWESTERLY by land now or formerly of the Worcester Corporation, two
hundred nine and 95/100 (209.95) feet;
NORTHEASTERLY by land now or formerly of the Worcester Corporation, two
hundred fifty and 57/100 (250.57) feet; and
SOUTHEASTERLY by land now or formerly of Sinbad Realty Corporation by two lines
respectively measuring one hundred seventy and 33/100 (170.33)
feet and sixty-four and 34/100 (64.34) feet.
</TABLE>
Containing approximately 60,951 square feet of 1.4 acres according to said plan.
For Title see Deed from Cecil N. Douglas and Priscilla M. Douglas recorded with
the Middlesex South District Registry of Deeds in Book 13539, Page 732.
PARCEL 4
- --------
All right, title and interest in and to (i) that portion of Crosby Road
described in that certain Deed (a) recorded with the Middlesex South District
Registry of Deeds in Book 14013, Page 486 and (b) filed with the Middlesex South
Registry District of the Land Court as Document No. 599584 as to which
Certificate of Title No. 161163 in Registration Book 936, Page 13 was issued;
and (ii) such other applicable portions of Crosby Road abutting the westerly
boundaries of Parcels 1, 2 and 3.
Parcels 1, 2, 3 and 4 are subject to and together with the benefit of easements,
agreements restrictions, rights of way and takings of record at said Registry of
Deeds and Registry District if and to the extent in force and applicable.
<PAGE> 62
EXHIBIT A-1
SITE PLAN OF COMPLEX
[MAP]
<PAGE> 63
EXHIBIT B
BEDFORD BUSINESS PARK
LANDLORD'S WORK
A. NEW WINDOWS
1. Existing single glazed windows will be removed and replaced with
new dual thickness, insulating glass windows in dark bronze
aluminum frames in all openings similar to the mockup installed
on Floor 2 of Building A. (The existing insulating glass windows
on the north facade of Building C, Floor 2, will remain.)
2. On the first floor of Building A, five (5) new additional large
windows, 6'-10" x 7'-2", will be installed.
3. On the east (Crosby Drive) side of Floor 1 of Building A, twenty
(20) new 48" x 52" punched window units will be installed.
B. NEW MAIN ENTRANCE
A new building entrance vestibule will be constructed to Building A
which will include a handicap access ramp, new stairs, insulating glass
enclosed entrance vestibule with quarry tile floor, new ceiling and
lighting, and landscaping.
C. NEW ELEVATOR
A new two stop elevator will be installed in Building A in a location
mutually agreed upon by Boston Properties and MediSense to coordinate
with their layout and located generally adjacent to the entrance lobby
and MediSense reception area. The elevator will have a standard cab and
be manufactured by Dover, Beckwith, or equal.
D. TOILET ROOMS
1. On Building A, Floor 2, the existing toilet rooms will be removed
and a new toilet room constructed with four water closets and
three lavs in the women's room and two water closets, two urinals
and three lavs in the men's room. The new toilet rooms will have
thin set ceramic tile on the floors and wet walls, new toilet
partitions and accessories.
2. The existing toilets on Floor 1 of Building A and the toilets in
Buildings B and C will be repainted, including the toilet
partitions.
Page 1 of 4
<PAGE> 64
E. LANDSCAPING
1. New shrubs and plantings will be provided around the new entrance
to Building A.
2. Landlord will provide an allowance of $20,000 for trees to be
planted as a screen along the south side of Crosby Road. The
selection, size and location of the trees will be coordinated
with Tenant.
F. TENANT IMPROVEMENTS
The space will be finished to the following level of interior finish:
1. CEILINGS AND LIGHTING
BUILDING A
----------
FLOOR 1: New 2 x 2 lay-in ceiling with 2 x 2 low
brightness light fixtures for the reception
area and cafeteria. The remaining ceiling
and lighting will be the existing
installation.
FLOOR 2: New 2 x 2 lay-in ceiling with 2 x 2 low
brightness fixtures for the executive area
(approximately 4,500 SF) and new ceiling
and 2 x 4 acrylic lens fixtures for the
open office area.
BUILDING B
----------
FLOOR 1: Existing installation, i.e., no ceiling,
open to structure.
FLOOR 2: Existing ceiling and lighting where ceiling
exists today, and new 2 x 4 ceiling and
2 x 4 acrylic lens lighting in the areas
that currently have no ceiling.
BUILDING C
----------
FLOOR 1: Existing installation, i.e., no ceiling,
open to structure.
FLOOR 2: Existing ceiling and lighting.
Page 2 of 4
<PAGE> 65
3. HVAC:
BUILDING A
----------
EXISTING SYSTEM: There are eight (8) individual
Lennox multiple zone package rooftop units with a
hot deck and a cold deck. The units have a full
economizer cycle. Each unit has a hot water reheat
coil with glycol. The building is heated from hot
water supplied from the boiler in Building B. The
perimeter has baseboard hot water. The interior is
heated from the hot deck reheat coil. All controls
electric.
FLOOR 1: For reception area and cafeteria, modify
existing system and provide new zones,
distribution duct work and controls to meet
Tenant's program requirements. For balance
of floor, existing system.
FLOOR 2: Modify existing system and provide new
zones, distribution duct work and controls
to meet Tenant's program requirements.
BUILDING B
----------
EXISTING SYSTEM: There are 11 individual Trane DX
constant volume split systems. Each unit has a full
economizer cycle. There is a hot water reheat coil
in each unit for heat. The building is heated by one
oil-fired hot water boiler using No. 4 fuel oil.
Total: 4,185,000 BTU. The perimeter has hot water
baseboard.
FLOOR 1: Existing system.
FLOOR 2: Where new ceiling is installed, modify
existing system and provide new zones,
distribution duct work and controls to meet
Tenant's program requirements.
BUILDING C
----------
EXISTING SYSTEM: There are 12 individual Trane DX
constant volume air cooled split systems. Each unit
has a full economizer cycle. There is a hot water
reheat coil in each unit for heat. The heat is from
hot water from the boiler in Building D. The
perimeter
Page 3 of 4
<PAGE> 66
has baseboard hot water and the interior has reheat
at each unit. All controls electric.
FLOOR 1: Existing system.
FLOOR 2: In former Computervision computer room,
remove computer air conditioning units and
provide new zones, distribution duct work
and controls as needed.
4. FLOOR FINISHES:
BUILDING A
----------
FLOOR 1: Reception Area: 36 oz. cut pile nylon
carpet
Cafeteria: 26 oz. loop pile nylon
carpet
Balance of Floor: 1/8" VCT
FLOOR 2: Executive Area: 36 oz. cut pile nylon
carpet
Balance of Floor: 26 oz. loop pile nylon
carpet
BUILDING B
----------
FLOOR 1: 1/8" VCT
FLOOR 2: 26 oz. loop pile nylon carpet
BUILDING C
----------
FLOOR 1: 1/8" VCT
FLOOR 2: 26 oz. loop pile nylon carpet
Page 4 of 4
<PAGE> 67
EXHIBIT B-1
-----------
TENANT'S INITIAL EQUIPMENT, MACHINERY AND FIXTURES
--------------------------------------------------
Drive in bulk pallet racks
Pallet rack
Pallet flow racks
Conveyor belt
Compressors
Water coolers and filter systems
Ice machine
Oven
Coffee makers
Meat slicer
Yogurt machine
Main computer system
Telephone system
Fibre optics communications system
Main frame computer printers
Environmental chambers
Printed circuit board wash system
Printed circuit board dryers
Fume hoods
Custom epoxy top lab benches and cabinets
Print dryer
Dishwasher
Ice machine
Custom epoxy top sinks and cabinets
Lab benches
Custom emergency showers
Membrane coding machine
Deionized water filter systems
Custom work benches/manufacturing line
Custom screen printers
Neutralization tanks
Three-position stainless steel kitchen sink
One three-position hot well
Two four-position cold well
Humidifiers
Stainless sink and cabinet
Custom packaging systems
Industrial shredder
Industrial research ovens
Custom printers
Sanyo Air Conditioner Model CL2422
Sanyo Air Conditioner Model CH2422
Carrier RTU only Model 38CK060640
<PAGE> 68
EXHIBIT D
---------
BROKER DETERMINATION OF PREVAILING MARKET RENT
----------------------------------------------
Where in the Lease to which this Exhibit is attached provision is made
for a Broker Determination of Prevailing Market Rent, the following procedures
and requirements shall apply:
1. TENANT'S REQUEST. Tenant shall send a notice to Landlord by the time set
for such notice in the applicable section of the Lease, requesting a
Broker Determination of the Prevailing Market Rent, which notice to be
effective must (i) make explicit reference to the Lease and to the
specific section of the Lease pursuant to which said request is being
made, (ii) include the name of a broker selected by Tenant to act for
Tenant, which broker shall be affiliated with a major Boston commercial
real estate brokerage firm selected by Tenant and which broker shall have
at least ten (10) years experience dealing in properties of a nature and
type generally similar to the Buildings located in the Boston West
Suburban Market, and (iii) explicitly state that Landlord is required to
notify Tenant within thirty (30) days of an additional broker selected by
Landlord.
2. LANDLORD'S RESPONSE. Within thirty (30) days after Landlord's receipt of
Tenant's notice requesting the Broker Determination and stating the name
of the broker selected by Tenant, Landlord shall give written notice to
Tenant of Landlord's selection of a broker having at least the
affiliation and experience referred to above.
2A. FURTHER REGARDING REQUEST AND RESPONSE. Where in the Lease provision is
made whereby Landlord may request a Broker Determination AND where
Landlord in fact makes such a request, (a) all references in Paragraph 1
above to "Tenant" shall be changed to be "Landlord" and all references in
Paragraph 1 to "Landlord" shall be changed to "Tenant" and (b) all
references in Paragraph 2 to "Landlord" shall be changed to be "Tenant"
and all references in Paragraph 2 to "Tenant" shall be changed to
"Landlord".
3. SELECTION OF THIRD BROKER. Within ten (10) days thereafter the two (2)
brokers so selected shall select a third such broker also having at least
the affiliation and experience referred to above.
4. RENTAL VALUE DETERMINATION. Within thirty (30) days after the selection
of the third broker, the three (3) brokers so selected, by majority
opinion, shall make a determination of the annual fair market rental
value of the Premises for the period referred to in the Lease. Such
annual fair market rental value determination (x) may include provision
for
Exhibit D - Page 1 of 3
<PAGE> 69
annual increases in rent during said term if so determined, (y) shall
take into account the asis condition of the Premises or shall take into
account any tenant improvement allowance and (z) shall take account of,
and be expressed in relation to, the tax and operating cost provisions of
the Lease and provisions for paying electricity as contained in the
Lease. The brokers shall advise Landlord and Tenant in writing by the
expiration of said thirty (30) day period of the annual fair market
rental value which as so determined shall be referred to as the
Prevailing Market Rent.
5. RESOLUTION OF BROKER DEADLOCK. If the Brokers are unable to agree at
least by majority on a determination of annual fair market rental value,
then the brokers shall send a notice to Landlord and Tenant by the end of
the thirty (30) day period for making said determination setting forth
their individual determinations of annual fair market rental value, and
the highest such determination and the lowest such determination shall be
disregarded and the remaining determination shall be deemed to be the
determination of annual fair market rental value and shall be referred to
as the Prevailing Market Rent.
6. COSTS. Each party shall pay the costs and expenses of the broker selected
by it and each shall pay one half(1/2) of the costs and expenses of the
Third Broker.
7. FAILURE TO SELECT BROKER OR FAILURE OF BROKER TO SERVE. If Tenant shall
have requested a Broker Determination and Landlord shall not have
designated a broker within the time period provided therefor above, then
Tenant's Broker shall alone make the determination of Prevailing Market
Rent in writing to Landlord and Tenant within thirty (30) days after the
expiration of Landlord's right to designate a broker hereunder. If Tenant
and Landlord have both designated brokers but the two brokers so
designated do not, within a period of fifteen (15) days after the
appointment of the second broker, agree upon and designate the Third
Broker willing so to act, the Tenant, the Landlord or either broker
previously designated may request the Greater Boston Real Estate Board,
Inc. to designate the Third Broker willing so to act and a broker so
appointed shall, for all purposes, have the same standing and powers as
though he had been seasonably appointed by the brokers first appointed.
In case of the inability or refusal to serve of any person designated as
a broker, or in case any broker for any reason ceases to be such, a
broker to fill such vacancy shall be appointed by the Tenant, the
Landlord, the brokers first appointed or the said Greater Boston Real
Estate Board, Inc., as the case may be, whichever made the original
appointment, or if the person who made the original
Exhibit D - Page 2 of 3
<PAGE> 70
appointment fails to fill such vacancy, upon application of any broker
who continues to act or by the Landlord or Tenant such vacancy may be
filled by the said Greater Boston Real Estate Board, Inc. Any broker
appointed by the Greater Boston Real Estate Board, Inc., pursuant to the
provisions hereof shall, for all purposes, have the same standing and
powers as though originally appointed by the party originally designated
to make such appointment by the terms hereof.
Exhibit D - Page 3 of 3
<PAGE> 71
EXHIBIT E
---------
DECLARATION AFFIXING THE COMMENCEMENT DATE OF LEASE
---------------------------------------------------
THIS AGREEMENT made this ___ day of___ ,1996, by and between BEDFORD
BUSINESS PARK LIMITED PARTNERSHIP (hereinafter "Landlord") and MEDISENSE, INC.
(hereinafter "Tenant").
W I T N E S S E T H T H A T:
- - - - - - - - - - - - - -
1. This Agreement is made pursuant to Section 2.4 of that certain Lease
dated January __, 1996, between the parties aforenamed as Landlord and Tenant
(the "Lease").
2. It is hereby stipulated that the Lease Term commenced on __ _, 19_,
(being the "Commencement Date" under the Lease), and shall end and expire on __
__, 19_, unless sooner terminated or extended, as provided for in the Lease. It
is further stipulated that the "Rent Commencement Date" under the Lease is ____.
3. Tenant hereby acknowledges and agrees with Landlord that on the
Commencement Date the Premises complied with all of the requirements of Section
3.1 of the Lease and that the Landlord satisfied all of its obligations under
said Section 3.1.
WITNESS the execution hereof under seal by persons hereunto duly
authorized, the date first above written.
LANDLORD:
BEDFORD BUSINESS PARK LIMITED
WITNESS: PARTNERSHIP
BY: BBP, INC., ITS GENERAL PARTNER
- ----------------------------------
By
--------------------------------------
Name
------------------------------------
Title
-----------------------------------
<PAGE> 72
TENANT:
MEDISENSE, INC.
ATTEST:
By:
-------------------------------------
Name:
- ---------------------------------- -----------------------------------
Name: Title:
----------------------------- ----------------------------------
Title: HEREUNTO DULY AUTHORIZED
----------------------------
(CORPORATE SEAL)
STATE OF___________
COUNTY OF____________ __________ __, 1996
Then personally appeared before me the above-named __________________,
the __________________ of BBP, Inc., the general partner of Bedford Business
Park Limited Partnership, who acknowledged the foregoing instrument to be his
free act and deed and the free act and deed of BBP, Inc., as said general
partner.
_______________________________
NOTARY PUBLIC
My Commission Expires:
______________________
-2-
<PAGE> 73
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF ____________ __________ __, 1996
Then personally appeared before me the above-named __________________,
the __________________, of Medisense, Inc., and acknowledged the foregoing
instrument to be the free act and deed of Medisense, Inc.
_______________________________
NOTARY PUBLIC
My Commission Expires:
______________________
-3-
<PAGE> 74
EXHIBIT F
---------
SCHEDULE OF EXISTING LEASES
---------------------------
1. Lease dated August 31, 1974 between Space Realty Corp., a predecessor in
title to Landlord, as landlord, and Computervision Corporation, as
tenant, as amended by the following amendatory instruments: Amendment No.
1 dated May 31, 1977, Amendment No. 2 dated January 10, 1978, Amendment
No. 3 dated August 23, 1978, Amendment No. 4 dated October 16, 1978,
Amendment No. 5 dated October 16, 1978, Amendment No. 6 dated April 17,
1979, Amendment No. 7 dated November 12, 1979, Amendment No. 8 dated
November 12, 1979, Amendment No. 9 dated May 28, 1980, Amendment No. 10
dated April 18, 1980, Amendment No. 11 dated April 22, 1981, Amendment
No. 12 dated March 27, 1996 (collectively the "Computervision Lease").
2. Sublease dated as of August 16, 1995 as amended between Computervision
Corporation, as sublandlord, and Thinking Machines, Inc., as subtenant,
as affected by the provisions of that certain Consent, Recognition And
Attornment Agreement dated as of September 28, 1995 by and among Mortimer
B. Zuckerman, Trustee of Bedford Z Trust, as predecessor in title of
Landlord, as landlord, Computervision Corporation, as tenant and
sublandlord and Thinking Machines, Inc., as subtenant, including, without
limitation, any direct lease hereafter executed with the holder of the
subtenant's interest in said sublease pursuant to said Consent,
Recognition And Attornment Agreement.
3. Sublease dated as of October 31, 1995 between Computervision Corporation,
as sublandlord, and General Scanning (a/k/a General Scanning, inc.), as
subtenant as affected by the provisions of that certain Consent,
Recognition And Attornment Agreement dated as of November 14, 1995 by and
among Mortimer B. Zuckerman, Trustee of Bedford Z Trust, a predecessor in
title of Landlord, as landlord, Computervision Corporation, as tenant and
sublandlord, and General scanning, Inc., as subtenant (the "General
Scanning Consent, Recognition And Attornment Agreement") including,
without limitation, any direct lease hereafter executed with the holder
of the subtenant's interest in said sublease pursuant to said General
Scanning Consent, Recognition And Attornment Agreement.
4. Lease dated November 14, 1995, between Mortimer B. Zuckerman, Trustee of
Bedford Z Trust, as landlord, and General Scanning, Inc., as tenant, as
it may be amended pursuant to the General Scanning Consent, Recognition
And Attornment Agreement.
5. Lease dated May 18, 1995, between Mortimer B. Zuckerman, Trustee of
Bedford Z Trust, as landlord, and Enterprising Service Solutions
Corporation, as tenant.
6. Sublease Agreement dated March 11, 1994 between Computervision
Corporation, as subtenant, and Enterprising Service Solutions
Corporation, as sublessee, as affected by
<PAGE> 75
the provisions of that certain Consent to Sublease dated as of March 11,
1994 by and among Mortimer B. Zuckerman, Trustee of Bedford Z Trust, a
predecessor in title to Landlord, as landlord, Computervision
Corporation, as tenant, and Enterprising Service Solutions Corporation,
as subtenant.
7. Lease dated August 25, 1978 between Mortimer B. Zuckerman, Trustee of
Bedford Z Trust, as landlord, and General Signal Corporation (successor
to GCA Corporation), as tenant, as affected by the provisions of (i) that
certain Sublease dated as of August 15, 1988 between General Signal
Corporation, as sublessor and Iris Graphics, Inc., as sublessee, as
amended by Amendment to Sublease dated August 10, 1989 between sublessor
and sublessee and (ii) that certain Assignment and Amendment of Leases
and Termination of Sublease dated as of June 29, 1990 by and among
Landlord, as landlord, General Signal Technology Corporation (a unit of
General Signal Corporation), as GCA, and Iris Graphics, Inc., to Lease
dated as of March 2, 1995 between Landlord, as landlord, and Iris
Graphics. Inc., as tenant.
-2-
<PAGE> 76
EXHIBIT G
---------
TITLE MATTERS
1. The "Existing Leases" as set forth in Exhibit F attached to this Lease.
2. Provisions of Findings and Decisions of Bedford Board of Appeals in Favor
of Bedford Z Trust, made under date of June 15, 1978 all as set forth in
instrument recorded July 28, 1978 in Book 13501, Page 139.
3. Provisions, including conditions, so far as applicable all as set forth
in Findings and Decision of Bedford Board of Appeals, in Case No. 79-11,
recorded in Book 15648, Page 221.
4. Provisions of Findings and Decision of Bedford Board of Appeals, Case No.
79-20, respecting a curb cut, as set forth in instrument recorded in Book
13734, Page 601.
5. Order of Taking by the Commonwealth of Massachusetts Department of Public
Works dated January 29, 1952, recorded in Book 7861, Page 218. (Including
but not limited to Non-Access Provisions.) (Affects southwesterly
boundary only.)
6. Order by Taking by the Town of Bedford altering the layout of Crosby
Drive dated December 12, 1983, recorded with said Registry in Book 15361,
Page 327 and filed with the Middlesex South Registry District as Document
No. 652794.
7. Order of Taking by the Town of Bedford altering the layout of Crosby
Drive dated December 12, 1983 recorded in Book 15361, Page 337 and filed
as Document No. 652789.
8. Such matters as would be disclosed by a survey and inspection of the
Complex.
9. Rights of others in and to Crosby Drive and the Parcel 4 portion of the
Site.
10. Utility easements and rights granted to utility companies whether or not
of record and other easements and agreements of record.
<PAGE> 1
EXHIBIT 10.17
-----
SPECIAL TERMINATION AGREEMENT
-----------------------------
AGREEMENT made as of the 15th day of NOVEMBER, 1990, by and between MediSense,
Inc., a Massachusetts corporation (the "Company"), and GERALD J. BOJAS, an
individual presently employed by the Company (the "Employee").
1) PURPOSE. In consideration of the services rendered and to be rendered by
the Employee to the Company and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged by the
Company, the Company is willing to provide, subject to the terms of this
Agreement, certain severance benefits to protect the Executive from the
consequences of a Change in Control (as defined in Section 2 below)
which is followed by a Terminating Event (as defined in Section 3
below).
2) CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred upon any of the following events: (i) as the result of, or in
connection with, any tender or exchange offer, merger, reorganization,
consolidation or other business combination of the foregoing
transactions (x) the persons who were directors of the Company before
such transaction shall cease to constitute a majority of the Board of
Directors of the Company or of any successor entity, (y) the Company is
not the surviving corporation in the transaction, or (z) the
stockholders of the Company immediately prior to such transaction do not
hold immediately after such transaction a majority in the aggregate of
the outstanding shares of the surviving entity; (ii) the sale, transfer
or other disposition of all or substantially all of the assets of the
Company to another person or entity; (iii) when any "person" (as such
term is used in Sections 13(d) and 14(d) (2) of the Securities Exchange
Act of 1934, as amended (the "1934 Act")) becomes a "beneficial owner"
(as such term is defined in Rule 13d-3 promulgated under the 1934 Act),
directly or indirectly, of securities of the Company representing thirty
percent (30%) or more of the total number of votes that may be case for
the election of directors of the Company; or (iv) the signing of an
agreement, contract or other arrangement providing for any of the
transactions described above in this definition of Change in Control.
3) TERMINATING EVENT. A "Terminating Event" shall mean (a) termination by
the Company of the employment of the Employee with the Company for any
reason other than (i) death or permanent disability, (ii) deliberate
dishonesty of the Employee with respect to the Company or any subsidiary
or affiliate thereof, or (iii) conviction of the Employee of a crime
involving moral turpitude; or (b) the written resigna-
<PAGE> 2
tion of the Employee from the employ of the Company subsequent to the
occurrence of any of the following events:
(i) A reasonable determination by the Employee that there has been a
significant change in the nature or scope of the Employee's
responsibilities, authorities, powers, functions or duties from
the responsibilities, authorities, powers, functions or duties
exercised by the Employee immediately prior to the Change in
Control;
(ii) A reasonable determination by the Employee that, as a result of
or following a Change in Control, the Employee is unable to
exercise the responsibilities, authorities, powers, functions or
duties exercised by the Employee immediately prior to such Change
in Control; or
(iii) A decrease in the total annual compensation payable by the
Company to the Employee other than as a result of a decrease in
compensation payable to the Employee and to all other employees
of similar rank and stature of the Company on the basis of the
financial performance of the Company.
4) SEVERANCE PAYMENT. Subject to the provisions of Section 5 below, in the
event a Terminating Event occurs within one year after a Change in
Control, the Company shall pay, in one lump-sum payment on the date of
termination, to the Employee an equal to twice the amount of the
Employee's annualized base salary on the date immediately prior to the
date the Termination Event occurs.
5)a) LIMITATION ON BENEFITS. It is the intention of the Employee and of the
Company that no payments by the Company to or for the benefit of the
Employee under this Agreement or any other agreement between the
Employee and the Company shall be "parachute payments" within the
meaning of Section 280G(b) (1) (A) of the Internal Revenue Code of 1986,
as amended (the "Code"). Accordingly, and notwithstanding any other
provision of this Agreement, to the extent any payments provided for in
this Agreement or any other agreement or amendment thereto entered into
between the Company and the Employee constitute such "parachute
payments" within the meaning of such Section of the Code, the payments
due to the Employee pursuant to Paragraph 4 hereof shall be reduced (but
not below zero) to the minimum extent necessary to avoid the
characterization as "parachute payments" of any payments to Employee by
the Company under this Agreement or any other agreement between the
Company and the Employee; PROVIDED, HOWEVER, that if any payments
provided for in this Agreement or any such other agreement constitute
"parachute payments", to the extent that there is more than one method
of reducing the payments under these agreements to bring them within the
limitations of said Section 280G so there
<PAGE> 3
are not parachute payments, the Employee shall determine which method
shall be followed, provided that if the Employee fails to make such
determination within forth-five days after the Company has sent the
Employee written notice of the need for such reduction, the Company may
determine the method of such reduction in its sole discretion.
b) If any dispute between the Company and the Employee as to any of the
amounts to be determined under this Section 5, or the method of
calculating such amounts, cannot be resolved by the Company and the
Employee, either party, after giving three days written notice to the
other, may refer the dispute to a partner in the Boston office of a firm
of independent certified public accountants selected jointly by the
Company and the Employee. The determination by such partner as to the
amounts to be determined under Section 5(a) and the method of
calculating such amounts shall be final and binding on both the Company
and the Employee. The Company shall pay, as they are incurred, the costs
of any such determination.
6) EMPLOYMENT STATUS. This Agreement is not an agreement for the employment
of the Employee and shall confer no rights on the Employee except as
herein expressly provided.
7) TERM. This Agreement shall take effect on the date hereof and shall
terminate upon the earlier of (a) the termination by the Company of the
employment of the Employee because of death or permanent disability,
deliberate dishonesty of the Employee with respect to the Company or any
subsidiary or affiliate thereof, or conviction of the Employee of a
crime involving moral turpitude, (b) the resignation or termination of
the Employee for any reason prior to a Change in Control, or (c) the
resignation of the Employee after a Change in Control for any reason
other than the occurrence of any of the events enumerated in Section
3(b) (i)-(iii) of this Agreement.
8) WITHHOLDING. All payments made by the Company under this Agreement shall
be net of any tax or other amounts required to be withheld by the
Company under applicable law.
9) ARBITRATION OF DISPUTES; EMPLOYEE'S EXPENSES. Except as set forth in the
last sentence of this Section 9, any controversy or claim arising out of
or relating to this Agreement or the breach thereof shall be settled by
arbitration in accordance with the laws of the Commonwealth of
Massachusetts by three arbitrators, one of whom shall be appointed by
the Company, one by the Employee and the third by the first two
arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be
appointed by the American Arbitration Association in the City of Boston.
Such arbitration shall be conducted in the City of Boston in accordance
with
<PAGE> 4
the rules of the American Arbitration Association, except with respect
to the selection of arbitrators which shall be as provided in this
Section 9. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In the event that it
shall be necessary or desirable for the Employee to retain legal counsel
and/or incur other costs and expenses in connection with the enforcement
of any or all of the Employee's rights under this Agreement, the Company
shall pay, as they are incurred, the Employee's reasonable attorneys'
fees and disbursements and the Employee's other reasonable costs and
expenses in connection with the enforcement of said rights (including
the enforcement of any arbitration award in court) regardless of the
final outcome. This arbitration provision shall not be used for matters
of the type referred to in Section 5(b), except to settle the selection
of the accounting partner described in said Section in the event that
the Company and the Employee cannot agree on the selection.
10) ASSIGNMENT, SUCCESSORS AND ASSIGNS, ETC. Neither the Company nor the
Employee may make any assignment of this Agreement or any interest
herein, by operation of law or otherwise, without the prior written
consent of the other party. This Agreement shall inure to the benefit of
and be binding upon each of the Company and the Employee and their
respective successors, executors, administrators, heirs and permitted
assigns.
11) ENFORCEABILITY. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application
of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected
thereby, and each portion and provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by law.
12) WAIVER. No waiver of any provision hereof shall be effective unless made
in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or
the waiver by any party of any breach of this Agreement, shall not
prevent any subsequent enforcement of such term or obligation or be
deemed a waiver of any subsequent breach.
13) NOTICES. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and
delivered in person or sent by registered or certified mail, postage
prepaid, to the Employee at the last address the Employee has filed in
<PAGE> 5
writing with the Company or, in the case of the Company, at 128 Sidney
Street, Cambridge, MA 02139-4239, attention of the President.
14) ELECTION OF REMEDIES. An election by the Employee to resign after a
Change in Control pursuant to Clause (b) of Section 3 hereof shall not
constitute a breach by the Employee of any employment agreement between
the Company and the Employee a breach of any of the Employee's
obligations as an officer or employee of the Company. Nothing in this
Agreement shall be construed to limit the rights of the Employee under
any employment agreement or other agreement the Employee may then have
with the Company.
15) AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Employee and by a duly authorized
representative of the Company.
16) GOVERNING LAW. This is a Massachusetts contract and shall be
construed under and be governed in all respects by the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by
the Company and the Employee, as of the date first above written.
WITNESS:
/s/ Diane King /s/ G. J. Bojas
- --------------------------------- ----------------------------------------
G. J. Bojas
ATTEST: MEDISENSE, INC.
/s/ Geoffrey H. Jenkins BY: /s/ Ron Zwanziger
- --------------------------------- ------------------------------------
Geoffrey H. Jenkins Ron Zwanziger
Title: Officer Title: President
--------------------------- ---------------------------------
<PAGE> 1
EXHIBIT 10.18
-------------
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into this 2nd day of February 1995, and
effective as of October 6, 1993 (the "Effective Date") by and between
MediSense, Inc., a Massachusetts corporation with its principal place of
business at 266 Second Avenue, Waltham, 02154 (the "Company") and Donald
L. Pieper, a resident of 73 Arlington Street, Acton, MA 01720 (the "Employee" ).
In consideration of the mutual promises contained in this Agreement, the parties
agree as follows:
1. EMPLOYMENT, TITLE AND RESPONSIBILITIES
The Company hereby employs the Employee, and the Employee hereby accepts such
employment, as the Company's Corporate Vice President of Research and
Development, subject to the terms and conditions set forth herein.
Subject to the general direction and control of the Board of Directors,
President of the Company, and/or the Chief Operating Officer, the Employee
agrees to devote his full time and best efforts to his duties and
responsibilities for the Company. The Company shall from time to time assign to
the Employee such duties and responsibilities as are commensurate with his
title(s).
2. TERM
Subject to the provisions of this Agreement, the employment of the Employee by
the Company shall be for the period commencing on the Effective Date and
expiring twelve months thereafter (such date, as it may be extended from time to
time as set forth in this Agreement, is referred to herein as the "Expiration
Date"), provided, however, that the Expiration Date shall be extended
automatically for periods of one year, commencing on the first and each annual
anniversary of the Effective Date, unless either party gives written notice to
the other at least 90 (ninety) days prior to such anniversary date, of the
party's election not to extend the Expiration Date of this Agreement.
3. BASE COMPENSATION
During the term of this Agreement, the Employee shall be entitled to receive
base compensation at the rate of $172,500.00 per year, subject to increase if in
the sole judgment of the Board of Directors, the Employee merits an increase in
the base compensation.
4. BONUS
In addition to the base compensation described in Section 3, during the term of
this Agreement, the Employee shall be entitled in each year, to receive a cash
bonus of between 30 - 60 % of his base compensation based on the achievement of
specific goals to be established by the Employee and President and/or the Chief
Operating Officer within three months after the commencement of each year of the
Term.
In each year of this Agreement, the Employee and the President or Chief
Operating Officer shall set certain goals to be achieved and the corresponding
percentage of the base compensation to be paid upon satisfactory completion of
such goals, which shall be set forth in Exhibit A to this Agreement. In the
event of the termination of employment of the Employee for any reason other than
by the Employee pursuant to Section 2, or pursuant to Sections 10(c) or 10(d)
hereof, the Employee shall receive an amount equal to the bonus which would
otherwise be payable to the Employee in the year of termination, pro-rated for
the year in which termination occurs, provided that the goals reasonably
expected to have been achieved by the Employee prior to the date of termination
have been achieved, and further provided that the determination of whether such
goals shall have been achieved, shall be made in good faith by the President or
Chief Operating Officer of the Company. Notwithstanding anything to the contrary
herein, in the event the Employee's employment is terminated pursuant to Section
10(d) hereof, the Employee shall not be entitled to receive any portion of the
cash bonus referenced in this Section 4, related to the year of termination.
5. EMPLOYEE BENEFITS
The Employee shall have the right to participate in all benefits plans and
programs generally made available to executives of the Company, including
without limitation health, dental, life and disability insurance, vacation
programs, retirement plans and immediate eligibility for the participation in
the Company's Restricted Stock, Stock Purchase, Stock Option and 401 (k) Plans.
The Employee shall be entitled to a company car (Jeep), that has a cash
equivalent value of approximately $ 600.00 per month.
6. REIMBURSEMENT OF EXPENSES
The Company shall reimburse the Employee for all reasonable and necessary
expenses incurred by him in the performance of his duties hereunder, following
his appropriate substantiation thereof, in each case in accordance with the
Company's policies as in effect from time to time.
<PAGE> 2
7. STOCK OPTIONS
Under the Company's 1993 Stock Option Plan, (the "Stock Option Plan"), the
Company has granted to the Employee the stock options set forth on Exhibit B
(the "Options"), as further described in the certificates evidencing said
Options attached hereto as Exhibit B-1 ("the Certificate"). To the extent of any
inconsistencies between this Agreement and the terms and conditions set forth on
the Certificate, this Agreement shall govern.
(A) ACCELERATION OF VESTING
To the extent not already vested, and except as otherwise set forth
below, the vesting of the Options shall accelerate to permit immediate
exercise of the Options for up to 100% of the shares covered by the
Options, and up to 75% of the shares covered by any further option
grants by the Company to the Employee, upon occurrence of any of the
following events:
(I) Sufficiently (and in any case at least 20 days) prior to the
sale, transfer or assignment of all or substantially all of the
assets of the Company, so as to enable the Employee reasonably to
participate in the distribution of assets resulting from such
sale;
(II) Sufficiently (and in any case at least 20 days) prior to the
sale of a controlling interest in the Company (other than by
means of a registered public offering of the Company's stock
under the Securities Act of 1933, as amended (the "Securities
Act" )) so as to permit the Employee reasonably to exercise the
Options prior to the consummation of such sale; for the purposes
of this Section 7, the term "controlling interest' shall mean the
right, directly or indirectly, to control the election of a
majority of the members of the Board of Directors of the Company;
(III) Sufficiently (and in any case at least 20 days) prior to
the merger or consolidation of the Company with or into another
entity if the Company is not the surviving entity, whether
accomplished by means of a forward or reverse merger, so as to
permit the Employee to exercise the Options prior to such merger;
(IV) If reasonably possible, sufficiently prior to the
liquidation or dissolution of the Company so as to permit the
Employee to participate in the distribution to stockholders
resulting from such liquidation or dissolution.
(B) TERM: EXERCISABILITY.
Except as hereinafter set forth, the Options shall be outstanding for a
period of ten years
from the grant date of October 6, 1993. In the event of the termination
of the Employee for Cause (as hereinafter defined) pursuant to Section
I0(d), or in the event of the termination pursuant to Section 10(c) or
nonrenewal pursuant to Section 2, the Options shall remain outstanding
for a period equal to the lesser of (i) remaining exercise period of
the Option or (ii) 90 days after termination.
In the event of the death or Permanent Disability of the Employee (as
hereinafter defined), or in the event of the termination of employment
pursuant to Section 10(e), the Option shall remain outstanding for a
period equal to the lesser of (i) the remaining exercise period of the
Option or (ii) one (1) year after such death, Permanent Disability, or
termination Without Cause.
(C) CASHLESS EXERCISE.
The Company will cooperate with the Employee, and will use its best
efforts, including without limitation the amendment of the Stock Option
Plan if necessary, to permit, pursuant to applicable laws and
regulations, a cashless exercise of the Options if the Company has
theretofore had a registered offering of Common Stock pursuant to the
Securities Act. In addition, upon the occurrence of an event specified
in Section 7 (a)(i), (ii), (iii), or (iv), the Employee will be
permitted to exercise the Options concurrently with the closing of such
an event and to pay the Options exercise price out of proceeds of an
such an event which would be payable to the Employee as a result of
such event if he had held Common Stock of the Company immediately prior
to he consummation of such an event, provided that exercise of the
Options in such a manner is reasonably acceptable to the proposed
acquiror of the Company. If such manner of exercise is not reasonably
acceptable to the acquiror, the Company will use its best efforts to
make available to the Employee, either directly or from another source,
a loan or advance in an amount equal to the aggregate exercise price of
the Options, which loan or advance may, at the option of the Company
<PAGE> 3
or lender, be repayable out of proceeds received by the Employee as a
result of the acquisition event.
8. LIMITATIONS ON BENEFITS
(a) It is the intention of the Employee and the Company that no
payments by the Company to or for the benefit of the Employee under
this Agreement or any other agreement between the Employee and the
Company shall be "parachute payments" within the meaning of Section
28OG(b)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"). Accordingly, and notwithstanding any other provision of this
Agreement, to the extent any payments provided for in this Agreement or
any other agreement or amendment thereto entered into between the
Company and the Employee constitute such "parachute payments" within
the meaning of such Section of Code, the payments due to the Employee
pursuant to Section 10 hereof shall be reduced (but not below zero) to
the minimum extent necessary to avoid the characterization as
"parachute payments" of any payments to Employee by the Company under
this Agreement or any other agreement between the Company and the
Employee.
(b) If any dispute between the Company and the Employee as to any of
the amounts to be determined under this Section 8, or the method of
calculating such amounts, cannot be resolved by the Company and the
Employee, either party, after giving three days written notice to the
other, may refer the dispute to a partner in the Boston Office of a
firm of independent certified public accountants selected jointly by
the Company and the Employee. The determination by such partner as to
the amounts to be determined under Section 8(a) and the method of
calculating such amounts shall be final and binding on both the Company
and the Employee. The Company shall and the Employee shall share
equally, as they are incurred, the costs of any such determination.
9. CONFIDENTIALITY AND NON-DISCLOSURE; PROPRIETARY RIGHTS.
The Employee recognizes and agrees that the Company enjoys substantial
goodwill in its business, and the Employee further recognizes that, in the
performance of his duties and responsibilities pursuant hereto, he will
gain extensive, and valuable experience and knowledge in the business
conducted by, the Company, including extensive contacts and
acquaintanceships with customers and employees of the Company and that he
will have access to confidential information relating to its business,
operations and customers. The Company recognizes and agrees that the
Employee has extensive experience in the fields of medical device,
instrumentation and diagnostic products, including extensive contacts and
acquaintenceships with other executives, customers and prospects. The
Employee acknowledges that the Company's confidential information is within
the exclusive knowledge and possession of the Company, is not generally
available to the general public and is disclosed to the Employee in
confidence, that the Company's confidential information and its goodwill
have been established and maintained by the Company at substantial cost and
effort over many years and constitutes valuable assets of the Company, and
that the use or disclosure of such information or goodwill would cause
serious and irreparable injury and harm to the Company. Therefore, the
Employee and the Company covenant and agree as set forth in this Section 9.
(A) UNAUTHORIZED DISCLOSURE
The Employee shall not, without the prior consent of the Board of Directors
or a person duly authorized thereby, disclose to any person, other than an
employee or professional advisor of the Company, or its employee or
professional adviser of the Company, or its subsidiaries or other person to
whom disclosure is in the reasonable judgment of the Employee necessary or
appropriate in connection with the performance by the Employee of his
duties as an executive officer of the Company, any information obtained by
him while in the employ of the Company or its subsidiaries the disclosure
of which he knows or, in the exercise of reasonable care, should know may
be damaging to the Company or any of its subsidiaries or affiliates.
(B) PROPRIETARY RIGHTS
Any and all inventions, discoveries, developments, methods, processes.
compositions, works, concepts and ideas (whether or not copyrightable or
patentable) conceived, made, developed, created or reduced to practice by
the Employee (whether at the request or suggestion of the Company or
otherwise, whether alone or in conjunction with others and whether during
regular hours of work or otherwise) during the Term of his employment with
the Company and for a period of six months following the Date of
Termination (as defined below in Section 10), which may be directly or
indirectly useful in, or relate to, the business of the Company or any of
its subsidiaries or affiliates or any business (to the knowledge of the
Employee) contemplated by the Company while the Employee is employed by the
Company, shall be promptly and fully disclosed by the
<PAGE> 4
Employee to an appropriate executive officer of the Company and, unless
otherwise specifically agreed in writing, shall be the Company's exclusive
property, and the Employee shall promptly deliver to the Company all
papers, drawings, models, data, notebooks, computer disks/tapes, data, and
other material relating to the foregoing proprietary rights, conceived,
made, developed or created by him as aforesaid. The Employee shall, upon
the Company's request at the sole expense of the Company and without any
payment therefor, execute any documents necessary or advisable in the
opinion of the Company's counsel to assign his right, title and interest in
the foregoing rights and to direct issuance of copyrights or patents to the
Company with respect to such proprietary rights as are to be the Company's
exclusive property as against the Employee under this subsection (b) or to
vest in the Company title to such proprietary rights. The expense of
securing any such patent or copyright, however, is to be borne by the
Company.
(C) NON-COMPETITION
The Employee agrees that, during the Term of his employment hereunder and
for a period of twenty-four months following the Date of Termination (as
defined below in Section 10), he will not, directly or indirectly:
(I) engage, participate or invest in or assist as owner, partner,
shareholder, director, officer, trustee, employee, agent or
consultant, or in any other capacity, in any business
organization whose activities or products are competitive with
activities or products of the Company that are engaged in or
produced by the Company at the date hereof or that shall have
been engaged in or produced by the Company at any time that the
Employee shall have been employed by the Company or which may be
engaged in or produced during the term of the non-competition
period on the basis of any patent, patent applications, technical
information, trade secret or process or intellectual property
owned or used by the Company in respect of activities which were
reasonably contemplated or under discussion by the Company as of
the Date of Termination; and
(II) solicit any officer, director or employee of the Company to
leave his/her employment, nor call upon, solicit, divert or
attempt to solicit or divert from the Company any of its
customers of which he was aware during the term of his
relationship with the Company; provided, however, that nothing in
this Section 9(c) shall be deemed to prohibit the Employee from
making a strictly passive investment in less than 5% of the
common stock or other securities of a corporation competitive
with the business of the Company that is registered with the
Securities and Exchange Commission pursuant to the Securities and
Exchange Act of 1934, which securities are traded on a nation
exchange or in the over-the-counter market.
10. TERMINATION
In addition to any termination of this Agreement and the employment relationship
established herein pursuant to Section 1 of this Agreement, the Agreement and
that relationship may be terminated as set forth in this Section 10.
(A) DEATH
The Employee's employment hereunder shall terminate automatically upon his
death.
(B) PERMANENT DISABILITY
The Employee's employment hereunder may be terminated by the Company as a
result of his Permanent Disability, as determined solely by the Board of
Directors.
(C) TERMINATION BY THE EMPLOYEE
The Employee may terminate his employment hereunder upon 90 days prior
written notice to the Company.
(D) CAUSE
The Company may terminate the Employee's employment hereunder for Cause.
(E) WITHOUT CAUSE
The Company may terminate the Employee's employment hereunder without
Cause, upon
<PAGE> 5
thirty (30) days prior written notice. A termination by the Company
pursuant to section 2 of this Agreement shall be deemed to be a Non-Renewal
as it relates t this Section 10.
(F) CONTINUING OBLIGATIONS
Not withstanding anything to the contrary herein, the obligations of both
parties under Section 9 hereof shall survive the termination of this
Agreement.
(G) DATE OF TERMINATION
The Term, "Date of Termination" shall mean the earliest of
(i) the Expiration Date or
(ii) if the Employee's employment is terminated
(a) by his death, the date of death or
(b) as a result of his Permanent Disability, the date on which
notice of termination is given by the Company to the Employee, or
(c) for Cause pursuant to Section 10(d), or termination by the
Employee pursuant to Section 10(c), the date on which notice of
termination is given by the party terminating the employment
relationship. For all purposes of this Agreement, references to
the "Term" of the Employee's employment hereunder shall mean the
period commencing at the Effective Date and ending on the Date of
Termination.
(H) TERMINATION BENEFITS
In the event the employment of the Employee is terminated pursuant to
Section 10 (a), 10(b), and 10(e) of this Agreement, the Company shall, for
a period of twelve months subsequent to the Date of Termination, continue
to pay the Employee (or his estate or designated beneficiary, as the case
may be) his base salary, fringe benefits and pro rated bonus.
Except as provided in this Section 10(h), by applicable law or as to
payments accrued or incurred prior to the Date of Termination, the Employee
shall not otherwise be entitled to receive any salary, bonus, benefit or
other reimbursement hereunder after the Date of Termination other than
accrued or incurred prior thereto.
The end of the period during which termination benefits are paid pursuant
to this Section 10 (h), rather than the Date of Termination, will be deemed
to be a "qualifying event' which would entitle the Employee to acquire at
his own expense during the minimum election period permitted by the
Consolidated Omnibus Budget Reconciliation Act (commonly known as "COBRA")
or such other law as may then be in effect continuation of coverage under
the Company's health and benefit plans.
(I) OUTPLACEMENT SERVICES
In the event the Company does not renew the Employee's employment pursuant
to Section 2 hereof, of terminates the employment of the Employee pursuant
to Section 10 (b) or (e), Professional Executive Outplacement services will
be procured by the Company on behalf of the Employee for a period not to
exceed one year.
11. CERTAIN DEFINITIONS
For the purpose of this Agreement, the following terms shall have the meanings
indicated, as determined in the sole discretion of the Board of Directors or
CEO.
"Cause" means the Employee's (i) refusal , failure or neglect to perform and
discharge his material duties and responsibilities hereunder: (ii) material
breach of his fiduciary duties as an officer or member of the Board of Directors
of the Company or, any subsidiary or affiliate; (iii) gross misconduct that is
injurious to the Company; (iv) fraud, embezzlement or other act of dishonesty of
the Employee with respect to the Company, or any subsidiary or affiliate
thereof. (v) conviction of, or a plea of guilty or nolo contendere entered by
the Employee to, a felony; (vi) willful or prolonged absence from work by the
Employee (other than by reason of disability due to physical or mental illness);
or (vii) willful commission of acts or making of statements by the Employee
which reflect adversely, in making respects, upon the Company or its business,
customers or other employees.
"Permanent Disability" means a physical or mental condition of the Employee
which (a) renders the Employee unable to perform his duties and responsibilities
substantially on a full-time basis for a period of six months during the term of
this Agreement, or (b) causes the Employee to become eligible for long-term
disability benefits under the Company's long term disability insurance plan then
in effect or
<PAGE> 6
(c) causes a physician to certify that the Employee is permanently
incapacitated.
12. MISCELLANEOUS
(A) NOTICES
Any notice hereunder shall be effective if delivered personally, by
registered or certified mail, return receipt requested, by overnight or special
courier with a signed receipt, or by facsimile where confirmation of receipt may
be verified, at the addresses set forth in the preamble to this Agreement or to
any other properly noticed address given by the parties to each other.
(B) GOVERNING LAW
This Agreement shall be construed under and governed by the law of The
Commonwealth of Massachusetts.
(C) AMENDMENTS
This Agreement may not be modified or amended orally. All amendments
shall be in writing and signed by the Company and the Employee.
(D) ASSIGNMENTS
This Agreement may not be assigned by the Employee. This Agreement may
be assigned by the Company to any entity acquiring or succeeding to control of
ownership of the Company or substantially all of the assets of the Company. This
Agreement shall be binding upon and inure to the benefit of the parties and to
their permitted successors and assigns.
(E) ENTIRE AGREEMENT
This Agreement, together with the Exhibits attached hereto and the
documents referred to herein, constitutes entire understanding of the parties
with respect to its subject matter and supersedes any other agreements between
the parties with respect to such subject matter.
(F) SET-OFF
The Company may offset any claims which it may have against the
Employee against any amounts payable to the Employee hereunder.
Notwithstanding the foregoing, the right of the Employee to receive termination
benefits pursuant to Section 10 (h) shall not be offset against any compensation
to which the Employee may receive from sources other than the Company during the
severance period.
(G) ENFORCEABILITY
If any portion or provision of this Agreement shall to any extend be
declared illegal or unenforceable by a court or competent jurisdiction, then the
remainder of this Agreement, or the application of such portion or provision in
circumstances other than those as to which it is so declared illegal or
unenforceable, shall not be affected thereby, and each portion and provision of
this Agreement shall be valid and enforceable to the fullest extent permitted by
law.
(H) WAIVER
No waiver of any provision hereto shall be effective unless made in
writing and signed by the waiving party. The failure of any party to require the
performance of any term or obligation of this Agreement, or the waiver by any
party of any breach of this Agreement, shall not prevent subsequent enforcement
of such term or obligation or be deemed a waiver of any subsequent breach.
(I) NO CONFLICTS ; CONFLICTING AGREEMENTS
Each party hereby represents and warrants that the execution of this Agreement
and the performance of its obligations hereunder will not breach or be in
conflict with any other agreement to which it is a party or is bound, and that
it is not now subject to any covenants against competition or similar covenants
which would affect the performance of its obligations.
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the date and year MediSense, INC.
By:______________________________________
Robert L. Coleman, President, CEO
By:______________________________________
Donald L. Pieper
____________________________________
Notary Public - Loretta Gallo
My commission expires March 13, 1998
<PAGE> 1
EXHIBIT 11
<TABLE>
MEDISENSE, INC. AND SUBSIDIARIES
CALCULATION OF SHARES USED IN DETERMINING NET INCOME
AND PRO FORMA NET INCOME PER SHARE
FOR THE YEARS ENDED MARCH 31,
1996 1995 1994
<S> <C> <C> <C>
NET INCOME PER COMMON AND COMMON EQUIVALENT
SHARE:
Weighted average common stock outstanding during the period 16,628,000 14,097,000
Weighted average Class B common stock outstanding during the
period 897,000 1,003,000
Dilutive effect of common stock equivalents 1,173,000 1,140,000
Weighted average number of shares of common stock issued
pursuant to the initial public offering sufficient to generate
proceeds for the payment of $4.8 million convertible preferred
stock dividends paid upon the consummation of the initial public
offering - 109,000
---------- ----------
18,698,000 16,349,000
========== ==========
PRO FORMA NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:
Weighted average Class A common stock outstanding during the
period, assuming conversion to common stock 4,648,400
Weighted average Class B common stock outstanding during the
period 742,200
Weighted average convertible preferred stock outstanding during the
period, assuming conversion to common stock (1) 5,728,900
Dilutive effect of common stock equivalents issued prior to
March 31, 1993 43,200
Dilutive effect of common stock equivalents issued subsequent to
March 31, 1993 (2) 621,300
Number of shares of common stock to be issued pursuant to the
initial public offering, sufficient to generate proceeds for the
payment of $4.8 million of convertible preferred stock dividends
payable upon the consummation of the initial public offering 439,000
-----------
12,223,000
===========
SUPPLEMENTAL NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE:
Weighted average number of common and common equivalent
shares used to calculate pro forma net income per common and
common equivalent shares 12,223,000
-----------
Number of shares of common stock offered by the Company in the
initial public offering in excess of the number of shares issued to
fund the payment of $4.8 million of convertible preferred stock
dividends 3,461,000
-----------
15,684,000
===========
Interest expense during the period saved as a result of the assumed
reduction in the notes payable to stockholders $ 3,292,000
===========
<FN>
(1) Assumes Series D Convertible Preferred Stock is surrendered in conjunction
with the exercise of a warrant to acquire 206,000 shares of Class A Common
Stock and the subsequent conversion into 1,030,000 shares of common stock.
(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common and preferred stock, options and warrants issued at prices
below the initial public price of $12.00 per share (cheap stock) during the
12-month period immediately preceding the initial filing date of the
Company's Registration Statement for its initial public offering have been
included as outstanding for those periods. The dilutive effect of the
common and common share equivalents was computed in accordance with the
treasury stock method.
</TABLE>
F-26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1996 OF MEDISENSE, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED
IN FORM-10K FOR THE FISCAL YEAR ENDED MARCH 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 24,114
<SECURITIES> 26,984
<RECEIVABLES> 28,221
<ALLOWANCES> 1,091
<INVENTORY> 14,634
<CURRENT-ASSETS> 97,214
<PP&E> 38,901
<DEPRECIATION> 19,662
<TOTAL-ASSETS> 121,182
<CURRENT-LIABILITIES> 35,536
<BONDS> 0
<COMMON> 177
0
0
<OTHER-SE> 83,649
<TOTAL-LIABILITY-AND-EQUITY> 121,182
<SALES> 173,756
<TOTAL-REVENUES> 173,756
<CGS> 57,146
<TOTAL-COSTS> 57,146
<OTHER-EXPENSES> 82,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127
<INCOME-PRETAX> 35,371
<INCOME-TAX> 3,537
<INCOME-CONTINUING> 31,834
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,834
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.68
</TABLE>
