-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
LIYhagsRceIr5jwT7wapAJ0s7I807f4FVff0LZAljWzGtRr9klD3q1BivjYvFyz8
4vgoCOxR9dVq/zw7S+l3wA==
<SEC-DOCUMENT>0000927016-00-004463.txt : 20001225
<SEC-HEADER>0000927016-00-004463.hdr.sgml : 20001225
ACCESSION NUMBER: 0000927016-00-004463
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 12
CONFORMED PERIOD OF REPORT: 20000930
FILED AS OF DATE: 20001222
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: HOLOGIC INC
CENTRAL INDEX KEY: 0000859737
STANDARD INDUSTRIAL CLASSIFICATION: X-RAY APPARATUS & TUBES & RELATED IRRADIATION APPARATUS [3844]
IRS NUMBER: 042902449
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 000-18281
FILM NUMBER: 795053
BUSINESS ADDRESS:
STREET 1: 35 CROSBY DRIVE
CITY: BEDFORD
STATE: MA
ZIP: 01730
BUSINESS PHONE: 7819997300
MAIL ADDRESS:
STREET 1: 590 LINCOLN STREET
CITY: WALTHAM
STATE: MA
ZIP: 02154
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-K405
<TEXT>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: September 30, 2000
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 0-18281
-------
Hologic, Inc.
-------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 04-2902449
-------- ----------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
35 Crosby Drive, Bedford, Massachusetts 01730
----------------------------------------------
(Address of Principal Executive Offices, Including Zip Code)
(781) 999-7300
--------------
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant Common Stock, $.01 par value
to Section 12(g) of the Act: Rights to Purchase Common Stock
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 this
10-K. X
---
The aggregate market value of the registrant's Common Stock held by non-
affiliates of the registrant as of December 19, 2000 was $86,787,416 based on
the price of the last reported sale on the Nasdaq National Market System on that
date.
As of December 19, 2000 there were 15,428,874 shares of the registrant's Common
Stock, $.01 par value, outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the registrant's annual meeting of stockholders scheduled to
be held on March 6, 2001 (Part III: Items 10, 11, 12 and 13).
2
<PAGE>
Introductory Statement
We have made forward-looking statements in this document that are subject
to risks and uncertainties. Forward-looking statements include statements of
our plans, objectives, expectations and intentions. Also, when we use words
such as "may," "will," "should," "could," "would," "expects," "anticipates,"
"believes," "plans," "intends," "estimates," "is being" or "goal" or other
variations of these terms or comparable terminology, we are making forward-
looking statements. These statements, which include statements relating to the
timing and availability of products under development, our ability to market
such products once developed, the anticipated growth or expansion of the markets
for our products, expectations regarding our integration and plans for our
recently acquired businesses and other matters that are subject to risks and
uncertainties that could cause actual results to differ materially from those
anticipated. You should note that many factors could affect our future
financial results and could cause these results to differ materially from those
expressed in our forward-looking statements. These forward-looking statements
speak only as of the date of this report. We expressly disclaim any obligation
or undertaking to release publicly any updates or revisions to any forward-
looking statement contained in this report to reflect any change in our
expectations or any change in events, conditions or circumstances on which any
of our forward-looking statements are based. Factors that could cause or
contribute to differences in our future financial results include those
discussed in the risk factors set forth in Item 7 below as well as those
discussed elsewhere in this report.
3
<PAGE>
Part I
Item 1. Business
We are a leading developer, manufacturer and supplier of bone
densitometers, mammography and breast biopsy devices and direct-to-digital X-ray
systems. We also develop, manufacture and supply other X-ray based imaging
systems. These products are generally targeted to address women's healthcare
and general radiographic applications.
We develop, manufacture and market X-ray bone densitometers and ultrasound
bone analyzers that address the market for osteoporosis prevention and treatment
- -- a key element of women's healthcare. Our Quantitative Digital Radiography
(QDR) X-ray bone densitometers are used for the precise measurement of bone
density to assist in the diagnosis and monitoring of osteoporosis and other
metabolic bone diseases. Our systems are used by more leading medical schools,
universities and osteoporosis opinion leaders than any other bone densitometer.
Direct Radiography Corp., one of our wholly owned subsidiaries, provides
dose-efficient, high productivity direct-to-digital X-ray image capture systems
for the medical and nondestructive testing markets. The Direct Radiography
proprietary flat panel technology, DirectRay, converts X-ray energy directly
into electrical signals. This technology produces radiographic images in
seconds that can be electronically displayed, transferred and stored, including
in hospital Picture, Archive and Communication Systems, known as PACs. We offer
DirectRay digital technology as fully integrated radiographic systems, as an
image capture upgrade for X-ray equipment and as a digital component for
original equipment manufacturers to incorporate into their own products.
In September 2000, we significantly expanded our product breadth through
the acquisition of substantially all of the business and assets of the United
States operations of Trex Medical Corporation. The principal businesses acquired
included Trex Medical's Lorad mammography and breast biopsy operations, and its
general radiography operations. Trex Medical was a leading developer,
manufacturer and supplier of mammography and breast biopsy systems. These
systems incorporate patented technology that provides high quality contrast and
resolution. We plan to combine our DirectRay technology with our Lorad and
other Trex Medical imaging products to develop new digital X-ray technology
platforms.
FluoroScan Imaging Systems, Inc., another of our wholly owned subsidiaries,
develops, manufactures and sells low intensity, real time mini c-arm X-ray
imaging devices that address a trend towards minimally invasive surgery. These
systems provide surgeons with high-resolution images at radiation levels and at
a cost well below those of conventional X-ray and fluoroscopic equipment.
We were incorporated in Massachusetts in October 1985 and reincorporated in
Delaware in March 1990. Unless the context otherwise requires, references to
us, Hologic or our company refer to Hologic, Inc. and each of its consolidated
subsidiaries. We view our operations and manage our business in four principal
operating segments: bone assessment products, mini c-arm imaging products,
direct-to-digital imaging products, and mammography and general radiography
products. We have provided financial information concerning these segments in
Note 12 of the Notes to our Consolidated Financial Statements included in this
report.
The Hologic logo is one of our service marks. QDR, ACCLAIM, Sahara, EPEX,
RADEX and Lorad are our registered trademarks. QDR 4000, QDR 4500, QDR 4500A,
QDR 4500SL, QDR 4500W, QDR 4500C, Delphi, FluoroScan, Premier, OfficeMate,
FluoroScan Imaging Systems, DirectRay, DR1000C, Elite, MultiCare, HTC,
Automatic Internal Reference System, Instant Vertebral Assessment, and Direct
Radiography are other trademarks that we own. We license the trademark Profile
from Technix SpA.
4
<PAGE>
Bone Assessment Products
Overview
Osteoporosis is a condition characterized by reduced bone density that
leads to an increased risk of fractures. According to the National Osteoporosis
Foundation, approximately 28 million Americans, 80% of whom are women, and
approximately 250 million people worldwide, suffer from osteoporosis.
Osteoporosis typically develops silently over a period of years, eventually
progressing to a point where a fracture can easily occur, causing pain and
disability. The post-menopausal female population has the highest incidence of
osteoporosis and the highest rate of loss of quality of life and mortality due
to osteoporosis.
Pharmaceutical companies are investing considerable resources in the
development of new drug therapies to treat osteoporosis, and in marketing
initiatives designed to increase the awareness that osteoporosis is treatable.
As a result of the recent introduction of new therapies to treat and prevent
osteoporosis, industry sources report that the market for osteoporosis therapies
has grown to over $2 billion annually. Several of these new drugs have
demonstrated that they may be able to slow down or even reverse bone loss in
patients suffering from osteoporosis or at risk of suffering from the disease.
While osteoporosis is often thought to be an inevitable and untreatable
consequence of aging, we believe that the recent development and introduction of
new drug therapies, the aging of the population, and an increased focus on
women's health issues and preventive medical practices has created a growing
awareness among patients and physicians that osteoporosis is treatable.
In 1987 we introduced the first bone densitometer incorporating dual-energy
X-ray absorptiomety technology, referred to as DXA. The most advanced DXA
systems can be used to measure the bone density of the whole body, or any
specific site within the body, including the most important fracture sites of
the hip or spine. As a result of their precision and versatility, DXA systems
have become the predominant means of evaluating low bone density before
fractures occur and monitoring changes in a patient's bone density in response
to therapies.
In addition to low bone density, the presence of a spine fracture is an
important indicator of the risk of a future fracture. Numerous studies have
determined that patients with a single spine fracture have four to five times
the risk of future spine fracture and twice the risk of future hip fracture.
However, fractures of the spine are often difficult to diagnose in the course of
typical clinical evaluation, because the most prevalent fractures do not have
symptoms. As a result, it is estimated that only about one in four spine
fractures are recognized clinically. In November 1999, we introduced our Delphi
QDR series bone densitometers, which are capable of providing a combination of
bone mineral density assessment and spine fracture assessment. We believe that
these systems have improved the clinician's ability to accurately target therapy
to treat and prevent osteoporosis. In March 2000, we began commercial shipments
of Delphi.
The use of ultrasound for bone assessment has concentrated mainly on using
the heel as a measuring site. Clinical trials of ultrasound systems have
indicated a significant association of low ultrasonic bone measurements of the
heel and the risk of fracture. Major advantages of ultrasound examination are
the complete absence of radiation and the small size and low cost of the
equipment. Ultrasound devices do not use X-rays in making their measurements and
therefore do not require X-ray licensing or registered operators. However,
because ultrasound bone measurements currently are not as precise as X-ray and
other measurements, they are less reliable for continued monitoring of small
changes in bone density or for assessing the response to therapies. In addition,
they are generally limited to measurements at peripheral sites, not the more
important spine or hip fracture sites. Accordingly, we believe that ultrasound
systems are being used predominantly as a low cost initial screening or
diagnostic tool and not as a patient monitoring tool.
5
<PAGE>
Products
Our bone assessment products include a family of QDR X-ray bone
densitometers and the Sahara Clinical Bone Sonometer, an ultrasound device that
assesses the bone density of the heel.
QDR X-Ray Bone Densitometers. Since our first commercial shipment of a
DXA system in October 1987, we have sold more than 8,200 DXA systems. We believe
that advantages of our DXA systems include high precision, low patient radiation
exposure equivalent to 1/10th of a conventional chest X-ray, a relatively fast
scanning time, low operating cost, no radioactive source and the ability to
measure bone density of the most important fracture sites, the spine and hip.
Our studies and those of independent investigators have demonstrated that the
systems can detect a change in spine bone density with a precision error of less
than 1%.
All our DXA systems employ our patented Automatic Internal Reference
System, which continuously calibrates each patient's bone density measurement to
a known standard. This system virtually eliminates errors that might result from
manual calibration and saves operators the time-consuming task of calibrating
several times a day. The system automatically compensates for drift in the X-ray
system, detectors or other electronic components, which ensures long-term
measurement stability.
We have invested substantial resources in developing operating and
applications software for our systems. The software includes calibration
software, automated scan and analysis programs for each scan site, and a patient
data base manager that archives all raw data for later retrieval and analysis
and allows the operator to review the current image with an earlier image of the
same patient.
In November 1999, we introduced our Delphi QDR Series bone densitometer.
The Delphi offers physicians the ability to simultaneously assess two of the
strongest risk factors for osteoporotic fracture: existing fractures of the
spine and low bone density. Using high-resolution fan beam X-ray imaging
technology, Delphi provides instant vertebral assessment, permitting rapid
visual inspection of the spine in a clinical setting. The combination of bone
mineral density assessment and spine fracture assessment improves the
clinician's ability to accurately target therapy to those who can benefit most.
In March 2000, we began commercial shipments of Delphi.
In addition to instant vertebral assessment, our Delphi QDR series of bone
densitometers offers rapid scanning and high-resolution imaging using the latest
available fan beam and high density, solid-state multi-detector array
technology. These systems are built in modular configurations that allow
customers to add new features and capabilities, while protecting their
investment in the equipment and patient data. During fiscal 2000, two systems
from the Delphi series were available; the Delphi C and Delphi W. At the
November 2000 annual meeting of the Radiological Society of North America, we
introduced the more advanced Delphi SL and Delphi A systems.
We also continue to offer our customers four versions of the ACCLAIM
series: the QDR 4500A, the QDR 4500SL, the QDR 4500W and the QDR 4500C clinical
bone densitometer. As with the Delphi, these systems are built in modular
configurations that allow customers to add new features and capabilities. These
systems do not offer the instant vertebral assessment capability offered by the
Delphi systems.
An important feature of the Delphi A and SL and ACCLAIM A and SL systems is
their ability to perform lateral, side-to-side scans of the lower spine, without
turning the patient on her side, in addition to the back-to-front measurements.
The Delphi and ACCLAIM A and SL systems are capable of producing high quality
images of the spine, lateral spine, hip and other skeletal sites. The scan arm
allows for multiple scan views without patient repositioning. The images
produced can be combined with capabilities that enable the dimensions of the
spine to be determined with a radiation dose approximately ten to 100 times
lower than that of conventional chest X-rays. By using either of the A or SL
Delphi and ACCLAIM systems, high-quality lateral images of the entire spine can
be obtained in as little as ten seconds.
6
<PAGE>
Our QDR 4000 pencil beam bone densitometer combines the reliability and
economy of our DXA bone densitometers with a unique package of value-added
applications that provide physicians with bone density measurements of the hip,
spine and forearm. The QDR 4000 is targeted at the price-sensitive segment of
the market.
Ultrasound. We developed an enhanced dry ultrasound bone analyzer, called
Sahara, that assesses the bone density of the heel. At the time of our
introduction of this device, other ultrasound bone analyzers required the
patient to place her foot in water. The use of water requires cumbersome
plumbing and cleaning mechanisms to be incorporated in the system. We believe
that ultrasound systems represent a relatively low cost, compact, easy-to-use,
non-ionizing, measurement technique to assist in the initial diagnosis of
osteoporosis.
C-arm Imaging Products
Overview
We manufacture and distribute the FluoroScan Imaging System, a low
intensity, real-time mini c-arm X-ray imaging device which provides high
resolution images at radiation levels and at a cost well below those of
conventional X-ray and fluoroscopic equipment. These mini c-arm systems are used
primarily by orthopedic surgeons to perform minimally invasive surgical
procedures on a patient's extremities, such as the hand, wrist, knee, foot and
ankle. We have also begun to distribute the Profile, a 9 inch screen mobile
standard c-arm imaging system. Standard c-arm systems are used for orthopedic
care and surgical procedures, pain management and general surgical procedures.
We believe that trends in the healthcare industry could broaden the use of
mini c-arms from the hospitals and surgery centers to private orthopedic and
podiatric physician groups. Some of these trends include:
. the emergence of technology that enables minimally invasive procedures
and therapies;
. the increase in the number of office-based procedures and examinations
as a result of efforts to contain healthcare costs; and
. the development of new treatments and pharmaceuticals such as
synthetic bone materials that are facilitated by the use of a mini
c-arm to perform minimally invasive procedures.
We also believe that the demand for mobile c-arm imaging systems in
hospital settings could increase due to:
. advances in minimally invasive surgeries, particularly in vascular,
cardiac and neurology procedures;
. increase in outpatient imaging;
. advances in technology, particularly with image quality and image
archiving;
. advances in biotechnology, especially in hip and knee procedures;
. relative value of mobile c-arms compared to full radiology rooms;
. increasing population age with attendant orthopedic complications; and
. growth in pain management.
Products
Mini C-arm
Our offering of mini c-arm products includes the OfficeMate and the Premier
product lines. OfficeMate uses a ''night vision'' intensifier. The intensifier
allows the systems to produce high resolution readily viewable images by using a
small amount of radiation, converting it to visible light and amplifying it
approximately 50,000 times. The same night vision intensifier, as used by the
military, allows clear views of a battlefield at night by amplifying small
amounts of light. Advantages of these FluoroScan systems over conventional X-
ray imaging devices, such as c-arms, image intensifiers and fluoroscopy
equipment, include a substantial reduction of radiation to the patient and of
scatter radiation
7
<PAGE>
to the surgeon and other operating room personnel, a cost of approximately one-
third of the cost of a conventional c-arm, and mobility.
In combining our expertise developed using "night vision" technology and
dual-energy X-ray technology, we developed a new X-ray image intensifier that we
incorporated in our Premier mini c-arm product line. By coupling this
intensifier with other technical innovations, we have been able to significantly
improve our image quality.
Premier. We introduced the Premier mini c-arm system in August 1998. The
Premier's .085 mm focal spot X-ray tube, currently the smallest in the mini c-
arm industry, provides clear resolution and detailed images on a six-inch field
of view. The Premier's mini c-arm is designed to rotate 360 degrees easily.
The Premier also features:
. readily accessible surgeon-centered controls on the c-arm, which make
both assisted and unassisted operation much easier;
. a compact design;
. dual video channels that allow a surgeon to display different views of
the anatomy for side-by-side comparison;
. four image buffer memories for instant recall of previous images;
. permanent storage of up to 4,000 full resolution digital images; and
. built-in video and Ethernet connections that allow the user to output
images to a printer or workstation, send to or receive from remote
work stations, or record, review and archive images using existing
Windows NT or hospital Picture, Archive and Communication Systems,
known as PACS.
We believe that the combination of advanced technical features and ease-of-use
has made the Premier attractive to hospitals, surgery centers, orthopedic group
practices and private physician offices.
OfficeMate. We introduced the OfficeMate imaging system in fiscal 1997.
This system was designed specifically to meet the needs of the physician office.
The OfficeMate features efficient, user-friendly operation, high resolution
real-time and freeze frame images, full 360-degree arm rotation and the choice
of three or four inch field-of-view. Due to its compact size and portability,
we believe the OfficeMate is well suited for the in-office extremity imaging
requirements of hand and orthopedic surgeons.
Standard C-arm
In order to leverage our FluoroScan sales force and associated distribution
capability, we distribute Profile, a 9" mobile c-arm imaging system for complete
orthopedic, pain management and general surgery applications. This system is
manufactured by Technix SpA of Italy. We are the exclusive worldwide
distributor of Profile and our distribution agreement with Technix is renewable
in three years.
Direct-to-Digital Imaging Products
Overview
For nearly 100 years, conventional projection radiography has used film to
capture X-ray images. Conventional technology requires that X-ray film be
exposed and then chemically processed to create a visible image for diagnosis.
For over 60 of those years, the standard for medical imaging has been X-ray film
in combination with various intensifying screens because of the functional
utility and perceived high viewing quality of film-produced images. X-ray film
has performed the functions of capture, display, storage, and communication of
the image data.
Digital imaging technologies, such as computed tomography, known as CT,
ultrasound and nuclear medicine, gained acceptance in the 1970s as alternatives
to conventional X-ray film. In the 1980s, magnetic resonance imaging, known as
MRI, and other technologies furthered the trend toward digital imaging. Even
so, an estimated 65% of all X-ray diagnostic examinations are still performed
using X-ray film.
8
<PAGE>
Initial efforts to integrate conventional radiography into the digital
environment have resulted in less than optimal compromises. These compromises,
which include film digitizers, phosphor-based computed radiography systems and
the digital conversion of video outputs, use indirect conversion processes that
first convert X-ray energy into light and then light into electrical signals.
In addition to requiring work by technologists, we believe that the use of
indirect conversion processes degrades the image quality.
The recent emergence of direct-to-digital imaging technology that converts
X-rays directly into electronic digital signals has provided the means to
address the problems associated with the earlier digital techniques by avoiding
the intermediate conversion process. We believe that direct-to-digital
technology can allow rapid access to digital images while providing an image
quality which exceeds that of film-based X-ray systems as well as computed
radiographic and other systems that use an indirect conversion process.
We further believe that trends in the healthcare industry will increase the
demand for direct-to-digital technologies. These technologies address the trend
towards decentralization of healthcare, allowing diagnostic images to be
captured in an outpatient setting and delivered electronically for
interpretation throughout the provider's computer network. The capture of
diagnostic images in digital format should enable hospitals to share patient
data and allow radiologists to confer more easily regarding diagnoses. Patient
images can be transmitted electronically to any location without compromising
image quality. A direct-to-digital system can further enhance productivity by
eliminating costs associated with the handling and development of film. Direct-
to-digital technologies should also benefit from the increasing installation of
hospital Picture, Archive and Communication Systems, known as PACS, to store X-
ray images electronically and replace costly film archiving systems.
Products
In June 1999, we acquired Direct Radiography Corp. Direct Radiography
Corp, now a wholly owned subsidiary, has developed patented flat panel direct-
to-digital imaging technology, which we call DirectRay. This technology allows
X-ray processing to occur without the need for conventional X-ray film. With
this technology, direct-to-digital systems and products can produce radiographic
images in a matter of seconds and then electronically display, transfer and
store these images in a computer.
The DirectRay panel uses an X-ray semiconductor material, amorphous
selenium, to directly capture X-rays and convert them into electronic digital
signals. Unlike conventional film and indirect-conversion digital technologies,
these direct-to-digital detectors do not require the use of intensifying
screens, intermediate steps or additional processes to capture and convert the
incident X-ray energy. We believe this direct-to-digital conversion process
produces superior quality images when compared to other competitive technologies
such as computed radiography systems and conventional screen film systems.
All of our Direct Radiography products employ our patented DirectRay flat
panel technology. Employed similarly to a conventional X-ray film cassette, the
panel is paired with a controller that provides power and performs basic image
processing. The panel and controller are positioned under the examining table
and make use of a mechanical sleeve, referred to as a "bucky," that holds the
DirectRay panel in place.
We offer the DirectRay flat panel digital technology in several forms,
including fully integrated radiography systems, image capture upgrades to
existing X-ray equipment, and stand-alone components for OEMs to incorporate
into their own equipment.
Integrated Products. Our Direct Radiography integrated product line offers
high quality imaging, ease-of-use, a full range of motion for easy patient
positioning in multiple planes, and full DICOM compliance, which is the standard
protocol for communicating with a hospital's Picture, Archive and Communication
Systems, known as PACS.
9
<PAGE>
. EPEX and RADEX. We have developed two new integrated direct-to-digital
general radiography systems. The EPEX system is a high-end system that
permits a full range of general radiography examinations. The RADEX
system is a simpler general radiography system designed with need for
flexibility as required by outpatient departments. Commercial
shipments of the RADEX began in April 2000 and shipments of the EPEX
began in July 2000.
. DR1000C. The DR1000C is a dedicated chest radiography system. The
system is configured to provide a wide range of vertical motion,
allowing upright chest radiography of most patients, ranging from a
small child to a large adult.
. Inverse Topography. Inverse Topography, known as IT, is a software
application that we introduced at the annual meeting of the
Radiological Society of North America in November 2000. IT capitalizes
on the dynamic range of the digital detector and enables our direct
radiography products to optimize the appearance of soft tissue and
bone in one image display.
Digital Upgrade Products. Our Digital Upgrade products offer customers a
cost-effective way to convert existing conventional film-based X-ray equipment
to DirectRay technology. This customized offering includes a replacement bucky
assembly specifically designed for the DirectRay detector, and related control
equipment. This product is installed in place of the existing bucky mechanism
in the examination table, enabling the conversion to a direct-to-digital system.
This upgrade opportunity will vary depending on the different specifications on
the wide variety of X-ray systems installed worldwide. This upgrade is
currently available for some of General Electric's conventional X-ray systems.
We expect to continue to introduce additional upgrade products for some of the
more widely used conventional products during fiscal 2001.
OEM Products. We offer our DirectRay panel for sale to OEMs that desire to
incorporate direct-to-digital technology into their product offerings. Our
current OEM customers include Agfa, Analogic (a supplier to Eastman Kodak) and
E-Com Technology.
We have pursued and continue to pursue agreements to expand our direct-to-
digital market. In September 1999 we entered into an OEM agreement with E-Com
Technology LTD of Zhuhai, China, to sell our DirectRay detectors. In October
1999 we entered into a long-term sales agreement with Agfa Corporation. The
agreement gives Agfa exclusive worldwide selling rights to DirectRay X-ray image
capture detectors for the nondestructive testing market. Agfa has advised us
that it plans to sell the DirectRay detectors in a broad range of nondestructive
testing applications where image quality and throughput are critical. Eastman
Kodak has purchased systems incorporating our amorphous selenium flat panel
detectors for use in new products. DirectRay is the only commercially available
amorphous selenium detector. Eastman Kodak stated that it selected amorphous
selenium technology because it delivers the highest standard of digital
radiography image quality, and because this technology alone among current
digital radiography technologies has the potential for use across the full range
of clinical applications in the future. These developments reinforce our belief
that direct-to-digital imaging is a state-of-the-art technology that has the
potential to be a leading digital imaging product in radiology if the X-ray
market transitions from film-based to full digital imaging in both medical and
non-medical markets.
Mammography and Other Breast Cancer Detection Products
Acquisition of Lorad Division
On September 15, 2000, we significantly expanded our product breadth
through the acquisition of substantially all of the business and assets of the
United States operations of Trex Medical Corporation. The assets acquired from
Trex Medical include Trex Medical's mammography and minimally invasive breast
biopsy systems used to detect breast cancer. These product lines have been
included in our newly formed Lorad division. As a result of this acquisition,
our Lorad division is now a leading developer, manufacturer and supplier of
mammography systems.
10
<PAGE>
Overview
According to the American Cancer Society, breast cancer is the most common
cancer among women. Breast cancer is the second leading cause of death in
women, exceeded only by lung cancer. In recent years, the death rate from
breast cancer has declined, particularly among young women. This is primarily
attributed to earlier detection and the availability of better treatments to
treat the disease.
Mammography X-ray systems are used to take X-ray images of the breast,
primarily for detection and monitoring of breast cancer and breast cancer
therapies. According to an industry analyst, the worldwide mammography X-ray
equipment market was approximately $272 million in 1999 and is expected to grow
to over $300 million in 2000 and over $500 million by 2003. The anticipated
growth of this market is attributed to an aging population, increased awareness
of the benefits of regular testing, regular testing beginning at an earlier age
than in the past including public health initiatives worldwide to encourage
earlier and more frequent mammography screenings, and conversion of conventional
X-ray systems to more expensive digital systems.
Products
Our Lorad division offers a broad product line of breast imaging products,
including a range of mammography systems and breast biopsy systems. We offer
the high-end mammography system, the Lorad M-IV and the mid-tier system, the
Lorad Elite. The Lorad M-IV and the Lorad Elite can be configured with our
patented high transmission cellular, HTC, grid imaging system. This imaging
system has been shown to provide improved imaging as compared to other
conventional X-ray systems through its ability to increase the transmission of
primary X-ray while reducing X-ray scatter.
We also offer three minimally invasive breast-biopsy systems. These
systems provide an alternative to open surgical biopsy, which is generally
performed under general anesthesia. Minimally invasive biopsies are most often
performed on an outpatient basis under local anesthesia and are less expensive
than open surgery. We provide clinicians with the flexibility of choosing from
either upright or prone systems for breast biopsy. We offer two upright
systems, which are used in conjunction with our mammography systems. In
addition, for physicians that perform a significant number of biopsies, we sell
a dedicated, prone biopsy system called the Lorad MultiCare breast biopsy
system. The following is a more detailed description of the products sold by
our Lorad Division.
Mammography Systems
. Lorad M-IV. The Lorad M-IV was introduced in 1996 and has an installed
base in excess of 2,400 units. Features of the Lorad M-IV include a
bi-angular X-ray tube, dual filter capability, auto filter mode,
three-cell AEC sensor and high image quality. Image quality can be
further improved through an HTC Imaging Systems option. Other features
of the Lorad M-IV include improved patient management though
streamlined patient scheduling, integrated auto film identification,
optional bar code reader, and connectivity through a radiology
information systems interface. The Lorad M-IV has also been designed
to be upgradable to our full field digital mammography system,
currently under development.
. Lorad Elite. The Lorad Elite was introduced in June 1998. The Lorad
Elite is designed to combine quality with value. The product provides
high image quality through bi-angular X-ray tube technology and the
use of our HTC system. The unit offers high reliability, high
throughput, cost-effective ownership and upgradabilty. In combination
with the Lorad SerioLoc II, the Lorad Elite provides both diagnostic
and therapeutic capabilities.
11
<PAGE>
Breast-Biopsy Systems.
The minimally invasive breast-biopsy systems that we acquired from Trex
Medical provide an alternative to open surgical biopsy, which is generally
performed under general anesthesia. Minimally invasive biopsies are typically
done on an outpatient basis under local anesthesia and are less expensive than
open surgery.
We offer two upright systems, which are used in conjunction with our
mammography systems. In addition, for physicians that perform a significant
number of biopsies, we offer a dedicated, prone biopsy system called the Lorad
MultiCare Breast Biopsy System (formerly called the StereoGuide). This system is
used with Trex Medical's digital "spot" mammography system, which enables a
doctor to position the sampling device at the site of the suspicious lesion.
When performing a biopsy with any Trex Medical system, a doctor has a choice of
tissue-sampling devices, which are not manufactured by us.
. Lorad MultiCare breast biopsy system. The Lorad MultiCare breast
biopsy system was introduced in 1992. The system provides a unique
360-degree access, intended to allow the shortest path to the lesion
as well as direct access to interior lesions. The system also allows
access to auxiliary breast tissue through its contoured table. Other
features of this system include an accurate Cartesian coordinate
system to allow precise targeting in three independent planes and easy
access to lesions including chest wall and auxiliary regions, a
convenient SmartWindow providing tableside display of real-time
target/needle position, as well as the ability to accept a wide
assortment of biopsy instruments and accessories.
Products Under Development
Prior to the acquisition, Trex Medical had developed an indirect digital
mammography product. We are in the final stages of collecting the necessary
data needed to file a premarket approval application with the Food and Drug
Administration. We anticipate filing this application in the second quarter of
fiscal 2001. In addition to developing product enhancements, we are developing a
digital mammography flat panel detector and digital mammography systems
incorporating this detector. This mammography plate is being designed to
provide higher resolution, to be smaller in size and to have a thinner bucky
design than our standard digital detector.
Conventional Radiography Products
General-Purpose X-Ray
In September 2000, we also acquired Trex Medical's conventional X-ray
equipment business. We expect to integrate these X-ray systems into our current
product line. These X-ray systems include:
. Basic X-ray systems that are generally used in outpatient facilities
as well as more sophisticated and expensive X-ray systems typically
used in hospitals and clinics. For example, the Trex Medical ER system
is designed to meet the heavy-duty demands of a hospital emergency
room, while the Trex General Radiographic System is appropriate for
any setting.
. Digital radiographic/fluoroscopic (R/F) systems, such as the Trex
2200I, which provides real-time image capture. R/F systems are often
used for diagnostic gastrointestinal procedures to image the progress
of a radiopaque solution (typically barium) as it travels through the
digestive tract.
Products Under Development
Projects related to the Radiography and R/F division included the
next-generation R/F 3000i, second-generation mobile X-ray system, and the
TouchView user-interface and System HUB research and development efforts.
12
<PAGE>
Marketing and Sales
Systems
Domestic Market. In the United States, we sell our bone densitometer,
ultrasound bone analyzer, and direct-to-digital imaging systems to hospitals,
hospital radiology departments, and radiology clinics primarily through our
direct sales force. We sell the mammography and minimally invasive breast biopsy
systems, the c-arm imaging systems and other X-ray systems in the United States
through a network of independent dealers as well as our direct sales force. In
the United States, our direct sales force is comprised of over 30 individuals,
all of whom have considerable expertise in selling in the radiology market.
The dynamics of selling to hospitals, imaging clinics and private practices
has changed in recent years. Large purchasing entities, such as managed care
organizations, are becoming more commonplace and customers are seeking to
consolidate supply partners in an effort to minimize time spent on purchasing
imaging equipment. A new important component of our sales infrastructure is our
five national account sales representatives, who focus on securing purchasing
contracts with the large organizations. Recent contract awards include a two-
year imaging contract with Consorta, Catholic Resource Partners, a purchasing
contract with the U.S. Department of Veterans Affairs, a sole source, multi-year
agreement with Novation, the supply company of VHA, Inc. and the University
Health System Consortium, and renewal of our purchasing agreement with AmeriNet.
The Consorta agreement relates the purchase of our general radiographic and
Lorad mammographic product lines. The award from the U.S. Department of Veterans
Affairs relates to our providing direct-to-digital radiographic systems and
related equipment for VA medical centers and other government healthcare
facilities. The Novation and AmeriNet agreements relate to the purchase of our
bone densitometry systems.
International Markets. We sell our systems in international markets
through independent distributors, as well as a direct sales force in France, the
Benelux countries, Spain and Portugal. In a number of other territories
outside the United States, we sell our systems through independent distributors,
all of whom offer technical support. We offer our DXA systems into Latin
America, including Argentina, Brazil and Chile, and into Pacific Rim countries,
including Japan, Australia, The Peoples Republic of China, South Korea and
Taiwan, by working with local sales representatives and distributors or entering
into strategic marketing alliances in those territories. In fiscal 1998, 1999
and 2000, foreign sales accounted for approximately 28%, 37% and 33% of our
product sales, respectively. See Note 12 of Notes to Consolidated Financial
Statements for geographical information concerning those sales.
OEM and Upgrade Markets for Direct Radiography Products
Our sales to OEMs are coordinated by our OEM sales manager, who oversees a
team of individuals from sales, marketing, engineering, operations and senior
management, as well as our distributors. Our current OEM customers include Agfa,
Analogic (a supplier to Eastman Kodak) and E-Com Technology. In the United
States, we market our upgrade systems primarily through independent
distributors.
Competition
The healthcare industry in general, and the market for imaging and bone
assessment products in particular, is highly competitive and characterized by
continual change and improvement in technology, and multiple technologies that
have been or are under development. Many of the companies in this industry,
including General Electric, Siemens, Philips and Toshiba, have significantly
greater manufacturing, marketing and financial resources than we do.
Competitors may develop superior products or products of similar quality for
sale at the same or lower prices. Moreover, our products could be rendered
obsolete by new industry standards or changing technology. We cannot assure
that we will be able to compete successfully with existing or new competitors.
General Electric, Norland Medical Systems, Aloka, Diagnostic Medical
Systems and Hitachi have developed DXA systems to measure bone density of the
hip and spine. In addition, General Electric, Norland Medical Systems, and OSI
Systems have peripheral X-ray systems that compete with our DXA and ultrasound
bone densitometry products, primarily on price. We believe that competition in
the field of DXA bone densitometry is based upon product versatility and
features, price, precision, speed of measurement, reputation, cost and ease of
operation, product reliability and quality of service. While we are generally
not the lowest cost provider of DXA systems, we believe that we have been able
to compete effectively because of our advanced technology and product features.
13
<PAGE>
In ultrasound, we compete with General Electric, Myriad, McCue and OSI
Systems and expect additional competitors in the future based upon the greater
availability of ultrasound technology. We believe that competition in the field
of ultrasound systems is based on price, precision, speed of measurement, cost
and ease of operation, reputation, product reliability and quality of service.
We believe that advantages of our Sahara ultrasound bone analyzer system include
the system's dry operation, simple single-button operation, and a compact and
self-contained design that does not require the use of a separate computer. We
believe that ultrasound systems also compete with DXA systems in the diagnostic
market for initial screening of patients. However, we believe that because
ultrasound systems can only measure peripheral skeletal sites and do not have
the precision of DXA systems, DXA systems will continue to be the predominant
means of monitoring bone density for patients being treated for or at high risk
of osteoporosis.
Our direct-to-digital imaging products compete with traditional X-ray
systems as well as indirect-conversion systems such as computed radiography
systems, which are less expensive than our products, and other direct-to-digital
systems. Many of these competitors have established relationships with
hospitals and other of our potential customers in our targeted markets. The
larger competitors in these markets include General Electric, Siemens, Philips,
Canon and Varian. We have only recently introduced our direct-to-digital imaging
products, and have had only limited sales of these products, primarily for test
purposes. As a result, the markets for these products are unproven. There is a
significant installed base of conventional X-ray imaging products in hospitals
and radiological practices. The use of our direct-to digital X-ray imaging
products would require these potential customers to either modify or replace
their existing X-ray imaging equipment. Because of the early stage of the
markets for these products, it is likely that our evaluation of the potential
markets for these products will materially vary with time. We cannot assure
that any significant market will develop for our direct-to-digital imaging
products.
Our mammography and general radiography systems compete with products
offered by a number of competitors, including large companies such as General
Electric, Siemens, Philips and Toshiba. Our minimally invasive breast biopsy
systems compete with products offered by General Electric, Philips and Fischer
Imaging Corporation and with conventional surgical biopsy procedures. We believe
that competition for our mammography and general radiography products is based
largely on product features, product performance and reputation as well as price
and service. We believe that competition is likely to increase as a result of
healthcare cost-containment pressures and the development of alternative
diagnostic and interventional technologies. In addition, because of the
significant number of competitors, variety of alternative procedures and our
recent entry into these markets through our acquisition of the U.S. assets of
Trex Medical, we cannot assure that we will be able to compete in these markets
effectively.
Our mini c-arm products compete directly with mini c-arms manufactured and
sold by a limited number of companies including General Electric and XiTec. We
also compete with manufacturers of conventional c-arm image intensifiers
including Philips, Siemens, General Electric, Fischer Imaging Corporation and
Picker International. We believe that competition for our c-arm systems is based
largely on price, quality, reputation, service and production capabilities. We
believe that advantages of our c-arm systems include low levels of radiation,
low costs, mobility, quality and durability.
Manufacturing
We manufacture our DXA and ultrasound systems at our headquarters facility
in Bedford, Massachusetts. We manufacture the mammography and minimally invasive
breast-biopsy systems and the general radiography X-ray systems that we acquired
from Trex Medical at the Trex Medical manufacturing facilities in Danbury,
Connecticut and Littleton, Massachusetts. Manufacturing operations for these
systems consist primarily of assembly, test, burn-in and quality control. We
purchase a major portion of the parts and peripheral components for these
products, and manufacture some subsystems, such as high-voltage X-ray power
supply, from raw materials. Parts and materials for these systems are generally
readily available from several supply sources. However, we rely on one supplier
for the HTC grid, an important component for our more advanced mammography
systems, for our mammography systems.
14
<PAGE>
We manufacture our direct radiography plates at our manufacturing facility
in Newark, Delaware and our EPEX and RADEX systems at our facility in Bedford,
Massachusetts. Our manufacture of DirectRay plates consists primarily of vapor
deposition in clean rooms, assembly, test, burn-in and quality control. We rely
on one or only a limited number of suppliers for key components or subassemblies
for our plates. In particular we have only one source of supply for our panel
and only one source of supply for the coating of that panel.
Our manufacture of the rest of a DirectRay system differs from the process
for manufacture of the plate, and consists primarily of assembly, test, burn-in
and quality control. Parts and materials for these systems are generally
readily available from several supply sources.
We manufacture our mini c-arm systems at our manufacturing facility in
Northbrook, Illinois. Manufacturing operations for our mini c-arms consist
primarily of final assembly, test and quality control. All of the materials and
most of the purchased components used in manufacturing these products are
readily available from numerous sources. However, several key components require
high technology including the X-ray tube, image intensifier, video camera and
fiberoptic taper are manufactured by only one or a small number of suppliers.
Obtaining alternative sources of supply of components or systems that are
available from only one or a limited number of suppliers could involve
significant delays and other costs, and these supplies may not be available to
us on reasonable terms, if at all.
Backlog
Our backlog as of November 30, 2000 totaled $39.5 million and as of
November 30, 1999 totaled $10.7 million. Backlog consists of purchase orders
for which a delivery schedule within the next twelve months has been specified
by the customer. Orders included in backlog may be canceled or rescheduled by
customers without significant penalty. Backlog as of any particular date should
not be relied upon as indicative of our net revenues for any future period.
Research and Development
Our research and development efforts are focused on enhancing our existing
products and developing new products. Our current emphasis is development of
digital plates, including a new mammography digital plate, the engineering and
system design of new end-use digital radiography products, and software
improvements for our existing products. This research and development includes
refining and continuing Trex Medical's research on the full-field digital
mammography system. Our research and development personnel also are involved in
establishing protocols, monitoring, and interpreting and submitting test data to
the FDA and other regulatory agencies to obtain the requisite clearances and
approvals for our products. Our research and product development expenses,
without consideration of purchased in-process research and development, were
approximately $17.2 million in fiscal 2000, $12.7 million in fiscal 1999, and
$9.8 million in fiscal 1998.
Patents and Proprietary Rights
We rely primarily on a combination of trade secrets, patents, copyright and
trademark laws, and confidentiality procedures to protect our technology. Due to
the rapid technological change that characterizes the medical instrumentation
industry, we believe that the improvement of existing products, reliance upon
trade secrets and unpatented proprietary know-how and the development of new
products are generally as important as patent protection in establishing and
maintaining a competitive advantage. Nevertheless, we have obtained patents and
will continue to make efforts to obtain patents, when available, in connection
with our product development program.
As of November 17, 2000, we have obtained 125 patents and have pending 50
patent applications in the United States. Of these patents, 36 relate to our
DXA technology, 27 patents relate to our Direct Radiography technology, 11
patents relate to our ultrasound technology and six patents relate to our mini
c-arm technology. We have also acquired
15
<PAGE>
45 U.S. patents relating to the business we acquired from Trex Medical. In
addition we license 20 patents from others. These licensed and owned patents
have expiration dates ranging from 2001 to 2017. Two licensed patents with
ultrasound and X-ray claims will expire in 2001. We do not believe that the
expiration of these patents will have a material adverse effect on our business.
We have obtained or applied for corresponding patents and patent applications
for some of our patents and patent applications in selected foreign countries.
In January 2000, in connection with the merger of Vivid Technologies, Inc.
with and into PerkinElmer, Inc., Vivid paid us $2 million for a fully-paid up
exclusive license to our existing patents and technology for the development,
manufacture and sale of X-ray screening security systems for explosives, drugs,
currency and other contraband. All other licenses and arrangements between
Vivid and Hologic were terminated upon completion of the merger. S. David
Ellenbogen, our Chief Executive Officer, and Jay A. Stein, a Senior Vice
President, were formerly affiliated with Vivid.
We had been involved in extensive patent litigation with Lunar Corporation,
which has since been acquired by General Electric. This litigation was settled
by agreement dated November 22, 1995. The agreement provides that neither party
will engage the other party in patent litigation for a period of ten years
following the date of the agreement, regardless of the infringement claimed and
regardless of whether the technology in question currently exists or is
developed or acquired by the other party in the future. Neither party is
required to disclose to the other any of its technology during this ten year
period or otherwise.
In connection with our Trex Medical acquisition, we assumed liability for a
lawsuit filed by Fisher Imaging against Trex Medical alleging that the Lorad
prone biopsy system infringes upon two Fischer Imaging patents, subject to
indemnification from Trex Medical and its parent, Thermo Electron Corporation,
for any damages up to our adjusted purchase price for the Trex Medical assets.
In connection with this arrangement, Trex Medical is continuing to defend this
lawsuit. If Trex Medical is unsuccessful in defending this lawsuit, we may be
prohibited from manufacturing and selling the prone-breast biopsy system without
a license from Fischer Imaging and Fischer Imaging could be awarded significant
damages. If a license were required, we cannot assure that we would be able to
obtain one on commercially reasonable terms, if at all. Moreover, if Fischer
Imaging were awarded damages, we cannot assure that our indemnification from
Trex Medical and Thermo Electron would be sufficient to cover the amount of the
award.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device and related industries. We
have been, and may be in the future, notified that we may be infringing
intellectual property rights possessed by other third parties. If any such
claims are asserted against our intellectual property rights, we may seek to
enter into royalty or licensing arrangements. There is a risk in these
situations that no license will be available or that a license will not be
available on reasonable terms. Alternatively, we may decide to litigate such
claims or to design around the patented technology. These actions could be
costly and would divert the efforts and attention of our management and
technical personnel. As a result, any infringement claims by third parties or
other claims for indemnification by customers resulting from infringement
claims, whether or not proven to be true, may have a material adverse effect on
our business, financial condition and results of operations.
Regulation
The medical devices manufactured and marketed by us are subject to
regulation by the FDA and, in many instances, by foreign governments. Under the
Federal Food, Drug and Cosmetic Act, known as the FDA Act, manufacturers of
medical devices must comply with certain regulations governing the testing,
manufacturing, packaging and marketing of medical devices. Our products are also
subject to the Radiation Control for Health and Safety Act, administered by the
FDA, which imposes performance standards and record keeping, reporting, product
testing and product labeling requirements for devices using radiation, such as
X-rays.
The FDA generally must approve the commercial sale of new medical devices.
Commercial sales of our medical devices within the United States must be
preceded by either a premarket notification filing pursuant to Section 510(k) of
the FDA Act or the granting of a premarket approval. The 510(k) notification
filing must contain information that
16
<PAGE>
establishes that the device is substantially equivalent to an existing device
that has been continuously marketed since May 28, 1976.
The premarket approval procedure involves a more complex and lengthy
testing and review process by the FDA than the 510(k) premarket notification
procedure and often requires at least several years to obtain. We must first
obtain an investigational device exemption, known as an IDE, for the product to
conduct extensive clinical testing of the device to obtain the necessary
clinical data for submission to the FDA. The FDA will thereafter only grant
premarket approval if, after evaluating this clinical data, it finds that the
safety and efficacy of the product has been sufficiently demonstrated. This
approval may restrict the number of devices distributed or require additional
patient follow-up for an indefinite period of time. We believe that the digital
mammography system that our Lorad division is developing will require the more
rigorous Pre-Market Approval.
Our systems are also subject to approval by certain foreign regulatory and
safety agencies. Some of our technology, including that used in some of our
FluoroScan Systems, is governed by the International Traffic in Arms Regulations
of the United States Department of State. As a result, the export of
FluoroScan Systems to some countries may be limited or prohibited.
We cannot assure that the FDA or foreign regulatory agencies will give the
requisite approvals or clearances for any of our medical devices under
development on a timely basis, if at all. Moreover, after clearance is given,
these agencies can later withdraw the clearance or require us to change the
device or its manufacturing process or labeling, to supply additional proof of
its safety and effectiveness, or to recall, repair, replace or refund the cost
of the medical device, if it is shown to be hazardous or defective. The process
of obtaining clearance to market products is costly and time-consuming and can
delay the marketing and sale of our products.
As a manufacturer of medical devices, we are subject to additional FDA
regulations, including the Radiation Control for Health and Safety Act of 1968,
which specifically regulates radiation-emitting products. In addition, our
manufacturing processes and facilities are subject to continuing review by the
FDA. Most states and many other foreign countries monitor and require licensing
of X-ray devices. Federal, state and foreign regulations regarding the
manufacture and sale of medical devices are subject to future change. We cannot
predict what impact, if any, such changes might have on our business.
Reimbursement
In the United States, the Health Care Finance Administration, known as
HCFA, establishes guidelines for the reimbursement of healthcare providers
treating Medicare and Medicaid patients. Under current HCFA guidelines, varying
reimbursement levels have been established for DXA and ultrasound bone density
assessment, mammography and other imaging and diagnostic procedures performed by
our products. The actual reimbursement amounts are determined by individual
state Medicare carriers and, for non-Medicare and Medicaid patients, private
insurance carriers. There are often delays between the reimbursement approvals
by HCFA and by a state Medicare carrier and private insurance carriers.
Moreover, states as well as private insurance carriers may choose not to follow
the HCFA reimbursement guidelines. The use of our products outside the United
States are similarly affected by reimbursement policies adopted by foreign
regulatory and insurance carriers.
Employees
As of November 30, 2000, we had 846 full-time employees, including 413 in
manufacturing operations, 60 in research and development, 283 in marketing,
sales and support services, and 90 in finance and administration. None of our
employees are represented by a union.
17
<PAGE>
Item 2. Properties
We own and lease the real property identified below. We believe that we
have adequate space for our anticipated needs and that suitable additional space
will be available at commercially reasonable prices as needed.
Owned Real Property
On July 30, 1998, we purchased a 200,000 square foot building located in
Bedford, Massachusetts for approximately $20 million in cash and incurred costs
of approximately $5 million for renovations. We moved our headquarters and bone
assessment manufacturing operations into this facility on January 25, 1999. We
lease approximately 30,000 square feet of the facility to two tenants, Tech
Online and Enmed, under leases which expire in May 2005 and July 2003,
respectively. A third tenant vacated approximately 10,000 square feet of the
facility in November 2000, and we are currently marketing this space to other
third parties.
In connection with the acquisition of DRC, we purchased a 168,000 square
foot research and development, manufacturing and administrative site in Newark,
Delaware at which DRC conducts its research and development and plate
manufacture. We currently occupy approximately 63,000 square feet of this
building, which houses our plate manufacturing facility, including both a class
1 and a class 2 clean room. We lease approximately 45,000 square feet of the
facility to Agfa under a lease which expires in April 2005. The remaining space
in the facility, approximately 60,000 square feet, is leased to Dade Behring
under a lease which expires in July 2010.
In connection with the acquisition of Trex Medical, we acquired a 62,500
square foot office and manufacturing facility in Danbury, Connecticut. As part
of the purchase price for the medical imaging assets of Trex Medical we issued a
note in the principal amount of $25 million. This note is secured by a mortgage
on the property we own in Danbury, Connecticut and in Bedford, Massachusetts.
Leased Real Property
We also use approximately 25,500 square feet of space in Northbrook,
Illinois under a lease that expires in February 2001. We are currently
negotiating an extension to this lease. We also maintain sales and service
offices in France, Belgium and Spain.
In connection with our acquisition of the medical imaging assets of Trex
Medical, we also acquired a lease to a 156,000 square foot office and
manufacturing facility in Littleton, Massachusetts and a lease to a 60,000
square foot office and manufacturing facility in Danbury, Connecticut. These
leases expire in May 2010 and November 2006, respectively.
Item 3. Legal Proceedings
On September 30, 1999, we filed suit against Fleet Business Credit
Corporation, formerly known as Sanwa Business Credit Corporation, in
Massachusetts Superior Court in Middlesex County. The lawsuit sought declaratory
relief and damages relating to our Strategic Alliance Program with Fleet
Business Credit Corporation. Under the program, which was discontinued in
February 1999, we sold bone densitometers to Sanwa, which Sanwa leased to
physicians on a fee-per-scan basis. Sanwa agreed to bear the primary risk under
the leases and to reimburse us for remarketing expenses. Fleet has advised us
that it has incurred substantial losses under the program and has sought to
shift the losses that Fleet faces to us and has failed to reimburse us for its
remarketing expenses. In our suit, we sought declaratory judgment regarding
Fleet's contractual obligations, reimbursement of remarketing expenses, damages
for Fleet's violation of its covenant of good faith and fair dealing, and
attorney's fees.
On October 1, 1999, Fleet filed a complaint in the Chancery Division of the
Circuit Court of Cook County, Illinois, seeking an injunction to stop the
Massachusetts action, and alleging fraud, breach of warranty and breach of
contract by us. The complaint seeks unspecified damages in excess of $50,000
for each count. The complaint relates to
18
<PAGE>
units sold and returned under the strategic alliance program as described in
further detail in Item 7 of this report, Management's Discussion and Analysis of
Financial Condition and Results of Operations, under the heading, Liquidity and
Capital Resources. Following filing of this action, we stipulated to the
dismissal without prejudice of our Massachusetts lawsuit. In the Illinois
action, we have denied all of Fleet's claims against us, and have asserted
claims against Fleet of the type earlier asserted by us in the Massachusetts
action. We believe that we have meritorious defenses and counterclaims and
intend to vigorously pursue our position.
On April 2, 1992, Fischer Imaging Corporation filed a lawsuit in the United
States District Court, District of Colorado, against Trex Medical Systems,
alleging that Lorad's prone breast-biopsy system infringes a Fischer Imaging
patent on a precision mammographic needle-biopsy system. On April 7, 1998,
Fischer Imaging filed a second lawsuit in the United States District Court,
District of Colorado, against Trex Medical Systems, alleging that Lorad's
manufacture of breast-imaging equipment and breast-biopsy system equipment
infringes on a second Fischer Imaging patent which was issued April 7, 1998.
These two lawsuits were consolidated into a single lawsuit. The lawsuit seeks to
enjoin further violation of Fischer Imaging's patents, unspecified damages and
attorneys fees. In connection with our Trex Medical acquisition, we assumed
liability for this lawsuit subject to indemnification from Trex Medical and its
parent, Thermo Electron Corporation, for any damages up to our adjusted purchase
price for the Trex Medical assets. In connection with this arrangement, Trex
Medical is continuing to defend this lawsuit. Trex Medical has advised us that
they believe that they have meritorious defenses to Fischer Imaging's claims.
We are the subject of additional lawsuits, none of which we believe to be
material to our business or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
19
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information. Our common stock is traded on the Nasdaq National
Market under the symbol "HOLX." The following table sets forth, for the periods
indicated, the high and low bid prices per share of our common stock, as
reported by the Nasdaq National Market.
Fiscal Year Ended September 25, 1999 High Low
First Quarter $16 7/16 $9 7/8
Second Quarter 13 3/8 8 1/2
Third Quarter 11 1/8 5 1/2
Fourth Quarter 6 7/16 3 15/16
- --------------------------------------------------------------------------------
Fiscal Year Ended September 30, 2000 High Low
First Quarter $ 7 1/4 $3
Second Quarter 11 5 1/2
Third Quarter 9 1/2 5 1/8
Fourth Quarter 9 1/8 5 11/32
- --------------------------------------------------------------------------------
Number of Holders. As of December 19, 2000, there were approximately 1,878
holders of record of our common stock, including multiple beneficial holders at
depositaries, banks and brokers listed as a single holder in the street name of
each respective depositary, bank or broker.
Dividend Policy. We have never declared or paid cash dividends on our
capital stock and do not plan to pay any cash dividends in the foreseeable
future. Our current policy is to retain all of our earnings to finance future
growth.
Recent Sales of Unregistered Securities. On November 8, 1999, we granted
6,000 shares of our common stock to a non-executive employee and on December 8,
1999 we granted 6,000 shares of common stock to a non-executive employee. These
shares were granted in connection with the performance of services.
We did not register these securities under the Securities Act of 1933, as
amended, in reliance upon the exemptions from registration set forth in Sections
3(b) and 4(2) of that act, relating to offers and sales by an issuer not
involving any public offering. None of these transactions, either individually
or in the aggregate, involved a public offering.
20
<PAGE>
Item 6. Selected Financial Data.
Our historical selected financial data has been retroactively restated to
reflect the merger with FluoroScan in a pooling-of-interests transaction in
August 1996. In 1999, we acquired Direct Radiography Corp. and in 2000 we
acquired the U.S. assets of Trex Medical. The purchase accounting method under
APB No. 16 was used for both of these transactions. Included in the 2000
financial data are acquisition related pre-tax charges of $13.3 million related
to the Trex Medical acquisition.
<TABLE>
<CAPTION>
Fiscal Years Ended
September 28, September 27, September 26, September 25, September 30,
1996 1997 1998 1999 2000
- ---------------------------------------------------------------------------------------------------------------------------
Consolidated Statement of Operations Data (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales $ 88,201 $102,781 $111,498 $ 81,737 $ 90,864
Other revenue 3,390 3,908 4,066 2,403 2,882
-------- -------- -------- -------- ---------
91,591 106,689 115,564 84,140 93,746
-------- -------- -------- -------- ---------
Costs and Expenses:
Cost of product sales 41,253 47,492 55,891 50,333 63,604
Research and development 7,283 8,527 9,778 12,664 22,178
Selling and marketing 16,504 19,448 28,589 19,658 23,882
General and administrative 9,879 8,827 10,452 10,963 16,441
Acquisition expenses 1,949 --- --- --- ---
-------- -------- -------- -------- ---------
76,868 84,294 104,710 93,618 126,105
-------- -------- -------- -------- ---------
Income (loss) from operations 14,723 22,395 10,854 (9,478) (32,359)
Interest income 2,583 5,346 5,998 4,204 3,567
Other expense (249) (172) (664) (548) (227)
-------- -------- -------- -------- ---------
Income (loss) before income taxes 17,057 27,569 16,188 (5,822) (29,019)
Provision (benefit) for income taxes 5,700 9,840 5,800 (2,075) (10,400)
-------- -------- -------- -------- ---------
Net income (loss) $ 11,357 $ 17,729 $ 10,388 $(3,747) $(18,619)
======== ======== ======== ======== =========
Net income (loss) per share:
Basic $.97 $1.37 $.78 $(.27) $(1.22)
======== ======== ======== ======== =========
Diluted $.91 $1.30 $.75 $(.27) $(1.22)
======== ======== ======== ======== =========
Weighted average number of shares outstanding:
Basic 11,698 12,986 13,259 13,950 15,320
======== ======== ======== ======== =========
Diluted 12,524 13,672 13,766 13,950 15,320
======== ======== ======== ======== =========
- ---------------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheet Data
Working capital $ 97,199 $112,869 $ 99,633 $ 89,823 $ 53,022
Total assets 123,107 144,667 172,597 175,770 219,655
Long-term debt --- --- --- --- 25,000
Total Stockholders' equity 107,272 126,767 140,382 150,422 131,572
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis should be read in conjunction with
the "Selected Consolidated Financial Data" and the Consolidated Financial
Statements included elsewhere in this Report and the information described under
the caption "Risk Factors" below.
Overview
From inception through fiscal 1998, we had experienced generally increasing
annual sales as interest in bone diseases, such as osteoporosis, has grown, as
new drug therapies have become available in the United States and other
countries to treat these diseases and as the use of systems to asses bone
density has become more widespread. In fiscal 2000, our bone assessment revenues
increased by approximately 2% compared to fiscal 1999. In fiscal 1999, our bone
assessment product revenues decreased by approximately 45% compared to fiscal
1998 primarily due to lower sales to the primary care market in the United
States, and, to a lesser extent, increased competition.
In June 1999, we acquired Direct Radiography Corp. and the land and
buildings at which it conducted its business for approximately $20 million.
Direct Radiography Corp. was a development stage manufacturer of digital x-ray
systems for medical imaging and non-destructive testing applications. During
fiscal 2000 we introduced two new general radiography digital systems, EPEX and
RADEX. We began shipping these systems in the second half of fiscal 2000. We
also sell a digital chest system and digital upgrade package for conventional x-
ray systems. In fiscal 2000, we continued to invest heavily in the research and
development of the digital plates and the engineering and system design of new
end-use digital radiography products. Sales of Direct Radiography Corp. digital
products accounted for approximately 6% of our total revenues in fiscal 2000.
On September 15, 2000, we significantly expanded our product breadth
through the acquisition of substantially all of the business and assets of the
United States operations of Trex Medical. The principal businesses acquired
included Trex Medical's Lorad mammography, breast biopsy and general radiography
operations. Trex Medical was a leading manufacturer and supplier of mammography
and breast biopsy systems. These systems incorporate patented technology that
provides high quality contrast and resolution. We plan to combine our DirectRay
technology with our Lorad and other Trex Medical imaging products to develop new
digital X-ray technology platforms.
We have accounted for the Trex Medical asset acquisition under the purchase
accounting method. Included in our fiscal 2000 results are revenues of $5.1
million and expenses of $17.4 million from the date of acquisition. These
expenses include pre-tax charges of $13.3 million in connection with the
acquisition as follows:
. $5,000,000 for purchased in-process research and development
. $6,848,000 to increase reserves and assumed liabilities to their fair
value
. $974,000 related to the impact of the fair value write up of acquired
inventory on equipment sold
. $500,000 for employee compensation
Results of Operations
The following table sets forth, for the periods indicated, the percentage of
revenues represented by items as shown in our consolidated statements of
operations.
22
<PAGE>
Fiscal Years Ended
-------------------------------------------
September 26, September 25, September 30,
1998 1999 2000
-------------------------------------------
Revenues:
Product sales 96.5% 97.1% 96.9%
Other revenue 3.5 2.9 3.1
- --------------------------------------------------------------------------------
100.0 100.0 100.0
- --------------------------------------------------------------------------------
Cost and expenses:
Cost of product sales 48.4 59.8 67.8
Research and development 8.5 15.1 23.7
Selling and marketing 24.7 23.4 25.5
General and administrative 9.0 13.0 17.5
- --------------------------------------------------------------------------------
90.6 111.3 134.5
- --------------------------------------------------------------------------------
Income (loss) from operations 9.4 (11.3) (34.5)
Interest income 4.7 5.0 3.8
Other expense (0.1) (0.7) (0.2)
- --------------------------------------------------------------------------------
Income (loss) before income taxes 14.0 (7.0) (30.9)
Provision (benefit) for income taxes 5.0 (2.5) (11.1)
Net income (loss) 9.0% (4.5)% (19.8)%
- --------------------------------------------------------------------------------
Fiscal Year Ended September 30, 2000 Compared to Fiscal Year Ended September 25,
1999
Revenues. Total revenues increased 11.4% to $93.7 million in fiscal 2000
compared to $84.1 million in fiscal 1999. The increase in revenues was primarily
due to the addition of $5.1 million of revenues from the Lorad and Trex general
radiography products acquired in September 2000, a $4.9 million increase in
revenues from sales of our digital X-ray products from Direct Radiography Corp.,
an increase in the number of DXA units sold through our direct sales force
primarily in the United States and increased service revenues. The increase in
revenues was partially offset by a decrease in the number of DXA bone
densitometer product shipments to the United States primary care market
including strategic alliance sales to a leasing company, and to a lesser extent,
a decrease in Sahara and mini c-arm product sales.
Other revenues increased 19.9% to $2.9 million in fiscal 2000 compared to
$2.4 million in fiscal 1999. Other revenues has historically consisted
primarily of revenue relating to medical data management services provided to
pharmaceutical companies to assist in the collection and monitoring of clinical
trial data, royalty revenues from our licensing of our DXA technology to Vivid
Technologies, Inc. for explosives detection screening, and additional revenues
generated from our Strategic Alliance Program on a fee-per-scan basis. The
increase in other revenues in fiscal 2000 is the result of the sale of a fully
paid up license to Vivid Technologies, Inc. for $2.0 million in the second
quarter of fiscal 2000, which was partially offset by the elimination of
revenues relating to the medical data management services division, which we
sold to Synarc in June 1999. As a result of the sale of the fully paid-up
license and the sale of the medical data management services division, we do not
expect to have significant other revenues in fiscal 2001. Our other revenues in
the fourth quarter of fiscal 2000 were $156,000 primarily from additional fee-
per-scan revenues.
Total revenues for the fourth quarter of fiscal 2000 increased 22.6% to
$27.1 million from $22.1 million in the immediately preceding quarter. Total
revenues for the fourth quarter of fiscal 2000 increased 34.7% compared to the
$20.1 million for fourth quarter of fiscal 1999. The increase over the
immediately preceding quarter was primarily attributable to the addition of $5.1
million of revenues from the Lorad and Trex general radiography products
acquired in September 2000, increased shipments of the new Delphi bone
densitometer and, when compared to the fourth quarter of last year, an increase
in revenues from our digital radiography products. Partially offsetting these
increases was a decrease in revenues from Sahara and, to a lesser extent, a
decrease in mini c-arm revenues. Historically, our sales have been somewhat
seasonal, with generally lower sales in our fourth quarter due to customer
summer vacation patterns.
In fiscal 2000, approximately 67% of product sales were generated in the
United States, 21% in Europe, 7% in Asia and 5% in other international markets.
In fiscal 1999, approximately 63% of product sales were generated in the United
States, 24% in Europe, 7% in Asia and 6% in other international markets. We
expect that foreign sales in the current fiscal year will continue to account
for a substantial portion of product sales. Continued economic and currency
23
<PAGE>
related uncertainty in a number of foreign countries, especially in Asia and
Latin America, could reduce our future sales to these markets.
Costs and Expenses. The cost of product sales increased as a percentage of
product sales to 70% in fiscal 2000 from 61.6% in fiscal 1999. These costs
increased as a percentage of product sales primarily due to the addition of
approximately $8.9 million related to Lorad and the Trex Medical general
radiography products sold in the last 2 weeks of fiscal 2000 and the increase in
manufacturing costs of approximately $6.1 million related to Direct Radiography
Corp., which has significant fixed manufacturing costs and is operating
significantly below manufacturing capacity. Included in the cost of product
sales for Lorad and the Trex Medical general radiography products is
approximately $5.6 million of acquisition related charges and the impact of the
fair value write-up of acquired inventory on equipment sold. We anticipate that
we will incur approximately $900,000 of inventory write-up charges in the first
quarter of 2001 in connection with this acquisition. Absent Direct Radiography
Corp., Lorad and Trex Medical general radiography products, cost of product
sales as a percentage of product sales would have decreased to approximately
57.6%. The low sales volume of digital imaging plates resulted in the under
absorption of fixed manufacturing costs.
Research and development expenses increased 75.1% to $22.2 million, 23.7%
of total revenues, in fiscal 2000 from $12.7 million, 15.0% of total revenues,
in fiscal 1999. This increase was primarily due to the acquisition of Direct
Radiography Corp. in June 1999 and the associated inclusion of a full year of
research and development expenses associated with our direct radiography plates
and systems in fiscal 2000. In addition, our research and development expense
included a $5.0 million charge related to purchased in-process research and
development acquired in connection with the acquisition of the assets of Trex
Medical. As part of the purchase price allocation, all intangible assets that
are a part of the acquisition were identified and valued. It was determined that
technology assets, certain tradename and assembled workforce had value. As a
result of this identification and valuation process, we allocated approximately
$5 million of the purchase price to in-process research and development
projects. This allocation represented the estimated fair value based on risk-
adjusted cash flows related to the incomplete research and development projects.
At the date of acquisition, the development of these projects had not yet
reached technological feasibility, and the research and development in progress
had no alternative future uses. Accordingly, these costs were expensed as of the
acquisition date. We believe that our research and development expense for
fiscal 2001 will increase in absolute dollars, net of the acquired in-process
research and development charge, but will decrease as a percent of total
revenues.
Selling and marketing expenses increased 21.5% to $23.9 million, 25.5% of
total revenues, in fiscal 2000 from $19.7 million, 23.4% of total revenues, in
fiscal 1999. The increase in selling and marketing expenses in 2000 is
primarily due to additional selling and marketing expenses of $2.7 million at
Direct Radiography Corp., and approximately $900,000 related to Trex Medical, of
which approximately $400,000 were acquisition related charges.
General and administrative expenses increased 50.0% to $16.4 million, 17.5%
of total revenues, in fiscal 2000 from $11.0 million, 13.0% of total revenues,
in fiscal 1999. The increase was primarily due to the addition of $2.2 million
of charges associated with our acquisition of Trex Medical, to increase reserves
to their required levels, the addition of approximately $1.5 million of general
and administrative expenses related to Direct Radiography Corp. and, to a lesser
extent, an increase in professional service fees and employee benefit expenses.
Interest Income. Interest income decreased to $3.6 million in fiscal 2000
from $4.2 million in fiscal 1999. This decrease was primarily attributable to a
lower investment base than in the prior year, as a result of the use of cash for
the Direct Radiography Corp. acquisition and building renovations during fiscal
1999. As a result of the use of $31 million of cash, the issuance of a $25
million note payable to acquire Trex Medical and the anticipated ongoing use of
cash to support our operations, we expect that we will have a net interest
expense in the first quarter of fiscal 2001.
Other Expense. Other expense decreased to $227,000 in fiscal 2000 from
$548,000 in fiscal 1999. These expenses primarily include foreign currency
transaction losses and interest costs on a bank line of credit used by our
European subsidiaries to borrow funds in their local currencies to pay for all
intercompany sales, thereby reducing the foreign currency exposure on those
transactions. To the extent that foreign currency exchange rates fluctuate in
the
24
<PAGE>
future, we may be exposed to continued financial risk. Although we have
established a borrowing line denominated in the two foreign currencies, the
French franc and the Belgian franc, in which the subsidiaries currently conduct
business to minimize this risk, we cannot assure that we will be successful or
can fully hedge our outstanding exposure.
Provision for Income Taxes. In fiscal 2000 we have a benefit for income
taxes as a result of the current year's loss which we believe will be realizable
in the future. Our effective tax rate was 35.8%, which was lower than the
statutory tax rates due primarily to the favorable Federal and state tax
treatment afforded to our foreign sales corporation and the favorable state tax
treatment of a portion of our interest income.
We generated significant tax loss carryforwards during fiscal 2000, which can be
carried forward for 20 years. Under SFAS No. 109, we can only recognize a
deferred tax asset for future benefit of our tax loss carryforward to the extent
that it is "more likely than not" that this asset will be realized. In
determining the realizability of this asset, we considered numerous factors,
including historical profitability, estimated future taxable income and the
industry in which we operate. See Note 5 of Notes to the Consolidated Financial
Statements.
Fiscal Year Ended September 25, 1999 Compared to Fiscal Year Ended September 26,
1998
Revenues. Total revenues decreased 27% to $84.1 million in fiscal 1999
compared to $115.6 million in fiscal 1998. This decrease was primarily
attributable to a decrease in revenues from DXA sales and in other revenues.
These decreases were partially offset by an increase in the number of mini c-arm
product sales, primarily from our recently introduced Premier system and, to a
lesser extent, by revenues from Direct Radiography Corp. The decrease in DXA
revenues was a result of a decrease in the total number of domestic DXA bone
densitometer product shipments, especially to the United States primary care
market including strategic alliance sales to a leasing company, and to decreased
unit prices. This leasing company discontinued the placement of new bone
densitometers under the strategic alliance program in February 1999.
Other revenues consist primarily of revenue relating to medical data
management services provided to pharmaceutical companies to assist in the
collection and monitoring of clinical trial data, royalty revenues from our
licensing of our DXA technology to Vivid Technologies, Inc. for explosives
detection screening, and additional revenues generated from our Strategic
Alliance Program on a fee-per-scan basis. In fiscal 1999, other revenues
decreased 41% to $2.4 million from $4.1 million in fiscal 1998 primarily due to
a decrease in revenues relating to medical data management services provided by
our medical data management division, which we sold to Synarc in June 1999, and
from a decrease in royalty revenues.
In fiscal 1999, approximately 63% of product sales were generated in the
United States, 24% in Europe, 7% in Asia and 6% in other international markets.
In fiscal 1998, approximately 72% of product sales were generated in the United
States, 18% in Europe, 6% in other international markets and 4% in Asia.
Costs and Expenses. The cost of product sales increased as a percentage of
product sales to 62% in fiscal 1999 from 50% in fiscal 1998. These costs
increased as a percentage of product sales primarily due to a decrease of
approximately 43% in the number of DXA bone densitometers sold and, to a lesser
extent, lower average selling prices. In addition, the current year includes
manufacturing costs of approximately $3.2 million related to Direct Radiography
Corp., which has significant fixed manufacturing and is operating significantly
below manufacturing capacity. Absent Direct Radiography Corp., cost of product
sales would have increased to approximately 58%. The reduction in DXA sales
volume and the low sales volume of digital imaging plates resulted in the under
absorption of fixed manufacturing costs.
Research and development expenses increased 30% to $12.7 million, 15% of
total revenues, in fiscal 1999 from $9.8 million, 8% of total revenues, in
fiscal 1998. This increase was primarily due to the acquisition of Direct
Radiography Corp. which added approximately $2.7 million of research and
development expenses since June 3, 1999. We anticipate that research and
development costs will increase over the next year as a result of the research
and development efforts at Direct Radiography Corp.
Selling and marketing expenses decreased 31% to $19.7 million, 24% of
product sales, in fiscal 1999 from $28.6 million, 26% of product sales, in
fiscal 1998. The decrease in selling and marketing expenses in 1999 is
primarily due to a decrease in sales commissions paid to our distributor for the
United States primary care market based on the lower sales
25
<PAGE>
volume in that market. Selling and marketing expenses related to Direct
Radiography Corp. were approximately $500,000 for the current year.
General and administrative expenses increased 5% to $11.0 million, 13% of
total revenues, in fiscal 1999 from $10.5 million, 9% of total revenues, in
fiscal 1998. The increase was primarily due to an increase in the accounts
receivable reserve of approximately $900,000 related to our foreign receivables,
especially in Brazil and the addition of approximately $500,000 of general and
administrative expenses related to Direct Radiography Corp. in fiscal 1999.
These increases were partially offset by savings achieved as a result of our
downsizing implemented in the third quarter of fiscal 1999.
Total costs and expenses related to Direct Radiography Corp. totaled
approximately $6.9 million for the four months included in the fiscal 1999
results.
In the third quarter of 1999, we implemented a cost-reduction strategy in
an effort to reduce operating expenses. We reduced our U.S. workforce by
approximately 10% through attrition and a corporate downsizing. A strategy to
streamline operations and reduce discretionary spending for our existing
business was also implemented. We did not fully realize the cost savings
discussed above until the fourth quarter of fiscal 1999.
Interest Income. Interest income decreased to $4.2 million in fiscal 1999
from $5.5 million in fiscal 1998. This decrease was due to a lower investment
base than in the prior year, as a result of the use of cash to purchase our new
facility and for the acquisition of Direct Radiography Corp.
Other Expense. Other expense decreased to $548,000 in fiscal 1999 from
$664,000 in fiscal 1998. These expenses include foreign currency transaction
losses and interest costs on a bank line of credit used by our European
subsidiaries to borrow funds in their local currencies to pay for all
intercompany sales, thereby reducing the foreign currency exposure on those
transactions.
Provision for Income Taxes. In fiscal 1999 we have a benefit for income
taxes as a result of the current year's loss. Our effective tax rate was 35.8%,
which was lower than the statutory tax rates due primarily to the favorable
Federal and state tax treatment afforded our foreign sales corporation and the
favorable state tax treatment of a portion of our interest income.
Liquidity and Capital Resources
At September 30, 2000, we had approximately $53.0 million of working
capital. At that date our cash and cash equivalents totaled $22.8 million. Our
cash, cash equivalents and short-term investments balance decreased
approximately $39.9 million during fiscal 2000 primarily due to the use of $30.1
million of cash in the Trex Medical acquisition and payments for additions to
property, equipment and patents. Our net loss of $18.6 million for fiscal 2000
included acquisition related charges of $13.3 million incurred in connection
with the Trex Medical acquisition. In addition, non-cash charges for
depreciation and amortization of $4.4 million plus changes in our current assets
and liabilities, net of the Trex Medical acquisition, such amount being subject
to a working capital purchase price adjustment resulted in net cash used in
operating activities of $0.7 million. Cash used in operations due to changes in
our current assets and liabilities included increases in accounts payable of
$3.1 million, accrued expenses of $6.2 million and deferred revenue of $2.0
million and decreases in prepaid expenses and other current assets of $4.6
million, accounts receivable of $2.2 million and inventory of $0.8 million.
These sources of cash were partially offset by the increase of $10.5 million for
deferred income taxes.
We finance some sales to Latin America over a two-to-three year time-frame.
At September 30, 2000, we had total accounts receivable outstanding of
approximately $4.1 million relating to these sales, of which approximately
$490,000 were long-term and included in other assets. As of September 30, 2000,
we have not experienced any significant write-offs of these receivables,
however, the economic and currency related uncertainties in these countries may
increase the likelihood of non-payment.
26
<PAGE>
In fiscal 2000, we purchased approximately $5.8 million of property and
equipment, which consisted primarily of building improvements at our facilities
in Bedford, MA and Newark, DE, furniture and fixtures for these facilities and,
to a lesser extent, computers. In September 2000, we also purchased
substantially all of the medical imaging assets of Trex Medical for
approximately $30 million in cash and an 11.5% promissory note in the principal
amount of $25 million with accrued interest first payable on September 13, 2001
and semi-annually thereafter. The entire principal balance is due on September
13, 2003. The promissory note is secured by our real property in Danbury,
Connecticut and Bedford, Massachusetts.
In connection with a fee-per-scan program offered for our DXA bone
densitometers, we entered into a remarketing agreement whereby we have agreed to
perform certain remarketing activities and to cover certain losses incurred by
the leasing company up to 10% of the total fee-per-scan contracts funded. Under
this strategic alliance program, we installed approximately $60.6 million in
units since 1996. As of September 30, 2000, approximately 22% of these systems
were awaiting remarketing after having been returned, net of remarketed or
converted units. This fee-per-scan program was terminated in February 1999.
The leasing company purchased all the DXA densitometers covered under these
contracts from us. We reserved for potential losses under these contracts
during the fee-per-scan program term by deferring revenue of an amount equal to
10% of the contracts funded. We are in litigation that we initiated with the
leasing company through a declaratory judgment action regarding the extent of
our respective obligations under this contract. The leasing company is seeking
unspecified compensatory damages and other relief. We believe that we have
meritorious defenses and are vigorously defending ourselves. Nevertheless,
litigation can be expensive and time consuming. While we believe that the
outcome will not have a material adverse effect on our business, we cannot
guarantee the outcome of this litigation. An unfavorable outcome or prolonged
litigation could materially harm our business, results of operations or
financial condition.
In connection with our Trex Medical acquisition, we assumed liability for a
lawsuit filed by Fisher Imaging against Trex Medical alleging that the Lorad
prone biopsy system infringes upon two Fischer Imaging patents, subject to
indemnification from Trex Medical and its parent, Thermo Electron Corporation,
for any damages up to our adjusted purchase price for the Trex Medical assets.
In connection with this arrangement, Trex Medical is continuing to defend this
lawsuit. If Trex Medical is unsuccessful in defending this lawsuit, we may be
prohibited from manufacturing and selling the prone-breast biopsy system without
a license from Fischer Imaging and Fischer Imaging could be awarded significant
damages. If a license were required, we cannot assure that we would be able to
obtain one on commercially reasonable terms, if at all. Moreover, if Fischer
Imaging were awarded damages, we cannot assure that our indemnification from
Trex Medical and Thermo Electron would be sufficient to cover the amount of the
award.
Except as set forth above, we do not have any significant capital
commitments. We believe that our revenues and existing resources will be
sufficient to fund our planned operations for our 2001 fiscal year. However, we
are working on several projects, with an emphasis on direct radiography plates
and systems. We believe that we may require additional funds in order to
complete the development, conduct clinical trials and achieve regulatory
approvals of our direct radiography and other products under development over
the next several years. Moreover, we may require additional funds for the
working capital to commence the manufacture and marketing of these new products
in commercial quantities, if and when approved or cleared by the regulatory
authorities. We are reviewing various alternatives to obtain additional
funding, including the sale and lease-back of one of our owned facilities,
working capital financing and possible strategic alliances to help support our
ongoing research and development costs. See "Risk Factors" below.
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No 133, which defers the effective date
of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June
15, 2000. SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, issued in June 1998, establishes accounting and reporting
27
<PAGE>
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Hologic is still in the process of evaluating the impact, but has not yet
quantified, the adoption of this statement will have on its financial position
or results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation - An Interpretation of APB
Opinion No. 25. Interpretation 44 clarifies the application of Opinion 25 in
certain situations, as defined. Interpretation 44 is effective July 1, 2000 but
covers certain events having occurred after December 15, 1998. Accordingly, upon
initial application of the Interpretation, (a) no adjustments would be made to
financial statements for periods before the effective date and (b) no expense
would be recognized for any additional compensation cost measured that is
attributable to periods before the effective date. The adoption of this
Interpretation did not have any effect on the accompanying financial statements.
Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, was
issued in December 1999. On March 24, 2000, the SEC deferred implementation of
SAB 101 until the second calendar quarter of 2000, and on June 26, 2000,
implementation was further deferred until the fourth quarter of calendar 2000.
Hologic is required to adopt this new accounting principle through a cumulative
charge to the statement of operations, in accordance with Accounting Principles
Board Opinion No. 20, Accounting Changes, no later than the fourth quarter of
fiscal 2001. Hologic is still in the process of evaluating the impact, but has
not yet quantified the impact, this bulletin will have on the consolidated
financial statements.
Risk Factors
This report contains forward looking statements that involve risks and
uncertainties, such as statements of our objectives, expectations and
intentions. The cautionary statements made in this Report should be read as
applicable to all forward-looking statements wherever they appear in this
Report. Our actual results could differ materially from those discussed
herein. Factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere in this Report.
We are incurring significant losses.
We incurred net losses of $18.6 million in fiscal 2000. Of these losses,
net losses of approximately $13.4 million were attributable to the operations of
Direct Radiography Corp. and $7.8 million were attributable to charges incurred
in connection with our acquisition of substantially all of the medical imaging
assets of Trex Medical in September 2000. Direct Radiography Corp. has had only
limited sales of its products, primarily for test purposes. We intend to incur
significant expenses in connection with the further development and
commercialization of our direct radiography products and the mammography and
other X-ray systems we purchased from Trex Medical.
We may be unable to successfully integrate the operations of our recent
acquisitions.
We acquired the United States business of Trex Medical in September 2000
and Direct Radiography Corp. in June 1999. Both of these acquisitions involves
numerous risks generally associated with acquisitions, including:
. the diversion of management's attention;
. the assimilation of operations, personnel and products of the acquired
businesses;
. the ability to manage geographically remote units; and
. the potential loss of key employees of the acquired businesses.
We may not be able to successfully integrate the operations of Trex Medical
or Direct Radiography Corp. Failure to do so would have a material adverse
effect on our business, results of operations and financial condition.
28
<PAGE>
Our failure to reduce our losses or obtain additional funding could result in
the delay or limitation of our research and development activities or
otherwise have a material adverse effect on our business, results of
operations and financial condition.
We are working on the research and development of several long-term
projects, with an emphasis on direct radiography plates and systems. We believe
that we may require significant additional funds in order to complete the
development, conduct clinical trials and achieve regulatory approvals of our
direct radiography and other products under development over the next several
years. Moreover, we may require additional funds for the working capital to
commence the manufacture and marketing of these new products in commercial
quantities, if and when approved or cleared by the regulatory authorities. As a
result, we anticipate that we will be required to reduce our losses or obtain
additional funding to support these efforts. In order to reduce losses we may
be required to reduce our research and development expenditures. Such a
reduction could result in the delay or limitation of our ongoing research and
development projects.
Our success depends on new product development.
We have a continuing research and development program designed to develop
new products and to enhance and improve our products. We are expending
significant resources on the development of digital X-ray imaging products. The
successful development of our products and product enhancements are subject to
numerous risks, both known and unknown, including:
. unanticipated delays;
. budget overruns;
. technical problems; and
. other difficulties that could result in the abandonment or substantial
change in the design, development and commercialization of these new
products, including, for example, changes requested by the FDA in
connection with pre-market approval applications for our products or
510(k) notification.
Given the uncertainties inherent with product development and introduction,
we cannot assure that any of our product development efforts will be successful
on a timely basis or within budget, if at all. Our failure to develop new
products and product enhancements on a timely basis or within budget could have
a material adverse effect on our business, results of operations or financial
condition.
The markets for our direct radiography products are unproven.
In 1998, Direct Radiography Corp. was the first company to introduce
direct-to-digital X-ray imaging products in the United States. Since that
introduction, Direct Radiography Corp. has had only limited sales of its
products, primarily for test purposes. Moreover, the markets for these products
are relatively new and remain unproven. There is a significant installed base
of conventional X-ray imaging products in hospitals and radiological practices.
The use of our direct-to-digital X-ray imaging products would require these
potential customers to either modify or replace their existing X-ray imaging
equipment. Because of the early stage of the markets for these products, it is
likely that our evaluation of the potential markets for these products will
materially vary with time. We cannot assure that any significant market will
develop for our direct radiography products.
Our remarketing obligations under the strategic alliance program could
adversely affect our future product sales.
At the end of February 1999, Sanwa, now known as Fleet Business Credit
Corporation, discontinued the placement of new bone densitometers under our
strategic alliance program. Under this program, Sanwa purchased bone
densitometry equipment from us that they leased to physicians, primarily in the
primary care market, on a fee-per-scan basis. Under our strategic alliance
program, we continue to be obligated to perform certain remarketing activities
for equipment repossessed by or returned to Fleet Business Credit Corporation.
As Fleet has received significant returns
29
<PAGE>
under this program, their efforts to remarket the returned equipment could have
a material adverse effect on our future product sales.
An unfavorable outcome or prolonged litigation in our lawsuit with Fleet could
materially harm our business.
We are in litigation that we initiated with Fleet through a declaratory
judgment action regarding the extent of our respective obligations under our
strategic alliance program. Fleet is seeking unspecified compensatory damages
and other relief. We believe that we have meritorious defenses and are
vigorously defending ourselves. Nevertheless, litigation can be extremely
expensive and time consuming. Furthermore, we cannot make any guarantees
regarding the outcome of this action. An unfavorable outcome or prolonged
litigation could materially harm our business, results of operations or
financial condition.
Our reliance on one or only a limited number of suppliers for some key
components or subassemblies for our products could have a material adverse
affect on our business.
We rely on one or only a limited number of suppliers for some key
components or subassemblies for our products. In particular we have only one
source of supply for each of the panel and the coating of that panel for our
direct radiography products. In addition we have only limited sources of supply
for several key components used in our mini c-arm systems. Obtaining
alternative sources of supply of these components could involve significant
delays and other costs, and may not be available to us on reasonable terms, if
at all. The failure of a component supplier or contract assembler to provide
acceptable quality and timely components or assembly service at an acceptable
price, or an interruption of supplies from such a supplier could have a material
adverse effect on our business, financial condition or results of operations.
The success of our bone densitometry business depends in large part on the
development and more widespread acceptance of complementary therapies.
Our bone densitometers and related products are used to assist physicians
in diagnosing patients at risk for osteoporosis and other bone disorders, and to
monitor the effectiveness of therapies to treat these disorders. As a result,
the success of these products will in large part be dependent upon the
development and more widespread acceptance of drug therapies to prevent and to
treat osteoporosis. Over the last several years, the FDA has approved a number
of drug therapies to treat osteoporosis. We also understand that a number of
other drug therapies are under development. While sales of our bone
densitometry products have benefited from the increased availability and use of
these therapies, most patients who are at risk for osteoporosis continue to go
untreated. We cannot assure that any therapies under development or in clinical
trials will prove to be effective, obtain regulatory approval, or that any
approved therapy will gain wide acceptance. Even if these therapies gain
widespread acceptance, we cannot assure that such acceptance will increase the
sales of our products.
The uncertainty of healthcare reform could adversely affect our business.
Healthcare reform proposals and medical cost containment measures in the
United States and in many foreign countries could:
. limit the use of our products;
. reduce reimbursement available for such use; or
. adversely affect the use of new therapies for which our products may
be targeted.
These reforms or cost containment measures, including the uncertainty in
the medical community regarding their nature and effect, could have a material
adverse effect on our business, results of operations or financial condition.
30
<PAGE>
A reduction in reimbursement levels could have a material adverse effect on
our business.
In the United States, the Health Care Finance Administration, known as
HCFA, establishes guidelines for the reimbursement of healthcare providers
treating Medicare and Medicaid patients. Under current HCFA guidelines, varying
reimbursement levels have been established for DXA and ultrasound bone density
assessment, mammography and other imaging and diagnostic procedures performed by
our products. The actual reimbursement amounts are determined by individual
state Medicare carriers and, for non Medicare and Medicaid patients, private
insurance carriers. There are often delays between the reimbursement approvals
by HCFA and by a state Medicare carrier and private insurance carriers.
Moreover, states as well as private insurance carriers may choose not to follow
the HCFA reimbursement guidelines. The use of our products outside the United
States are similarly affected by reimbursement policies adopted by foreign
regulatory and insurance carriers. A reduction or other adverse change in
reimbursement policies for the use of our products could have a material adverse
effect on our business, results of operations or financial condition.
Our success depends upon our ability to adapt to rapid changes in technology
and customer requirements.
The market for our products has been characterized by rapid technological
change, frequent product introductions and evolving customer requirements. We
believe that these trends will continue into the foreseeable future. Our
success will depend, in part, upon our ability to enhance our existing products,
successfully develop new products that meet increasing customer requirements and
gain market acceptance. If we fail to do so our products may be rendered
obsolete or uncompetitive by new industry standards or changing technology.
We may not be able to compete successfully.
We may not be able to compete successfully. A number of companies have
developed, or are expected to develop, products that compete or will compete
with our products. Many of these competitors and potential competitors have
substantially greater resources than we do.
General Electric, Norland Medical Systems, Aloka, Diagnostic Medical
Systems and Hitachi have developed dual X-ray systems to measure bone density.
In ultrasound, we compete with General Electric, Myriad, McCue and OSI Systems
and expect additional competitors in the future based upon the greater
availability of ultrasound technology. In addition, General Electric, Norland
Medical Systems, OSI Systems and Schick have peripheral X-ray systems that
compete with our dual X-ray and ultrasound bone densitometry products, primarily
on price.
Our direct-to-digital imaging and general radiography products compete with
traditional X-ray systems as well as computed radiography systems, which are
less expensive than our products, and other direct-to-digital systems. Many of
these competitors have established relationships with hospitals and other of our
potential customers in our targeted markets. The larger competitors in these
markets include General Electric, Siemens and Philips, Canon and Varian.
Our mini c-arm products compete directly with mini c-arms manufactured and
sold by a limited number of companies including General Electric, OEC Medical
and XiTec. We also compete indirectly with manufacturers of conventional c-arm
image intensifiers including Philips, Siemens, General Electric, OEC Medical,
Fischer Imaging and Picker International.
Our mammography systems and our minimally invasive breast-biopsy systems
compete with products offered by General Electric, Fischer Imaging Corporation
and Philips and with conventional surgical biopsy procedures.
Our results of operations are subject to significant quarterly variation and
seasonal fluctuation.
Our results of operations have been and may continue to be subject to
significant quarterly variation. The results for a particular quarter may vary
due to a number of factors, including:
31
<PAGE>
. the overall state of healthcare and cost containment efforts;
. the development status and demand for drug therapies to treat
osteoporosis;
. the development status and demand for our direct-to-digital imaging
products;
. economic conditions in our markets;
. the timing of orders;
. the timing of expenditures in anticipation of future sales;
. the mix of products sold by us;
. the introduction of new products and product enhancements by us or our
competitors; and
. pricing and other competitive conditions.
We also believe that our sales may be somewhat seasonal, with reduced
orders in the summer months reflecting summer vacation schedules. Customers may
also cancel or reschedule shipments. Production difficulties could also delay
shipments. Any of these factors also could have a material adverse effect on our
business, results of operations or financial condition.
Reductions in revenues could have a material adverse effect on operating
results because a high percentage of our operating expenses is relatively
fixed.
A high percentage of our operating expenses is relatively fixed. We likely
will not be able to reduce spending to compensate for adverse fluctuations in
revenues. As a result, shortfalls in revenues are likely to have a material
adverse effect on our operating results.
Our delay or inability to obtain any necessary United States or foreign
regulatory clearances or approvals for our products could have a material
adverse effect on our business.
Our products are medical devices that are the subject of a high level of
regulatory oversight. Our delay or inability to obtain any necessary United
States or foreign regulatory clearances or approvals for our products could have
a material adverse effect on our business. The process of obtaining clearances
and approvals can be costly and time-consuming. There is a risk that any
approvals or clearances, once obtained, may be withdrawn or modified. Medical
devices cannot be marketed in the United States without clearance or approval by
the FDA. Medical devices sold in the United States must also be manufactured in
compliance with FDA Good Manufacturing Practices, which regulate the design,
manufacture, packing, storage and installation of medical devices. Moreover,
medical devices are required to comply with FDA regulations relating to
investigational research and labeling. States may also regulate the manufacture,
sale and use of medical devices, particularly those that employ X-ray
technology. Our products are also subject to approval and regulation by foreign
regulatory and safety agencies.
We conduct our business worldwide, which exposes us to a number of
difficulties in coordinating our international activities and dealings with
multiple regulatory environments.
We maintain sales and service offices in Belgium, France and Spain, and
sell our products to customers throughout the world. Our worldwide business may
be materially adversely affected by:
. difficulties in staffing and managing operations in multiple
locations;
. greater difficulties in trade accounts receivable collection;
. possible adverse tax consequences;
. governmental currency controls;
. changes in various regulatory requirements;
. political and economic changes and disruptions;
. export/import controls; and
. tariff regulations.
32
<PAGE>
We have experienced difficulties in collecting accounts receivable in Latin
America, which as of September 30, 2000 totaled $4.1 million, including $490,000
of long-term accounts receivable included in other assets. In fiscal 2000, we
increased our reserve against our receivables, including these Latin American
receivables, by $500,000.
Fluctuations in the exchange rates, in relation to the U.S. dollar, and the
other foreign currencies in which we conduct our business could have a
material adverse effect on our operating results.
In fiscal 2000, foreign sales accounted for approximately 33% of our
product sales. We maintain sales and service offices in Belgium, France and
Spain. The expenses and sales of these offices are denominated in local
currencies. We anticipate that foreign sales and sales denominated in foreign
currencies will continue to account for a significant portion of our total
sales. Fluctuations in the value of local currencies have caused and are likely
to continue to cause, amounts translated into U.S. dollars to fluctuate in
comparison with previous periods. In particular, an increase in the value of
the local currencies in which we have offices would likely increase our expenses
relative to U.S. dollar sales and could have a material adverse effect on our
operating results. We have hedged our foreign currency exposure by borrowing
funds in local European currencies to pay the expenses of our foreign offices.
There is a risk that these hedging activities will not be successful in
mitigating our foreign exchange risk exposure.
Our business could be materially adversely affected if we are unable to
protect our proprietary technology.
We rely primarily on a combination of trade secrets, patents, copyright and
trademark laws, confidentiality procedures to protect our technology. As of
November 17, 2000, we had obtained 125 patents, licensed 20 patents and have
pending 50 patent applications in the United States. Our patents have
expiration dates ranging from 2001 to 2017. Two licensed patents with
ultrasound and X-ray claims will expire in 2001. We have obtained or applied
for corresponding patents and patent applications in several foreign countries
for some of our patents and patent applications. There is a risk that these
patent applications will not be granted or that the patent or patent application
will not provide significant protection for our products and technology.
Moreover, there is a risk that foreign intellectual property laws will not
protect our intellectual property rights to the same extent as United States
intellectual property laws. In the absence of significant patent protection, we
may be vulnerable to competitors who attempt to copy our products, processes or
technology.
Our business could be materially adversely affected if we infringe upon the
intellectual property rights of others.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device and related industries. We
have been, and may be in the future, notified that we may be infringing
intellectual property rights possessed by other third parties. If any such
claims are asserted against our intellectual property rights, we may seek to
enter into royalty or licensing arrangements. There is a risk in these
situations that no license will be available or that a license will not be
available on reasonable terms. Alternatively, we may decide to litigate such
claims or to design around the patented technology. These actions could be
costly and would divert the efforts and attention of our management and
technical personnel. As a result, any infringement claims by third parties or
other claims for indemnification by customers resulting from infringement
claims, whether or not proven to be true, may have a material adverse effect on
our business, financial condition and results of operations.
We may be prohibited from manufacturing and selling the Lorad prone breast-
biopsy system and be required to pay significant damages if Fischer Imaging
Corporation succeeds in its lawsuit against Trex Medical which alleges that
the system infringes two Fischer Imaging patents.
In connection with our Trex Medical acquisition, we assumed liability for a
lawsuit filed by Fisher Imaging against Trex Medical alleging that the Lorad
prone biopsy system infringes upon two Fischer Imaging patents, subject to
indemnification from Trex Medical and its parent, Thermo Electron Corporation,
for any damages up to our adjusted purchase price for the Trex Medical assets.
In connection with this arrangement, Trex Medical is continuing to defend
33
<PAGE>
this lawsuit. If Trex Medical is unsuccessful in defending this lawsuit, we may
be prohibited from manufacturing and selling the prone-breast biopsy system
without a license from Fischer Imaging and Fischer Imaging could be awarded
significant damages. If a license were required, we cannot assure that we would
be able to obtain one on commercially reasonable terms, if at all. Moreover, if
Fischer Imaging were awarded damages, we cannot assure that our indemnification
from Trex Medical and Thermo Electron would be sufficient to cover the amount of
the award. A significant award above the indemnification amount could have a
material adverse effect on our on our business, financial condition or results
of operations.
Our future success will depend on the continued services of our executive
officers and key research and development personnel.
The loss of any of our executive officers or key research and development
personnel could have a material adverse effect on our business and prospects.
Our success will also depend upon our ability to attract and retain other
qualified managerial and technical personnel. Competition for such personnel,
particularly software engineers and other technical personnel, is intense. We
may not be able to attract and retain personnel necessary for the development of
our business. We do not have any key man life insurance for any of our officers
or other key personnel.
There is a risk that our insurance will not be sufficient to protect us from
product liability claims, or that in the future product liability insurance
will not be available to us at a reasonable cost, if at all.
Our business involves the risk of product liability claims inherent to the
medical device business. We maintain product liability insurance subject to
certain deductibles and exclusions. There is a risk that our insurance will
not be sufficient to protect us from product liability claims, or that product
liability insurance will not be available to us at a reasonable cost, if at all.
An underinsured or uninsured claim could have a material adverse effect on our
business, financial condition or results of operations.
Provisions in our Certificate of Incorporation and By-laws and a rights
distribution may have the effect of discouraging advantageous offers for our
business or common stock and limit the price that investors might be willing
to pay in the future for shares of our common stock.
Our Certificate of Incorporation, By-laws and the provisions of Delaware
corporate law include provisions that may have the effect of discouraging or
preventing a change in control. In addition, we made a rights distribution in
December 1992 that could also have the effect of discouraging or preventing a
change in control. These provisions could limit the price that our stockholders
might receive in the future for shares of our common stock.
The volatility of our stock price could adversely affect your investment in
our stock.
The market price of the common stock has been, and may continue to be,
highly volatile. We believe that a variety of factors could cause the price of
the common stock to fluctuate, perhaps substantially, including:
. announcements and rumors of developments related to our business;
. quarterly fluctuations in our actual or anticipated operating results
and order levels;
. general conditions in the worldwide economy;
. announcements of technological innovations;
. new products or product enhancements by us or our competitors;
. developments in patents or other intellectual property rights and
litigation; and
. developments in our relationships with our customers and suppliers.
In addition, in recent years the stock market in general and the markets
for shares of small capitalization and "high-tech" companies in particular, have
experienced extreme price fluctuations which have often been unrelated to the
34
<PAGE>
operating performance of affected companies. Any such fluctuations in the future
could adversely affect the market price of the common stock, and the market
price of the common stock may decline.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Financial Instruments, Other Financial Instruments, and Derivative
Commodity Instruments. SFAS No. 107, Disclosure of Fair Value of Financial
Instruments, requires disclosure about fair value of financial instruments.
Financial instruments consist of cash equivalents, short and long-term
investments, accounts receivable, accounts payable and debt obligations. The
fair value of these financial instruments approximates their carrying amount.
Primary Market Risk Exposures. Our primary market risk exposures are in the
areas of interest rate risk and foreign currency exchange rate risk. We incur
interest expense on loans made under a line of credit at the Europe Interbank
Offered Rate. At September 30, 2000, our outstanding borrowings under the line
of credit were $388,000, at a weighted average interest rate of 5.0%
Substantially all of our sales outside the United States are conducted in
U.S. dollar denominated transactions. We operate two European subsidiaries
which incur expenses denominated in local currencies. However, we believe that
these operating expenses will not have a material adverse effect on our
business, results of operations or financial condition.
35
<PAGE>
Item 8. Financial Statements and Supplementary Data.
The consolidated Financial Statements and Supplementary Data of Hologic
are listed under Part IV, Item 14, in this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
36
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item is incorporated by reference to the
sections entitled "Election of Directors" and "Executive Officers" in Hologic's
Definitive Proxy Statement for its annual meeting of stockholders scheduled to
be held on March 6, 2001 to be filed with the Securities and Exchange Commission
within 120 days after the close of its fiscal year.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference to the
sections entitled "Executive Compensation" in Hologic's Definitive Proxy
Statement for its annual meeting of stockholders scheduled to be held on March
6, 2001 to be filed with the Securities and Exchange Commission within 120 days
after the close of its fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference to the
section entitled "Share Ownership of Directors, Officers and Certain Beneficial
Owners" in Hologic's Definitive Proxy Statement for its annual meeting of
stockholders scheduled to be held on March 6, 2001 to be filed with the
Securities and Exchange Commission within 120 days after the close of its fiscal
year.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to the
section entitled "Certain Transactions" in Hologic's Definitive Proxy Statement
for its annual meeting of stockholders scheduled to be held on March 6, 2001 to
be filed with the Securities and Exchange Commission within 120 days after the
close of its fiscal year.
37
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of September 25, 1999
and September 30, 2000
Consolidated Statements of Operations for the years
ended September 26, 1998, September 25, 1999 and September 30, 2000
Consolidated Statements of Stockholders' Equity for the years ended
September 26, 1998, September 25, 1999 and September 30, 2000
Consolidated Statements of Cash Flows for the years ended September
26, 1998, September 25, 1999 and September 30, 2000
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
The following financial statement schedules are filed as part of this
report and should be read in conjunction with the consolidated
financial statements:
Schedule
--------
Report of Independent Public Accountants on Schedule II,
Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
(3) Listing of Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Reference
- ------- ---------
<C> <S> <C>
2.01 Securities Purchase Agreement dated April 28, 1999, as amended on June 3, 1999, by and among M-1
Hologic, Sterling Diagnostic Imaging, Inc., and SDI Investments, L.L.C.
2.02 Contract of Sale dated April 28, 1999, as amended on June 3, 1999, by and between Hologic and M-2
Glasgow Land Company, L.L.C.
2.03 Asset Purchase and Sale Agreement Among Trex Medical Systems, Corporation, Trex Medical O-2
Corporation, ThermoTrex Corporation and Thermo Electron Corporation and Hologic, Inc. dated
August 13, 2000
3.01 Certificate of Incorporation of Hologic A-3.01
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
3.02 By-laws of Hologic A-3.02
4.01 Specimen certificate for shares of Hologic's Common Stock B-1
4.02 Description of capital stock (contained in the Certificate of Incorporation of Hologic, filed as A-3.01
Exhibit 3.01).
4.03 Rights Agreement dated December 22, 1992 C-1
4.04 Form of Rights Certificate C-2
4.05 Amendment No. 1 to Rights Agreement, dated as of December 13, 1995 H-4.01
4.06 Amendment No. 2 to Rights Agreement, dated as of December 9, 1996 H-4.02
4.07 Amendment No. 3 to Rights Agreement, dated as of April 25, 1999 L-4.03
10.01 1986 Combination Stock Option Plan, as amended E-10.07*
10.02 Amended and Restated 1990 Non-Employee Director Stock Option Plan F-10.08*
10.03 1995 Employee Stock Purchase Plan E-10.09*
10.04 1995 Combination Stock Option Plan F-10.10*
10.05 Amended and Restated 1999 Equity Incentive Plan K-10*
10.06 Form of Indemnification Agreement for directors and certain officers of Hologic A-10.12*
10.07 Employment Agreement with an officer of Hologic D-10.22*
10.08 Severance Agreement with an officer of Hologic P-10.08*
10.09 Severance Agreement with an officer of Hologic P-10.09*
10.10 Severance Agreement with an officer of Hologic P-10.10*
10.11 Severance Agreement with an officer of Hologic P-10.11*
10.12 Restricted Stock Purchase Agreement with an officer of Hologic filed herewith*
10.13 Restricted Stock Purchase Agreement with an officer of Hologic filed herewith*
10.14 Restricted Stock Purchase Agreement with an officer of Hologic filed herewith*
10.15 License Agreement by and between Hologic and Vivid Technologies, Inc. A-10.18
10.16 Amendment No.1 to the License Agreement by and between Hologic and Vivid Technologies, Inc. G-10.25
10.17 Termination Agreement P-10.16
10.18 Facility Lease (Northbrook) G-10.26
10.19 Building Purchase and Sale Agreement I-10
10.20 Master Product Financing Agreement J-10.34**
10.21 Amendment to Master Product Financing Agreement by and between Hologic and Sanwa Business Credit N-10.2
Corporation
10.22 Amended and Restated Program Supplement Number 1 to Master Product Financing Agreement by and N-10.3
between Hologic and Sanwa Business Credit Corporation
10.23 Secured Promissory Note filed herewith
10.24 Mortgage, Security Agreement and assignment of Leases and Rents (Danbury) filed herewith
10.25 Mortgage, Security Agreement and assignment of Leases and Rents (Bedford) filed herewith
10.26 Guaranty filed herewith
10.27 Supply Agreement filed herewith
10.28 Facility Lease (Littleton) Q-10.89
10.29 Facility Lease (Danbury) Q-10.14
21.01 Subsidiaries of the Company P-21.01
23.01 Consent of Arthur Andersen LLP Filed herewith
</TABLE>
_______________________
39
<PAGE>
* Management compensation plan or arrangement
** Confidentiality requested as to certain provisions
A We previously filed this exhibit on January 24, 1990 with the referenced
exhibit number as an exhibit to our Registration Statement on Form S-1
(Registration No. 33-33128), and the previously filed exhibit is incorporated
herein by reference.
B We previously filed this exhibit on January 31, 1990 with the referenced
exhibit number as an exhibit to our Registration Statement on Form 8-A, and
the previously filed exhibit is incorporated herein by reference.
C We previously filed this exhibit on January 29, 1993 with the referenced
exhibit number as an exhibit to our Registration Statement on Form 8-A, and
the previously filed exhibit is incorporated herein by reference.
D We previously filed this exhibit on December 22, 1993 with the referenced
exhibit number as an exhibit to our 1993 Annual Report on Form 10-K (SEC File
No. 000-18281) for the fiscal year ended September 25, 1993, and the
previously filed exhibit is incorporated herein by reference.
E We previously filed this exhibit on December 22, 1994 with the referenced
exhibit number as an exhibit to our 1994 Annual Report on Form 10-K (SEC File
No. 000-18281) for the fiscal year ended September 24, 1994, and the
previously filed exhibit is incorporated herein by reference.
F We previously filed this exhibit on December 26, 1995, with the referenced
exhibit number as an exhibit to our 1995 Annual Report on Form 10-K (SEC File
No. 000-18281) for the fiscal year ended September 30, 1995, and the
previously filed exhibit is incorporated herein by reference.
G We previously filed this exhibit on December 27, 1996 with the referenced
exhibit number as an exhibit to our 1996 Annual Report on Form 10-K (SEC File
No. 000-18281) for the fiscal year ended September 28, 1996, and the
previously filed exhibit is incorporated herein by reference.
H We previously filed this exhibit on January 17, 1997 with the referenced
exhibit number as an exhibit to our Registration Statement on Form 8-A/A, and
the previously filed exhibit is incorporated herein by reference.
I We previously filed this exhibit on August 7, 1998 with the referenced exhibit
number as an exhibit to our 1998 Third Quarter Report on Form 10-Q (SEC File
No. 000-18281) for the quarter ended June 27, 1998, and the previously filed
exhibit is incorporated herein by reference.
J We previously filed this exhibit on December 23, 1998 with the referenced
exhibit number as an exhibit to our 1998 Annual Report on Form 10-K (SEC File
No. 000-18281) for the fiscal year ended September 26, 1998, and the
previously filed exhibit is incorporated herein by reference.
K We previously filed this exhibit on May 11, 1999 with the referenced exhibit
number as an exhibit to our 1999 Second Quarter Report on Form 10-Q (SEC File
No. 000-18281) for the quarter ended March 27, 1999, and the previously filed
exhibit is incorporated herein by reference.
L We previously filed this exhibit on May 20, 1999 with the referenced exhibit
number as an exhibit to our Registration Statement on Form 8-A/A, and the
previously filed exhibit is incorporated herein by reference.
M We previously filed this exhibit on June 18, 1999 with the referenced exhibit
number as an exhibit to our Current Report on Form 8-K (SEC File No. 000-
18281) dated as of June 3, 1999, and the previously filed exhibit is
incorporated herein by reference.
40
<PAGE>
N We previously filed this exhibit on October 1, 1999 with the referenced
exhibit number as an exhibit to our Current Report on Form 8-K (SEC File No.
000-18281) dated as of September 29, 1999, and the previously filed exhibit is
incorporated herein by reference.
O We previously filed this exhibit on October 2, 2000 with the referenced
exhibit number as an exhibit to our Current Report on Form 8-K (SEC File No.
000-18281) dated as of September 15, 2000, and the previously filed exhibit is
incorporated herein by reference.
P We previously filed this exhibit on December 23, 1999 with the referenced
exhibit number as an exhibit to our Annual Report on Form 10-K (SEC File No.
000-18281) for the fiscal year ended September 25, 1999, and the previously
filed exhibit is incorporated by reference.
Q Trex Medical Corporation previously filed this exhibit with the referenced
exhibit number as an Exhibit to its Registration Statement on Form S-1 (Reg.
No. 333-2926), and the previously filed exhibit is incorporated by reference.
(b) Reports on Form 8-K.
The following Current Report on Form 8-K was filed by the registrant during
the last quarter of the period covered by this report:
Current Report on Form 8-K filed on August 28, 2000 regarding the execution
of the Trex Medical Systems Corporation Asset Purchase and Sale Agreement.
(d) Financial Statement Schedules:
The financial statement schedules required are included as part of Item (2)
above.
41
<PAGE>
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.
HOLOGIC, INC.
By: /s/ S. David Ellenbogen
---------------------------
S. DAVID ELLENBOGEN
Chairman of the Board and
Chief Executive Officer
Dated: December 21, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ S. David Ellenbogen Director and December 21,2000
- ----------------------------- Chief Executive Officer
S. DAVID ELLENBOGEN
/s/ Steve L. Nakashige Director, President, and December 21, 2000
- ----------------------------- Chief Operating Officer
STEVE L. NAKASHIGE
Executive Vice President, and
/s/ Glenn P. Muir Principal Financial Officer December 21, 2000
- -----------------------------
GLENN P. MUIR
/s/ Jay A. Stein Director and December 21, 2000
- ----------------------------- Executive Vice President
JAY A. STEIN
/s/ Robert H. Lavallee Vice President and December 21, 2000
- ----------------------------- Pricipal Accounting Officer
ROBERT H. LAVALLEE
/s/ Irwin Jacobs Director December 21, 2000
- -----------------------------
IRWIN JACOBS
/s/ William A. Peck Director December 21, 2000
- -----------------------------
WILLIAM A. PECK
/s/ Gerald Segel Director December 21, 2000
- -----------------------------
GERALD SEGEL
/s/ Elaine Ullian Director December 21, 2000
- -----------------------------
ELAINE ULLIAN
</TABLE>
42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Hologic, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Hologic, Inc. and
subsidiaries included in this Form 10-K and have issued our report thereon dated
November 15, 2000. 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
is the responsibility of the Company's management and is presented for the
purposes of complying with the Securities Exchange Commission's rules and is not
part of the basic financial statements. The schedule has been subjected to the
auditing procedures applied in our 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
November 15, 2000
43
<PAGE>
SCHEDULE II
HOLOGIC, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(in Thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and Acquired at End of
of Period Expenses Reserves Writeoffs Period
---------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for Uncollectible Amounts
Year Ended:
September 26, 1998 $1,460 $ 640 $ -- $ -- $2,100
September 25, 1999 $2,100 $1,380 $ -- $ -- $3,480
September 30, 2000 $3,480 $1,816 $3,226 $(599) $7,923
Accrued Acquisition Reserve Year Ended:
September 26, 1998 $-- $-- $ -- $ -- $--
September 25, 1999 $-- $-- $ -- $ -- $--
September 30, 2000 $-- $2,000 $ -- $ -- $2,000
</TABLE>
44
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AND
CONSOLIDATED FINANCIAL STATEMENTS.
<TEXT>
<PAGE>
Report of Independent Public Accountants
To Hologic, Inc.:
We have audited the accompanying consolidated balance sheets of Hologic, Inc. (a
Delaware corporation) and subsidiaries as of September 25, 1999 and September
30, 2000, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 2000. 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 auditing standards generally accepted
in the United States. 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 consolidated financial position of
Hologic, Inc. and subsidiaries as of September 25, 1999 and September 30, 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 2000, in conformity with accounting
principles generally accepted in the United States.
Boston, Massachusetts
November 15, 2000 /s/ Arthur Andersen LLP
F-1
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
ASSETS September 25, September 30,
1999 2000
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 36,508 $ 22,778
Short-term investments 26,170 -
Accounts receivable, less reserves of $3,480 and $7,923, respectively 28,056 50,580
Inventories 17,596 39,706
Prepaid expenses and other current assets 6,841 3,041
-------- --------
Total current assets 115,171 116,105
-------- --------
Property and Equipment, at cost:
Land 10,002 12,203
Buildings and improvements 28,812 35,919
Equipment 15,981 21,568
Furniture and fixtures 3,224 3,918
Leasehold improvements 605 636
-------- --------
58,624 74,244
Less--Accumulated depreciation and amortization 8,154 11,450
-------- --------
50,470 62,794
-------- --------
Intangible Assets:
Developed technology and know-how - 11,800
Assembled workforce - 3,000
Goodwill and other intangible assets, net - 4,337
-------- --------
- 19,137
-------- --------
Deferred Income Taxes, net 6,225 16,809
Other Assets, net 3,904 4,810
-------- --------
Total assets $175,770 $219,655
======== ========
Current Liabilities:
Line of credit $ 1,103 $ 388
Accounts payable 6,063 16,414
Accrued expenses 10,103 32,639
Deferred revenue 8,079 13,642
-------- --------
Total current liabilities 25,348 63,083
-------- --------
Note Payable (Note 3b) - 25,000
Commitments and Contingencies (Notes 9 and 14)
Stockholders' Equity:
Preferred stock, $0.01 par value-
Authorized--1,623 shares
Issued--0 shares - -
Common stock, $0.01 par value-
Authorized--30,000 shares
Issued--15,303 and 15,419 shares, respectively 153 154
Capital in excess of par value 109,624 110,233
Retained earnings 42,440 23,821
Accumulated other comprehensive loss (1,331) (2,172)
Treasury stock, at cost--45 shares in 1999 and 2000 (464) (464)
-------- --------
Total stockholders' equity 150,422 131,572
-------- --------
Total liabilities and stockholders' equity $175,770 $219,655
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------
September 26, September 25, September 30,
1998 1999 2000
<S> <C> <C> <C>
Revenues:
Product sales $111,498 $81,737 $ 90,864
Other revenue 4,066 2,403 2,882
-------- ------- --------
115,564 84,140 93,746
-------- ------- --------
Costs and Expenses:
Cost of product sales 55,891 50,333 63,604
Research and development 9,778 12,664 17,178
In-process research and development - - 5,000
Selling and marketing 28,589 19,658 23,882
General and administrative 10,452 10,963 16,441
-------- ------- --------
104,710 93,618 126,105
-------- ------- --------
Income (loss) from operations 10,854 (9,478) (32,359)
Interest Income 5,998 4,204 3,567
Other Expense (664) (548) (227)
-------- ------- --------
Income (loss) before provision (benefit) for
income taxes 16,188 (5,822) (29,019)
Provision (Benefit) for Income Taxes 5,800 (2,075) (10,400)
-------- ------- --------
Net income (loss) $ 10,388 $(3,747) $(18,619)
======== ======= ========
Net Income (Loss) per Share:
Basic $ 0.78 $ (0.27) $ (1.22)
======== ======= ========
Diluted $ 0.75 $ (0.27) $ (1.22)
======== ======= ========
Weighted Average Number of Shares Outstanding:
Basic 13,259 13,950 15,320
======== ======= ========
Diluted 13,766 13,950 15,320
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(In Thousands)
<TABLE>
<CAPTION>
Common Stock Capital in
Number of $0.01 Excess of Retained
Shares Par Value Par Value Earnings
<S> <C> <C> <C> <C>
Balance, September 27, 1997 13,111 $ 131 $ 91,668 $ 35,799
Exercise of stock options 229 2 1,307 -
Stock issued for employee compensation 9 - 227 -
Issuance of common stock under employee stock
purchase plan 17 - 278 -
Issuance of common stock under 401(k) plan 12 1 291 -
Purchase of treasury stock - - - -
Compensation for grants of stock options to
nonemployees - - 133 -
Tax benefit from stock options exercised - - 1,196 -
Net income - - - 10,388
Translation adjustments - - - -
------ ----- -------- --------
Comprehensive income
Balance, September 26, 1998 13,378 134 95,100 46,187
Exercise of stock options 30 - 131 -
Stock issued for employee compensation 11 - 144 -
Issuance of common stock under employee stock
purchase plan 27 - 163 -
Issuance of shares related to acquisition 1,857 19 13,910 -
Compensation for grants of stock options to
nonemployees - - 133 -
Tax benefit from stock options exercised - - 43 -
Net loss - - - (3,747)
Translation adjustments - - - -
------ ----- -------- --------
Comprehensive loss
Balance, September 25, 1999 15,303 153 109,624 42,440
Exercise of stock options 13 - 49 -
Stock issued for employee compensation 12 - 61 -
Issuance of common stock under employee stock
purchase plan 91 1 499 -
Net loss - - - (18,619)
Translation adjustments - - - -
------ ----- -------- --------
Comprehensive loss
Balance, September 30, 2000 15,419 $ 154 $110,233 $ 23,821
====== ===== ======== ========
Accumulated
Treasury Stock Other Total
Number of Comprehensive Stockholders' Comprehensive
Shares Amount Income (Loss) Equity Income (Loss)
Balance, September 27, 1997 - $ - $ (831) $126,767 -
Exercise of stock options - - - 1,309 -
Stock issued for employee compensation - - - 227 -
Issuance of common stock under employee stock
purchase plan - - - 278 -
Issuance of common stock under 401(k) plan - - - 292 -
Purchase of treasury stock 45 (464) (464)
Compensation for grants of stock options to
nonemployees - - - 133 -
Tax benefit from stock options exercised - - - 1,196 -
Net income - - - 10,388 10,388
Translation adjustments - - 256 256 256
------ ----- ------- -------- --------
Comprehensive income $ 10,644
========
Balance, September 26, 1998 45 (464) (575) 140,382 -
Exercise of stock options - - - 131 -
Stock issued for employee compensation - - - 144 -
Issuance of common stock under employee stock
purchase plan - - - 163 -
Issuance of shares related to acquisition - - - 13,929 -
Compensation for grants of stock options to
nonemployees - - - 133 -
Tax benefit from stock options exercised - - - 43 -
Net loss - - - (3,747) (3,747)
Translation adjustments - - (756) (756) (756)
------ ----- ------- -------- --------
Comprehensive loss $ (4,503)
========
Balance, September 25, 1999 45 (464) (1,331) 150,422 -
Exercise of stock options - - - 49 -
Stock issued for employee compensation - - - 61 -
Issuance of common stock under employee stock
purchase plan - - - 500 -
Net loss - - - (18,619) (18,619)
Translation adjustments - - (841) (841) (841)
------ ----- ------- -------- --------
Comprehensive loss $(19,460)
========
Balance, September 30, 2000 45 $(464) $(2,172) $131,572
====== ===== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------
September 26, September 25, September 30,
1998 1999 2000
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 10,388 $ (3,747) $(18,619)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities-
Depreciation and amortization 1,851 3,474 4,420
Deferred income taxes (2,500) (2,128) (10,546)
Acquired in-process research and development - - 5,000
Compensation expense related to issuance of common stock and stock
options 302 243 105
Changes in assets and liabilities, net of impact of businesses
acquired in 1999 and 2000, respectively
Accounts receivable 526 4,010 2,190
Inventories (7,234) 6,130 836
Prepaid expenses and other current assets 405 (81) 4,605
Accounts payable 265 (200) 3,104
Accrued expenses 3,447 (3,006) 6,189
Deferred revenue 7,179 (2,388) 2,039
-------- -------- --------
Net cash provided by (used in) operating activities 14,629 2,307 (677)
-------- -------- --------
Cash Flows from Investing Activities:
Purchases of held-to-maturity investments (69,282) (40,848) (20,938)
Sales of held-to-maturity investments 95,020 46,675 50,074
Purchase of businesses, net of cash acquired - (7,972) (30,198)
Purchase of property and equipment (22,597) (8,879) (5,821)
Increase in other assets (3,714) (107) (5,218)
-------- -------- --------
Net cash used in investing activities (573) (11,131) (12,101)
-------- -------- --------
Cash Flows from Financing Activities:
Borrowings (repayments) under line of credit 3,716 (2,695) (715)
Net proceeds from sale of common stock 1,587 294 549
Purchase of treasury stock (464) - -
Tax benefit from stock options exercised 1,196 43 -
-------- -------- --------
Net cash provided by (used in) financing activities 6,035 (2,358) (166)
-------- -------- --------
Effect of Exchange Rate Changes on Cash 240 (733) (786)
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 20,331 (11,915) (13,730)
Cash and Cash Equivalents, beginning of year 28,092 48,423 36,508
-------- -------- --------
Cash and Cash Equivalents, end of year $ 48,423 $ 36,508 $ 22,778
======== ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for income taxes $ 5,993 $ 2,592 $ 199
======== ======== ========
Cash paid during the year for interest $ 324 $ 229 $ 38
======== ======== ========
Supplemental Disclosure of Noncash Financing Activities:
Issuance of common stock under 401(k) plan $ 292 $ - $ -
======== ======== ========
Stock issued for employee compensation $ 227 $ 144 $ 61
======== ======== ========
Purchase of Business, net of cash acquired:
Fair value of assets acquired $ - $ 23,423 $ 57,050
Liabilities assumed - (1,522) (25,270)
Cost in excess of net assets acquired - - 19,220
In-process research and development cost acquired - - 5,000
Cash paid - (7,216) (30,000)
Acquisition costs incurred - (756) (1,000)
-------- -------- --------
Fair value of stock/note payable issued $ - $ 13,929 $ 25,000
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Fianancial Statements
(In Thousands, except per share data)
(1) OPERATIONS
Hologic, Inc. and subsidiaries (the Company or Hologic) is engaged in the
development, manufacture and distribution of proprietary X-ray, digital X-
ray and other medical systems.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of certain accounting policies as described in this note and elsewhere in
the accompanying consolidated financial statements.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and all of its wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated
in consolidation.
(b) Fiscal Year
The Company's fiscal year ends on the last Saturday in September.
Fiscal 1998, 1999 and 2000 ended on September 26, 1998, September 25,
1999 and September 30, 2000, respectively.
(c) Management's Estimates and Uncertainties
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 statement, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
The Company is subject to a number of risks similar to those of other
companies of similar size in its industry, including rapid
technological changes, competition, customer concentration, government
regulations and dependence on key individuals.
(d) Cash and Cash Equivalents and Investments
The Company considers all highly liquid investments with maturities of
three months or less at the time of acquisition to be cash
equivalents. Included in cash equivalents at September 25, 1999 and
September 30, 2000 are approximately $5,824 and $2,500, respectively,
of securities purchased under agreements to resell. The securities
purchased under agreements to resell are collateralized by U.S.
government securities. Short-term investments have maturities of
greater than three months and consist of commercial paper, corporate
bonds and securities issued by the U.S. government and its agencies.
Investments with maturities of greater than one year have been
F-6
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Fianancial Statements
(In Thousands, except per share data)
classified as long-term. The Company had long-term investments of
approximately $2,966, with an average maturity period of 51 months as
of September 25, 1999, which are included in other assets in the
accompanying consolidated balance sheets. There were no long-term
investments as of September 30, 2000.
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. In accordance with SFAS No.
115, investments that the Company has the positive intent and ability
to hold to maturity are reported at amortized cost, which approximates
fair market value, and are classified as held-to-maturity. The
investments that the Company has deemed to be held-to-maturity include
securities issued by U.S. government agencies, which total
approximately $29,136 at September 25, 1999. There were no such
investments at September 30, 2000.
(e) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information about Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, requires disclosure of any significant
off-balance-sheet and credit risk concentrations. Financial
instruments that subject the Company to credit risk consists primarily
of cash, short-term investments, trade accounts receivable and long-
term receivables. The Company's credit risk is managed by investing
its cash in high-quality money market instruments, securities of the
U.S. government and its agencies, and high-quality corporate issuers.
The Company has not experienced any material losses related to
receivables from individual customers, geographic regions or groups of
customers in the X-ray and medical devices industry. Due to these
factors, no additional credit risk beyond amounts provided for, is
believed by management to be inherent in the Company's accounts
receivable.
The Company utilizes distributors in certain countries with various
credit terms, depending on the individual circumstances. One
distributor had amounts due to the Company of approximately $748 and
$794 as of September 25, 1999 and September 30, 2000, respectively.
This distributor accounted for 2%, 3.5% and 3.2% of product sales for
fiscal 1998, 1999 and 2000, respectively.
The Company finances certain sales to Latin American customers over
two to three years. At September 25, 1999 and September 30, 2000, the
Company had long-term accounts receivable outstanding of approximately
$1,020 and $492, respectively, relating to these sales, which are
included in other assets. The economic and currency related
uncertainties in these countries may increase the likelihood of
nonpayment. As a result, the Company increased its bad debt reserve
during fiscal 2000.
F-7
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Fianancial Statements
(In Thousands, except per share data)
The Company has sold its systems to a leasing company, which in turn
leased the systems to third parties. The leasing company accounted for
33%, 5% and 0% of product sales for fiscal 1998, 1999 and 2000,
respectively (see Notes 11 and 14).
(f) Disclosure of Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, short-term investments, accounts receivable, line of
credit, accounts payable and note payable to Trex Medical Corporation.
The carrying amounts of the Company's cash and cash equivalents,
short-term investments, accounts receivable, line of credit and
accounts payable approximate fair value due to the short-term nature
of these instruments. The note payable to Trex Medical Corporation
has a fixed rate of interest and will be subject to fluctuations in
fair value during its term. As of September 30, 2000, the fair value
of the note approximates its carrying amount due to the short lapse of
time from its issuance.
(g) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
September 25, September 30,
1999 2000
Raw materials and work-in-process $ 7,918 $ 24,742
Finished goods 9,678 14,964
------------ ------------
$ 17,596 $ 39,706
============ ============
Work-in-process and finished goods inventories consist of materials,
labor and manufacturing overhead.
(h) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations, using the straight-line and declining-balance methods,
which allocate the cost of property and equipment over the following
estimated useful lives:
Estimated
Asset Classification Useful Life
Building and improvements 40 years
Equipment 3-5 years
Furniture and fixtures 5-7 years
Leasehold improvements Life of lease
F-8
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Fianancial Statements
(In Thousands, except per share data)
(i) Long-Lived Assets
The Company assesses the realizability of its long-lived assets,
including intangible assets, in accordance with SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. To date, the Company has not identified any
impairments requiring adjustment.
(j) Foreign Currency Translation
The Company translates 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, assets and liabilities are translated at the rate
of exchange in effect at year-end, while stockholders' equity is
translated at historical rates. Revenue and expense accounts are
translated using the weighted average exchange rate in effect during
the year. Gains and losses from foreign currency translation are
credited or charged to cumulative translation adjustment, included in
stockholders' equity, in the accompanying consolidated balance sheets.
Transaction gains and losses in fiscal 1998, 1999 and 2000 were not
significant.
(k) Revenue Recognition
The Company recognizes product revenue upon shipment. A provision is
made at that time for estimated warranty costs to be incurred. Other
revenues, which includes primarily replacement parts and services, are
recorded at the time of shipment or as the service is rendered. In
connection with a fee-per-scan arrangement with a leasing Company for
certain products, the Company has entered into a remarketing agreement
whereby the Company has agreed to perform certain remarketing
activities on a best efforts basis to help recover any losses incurred
by the leasing Company up to 10% of the total fee-per-scan contracts
funded. The leasing Company purchases all such products covered under
these contracts from the Company. The Company has reserved for
potential losses under these contracts by deferring revenue in an
amount equal to 10% of the contracts funded (see Notes 11 and 14).
Maintenance revenues are recognized over the term of the contract.
(l) Research and Development and Software Development Costs
Research and development costs have been charged to operations as
incurred. SFAS No. 86, Accounting for the Costs of Computer Software
to Be Sold, Leased or Otherwise Marketed, requires the capitalization
of certain computer software development costs incurred after
technological feasibility is established. The Company believes that
once technological feasibility of a software product has been
established, the additional development costs incurred to bring the
product to a commercially acceptable level are not significant.
F-9
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Fianancial Statements
(In Thousands, except per share data)
(m) Net Income (Loss) Per Share
Basic and diluted net income (loss) per share are presented in
conformity with SFAS No. 128, Earnings per Share. Basic net income
(loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the
period. Diluted net loss per share in 1999 and 2000 is computed in the
same way as basic, as all common equivalent shares are considered
antidilutive. Diluted net income per share in 1998 was computed by
dividing net income by the diluted weighted average number of common
and common-equivalent shares outstanding during the period. The
weighted average number of common-equivalent shares has been
determined in accordance with the treasury stock method. Common stock
equivalents include options to purchase common stock.
The reconciliation of basic and diluted shares outstanding is as
follows:
1998 1999 2000
Weighted average common shares
outstanding 13,259 13,950 15,320
Effect of dilutive securities
stock options 507 - -
------ ------ ------
Weighted average common shares
outstanding, assuming dilution 13,766 13,950 15,320
====== ====== ======
Dilutive weighted average shares outstanding do not include 831, 2,130
and 2,712 common-equivalent shares for the end of fiscal years 1998,
1999 and 2000, respectively, as their effect would have been
antidilutive.
(n) Derivative Financial Instruments
At September 25, 1999 and September 30, 2000, the Company had no
instruments requiring disclosure under SFAS No. 119, Disclosure About
Derivative Financial Instruments and Fair Value of Financial
Instruments.
F-10
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(o) Recently Issued Accounting Standards
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at fair value. The
statement requires that changes in the derivative's fair value be
recognized in earnings currently, unless specific hedge accounting
criteria are met. Special accounting or qualifying hedges allows
derivative gains and losses to offset related results on the hedged
item in the income statement, and require that a company must formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133, as amended by SFAS No. 137 and
No. 138, is effective for all fiscal quarters of fiscal years after
June 15, 2000. The Company is still in the process of evaluating the
impact, but has not yet quantified the impact, this bulletin will have
on its results of operations, financial position or cash flows upon
the adoption of SFAS No. 133.
In March, 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation - An Interpretation
of APB Opinion No. 25. Interpretation 44 clarifies the application of
Opinion 25 in certain situations, as defined. Interpretation 44 is
effective July 1, 2000 but covers certain events having occurred after
December 15, 1998. Accordingly, upon initial application of the
Interpretation, (a) no adjustments would be made to financial
statements for periods before the effective date and (b) no expense
would be recognized for any additional compensation cost measured that
is attributable to periods before the effective date. The adoption of
this Interpretation did not have any effect on the accompanying
financial statements.
Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, was
issued in December 1999. On March 24, 2000, the SEC deferred
implementation of SAB 101 until the second calendar quarter of 2000,
and on June 26, 2000, implementation was further deferred until the
fourth quarter of calendar 2000. The Company is required to adopt this
new accounting principle through a cumulative charge to the statement
of operations, in accordance with Accounting Principles Board Opinion
No. 20, Accounting Changes, no later than the fourth quarter of fiscal
2001. The Company is still in the process of evaluating the impact,
but has not yet quantified the impact, this bulletin will have on the
consolidated financial statements.
(3) ACQUISITIONS
(a) Direct Radiography Corporation
On June 3, 1999, pursuant to a securities purchase agreement dated
April 28, 1999, as amended (the Securities Purchase Agreement),
between Hologic, Sterling Diagnostic Imaging, Inc., a Delaware
corporation (SDI) and SDI Investments, LLC, a Delaware limited
liability company (SDI Investments), Hologic purchased 100% of the
F-11
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
issued and outstanding shares of capital stock of Direct Radiography
Corporation Holding Corp., the parent company of Direct Radiography
Corp. (DRC), a manufacturer of digital X-ray systems for medical
imaging and non-destructive testing applications. On June 3, 1999,
pursuant to a contract of sale (the Contract of Sale) with Glasgow
Land Company, a Delaware limited liability company and a wholly-owned
subsidiary of SDI Investments, Hologic also purchased the land and
building in Glasgow, Delaware, at which DRC conducted its business.
Hologic paid approximately $21,145 for DRC and the real estate, of
which approximately $7,216 was paid in cash and of which approximately
$13,929 was paid by delivery of 1,857 shares of Hologic's common
stock, par value $.01 per share (the Purchase Price). In connection
with the acquisition, Hologic incurred $756 of acquisition costs. The
Acquisition was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16. Accordingly, the results
of the operations of DRC have been included in the accompanying
consolidated financial statements from the date of acquisition. In
accordance with APB Opinion No. 16, the Company allocated the purchase
price of the Acquisition based on the fair value of the assets
acquired and liabilities assumed.
The aggregate purchase price of $21,901 including acquisition costs
was allocated as follows:
Current assets $ 4,788
Property, plant and equipment 18,635
Liabilities assumed (1,522)
-------
$21,901
=======
Unaudited pro forma operating results for the Company, assuming the
acquisition of DRC occurred on September 28, 1997 and September 27,
1998 are as follows:
1998 1999
Net sales $116,565 $86,466
Net income (loss) 382 (9,114)
Net income (loss) per share-
Basic .03 (.60)
Diluted .02 (.60)
(b) Trex Medical Systems Corporation
On September 15, 2000, pursuant to an Asset Purchase and Sale
Agreement between Hologic, Inc. (Hologic) and Trex Medical Systems
Corporation (Trex Medical) (the Purchase Agreement), dated August 13,
2000, Hologic acquired the U.S. business assets of Trex Medical in
exchange for $30,000 in cash and a note in the amount of $25,000. The
note has a term of three years, bears interest at a rate of 11.5% per
annum and requires the full amount of principal be repaid on September
13, 2003. The note is secured by a mortgage on Hologic's principal
office in Bedford, Massachusetts as well as the facility in Danbury,
Connecticut, which was acquired from Trex Medical.
F-12
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
The aggregate purchase price for Trex Medical was approximately
$56,000, which includes approximately $1,000 related to acquisition
fees and expenses. The purchase price is subject to an adjustment
based upon the working capital position of the business as of
September 15, 2000. The Trex Medical acquisition has been accounted
for as a purchase in accordance with Accounting Principles Board (APB)
Opinion No. 16 and accordingly, the results of the operations of Trex
Medical have been included in the accompanying consolidated financial
statements from the date of acquisition. In accordance with APB
Opinion No. 16, the purchase price has been allocated to the acquired
assets and assumed liabilities of Trex Medical based on their fair
value.
As part of the purchase price allocation, all intangible assets that
are a part of the acquisition were identified and valued. It was
determined that technology assets and assembled workforce had
separately identifiable values. As a result of this identification and
valuation process, the Company allocated approximately $5,000 of the
purchase price to in-process research and development projects. This
allocation represented the estimated fair value based on risk-adjusted
cash flows related to the incomplete research and development
projects. At the date of acquisition, the development of these
projects had not yet reached technological feasibility, and the
research and development in progress had no alternative future uses.
Accordingly, these costs were expensed as of the acquisition date.
In addition, the Company allocated approximately $11,800 and $3,000 to
developed technology and assembled workforce, respectively. Developed
technology represents patented and unpatented technology and know-how
related to the Trex X-ray mammography, breast biopsy and radiography
systems. Developed technology is expected to be amortized over a
period of 10 years. Assembled workforce is the presence of a skilled
workforce that is knowledgeable about company procedures and possesses
expertise in certain fields that are important to profitability and
growth of a company. Assembled workforce is expected to be amortized
over a period of five years.
The excess of the purchase price over the fair value of identifiable
intangible and tangible net assets of approximately $4,337 will be
allocated to goodwill, which is expected to be amortized over a period
of 15 years.
In connection with the allocation of the purchase price to the
acquired assets and assumed liabilities of Trex Medical based on their
estimated fair value. Management determined that the balance of
certain reserves and accruals at the closing date were not sufficient
to cover the estimated economic exposure. Therefore, the Company has
increased the balance of the applicable reserves and accruals to
reflect Management's estimated economic exposure through charges to
earnings in the period after acquisition in accordance with the
guidance provided under Staff Accounting Bulletin No. 100 (SAB 100),
Restructuring and Impairment. As a result, in the period the
acquisition occurred, the Company recorded pre-tax charges totaling
$6,800 to increase the reserve for bad debts, warranty accruals and
other liabilities.
Also, in conjunction with the acquisition, the Company committed to
dispose of the acquired Trexnet product line. Trex Medical had
existing obligations under
F-13
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
contractual agreements with customers related to this product line
which were assumed by the Company in the acquisition. The Company has
begun to solicit offers on this product line from likely buyers. Based
on the current level of interest and interaction with potential
buyers, the Company has estimated that it will likely be required to
pay a buyer approximately $2,000 in order to transfer these
obligations, along with the assets and other liabilities associated
with that product line. Such amount has been accrued as part of the
purchase price allocation.
Based on the timing of the closing of the transaction, the
finalization of the integration plans, resolution of the pending
purchase price adjustment with Trex Medical and other factors, the
final purchase adjustments may differ materially from those presented
in the pro forma financial information. The effect of the adjustments
on the results of operations will depend on the nature and amount of
assets or liabilities adjusted.
The aggregate purchase price of $56,000 including acquisition costs
was allocated as follows:
Current assets $ 48,077
Property, plant and equipment 8,973
In-process research and development 5,000
Cost in excess of net assets acquired 19,220
Liabilities assumed (25,270)
--------
$ 56,000
========
Unaudited pro forma operating results for the Company, assuming the
Acquisition of Trex Medical occurred on September 27, 1998 and
September 26, 1999 are as follows:
1999 2000
Net sales $257,877 $ 196,655
Net loss (38,167) (121,485)
Net loss per share-
Basic and diluted $ (2.74) $ (7.93)
F-14
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(4) LINE OF CREDIT
The Company maintains a line of credit with a bank for the equivalent of
$3,000, which bears interest at the Europe Interbank Offered Rate (4.8% at
September 30, 2000) plus 1.50%. As of September 30, 2000, $388 was
outstanding. The borrowings under this line are primarily used by the
Company's European subsidiaries to settle intercompany sales and are
denominated in the respective local currencies of its European
subsidiaries. The line of credit may be canceled by the bank with 30 days
notice. The average outstanding balance during fiscal 2000 was
approximately $444 and the weighted average interest rate for fiscal 2000
was 5.0%. Interest expense on this line of credit of approximately $60, $82
and $23 has been included in other expenses in the accompanying
consolidated statements of operations for 1998, 1999 and 2000,
respectively.
(5) INCOME TAXES
The Company provides for income taxes under the liability method in
accordance with SFAS No. 109, Accounting for Income Taxes.
The provision (benefit) for income taxes in the accompanying consolidated
statements of operations consists of the following:
Years Ended
---------------------------------------------------
September 26, September 25, September 30,
1998 1999 2000
Federal-
Current $ 7,327 $ - $ -
Deferred (2,207) (1,953) (9,963)
------- ------- --------
5,120 (1,953) (9,963)
State-
Current 973 53 134
Deferred (293) (175) (583)
------- ------- --------
680 (122) (449)
Foreign-
Current - - 12
------- ------- --------
$ 5,800 $(2,075) $(10,400)
======= ======= ========
F-15
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
Years Ended
-----------------------------------------------------------
September 26, September 25, September 30,
1998 1999 2000
<S> <C> <C> <C>
Income tax provision at federal statutory rate 35.0% (35.0)% (35.0)%
Increase (decrease) in tax resulting from-
Net effect of losses of foreign
subsidiaries not provided 0.1 2.7 1.3
State tax provision(benefit), net of federal
benefit 2.7 (0.9) (1.3)
Research and development tax credit (0.9) - -
Effect of not providing U.S. taxes on exempt FSC (1.2) - (0.1)
income
Other 0.1 (2.4) (0.7)
---- ------ ------
35.8% (35.6)% (35.8)%
==== ====== ======
</TABLE>
The components of domestic and foreign income (loss) before the provision
(benefit) for income taxes are as follows:
Years Ended
-----------------------------------------------------------
September 26, September 25, September 30,
1998 1999 2000
Domestic $16,266 $(5,368) $(27,942)
Foreign (78) (454) (1,077)
------- ------- --------
$16,188 $(5,822) $(29,019)
======= ======= ========
During fiscal 1998, 1999 and 2000, the Company realized tax benefits of
approximately $1,196, $43 and $0, respectively, relating to the exercise of
certain stock options. These benefits are reflected as a component of
capital in excess of par value.
The components of the net deferred tax asset recognized in the accompanying
consolidated balance sheets are as follows:
September 25, September 30,
1999 2000
Deferred tax assets $6,898 $ 17,400
Valuation allowance (673) (591)
------ --------
$6,225 $ 16,809
====== ========
The Company generated significant tax loss carryforwards during fiscal 1999 and
2000, which can be carried forward for 19 and 20 years, respectively. Under SFAS
No. 109, the Company can only recognize a deferred tax asset for future benefit
of its tax loss carryforward to the extent that it is "more likely than not"
that these assets will be realized. In determining the realizability of these
assets, the Company considered numerous factors, including historical
profitability, estimated future taxable income and the industry in which it
operates.
F-16
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
The Company has recorded a valuation allowance against a portion of its
deferred tax assets. The valuation allowance relates primarily to certain
deferred tax assets in foreign jurisdictions, for which realization is
uncertain.
The approximate income tax effect of each type of temporary difference and
carryforward before allocation of the valuation allowance is approximately
as follows:
September 25, September 30,
1999 2000
Net operating loss carryforwards $2,458 $ 8,792
Nondeductible accruals 486 1,191
Nondeductible reserves 2,096 4,005
Other temporary differences 571 (396)
Deferred revenue 1,287 3,808
------ -------
$6,898 $17,400
====== =======
(6) COMMON STOCK
(a) Stock Option Plans
The Company's 1986 Combination Stock Option Plan (the 1986 Plan) is
administered by the Board of Directors. Under the terms of the 1986
Plan, the Company granted employees either incentive stock options or
nonqualified stock options to purchase shares of the Company's common
stock at a price not less than fair market value at the date of grant.
In addition, the Company may grant nonqualified options to other
participants. During fiscal 1996, the 1986 Plan was terminated.
Options granted under the 1986 Plan vest over a five-year period and
are exercisable at varying dates.
The Company's 1994 Stock Option Plan (the 1994 Plan) and the 1995
Stock Option Plan (the 1995 Plan), both of which were originally
adopted by FluoroScan, are administered by the Board of Directors and
the Company has issued options to purchase 276 shares of the Company's
common stock, as of September 30, 2000. Under the terms of the 1994
Plan and the 1995 Plan, the Company may grant employees either
incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock and deferred stock awards at a
price not less than the fair market value on the date of grant. The
Company does not intend to grant any additional options under these
plans.
In June 1995, the Board of Directors adopted the 1995 Combination
Stock Option Plan (the 1995 Combination Plan), pursuant to which the
Company is authorized to issue 1,100 options to purchase shares of
common stock. Under the terms of the 1995 Combination Plan, the
Company may grant employees either incentive stock options or
nonqualified stock options to purchase shares of the Company's common
stock at a price not less than the fair market value at the date of
grant. In addition, the Company may grant nonqualified options
F-17
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
to other participants. As of September 30, 2000, the Company had 91
shares available for future grant under this plan.
The Company's 1990 Nonemployee Director Stock Option Plan (the
Directors' Plan) allows for eligible directors to receive options to
purchase 10 shares of common stock upon election as a director. The
options vest ratably over a five-year period. In addition, eligible
directors are entitled to annual option grants to purchase eight
shares of common stock, which vest after six months. Option grants
under the Directors' Plan are at not less than fair market value on
the date of grant. The Company has reserved 200 shares of common stock
for issuance under the Directors' Plan. As of September 30, 2000, the
Company had no shares available for future grant.
In May 1997, the Board of Directors adopted the 1997 Employee Equity
Incentive Plan (the 1997 Plan), pursuant to which the Company is
authorized to issue 1,100 shares of common stock. Under the terms of
the 1997 Plan, the Company may grant employees either nonqualified
stock options, stock appreciation rights, performance shares,
restricted stock, or stock units. As of September 30, 2000 the Company
had 328 shares available for future grant under this plan.
In March 1999, the Board of Directors adopted the 1999 Equity
Incentive Plan (the 1999 Plan), pursuant to which the Company is
authorized to issue 300 shares, plus an annual increase, as defined.
Under the terms of the 1999 Plan, the Company may grant employees
either incentive stock options, non-qualified stock options, stock
appreciation rights, performance shares, restricted stock, or stock
units. As of September 30, 2000 the Company had 12 shares available
for future grant under this plan.
F-18
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
The following table summarizes all stock option activity under all of
the plans for the three years ended September 30, 2000.
<TABLE>
<CAPTION>
Number Exercise Weighted
of Shares Price per Average
Share Exercise Price
<S> <C> <C> <C> <C>
Outstanding, September 27, 1997 1,492 $ 0.50-49.00 $12.08
Granted 399 10.25-29.50 24.24
Terminated (93) 2.63-45.25 21.97
Exercised (229) 0.50-25.38 5.72
----- ------------ ------
Outstanding, September 26, 1998 1,569 1.81-49.00 15.52
Granted 1,396 4.13-15.88 9.86
Terminated (805) 1.94-49.00 21.62
Exercised (30) 1.94-11.00 4.41
----- ------------ ------
Outstanding, September 25, 1999 2,130 1.81-$44.25 9.66
Granted 754 3.19-9.81 5.46
Terminated (159) 2.81-15.88 7.77
Exercised (13) 1.94-6.81 3.77
----- ------------ ------
Outstanding, September 30, 2000 2,712 $1.81-$44.25 $ 8.63
===== ============ ======
Exercisable, September 30, 2000 1,262 $1.81-$44.25 $ 9.75
===== ============ ======
Exercisable, September 25, 1999 1,009 $1.81-$44.25 $ 9.61
===== ============ ======
Exercisable, September 26, 1998 818 $1.81-$49.00 $10.46
===== ============ ======
</TABLE>
F-19
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
The range of exercise prices for options outstanding and options
exercisable at September 30, 2000 are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------
Range of Options Weighted Average
Exercise Price Outstanding Remaining Weighted Average Options Weighted Average
Contractual Life Exercise Price Exercisable Exercise Price
(Years)
<S> <C> <C> <C> <C> <C>
$ 1.81 - $3.69 218 3.30 $ 2.77 215 $ 2.76
$ 3.75 - $3.94 273 8.88 3.93 4 3.94
$ 4.13 - $6.00 334 8.87 5.59 72 5.37
$ 6.06 - $6.63 56 6.31 6.25 29 6.19
$ 6.75 - $6.81 315 8.72 6.81 69 6.81
$ 6.88 - $7.69 166 9.16 7.51 19 7.04
$ 7.75 - $8.25 362 4.98 8.24 308 8.25
$ 8.44 - $8.88 136 8.45 8.85 28 8.85
$ 9.00 - $11.00 404 6.87 10.97 241 10.96
$ 11.38 - $44.25 448 7.23 16.73 277 18.41
----- ---- ------ ----- ------
$ 1.81 - $44.25 2,712 7.26 $ 8.63 1,262 $ 9.75
===== ==== ====== ===== ======
</TABLE>
The weighted average grant date fair value under the Black-Scholes
option pricing model of options granted during the years ended
September 26, 1998, September 25, 1999 and September 30, 2000 under
the various plans is $14.81, $6.59 and $3.37 per share, respectively.
As of September 26, 1998, September 25, 1999 and September 30, 2000,
the weighted average remaining contractual life of outstanding options
under these plans is 7.49, 7.58 and 7.26 years, respectively.
The Company accounts for its stock-based compensation plans under
Accounting Principle Board Opinion No. 25, Accounting for Stock Issued
to Employees. In October 1995 the Financial Accounting Standards Board
(FASB) issued SFAS No. 123, Accounting for Stock-Based Compensation,
which established a fair-value-based method of accounting for stock-
based compensation plans. The Company has adopted the disclosure-only
alternative under SFAS No. 123 that requires disclosure of the pro
forma effects on net income (loss) and earnings (loss) per share as if
SFAS No. 123 had been adopted, as well as certain other information.
F-20
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
The Company has computed the pro forma disclosures required under SFAS
No. 123 for all stock options, stock issuances under the employee
stock purchase plan and warrants granted to employees of the Company
in fiscal years ended September 25, 1999 and September 30, 2000, using
the Black-Scholes option pricing model prescribed by SFAS No. 123. The
assumptions used to calculate the SFAS No. 123 pro forma disclosure
and the weighted average information for the fiscal years ended
September 26, 1998, September 25, 1999 and September 30, 1999 are as
follows:
1998 1999 2000
Risk-free interest rate 5.96% 6.12% 6.00%
Expected dividend yield - - -
Expected lives 6 years 6 years 6 years
Expected volatility 70% 70% 72%
The pro forma effect of applying SFAS No. 123 for all options granted,
stock issuances under the employee stock purchase plan and warrants
granted to employees of the Company in fiscal years ended September
26, 1998, September 25, 1999 and September 30, 2000 would be as
follows:
1998 1999 2000
Net income (loss) as reported $ 10,388 $ (3,747) $ (18,619)
Pro forma net income (loss) 8,761 (5,388) (21,052)
Diluted net income (loss) per
share, as reported $ 0.75 $ (0.27) $ (1.22)
Pro forma diluted net income
(loss) per share $ 0.64 $ (0.39) $ (1.37)
(b) Employee Stock Purchase Plan
In December 1994, the Company adopted the 1995 Employee Stock Purchase
Plan (the ESP Plan) in compliance with Section 423 of the Internal
Revenue Code. Employees who have completed three consecutive months or
1,000 hours, whether or not consecutive, of employment with the
Company are eligible to participate in the ESP Plan. The ESP Plan
allows participants to purchase common stock of the Company at 85% of
the fair market value, as defined. The Company may issue up to 200
shares under the ESP Plan. During fiscal 1998, 1999 and 2000, the
Company issued 17, 27 and 91 shares, respectively, under the ESP Plan.
At September 30, 2000, the Company has 29 shares available for
purchase under the ESP Plan.
F-21
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(c) Rights Agreement
In December 1992, the Company adopted a shareholder rights plan. The
plan is intended to protect shareholders from unfair or coercive
takeover practices. In accordance with the plan, the Board of
Directors declared a dividend distribution of one common stock
purchase right for each share of common stock outstanding until the
rights become detachable. Each right entitles the registered holder to
purchase from the Company one share of common stock for $90, adjusted
for certain events. In the event that the Company is acquired in a
merger or other business combination transaction or more than 50% of
its assets or earning power is sold, each holder shall thereafter have
the right to receive, upon exercise of each right, that number of
shares of common stock of the acquiring company that, at the time of
such transaction, would have a market value of two times the $90 per
share exercise price. The rights will not be detachable or exercisable
until certain events occur. The Board of Directors may elect to
terminate the rights under certain circumstances.
(d) Treasury Stock
In 1998, the Board of Directors authorized the purchase of up to 1,000
shares of the Company's common stock. As of September 30, 2000, the
Company has purchased 45 shares under this authorization.
(7) PROFIT SHARING 401(k) PLAN
The Company has a qualified profit sharing plan covering substantially all
of its employees. Contributions to the plan are at the discretion of the
Company's Board of Directors. The Company has recorded approximately $360,
$440 and $301 as a provision for the profit sharing contribution for fiscal
1998, 1999 and 2000, respectively.
(8) RELATED PARTY TRANSACTIONS
(a) Management Services Agreement
The Company had an agreement with Vivid Technologies, Inc. (Vivid), an
affiliated company, whereby the Company provided management,
administrative and support services. The Company charged Vivid
approximately $140 and $151 under the agreement during fiscal 1998 and
1999, respectively, which have been offset against operating expenses
of the Company. No amounts were charged in fiscal 2000. Of these
amounts, approximately $66 was unpaid as of September 25, 1999. There
were no amounts outstanding at September 30, 2000.
F-22
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(b) License and Technology Agreement
The Company had an agreement with Vivid whereby Vivid obtained a
perpetual, exclusive worldwide license to utilize certain of the
Company's technology and patents for the sole purpose of developing
baggage and inspection security systems (the Exclusive License). In
September 1996, this license was amended to grant Vivid a nonexclusive
license to utilize these patents and technology for certain new
product development for other applications (the Nonexclusive License).
Royalty payments to the Company under the Exclusive License are 5% of
product revenue on Vivid's first $50 million in sales; thereafter,
payments are 3% of Vivid's sales up to $200 million. Royalty payments
under the Nonexclusive License are 3% on sales up to $200 million. In
the first quarter of fiscal 2000, Vivid and PerkinElmer entered into a
merger agreement (the Merger) and Hologic and Vivid entered into a
termination agreement dated October 4, 1999. Under this termination
agreement, the license fee terminated upon the effective date of the
Merger. As part of the termination agreement, Vivid paid Hologic
$2,000 in January 2000. The Company recognized approximately $1,070
and $378 of royalty revenue under the Exclusive License for fiscal
1998 and 1999, respectively and recognized $2,000 under the
termination agreement in 2000. Approximately $246 was outstanding at
September 25, 1999. No amounts were outstanding at September 30, 2000.
(9) COMMITMENTS
(a) Operating Leases
Certain subsidiaries of the Company conduct their operations in leased
facilities under operating lease agreements that expire through fiscal
2013. The Company and its subsidiaries lease certain equipment under
operating lease agreements that expire through fiscal 2013. Future
minimum lease payments under the operating leases are approximately as
follows:
Fiscal Years Ending Amount
September 29, 2001 $ 2,371
September 28, 2002 2,126
September 27, 2003 1,990
September 25, 2004 1,777
September 24, 2005 1,777
Thereafter 8,463
-------
$18,504
=======
Rental expense was approximately $1,937, $297 and $724 for fiscal
1998, 1999 and 2000, respectively.
F-23
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(b) Patent Acquisition
In fiscal 1992, the Company acquired certain patents pertaining to
technology incorporated into certain of the Company's products. The
Company paid approximately $245 for these patents and related expenses
upon entering into the agreement. In May 1993, this agreement was
amended such that the Company paid approximately $344 for additional
patent rights and related expenses, of which $50 was paid through the
issuance of 21 shares of common stock. In January 1998, the Company
made the final payment of $1,086 with respect to the acquisition of
these patent rights. The cost of these patents is being amortized over
their expected life of 10 years.
(10) COLLABORATION AGREEMENT
In June 1995, the Company acquired a 5% minority interest in a
collaborating company. To acquire this minority interest, the Company
issued 56 shares of common stock and paid $76 in cash in return for all of
the outstanding convertible preferred stock of the collaborating company.
The Company also entered into a development agreement with the
collaborating company related to a certain product. As part of the
development agreement, the Company reimbursed the collaborating company for
expenses incurred in the development of this product. The Company incurred
$344 and $689 of expense, net of related royalty revenue, in connection
with this agreement in 1998 and 1999, respectively. No expense was incurred
in 2000 related to this agreement. The Company and the collaborating
company have suspended this project.
(11) FEE PER SCAN PROGRAM
The Company had a fee per scan program with a leasing company whereby the
Company sold its systems to the leasing company, which, in turn, leased the
systems to third parties. Under the terms of the agreement, the Company is
contingently liable for a certain amount per system, up to a maximum of the
greater of (i) the sale price of four systems or (ii) 10% of the aggregate
value of systems sold under the program. The Company recorded the amount
for which it is contingently liable as deferred revenue. The Company and
the leasing Company have commenced claims against each other regarding this
program (see Note 14).
(12) BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
Effective for the fiscal year ended September 25, 1999, the Company has
adopted SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information. SFAS No. 131 establishes standards for reporting
information regarding operating segments in annual financial statements and
requires selected information for those segments to be presented in interim
financial reports issued to stockholders. SFAS No. 131 also establishes
standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available
for evaluation by the chief operating decision maker, or decision making
group, in making decisions how to allocate resources and assess
performance. The Company's chief decision-maker, as defined under SFAS
F-24
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
No. 131, is the chief operating officer. To date, the Company has viewed
its operations and manages its business as principally four operating
segments: the manufacture and sale of Bone Assessment products, Mini-C Arm
Imaging products, Digital Imaging products and Mammography/General
Radiography products. The Company evaluates the performance of its
operating segments based on income before income taxes, accounting changes,
and nonrecurring items. Intersegment sales and transfers are not
significant.
F-25
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on the sales, operating costs, net income and total
assets. Segment information for fiscal years ended 1998, 1999 and 2000 is
as follows.
<TABLE>
<S> <C> <C> <C>
1998 1999 2000
Total revenues-
Bone Assessment $105,465 $ 67,949 $ 69,516
Mini C-Arm Imaging 10,099 15,075 13,165
Digital Imaging - 1,116 5,979
Mammography/General Radiography - - 5,086
-------- -------- --------
$115,564 $ 84,140 $ 93,746
======== ======== ========
Operating income (loss)-
Bone Assessment $ 13,205 $ (4,725) $ (553)
Mini C-Arm Imaging (2,351) 1,076 271
Digital Imaging - (5,829) (19,794)
Mammography/General Radiography - - (12,283)
-------- -------- --------
$ 10,854 $ (9,478) $(32,359)
======== ======== ========
Net income (loss)-
Bone Assessment $ 12,108 $ (647) $ 2,539
Mini C-Arm Imaging (1,720) 576 115
Digital Imaging - (3,676) (13,415)
Mammography/General Radiography - - (7,858)
-------- -------- --------
$ 10,388 $ (3,747) $(18,619)
======== ======== ========
Identifiable assets-
Bone Assessment $155,654 $137,835 $110,425
Mini C-Arm Imaging 16,943 17,280 17,539
Digital Imaging - 20,655 10,038
Mammography/General Radiography - - 81,653
-------- -------- --------
$172,597 $175,770 $219,655
======== ======== ========
Depreciation and amortization-
Bone Assessment $ 1,637 $ 2,458 $ 2,959
Mini C-Arm Imaging 214 239 233
Digital Imaging - 777 1,085
Mammography/General Radiography - - 143
-------- -------- --------
$ 1,851 $ 3,474 $ 4,420
======== ======== ========
Capital expenditures-
Bone Assessment $ 22,543 $ 7,747 $ 2,890
Mini C-Arm Imaging 54 741 318
Digital Imaging - 391 2,593
Mammography/General Radiography 20
-------- -------- --------
$ 22,597 $ 8,879 $ 5,821
======== ======== ========
</TABLE>
F-26
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
Export sales from the United States to unaffiliated customers primarily in
Europe, Asia and Latin America during fiscal 1998, 1999 and 2000 totaled
approximately $14,496, $13,378 and $10,912, respectively.
Transfers between the Company and its European subsidiaries are generally
recorded at amounts similar to the prices paid by unaffiliated foreign
dealers. All intercompany profit is eliminated in consolidation.
Export product sales, including sales to European subsidiaries, as a
percentage of total product sales are as follows:
Years Ended
-------------------------------------------------------
September 26, September 25, September 30,
1998 1999 2000
Europe 18% 24% 21%
Asia 4 7 7
All others 6 6 5
---- ---- ----
28% 37% 33%
==== ==== ====
(13) ACCRUED EXPENSES
Accrued expenses consist of the following:
September 25, September 30,
1999 2000
Accrued payroll and employee benefits $ 2,114 $ 5,961
Accrued commissions 2,644 5,913
Accrued income taxes 689 112
Accrued warranty 1,172 9,670
Accrued tradeshow - 1,142
Accrued acquisition reserve - 2,000
Other accrued expenses 3,484 7,841
------- -------
$10,103 $32,639
======= =======
(14) LITIGATION
Hologic has commenced a claim against Fleet Bank Credit Corp. (FBCC), in
which Hologic seeks a declaratory judgment with respect to the parties'
respective rights and obligations under a Master Product Financing
Agreement (the Agreement) dated September 25, 1996, as supplemented and
amended. FBCC subsequently commenced a separate action against Hologic in
state court in Illinois to recover damages allegedly arising out of or
relating to the Agreement. Neither Hologic nor FBCC has precisely
quantified the alleged potential liability of Hologic to FBCC and Hologic
is vigorously defending against the claims asserted by FBCC.
In connection with the Trex Medical acquisition, Hologic assumed liability
for a lawsuit filed by Fisher Imaging against Trex Medical alleging that
the Lorad prone biopsy system infringes upon two Fischer Imaging patents,
subject to indemnification from Trex Medical and its parent, Thermo
Electron, for any damages up to our adjusted purchase price for the Trex
Medical assets. In connection with this arrangement, Trex Medical is
continuing to defend this lawsuit and has advised the Company that it
believes that it has meritorious defenses to Fischer's claims. If Trex
Medical is unsuccessful in defending this lawsuit, the Company may be
prohibited from manufacturing and selling the prone-breast biopsy system
without a license from Fischer and Fischer could be awarded significant
damages. If a licence were required, Hologic cannot assure that it would be
able to obtain one on commercially reasonably terms, if at all. Moreover,
if Fischer were awarded damages, Hologic cannot assure that its
indemnification from Trex Medical and Thermo Electron would be sufficient
to cover the amount of the award.
In the ordinary course of business, the Company is party to various types
of litigation. The Company believes it has meritorious defenses to all
claims, and, in its opinion,
F-27
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
all litigation currently pending or threatened will not have a material
effect on the Company's financial position or results of operations.
(15) QUARTERLY STATEMENT OF OPERATIONS INFORMATION (UNAUDITED)
The following table presents a summary of quarterly results of operations
for 1999 and 2000:
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
<S> <C> <C> <C> <C>
Total revenue $24,632 $19,362 $20,008 $ 20,138
Net income (loss) 2,037 (1,088) (1,533) (3,163)
Diluted net income per common and
common equivalent share 0.15 (0.08) (0.11) (0.23)
2000
--------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
Total revenue $21,295 $23,252 $22,083 $ 27,117
Net loss (2,870) (2,184) (2,643) (10,922)
Diluted net loss per common and
common equivalent share (0.19) (0.14) (0.17) (0.71)
</TABLE>
F-28
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>S. DAVID ELLENBOGEN STOCK AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.12
HOLOGIC, INC.
RESTRICTED STOCK AGREEMENT
--------------------------
AGREEMENT made this 12th day of November 1998, between Hologic, Inc., a
Delaware corporation (the "Company"), and S. David Ellenbogen (the "Employee").
W I T N E S S E T H:
-------------------
WHEREAS, the Employee is an employee of the Company; and
WHEREAS, in consideration of the valuable services rendered by the Employee
to the Company, the Company desires to award to the Employee 3,000 shares (the
"Shares") of the Company's Common Stock, $.01 par value per share (the "Common
Stock"), and subject to the terms and conditions set forth herein;
NOW, THEREFORE, for good and valuable consideration, receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1 - ACQUISITION OF SHARES
- ---------------------------------
1.1 Award of Shares. The Company hereby awards the Shares to the
---------------
Employee, subject to the terms and conditions of this Agreement. The Company
shall issue to the Employee one or more certificates in the name of the Employee
for the number of Shares herein granted.
1.2 Investment Representations. The Employee represents, warrants and
--------------------------
covenants as follows:
(a) The Employee is acquiring the Shares for his own account for
investment only, and not with a view to, or for sale in connection with, any
distribution of the Shares in violation of the Securities Act of 1933, as
amended (the "Securities Act"), or any rule or regulation under the Securities
Act.
(b) The Employee understands that (i) the Shares have not been
registered under the Securities Act and are "restricted securities" within the
meaning of Rule 144 under the Securities Act, (ii) the Shares cannot be sold,
transferred or otherwise disposed of unless they are subsequently registered
under the Securities Act or an exemption from registration is then available;
(iii) in any event, the exemption from registration under Rule 144 will not be
available unless a public market then exists for the Common Stock, adequate
information concerning the Company is then available to the public, and other
terms and conditions of Rule 144 are complied with; and (iv) the Company has no
obligation or current intention to register the Shares under the Securities Act.
ARTICLE 2 - COMPANY REPURCHASE RIGHT
- ------------------------------------
2.1 Purchase Option. In the event that the Employee ceases to be employed
---------------
by the Company as a full-time employee for any reason or no reason, with or
without cause, prior to November 12, 2000 (the "Vesting Date"), the Company
shall have the right and option (the
<PAGE>
"Purchase Option") to purchase from the Employee, for the sum of the par value
($.01) per share (the "Option Price") any or all of the Shares as the Company
shall elect. For purposes of this Agreement, employment with the Company shall
include employment with a subsidiary of the Company.
2.2 Exercise of Purchase Option and Closing.
---------------------------------------
(a) The Company may exercise the Purchase Option by delivering or
mailing to the Employee (or his estate), in accordance with Section 3.7, written
notice of exercise by the later of the Vesting Date or 180 days after the
termination of the employment of the Employee with the Company. Such notice
shall specify the number of Shares to be purchased. If and to the extent the
Purchase Option is not so exercised by the later of the Vesting Date or such
180-day period, the Purchase Option shall automatically terminate effective upon
the expiration of the applicable time period.
(b) Within 10 days after his receipt of the Company's notice of the
exercise of the Purchase Option pursuant to subsection (a) above, the Employee
(or his estate) shall tender to the Company at its principal offices the
certificate or certificates representing the Shares which the Company has
elected to purchase, duly endorsed in blank by the Employee or with duly
executed stock powers attached thereto, all in form suitable for the transfer of
such Shares to the Company. Upon its receipt of such Shares, the Company shall
deliver or mail to the Employee a check in the amount of the aggregate Option
Price therefor.
(c) In the event that the Company elects to exercise its Purchase
Option (or its option to purchase the Employee's shares pursuant to Section
2.3(c)), it may do so by cancelling the certificate(s) representing the Shares
and depositing the purchase price determined hereunder with the Company's
transfer agent or in a bank account for the benefit of Employee, whereupon such
Shares shall be, for all purposes, cancelled and neither the Employee nor any
transferee shall have any rights as one of its stockholders with respect to such
Shares for any purpose, including without limitation dividend and voting rights.
In addition to any other legal or equitable remedies which it may have, the
Company may enforce its rights by actions for specific performance (to the
extent permitted by law).
(d) The Option Price may be payable, at the option of the Company, by
cancellation of all or a portion of any outstanding indebtedness of the Employee
to the Company or in cash (by check), or both.
2.3 Restrictions on Transfer.
------------------------
(a) Except as otherwise provided in subsection (b) below, the
Employee shall not, prior to the later of the Vesting Date or termination of the
Purchase Option, if applicable, sell, assign, transfer, pledge, hypothecate or
otherwise dispose of, by operation of law or otherwise (collectively
"transfer"), any of the Shares, or any interest therein, unless and until such
Shares are no longer subject to the Purchase Option.
(b) Notwithstanding the foregoing, the Employee may transfer Shares
to the Employee's executor, administrator, guardian, conservator or other legal
representative; provided, that the Stock held by such authorized transferee
shall remain subject to the provisions of this Agreement.
(c) If any transfer of any of the Shares is made or attempted
contrary to the provisions of this Agreement, in addition to any other remedies
that the Company may have, the
2
<PAGE>
Company shall have the right and option to purchase the Shares from the owner
thereof or his transferee at any time before or after the transfer at the Option
Price, as herein provided.
ARTICLE 3 - MISCELLANEOUS
- -------------------------
3.1 Adjustments for Stock Splits, Stock Dividends, etc. If from time to
---------------------------------------------------
time during the term of the Purchase Option there is any stock split-up, stock
dividend, stock distribution or other reclassification of the Common Stock of
the Company, any and all new, substituted or additional securities to which the
Employee is entitled by reason of his ownership of the Shares shall be
immediately subject to the Purchase Option, the restrictions on transfer and the
other provisions of this Agreement in the same manner and to the same extent as
the Shares, and the Option Price shall be appropriately adjusted.
3.2 Withholding Taxes.
-----------------
(a) The Employee acknowledges and agrees that the Company has the
right to deduct from payments of any kind otherwise due to the Employee any
federal, state or local taxes of any kind required by law to be withheld with
respect to the award of the Shares by the Employee.
(b) If the Employee elects, in accordance with Section 83(b) of the
Internal Revenue Code of 1986, as amended, to recognize ordinary income in the
year of acquisition of the Shares, the Company may require that the Employee, at
the time of such election, make an additional payment for withholding tax
purposes (or enter into an alternative arrangement to assure such payment) based
on the difference, if any, between the purchase price for such Shares and the
fair market value of such Shares as of the day immediately preceding the date of
the purchase of such Shares by the Employee.
3.3 No Rights To Employment. Nothing contained in this Agreement shall be
-----------------------
construed as giving the Employee any right to be retained as an employee of the
Company.
3.4 Waiver; Disposition of Stock. From time to time the Company may waive
----------------------------
its rights hereunder either generally or with respect to one or more specific
transfers which have been proposed, attempted or made.
3.5 Restrictive Legends. All certificates representing Shares shall have
-------------------
affixed thereto legends in substantially the following form:
"The shares of stock represented by this certificate are subject to
restrictions on transfer and an option to purchase set forth in a
certain Restricted Stock Agreement between the corporation and the
registered owner of this certificate (or his predecessor in interest).
Such Agreement is available for inspection without charge at the
principal executive offices of the corporation."
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold,
transferred or otherwise disposed of in the absence of an effective
registration statement under such Act or an opinion of counsel
satisfactory to the corporation to the effect that such registration
is not required."
3
<PAGE>
3.6 Successors and Assigns; Assignment. This Agreement shall be binding
----------------------------------
upon the parties hereto and their heirs, representatives, successors and
assigns. The Company may assign its rights hereunder either generally or from
time to time.
3.7 Notices. All notices to a party hereto shall be in writing and shall
-------
be deemed to have been adequately given if delivered in person or mailed,
postage pre-paid and registered or certified mail or federal express or other
recognized commercial courier service:
If to the Company:
Hologic, Inc.
35 Crosby Drive
Bedford, Massachusetts 01730
Attention: Treasurer
If to Employee:
S. David Ellenbogen
9 Pauline Drive
Natick, MA 01760
or to such other address as any party may from time to time designate for itself
by notice in writing given to the other parties hereto.
3.8 Amendments. This Agreement may be amended or modified in whole or in
----------
part only by an instrument in writing signed by the Company and the Employee.
3.9 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties, and all premises, representations, understandings,
warranties and agreements with reference to the subject matter hereof have been
expressed herein or in the documents incorporated herein by reference.
3.10 Applicable Law; Severability. This Agreement shall be governed by and
----------------------------
construed and enforced in accordance with Delaware law. Wherever possible, each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision hereof shall be
prohibited by or invalid under any such law, that provision shall be ineffective
only to the extent of such prohibition or invalidity, without invalidating or
nullifying the remainder of that provision or any other provisions of this
Agreement.
3.11 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed in original but all of which
together shall constitute one and the same instrument.
3.12 Effect of Headings. Any table of contents, title of an article or
------------------
section heading herein contained is for convenience or reference only and shall
not affect the meaning of construction of any of the provisions hereof.
4
<PAGE>
IN WITNESS WHEREOF, the Employee has hereunto set his hand and the Company
has authorized this instrument to be signed by its officers thereunder duly
authorized, effective as an instrument under seal.
HOLOGIC, INC.
By: /s/ Glenn P. Muir
------------------------------
Name: Glenn P. Muir
Title: Vice President, Finance
EMPLOYEE
/s/ S. David Ellenbogen
------------------------------
S. David Ellenbogen
5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>GLENN P. MUIR STOCK AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.13
HOLOGIC, INC.
RESTRICTED STOCK AGREEMENT
--------------------------
AGREEMENT made this 12th day of November 1998, between Hologic, Inc., a
Delaware corporation (the "Company"), and Glenn P. Muir (the "Employee").
W I T N E S S E T H:
-------------------
WHEREAS, the Employee is an employee of the Company; and
WHEREAS, in consideration of the valuable services rendered by the Employee
to the Company, the Company desires to award to the Employee 3,000 shares (the
"Shares") of the Company's Common Stock, $.01 par value per share (the "Common
Stock"), and subject to the terms and conditions set forth herein;
NOW, THEREFORE, for good and valuable consideration, receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1 - ACQUISITION OF SHARES
- ---------------------------------
1.1 Award of Shares. The Company hereby awards the Shares to the
---------------
Employee, subject to the terms and conditions of this Agreement. The Company
shall issue to the Employee one or more certificates in the name of the Employee
for the number of Shares herein granted.
1.2 Investment Representations. The Employee represents, warrants and
--------------------------
covenants as follows:
(a) The Employee is acquiring the Shares for his own account for
investment only, and not with a view to, or for sale in connection with, any
distribution of the Shares in violation of the Securities Act of 1933, as
amended (the "Securities Act"), or any rule or regulation under the Securities
Act.
(b) The Employee understands that (i) the Shares have not been
registered under the Securities Act and are "restricted securities" within the
meaning of Rule 144 under the Securities Act, (ii) the Shares cannot be sold,
transferred or otherwise disposed of unless they are subsequently registered
under the Securities Act or an exemption from registration is then available;
(iii) in any event, the exemption from registration under Rule 144 will not be
available unless a public market then exists for the Common Stock, adequate
information concerning the Company is then available to the public, and other
terms and conditions of Rule 144 are complied with; and (iv) the Company has no
obligation or current intention to register the Shares under the Securities Act.
ARTICLE 2 - COMPANY REPURCHASE RIGHT
- ------------------------------------
2.1 Purchase Option. In the event that the Employee ceases to be employed
---------------
by the Company as a full-time employee for any reason or no reason, with or
without cause, prior to November 12, 2000 (the "Vesting Date"), the Company
shall have the right and option (the
<PAGE>
"Purchase Option") to purchase from the Employee, for the sum of the par value
($.01) per share (the "Option Price") any or all of the Shares as the Company
shall elect. For purposes of this Agreement, employment with the Company shall
include employment with a subsidiary of the Company.
2.2 Exercise of Purchase Option and Closing.
---------------------------------------
(a) The Company may exercise the Purchase Option by delivering or
mailing to the Employee (or his estate), in accordance with Section 3.7, written
notice of exercise by the later of the Vesting Date or 180 days after the
termination of the employment of the Employee with the Company. Such notice
shall specify the number of Shares to be purchased. If and to the extent the
Purchase Option is not so exercised by the later of the Vesting Date or such
180-day period, the Purchase Option shall automatically terminate effective upon
the expiration of the applicable time period.
(b) Within 10 days after his receipt of the Company's notice of the
exercise of the Purchase Option pursuant to subsection (a) above, the Employee
(or his estate) shall tender to the Company at its principal offices the
certificate or certificates representing the Shares which the Company has
elected to purchase, duly endorsed in blank by the Employee or with duly
executed stock powers attached thereto, all in form suitable for the transfer of
such Shares to the Company. Upon its receipt of such Shares, the Company shall
deliver or mail to the Employee a check in the amount of the aggregate Option
Price therefor.
(c) In the event that the Company elects to exercise its Purchase
Option (or its option to purchase the Employee's shares pursuant to Section
2.3(c)), it may do so by cancelling the certificate(s) representing the Shares
and depositing the purchase price determined hereunder with the Company's
transfer agent or in a bank account for the benefit of Employee, whereupon such
Shares shall be, for all purposes, cancelled and neither the Employee nor any
transferee shall have any rights as one of its stockholders with respect to such
Shares for any purpose, including without limitation dividend and voting rights.
In addition to any other legal or equitable remedies which it may have, the
Company may enforce its rights by actions for specific performance (to the
extent permitted by law).
(d) The Option Price may be payable, at the option of the Company, by
cancellation of all or a portion of any outstanding indebtedness of the Employee
to the Company or in cash (by check), or both.
2.3 Restrictions on Transfer.
------------------------
(a) Except as otherwise provided in subsection (b) below, the
Employee shall not, prior to the later of the Vesting Date or termination of the
Purchase Option, if applicable, sell, assign, transfer, pledge, hypothecate or
otherwise dispose of, by operation of law or otherwise (collectively
"transfer"), any of the Shares, or any interest therein, unless and until such
Shares are no longer subject to the Purchase Option.
(b) Notwithstanding the foregoing, the Employee may transfer Shares
to the Employee's executor, administrator, guardian, conservator or other legal
representative; provided, that the Stock held by such authorized transferee
shall remain subject to the provisions of this Agreement.
(c) If any transfer of any of the Shares is made or attempted
contrary to the provisions of this Agreement, in addition to any other remedies
that the Company may have, the
2
<PAGE>
Company shall have the right and option to purchase the Shares from the owner
thereof or his transferee at any time before or after the transfer at the Option
Price, as herein provided.
ARTICLE 3 - MISCELLANEOUS
- -------------------------
3.1 Adjustments for Stock Splits, Stock Dividends, etc. If from time to
---------------------------------------------------
time during the term of the Purchase Option there is any stock split-up, stock
dividend, stock distribution or other reclassification of the Common Stock of
the Company, any and all new, substituted or additional securities to which the
Employee is entitled by reason of his ownership of the Shares shall be
immediately subject to the Purchase Option, the restrictions on transfer and the
other provisions of this Agreement in the same manner and to the same extent as
the Shares, and the Option Price shall be appropriately adjusted.
3.2 Withholding Taxes.
-----------------
(a) The Employee acknowledges and agrees that the Company has the
right to deduct from payments of any kind otherwise due to the Employee any
federal, state or local taxes of any kind required by law to be withheld with
respect to the award of the Shares by the Employee.
(b) If the Employee elects, in accordance with Section 83(b) of the
Internal Revenue Code of 1986, as amended, to recognize ordinary income in the
year of acquisition of the Shares, the Company may require that the Employee, at
the time of such election, make an additional payment for withholding tax
purposes (or enter into an alternative arrangement to assure such payment) based
on the difference, if any, between the purchase price for such Shares and the
fair market value of such Shares as of the day immediately preceding the date of
the purchase of such Shares by the Employee.
3.3 No Rights To Employment. Nothing contained in this Agreement shall be
-----------------------
construed as giving the Employee any right to be retained as an employee of the
Company.
3.4 Waiver; Disposition of Stock. From time to time the Company may waive
----------------------------
its rights hereunder either generally or with respect to one or more specific
transfers which have been proposed, attempted or made.
3.5 Restrictive Legends. All certificates representing Shares shall have
-------------------
affixed thereto legends in substantially the following form:
"The shares of stock represented by this certificate are subject to
restrictions on transfer and an option to purchase set forth in a
certain Restricted Stock Agreement between the corporation and the
registered owner of this certificate (or his predecessor in interest).
Such Agreement is available for inspection without charge at the
principal executive offices of the corporation."
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold,
transferred or otherwise disposed of in the absence of an effective
registration statement under such Act or an opinion of counsel
satisfactory to the corporation to the effect that such registration
is not required."
3
<PAGE>
3.6 Successors and Assigns; Assignment. This Agreement shall be binding
----------------------------------
upon the parties hereto and their heirs, representatives, successors and
assigns. The Company may assign its rights hereunder either generally or from
time to time.
3.7 Notices. All notices to a party hereto shall be in writing and shall
-------
be deemed to have been adequately given if delivered in person or mailed,
postage pre-paid and registered or certified mail or federal express or other
recognized commercial courier service:
If to the Company:
Hologic, Inc.
35 Crosby Drive
Bedford, Massachusetts 01730
Attention: Treasurer
If to Employee:
Glenn P. Muir
19 Dane Road
Lexington, MA 02173
or to such other address as any party may from time to time designate for itself
by notice in writing given to the other parties hereto.
3.8 Amendments. This Agreement may be amended or modified in whole or in
----------
part only by an instrument in writing signed by the Company and the Employee.
3.9 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties, and all premises, representations, understandings,
warranties and agreements with reference to the subject matter hereof have been
expressed herein or in the documents incorporated herein by reference.
3.10 Applicable Law; Severability. This Agreement shall be governed by and
----------------------------
construed and enforced in accordance with Delaware law. Wherever possible, each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision hereof shall be
prohibited by or invalid under any such law, that provision shall be ineffective
only to the extent of such prohibition or invalidity, without invalidating or
nullifying the remainder of that provision or any other provisions of this
Agreement.
3.11 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed in original but all of which
together shall constitute one and the same instrument.
3.12 Effect of Headings. Any table of contents, title of an article or
------------------
section heading herein contained is for convenience or reference only and shall
not affect the meaning of construction of any of the provisions hereof.
4
<PAGE>
IN WITNESS WHEREOF, the Employee has hereunto set his hand and the Company
has authorized this instrument to be signed by its officers thereunder duly
authorized, effective as an instrument under seal.
HOLOGIC, INC.
By: /s/ S. David Ellenbogen
------------------------------
Name: S. David Ellenbogen
Title: Chairman and CEO
EMPLOYEE
/s/ Glenn P. Muir
------------------------------
Glenn P. Muir
5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>STEVE L. NAKASHIGE STOCK AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.14
HOLOGIC, INC.
RESTRICTED STOCK AGREEMENT
--------------------------
AGREEMENT made this 12th day of November 1998, between Hologic, Inc., a
Delaware corporation (the "Company"), and Steve L. Nakashige (the "Employee").
W I T N E S S E T H:
-------------------
WHEREAS, the Employee is an employee of the Company; and
WHEREAS, in consideration of the valuable services rendered by the Employee
to the Company, the Company desires to award to the Employee 3,000 shares (the
"Shares") of the Company's Common Stock, $.01 par value per share (the "Common
Stock"), and subject to the terms and conditions set forth herein;
NOW, THEREFORE, for good and valuable consideration, receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1 - ACQUISITION OF SHARES
- ---------------------------------
1.1 Award of Shares. The Company hereby awards the Shares to the Employee,
---------------
subject to the terms and conditions of this Agreement. The Company shall issue
to the Employee one or more certificates in the name of the Employee for the
number of Shares herein granted.
1.2 Investment Representations. The Employee represents, warrants and
--------------------------
covenants as follows:
(a) The Employee is acquiring the Shares for his own account for
investment only, and not with a view to, or for sale in connection with, any
distribution of the Shares in violation of the Securities Act of 1933, as
amended (the "Securities Act"), or any rule or regulation under the Securities
Act.
(b) The Employee understands that (i) the Shares have not been
registered under the Securities Act and are "restricted securities" within the
meaning of Rule 144 under the Securities Act, (ii) the Shares cannot be sold,
transferred or otherwise disposed of unless they are subsequently registered
under the Securities Act or an exemption from registration is then available;
(iii) in any event, the exemption from registration under Rule 144 will not be
available unless a public market then exists for the Common Stock, adequate
information concerning the Company is then available to the public, and other
terms and conditions of Rule 144 are complied with; and (iv) the Company has no
obligation or current intention to register the Shares under the Securities Act.
ARTICLE 2 - COMPANY REPURCHASE RIGHT
- ------------------------------------
2.1 Purchase Option. In the event that the Employee ceases to be employed
---------------
by the Company as a full-time employee for any reason or no reason, with or
without cause, prior to November 12, 2000 (the "Vesting Date"), the Company
shall have the right and option (the
<PAGE>
"Purchase Option") to purchase from the Employee, for the sum of the par value
($.01) per share (the "Option Price") any or all of the Shares as the Company
shall elect. For purposes of this Agreement, employment with the Company shall
include employment with a subsidiary of the Company.
2.2 Exercise of Purchase Option and Closing.
---------------------------------------
(a) The Company may exercise the Purchase Option by delivering or
mailing to the Employee (or his estate), in accordance with Section 3.7, written
notice of exercise by the later of the Vesting Date or 180 days after the
termination of the employment of the Employee with the Company. Such notice
shall specify the number of Shares to be purchased. If and to the extent the
Purchase Option is not so exercised by the later of the Vesting Date or such
180-day period, the Purchase Option shall automatically terminate effective upon
the expiration of the applicable time period.
(b) Within 10 days after his receipt of the Company's notice of the
exercise of the Purchase Option pursuant to subsection (a) above, the Employee
(or his estate) shall tender to the Company at its principal offices the
certificate or certificates representing the Shares which the Company has
elected to purchase, duly endorsed in blank by the Employee or with duly
executed stock powers attached thereto, all in form suitable for the transfer of
such Shares to the Company. Upon its receipt of such Shares, the Company shall
deliver or mail to the Employee a check in the amount of the aggregate Option
Price therefor.
(c) In the event that the Company elects to exercise its Purchase
Option (or its option to purchase the Employee's shares pursuant to Section
2.3(c)), it may do so by cancelling the certificate(s) representing the Shares
and depositing the purchase price determined hereunder with the Company's
transfer agent or in a bank account for the benefit of Employee, whereupon such
Shares shall be, for all purposes, cancelled and neither the Employee nor any
transferee shall have any rights as one of its stockholders with respect to such
Shares for any purpose, including without limitation dividend and voting rights.
In addition to any other legal or equitable remedies which it may have, the
Company may enforce its rights by actions for specific performance (to the
extent permitted by law).
(d) The Option Price may be payable, at the option of the Company, by
cancellation of all or a portion of any outstanding indebtedness of the Employee
to the Company or in cash (by check), or both.
2.3 Restrictions on Transfer.
------------------------
(a) Except as otherwise provided in subsection (b) below, the
Employee shall not, prior to the later of the Vesting Date or termination of the
Purchase Option, if applicable, sell, assign, transfer, pledge, hypothecate or
otherwise dispose of, by operation of law or otherwise (collectively
"transfer"), any of the Shares, or any interest therein, unless and until such
Shares are no longer subject to the Purchase Option.
(b) Notwithstanding the foregoing, the Employee may transfer Shares
to the Employee's executor, administrator, guardian, conservator or other legal
representative; provided, that the Stock held by such authorized transferee
shall remain subject to the provisions of this Agreement.
(c) If any transfer of any of the Shares is made or attempted
contrary to the provisions of this Agreement, in addition to any other remedies
that the Company may have, the
2
<PAGE>
Company shall have the right and option to purchase the Shares from the owner
thereof or his transferee at any time before or after the transfer at the Option
Price, as herein provided.
ARTICLE 3 - MISCELLANEOUS
- -------------------------
3.1 Adjustments for Stock Splits, Stock Dividends, etc. If from time to
---------------------------------------------------
time during the term of the Purchase Option there is any stock split-up, stock
dividend, stock distribution or other reclassification of the Common Stock of
the Company, any and all new, substituted or additional securities to which the
Employee is entitled by reason of his ownership of the Shares shall be
immediately subject to the Purchase Option, the restrictions on transfer and the
other provisions of this Agreement in the same manner and to the same extent as
the Shares, and the Option Price shall be appropriately adjusted.
3.2 Withholding Taxes.
-----------------
(a) The Employee acknowledges and agrees that the Company has the
right to deduct from payments of any kind otherwise due to the Employee any
federal, state or local taxes of any kind required by law to be withheld with
respect to the award of the Shares by the Employee.
(b) If the Employee elects, in accordance with Section 83(b) of the
Internal Revenue Code of 1986, as amended, to recognize ordinary income in the
year of acquisition of the Shares, the Company may require that the Employee, at
the time of such election, make an additional payment for withholding tax
purposes (or enter into an alternative arrangement to assure such payment) based
on the difference, if any, between the purchase price for such Shares and the
fair market value of such Shares as of the day immediately preceding the date of
the purchase of such Shares by the Employee.
3.3 No Rights To Employment. Nothing contained in this Agreement shall be
-----------------------
construed as giving the Employee any right to be retained as an employee of the
Company.
3.4 Waiver; Disposition of Stock. From time to time the Company may waive
----------------------------
its rights hereunder either generally or with respect to one or more specific
transfers which have been proposed, attempted or made.
3.5 Restrictive Legends. All certificates representing Shares shall have
-------------------
affixed thereto legends in substantially the following form:
"The shares of stock represented by this certificate are subject to
restrictions on transfer and an option to purchase set forth in a
certain Restricted Stock Agreement between the corporation and the
registered owner of this certificate (or his predecessor in interest).
Such Agreement is available for inspection without charge at the
principal executive offices of the corporation."
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold,
transferred or otherwise disposed of in the absence of an effective
registration statement under such Act or an opinion of counsel
satisfactory to the corporation to the effect that such registration
is not required."
3
<PAGE>
3.6 Successors and Assigns; Assignment. This Agreement shall be binding
----------------------------------
upon the parties hereto and their heirs, representatives, successors and
assigns. The Company may assign its rights hereunder either generally or from
time to time.
3.7 Notices. All notices to a party hereto shall be in writing and shall
-------
be deemed to have been adequately given if delivered in person or mailed,
postage pre-paid and registered or certified mail or federal express or other
recognized commercial courier service:
If to the Company:
Hologic, Inc.
35 Crosby Drive
Bedford, Massachusetts 01730
Attention: Treasurer
If to Employee:
Steve L. Nakashige
34 Chicory Lane
Westford, MA 01886
or to such other address as any party may from time to time designate for itself
by notice in writing given to the other parties hereto.
3.8 Amendments. This Agreement may be amended or modified in whole or in
----------
part only by an instrument in writing signed by the Company and the Employee.
3.9 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties, and all premises, representations, understandings,
warranties and agreements with reference to the subject matter hereof have been
expressed herein or in the documents incorporated herein by reference.
3.10 Applicable Law; Severability. This Agreement shall be governed by and
----------------------------
construed and enforced in accordance with Delaware law. Wherever possible, each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision hereof shall be
prohibited by or invalid under any such law, that provision shall be ineffective
only to the extent of such prohibition or invalidity, without invalidating or
nullifying the remainder of that provision or any other provisions of this
Agreement.
3.11 Counterparts. This Agreement may be executed in multiple counterparts,
------------
each of which shall be deemed in original but all of which together shall
constitute one and the same instrument.
3.12 Effect of Headings. Any table of contents, title of an article or
------------------
section heading herein contained is for convenience or reference only and shall
not affect the meaning of construction of any of the provisions hereof.
4
<PAGE>
IN WITNESS WHEREOF, the Employee has hereunto set his hand and the Company
has authorized this instrument to be signed by its officers thereunder duly
authorized, effective as an instrument under seal.
HOLOGIC, INC.
By:/s/ Glenn P. Muir
------------------------------
Name: Glenn P. Muir
Title: Vice President, Finance
EMPLOYEE
/s/ Steve L. Nakashige
---------------------------------
Steve L. Nakashige
5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.23
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>SECURED PROMISSORY NOTE
<TEXT>
<PAGE>
Exhibit 10.23
Boston, Massachusetts
SECURED PROMISSORY NOTE
$25,000,000.00 September 15, 2000
FOR VALUE RECEIVED, HOLOGIC, INC., a corporation organized under the laws
of the State of Delaware (herein referred to as "Maker"), promises to pay to the
order of TREX MEDICAL SYSTEMS CORPORATION, a Delaware corporation having its
principal address at 81 Wyman Street, Waltham, Massachusetts (the "Payee"), at
-----
Payee's principal address or such other place as Holder hereof may designate in
writing (the legal holder from time to time of this Note, including Payee as the
initial holder, being hereinafter referred to as "Holder"), the principal sum of
------
Twenty-Five Million and No/100 Dollars ($25,000,000.00), (hereinafter referred
to as "Principal Indebtedness"), together with interest thereon at an annual
----------------------
rate of eleven and one-half percent (11.5%) (the "Interest Rate"), in accordance
-------------
with the provisions hereinafter set forth. This Note is delivered under the
terms of a certain Asset Purchase and Sale Agreement, dated August 13, 2000 (the
"Asset Purchase Agreement"), among the Maker, the Payer, Trex Medical
Corporation, ThermoTrex Corporation and Thermo Electron Corporation.
1. Terms of Payment. The Maker shall make an initial interest payment on
----------------
September 13, 2001 of all interest accrued on the unpaid Principal Indebtedness
from time to time outstanding through such date at the Interest Rate.
Thereafter, the Maker shall make semi-annual payments of interest accrued at the
Interest Rate on the unpaid Principal Indebtedness from time to time outstanding
under this Note on September 13 and March 13 of each year. On September 13,
2003 (the "Maturity Date"), Maker shall pay to Holder the entire Principal
-------------
Indebtedness then remaining unpaid, together with accrued and unpaid interest
thereon at the Interest Rate and any other charges and amounts of money due
under this Note, the Bedford Mortgage (hereinafter defined) and the Danbury
Mortgage (hereinafter defined), and any other documents evidencing, securing or
pertaining to the incurrence of the Principal Indebtedness, (collectively, the
"Loan Documents"). Notwithstanding anything to the contrary contained herein,
- ---------------
<PAGE>
after the occurrence of an Event of Default (as hereinafter defined) any and all
sums of money held or received by Holder may be applied to such items, in such
order, at such times and in such manner as Holder deems appropriate.
2. Prepayment. Maker may prepay the Principal Indebtedness in whole or in
----------
part, together with any and all accrued interest on the Principal Indebtedness
prepaid and other sums due under the Loan Documents, at any time without premium
or penalty.
3. Security. This Note is secured by, among other things, (a) a Mortgage,
--------
Security Agreement and Assignment of Leases and Rents (hereinafter referred to
as the "Bedford Mortgage"), given by Maker to Payee, of even date herewith, with
----------------
respect to real property and improvements located in Bedford, Massachusetts and
(b) an Open-End Mortgage Deed, Security Agreement and Assignment of Leases and
Rent (hereinafter referred to as the "Danbury Mortgage"), given by Maker to
Payee, of even date herewith, with respect to real property and improvements
located in Danbury, Connecticut. The Bedford Mortgage and the Danbury Mortgage
are hereinafter collectively referred to as the "Mortgage".
4. Location and Medium of Payments. The sums payable under this Note or
-------------------------------
under the Mortgage shall be paid to Holder at its principal address hereinabove
set forth, or at such other place as Holder may from time to time hereafter
designate to Maker in writing, in legal tender of the United States of America.
5. Acceleration of Maturity. At the option of Holder, which may be
------------------------
exercised at any time after one or more of the following events (each being an
"Event of Default") shall have occurred, the whole of the Principal
- -----------------
Indebtedness, together with all interest and other charges due under any of the
Loan Documents, shall immediately become due and payable ("Acceleration of
---------------
Maturity"): (i) failure of Maker to pay any amount due under the Loan Documents
- --------
within five (5) days of the due date of such payment, (ii) except as otherwise
provided in this Section 5, a default by Maker in the due performance of any of
its covenants or agreements contained in any Loan Document if such default
continues for more than 30 days after notice thereof from Holder, provided that
if such default cannot be cured with the exercise of diligent efforts within
such 30 days but is reasonably susceptible of cure, such 30 day period shall be
extended for a period of time as shall be reasonably required for Maker, in the
exercise of diligent efforts, to cure the default if the Maker commences such
efforts within 30 days after notice thereof from Holder and thereafter
diligently pursues such efforts, (iii) the making of a false or materially
misleading representation, warranty
- 2 -
<PAGE>
or statement by Maker or any guarantor in any Loan Document, certificate,
affidavit or other instrument executed or delivered in connection with the Loan
Documents; (iv) a material inaccuracy in Sections 3.8 or 3.9 of the Asset
Purchase Agreement which materially and adversely affects the ability of the
Maker to perform its obligations under this Note, (v) a default under any other
mortgage or security agreement which covers or affects the Mortgaged Property
(as defined in the Mortgage) if such default has not been cured at least five
(5) days prior to the expiration of any notice or cure period under such
mortgage or security agreement, (vi) the failure to maintain insurance required
under the Mortgage, (vii) the dissolution, termination or liquidation of Maker,
(viii) the creation or placement of any lien on the Mortgaged Property which
lien was not approved by Holder or permitted by the Loan Documents, (ix) a sale
or other Transfer (as defined in the Mortgage) of the Mortgaged Property, (x) if
a petition under Title 11, United States Code, shall be filed by or against
Maker or any guarantor of Maker's obligations under the Loan Documents (which,
in the case of a petition against the Maker or any such guarantor, is not stayed
or dismissed within 60 days) or if Maker or any guarantor of Maker's obligations
under the Loan Documents shall seek or consent to the appointment of a receiver
or trustee for itself or for any of the Mortgaged Property, file a petition
seeking relief under the bankruptcy or other similar laws of the United States,
any state or any jurisdiction, make a general assignment for the benefit of
creditors, or be unable to pay its debts as they become due; if a court shall
enter an order, judgment or decree appointing, with or without the consent of
Maker or any guarantor of Maker's obligations under the Loan Documents, a
receiver or trustee for it or for any of the Mortgaged Property or approving a
petition filed against Maker or any guarantor of Maker's obligations under the
Loan Documents which seeks relief under the bankruptcy or other similar laws of
the United States, any state or any jurisdiction (any one of the foregoing an
"Insolvency Event"), (xi) a default by the Maker in the due performance of the
covenants contained in Article III of each of the Bedford Mortgage and the
Danbury Mortgage, (xii) the Maker or any subsidiary of Maker shall fail to pay,
within any applicable period of grace, any obligation for borrowed money or
credit received which in the aggregate represents indebtedness of $10,000,000 or
more, or fail to observe or perform any material term, covenant or argument
contained in any agreement by which it is bound evidencing or securing borrowed
money or credit received which in the aggregate represents indebtedness of
$10,000,000 or more which results in the acceleration of the maturity thereof,
(xiii) a Change of Control (as defined below) shall have occurred. As used
herein, "Change of Control" shall mean the occurrence of any of the following
events: (a) the acquisition by any individual, corporation, partnership, trust,
unincorporated association, business, or other legal entity (a "Person")
- 3 -
<PAGE>
(including any syndicate or group deemed to be a "person" under Section 13(d)(3)
of the Securities and Exchange Act of 1934, as amended) of beneficial ownership,
directly or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of shares of capital stock of the Maker
entitling such Person to exercise 50% or more of the total voting power of all
shares of capital stock of the Maker entitled to vote generally in the elections
of directors (any shares of voting stock of which such person or group is the
beneficial owner that are not then outstanding being deemed outstanding for the
purposes of calculating such percentage); (b) any consolidation of the Maker
with, or merger of the Maker into, any other Person, any merger of another
Person into the Maker, or any sale or transfer of all or substantially all of
the assets of the Maker to another Person (other than a merger (A) which does
not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of capital stock of the Maker or (B) which is effected solely
to change the jurisdiction of incorporation of the Maker or (C) a merger in
which the holders of a majority of the voting stock of the Maker immediately
prior to the merger hold a majority of the voting stock of the survivor
immediately after the merger); or (c) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Maker (together with any new directors whose election by such
Board of Directors or whose nomination for election by the stockholders of the
Maker was approved by a vote of 66-2/3% of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Maker then in office.
6. Late Charges; Interest Following Event of Default. If any payment due
-------------------------------------------------
under this Note, the Mortgage or any other Loan Document is not paid when due,
after giving effect to any cure or grace period, Maker shall pay and Holder
shall be entitled to collect a late payment charge for each month or fraction
thereof during which such payment is not made when due and for each month
thereafter that such sum remains unpaid, equal to the lesser of four percent
(4%) of such late payment or the maximum amount permitted by law, for the
purpose of defraying the expense incurred by Holder in handling and processing
such delinquent payment, and such amount shall be secured by the Loan Documents.
Such charge shall be payable to Holder as additional interest and not as a
penalty.
In addition to any late payment charge which may be due under this Note,
Maker shall pay interest on all sums due hereunder at a rate (the "Default
-------
Rate") equal to the lesser of (i) the Interest Rate plus four percent (4%)
- ----
- 4 -
<PAGE>
per annum, or (ii) the maximum rate permitted by law, from and after the first
to occur of the following events: if Holder elects to cause the Acceleration of
Maturity; the occurrence of an Insolvency Event, or if all sums due hereunder
are not paid on the Maturity Date.
7. Collection and Enforcement Costs. Maker, upon demand, shall pay Holder
--------------------------------
for all costs and expenses, including without limitation attorneys' fees, paid
or incurred by Holder in connection with the collection of any sum due
hereunder, or in connection with enforcement of any of Holder's rights or
Maker's obligations under this Note, the Mortgage, or any of the other Loan
Documents, together with interest thereon at the Default Rate.
8. Continuing Liability. The obligation of Maker to pay the Principal
--------------------
Indebtedness, interest and all other sums due hereunder shall continue in full
force and effect and shall in no way be impaired until the actual payment
thereof to Holder, and in case of a sale or transfer of all or any part of the
Mortgaged Property, or in case of any further agreement given to secure the
payment of this Note, or in case of any agreement or stipulation extending the
time or modifying the terms of payment above recited, Maker shall nevertheless
continue to be liable on this Note, as extended or modified by any such
agreement or stipulation, unless released and discharged in writing by Holder.
9. Joint and Several Liability. If more than one person, corporation,
---------------------------
partnership or other entity shall now or at any time in the future execute this
Note as Maker and/or assume the obligations of Maker hereunder, then each person
and entity shall be fully liable for all such assumed obligations of Maker
hereunder and such obligations shall be joint and several.
10. No Oral Changes; Waivers; Offsets. This Note may not be changed
---------------------------------
orally, but only by an agreement in writing signed by the party against whom
enforcement of a change is sought. The provisions of this Note shall extend and
be applicable to all renewals, amendments, extensions, consolidations and
modifications of the other Loan Documents, and any and all references herein to
the Loan Documents shall be deemed to include any such renewals, amendments,
extensions, consolidations, or modifications thereof.
Maker and any future indorsers, sureties, indemnitors and guarantors
hereof, jointly and severally, waive presentment for payment, demand, notice of
nonpayment, notice of partial payment, notice of dishonor, protest of any
dishonor, notice of protest, and protest of this Note, and all other notices or
formalities to which they may be
- 5 -
<PAGE>
entitled, and all suretyship defenses of every kind and nature and notices in
connection with the delivery, acceptance, performance, default (except notice of
default required hereby, if any), or enforcement of the payment of this Note,
and they agree that the liability of each of them shall be unconditional without
regard to the liability of any other party and shall not be in any manner
affected by an indulgence, extension of time, renewal, waiver or modification
granted or consented to by Holder; and Maker and all future indemnitors,
indorsers, sureties and guarantors hereof consent to any and all extensions of
time, renewals, waivers or modifications that may be granted by Holder hereof
with respect to the payment or other provisions of this Note and to the release
of the collateral, or any part thereof, with or without substitution, and agree
that additional makers, indorsers, indemnitors, guarantors, or sureties may
become parties hereto without notice to them or affecting their liability
hereunder.
Holder shall not by any act of omission or commission be deemed to waive
any of its rights or remedies hereunder unless such waiver shall be in writing
and signed by Holder, and then only to the extent specifically set forth
therein; a waiver with respect to one event shall not be construed as
continuing or as a bar to or waiver of such right or remedy with respect to a
subsequent event. The acceptance by Holder of payment hereunder that is less
than payment in full of all amounts due at the time of such payment shall not
without the express written consent of Holder: (i) constitute a waiver of the
right to exercise any of Holder's remedies at that time or at any subsequent
time, (ii) constitute an accord and satisfaction or (iii) nullify any prior
exercise of any remedy.
No failure to cause an Acceleration of Maturity hereof by reason of an
Event of Default hereunder, acceptance of a past due installment or indulgences
granted from time to time shall be construed (i) as a novation of this Note or
as a reinstatement of the indebtedness evidenced hereby or as a waiver of such
right of acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note, or (ii) to prevent the exercise of such
right of acceleration or any other right granted hereunder or by applicable
laws; and, to the maximum extent permitted by law, Maker hereby expressly waives
the benefit of any statute or rule of law or equity now provided, or which may
hereafter be provided, which would produce a result contrary to or in conflict
with the foregoing.
To the maximum extent permitted by law, Maker hereby waives and renounces
for itself, its heirs, successors and assigns, all rights to the benefits of any
statute of limitations and any moratorium, reinstatement, marshalling,
forbearance, valuation, stay, extension, redemption (after a sale by
foreclosure), appraisement and
- 6 -
<PAGE>
exemption now provided, or which may hereafter be provided, by the Constitution
and laws of the United States of America and of any state thereof, both as to
itself and in and to all of its property, real and personal, against the
enforcement and collection of the obligations evidenced by this Note.
All payments by the Maker hereunder and under the Mortgage shall be made
without setoff, deduction, defense or counterclaim, howsoever arising. The
Holder may elect, in its sole discretion, to effect the payment of any
indemnification obligation of the Holder to the Maker pursuant to the terms of
the Asset Purchase Agreement by crediting such amounts against the outstanding
Principal Indebtedness and any accrued interest evidenced by this Note.
12. Bind and Inure. This Note shall bind and inure to the benefit of the
--------------
parties hereto and their respective legal representatives, heirs, successors and
assigns.
13. Applicable Law; Service of Process; Severability. The provisions of
------------------------------------------------
this Note shall be construed and enforceable in accordance with the laws of the
Commonwealth of Massachusetts. Service of process may be made upon the Maker by
mailing a copy of the summons and any complaint to the Borrower, by certified or
registered mail, return receipt requested, at the address to be used for the
giving of notice to the Maker under this Note.
If any provision of this Note or the application hereof to any person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable, neither the remainder of this Note nor the application of such
provision to any other person or circumstance shall be affected thereby, but
rather the same shall be enforced to the greatest extent permitted by law,
except that if such provision relates to the payment of a monetary sum and if
Holder in its reasonable judgment concludes that timely payment of all
principal, interest, fees and expenses provided for in the Loan Documents is
jeopardized or threatened, then Holder may, at its option, declare the entire
indebtedness evidenced hereby due and payable upon sixty (60) days prior written
notice to Maker.
14. Usury. It is hereby expressly agreed that if from any circumstances
-----
whatsoever fulfillment of any provision of this Note, at the time performance of
such provision shall be due, shall involve transcending the limit of validity
then prescribed by any applicable usury statute or any other law, with regard to
obligations of like character and amount, then ipso facto the obligation to be
---- -----
fulfilled shall be reduced to the limit of such validity, so that in no
- 7 -
<PAGE>
event shall any exaction be possible under this Note that is in excess of the
limit of such validity. In no event shall Maker be bound to pay for the use,
forbearance or detention of the money loaned pursuant hereto interest of more
than the legal limit in effect at the time, the right to demand any such excess
being hereby expressly waived by Holder.
15. Notice. Any notice, request, demand, statement or consent made
------
hereunder shall be in writing signed by the party giving such notice, request,
demand, statement or consent, and shall be deemed to have been properly given if
either delivered personally, delivered to a reputable overnight delivery service
providing a receipt or deposited in the United States Mail, postage prepaid and
certified return receipt requested, at the address set forth below, or at such
other address within the continental United States of America as may have
theretofore been designated in writing. The effective date of any notice given
as aforesaid shall be the date of personal service, one (1) business day after
delivery to such overnight delivery service, or three (3) business days after
being deposited in the United States Mail, whichever is applicable. The phrase
"business day" or "Business Day", and similar phrases, as used in this Note
shall mean any day other than a Saturday, a Sunday or a Federal holiday on which
the U.S. Postal Service offices are closed for business in Boston,
Massachusetts. For purposes hereof, the addresses are as follows:
If to Holder: Trex Medical Systems Corporation
81 Wyman Street
P.O. Box 9046
Waltham, Massachusetts 02254-9046
Attn: James H. DaCosta
With a copy to: Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attn: Hal J. Leibowitz, Esq.
And to: Thermo Electron Corporation
81 Wyman Street
P.O. Box 9046
Waltham, Massachusetts 02254-9046
Attn: General Counsel
If to Maker: Hologic, Inc.
35 Crosby Drive
Bedford, Massachusetts 01730
Attn: Glenn Muir
With a copy to: Brown, Rudnick, Freed & Gesmer
One Financial Center
- 8 -
<PAGE>
Boston, Massachusetts 02111
Attn: Philip Flink, Esq.
16. Attorneys' Fees. Any reference to "attorney fees", "attorney's fees",
---------------
or "attorneys' fees" in this document includes but is not limited to both the
reasonable fees, charges and costs incurred by Holder through its retention of
outside legal counsel and the allocable fees, costs and charges for services
rendered by Holder's in-house counsel. Any reference to "attorney fees",
"attorney's fees", or "attorneys' fees" shall also mean those attorneys or legal
fees, costs and charges incurred by Holder in the collection of any Indebtedness
(as defined and described in the Mortgage), the enforcement of any obligations
hereunder, the protection of the Mortgaged Property, the foreclosure of the
Mortgage, the sale of the Mortgaged Property, the defense of actions arising
hereunder and the collection, protection or setoff of any claim Holder may have
in a proceeding under Title 11, United States Code.
17. Waiver of Trial by Jury. MAKER AND HOLDER HEREBY IRREVOCABLY AND
-----------------------
UNCONDITIONALLY WAIVE THEIR RIGHTS TO A TRIAL BY JURY AS TO ANY ACTION, SUIT,
PROCEEDING OR COUNTERCLAIM THAT RELATES TO OR ARISES OUT OF ANY OF THE LOAN
DOCUMENTS OR THE ACTS OR FAILURE TO ACT OF OR BY HOLDER IN THE ENFORCEMENT OF
ANY OF THE TERMS OR PROVISIONS OF THIS NOTE OR ANY OF THE OTHER LOAN DOCUMENTS.
18. Entire Agreement; Amendments in Writing. THIS NOTE, THE OTHER LOAN
---------------------------------------
DOCUMENTS AND THE ASSET PURCHASE AGREEMENT EMBODY THE FINAL, ENTIRE AGREEMENT
AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED OR
VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HEREOF. THERE ARE NO ORAL AGREEMENTS AMONG THE
PARTIES HERETO. The provisions of this Note and the Loan Documents may be
amended or waived only by an instrument in writing signed by the Maker and
Holder.
19. Headings. The headings of the Articles, Sections and Subsections
--------
hereof are inserted for convenience of reference only and shall in no way alter,
modify or define, or be used in construing the text of such Articles, Sections
or Subsections.
- 9 -
<PAGE>
IN WITNESS WHEREOF, Maker has duly executed this Note as a sealed instrument as
of the day and year first above written.
Witness: MAKER:
HOLOGIC, INC.
/s/ Julia Steen By: /s/ Glenn P. Muir
- ----------------------- ----------------------------
Name: Name: Glenn P. Muir
Its: Vice President, Finance and Treasurer
(Principal Financial Officer)
/s/ Curt A. Kramer
- -----------------------
Name:
- 10 -
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.24
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>DANBURY CT. MORTGAGE, SECURITY AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.24
Danbury, CT
OPEN-END MORTGAGE DEED, SECURITY AGREEMENT
AND ASSIGNMENT OF LEASES AND RENTS
by
HOLOGIC, INC., ("Borrower")
for the benefit of
TREX MEDICAL SYSTEMS CORPORATION ("Lender")
September 15, 2000
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I DEFINITIONS................................................................................... 3
1.1 Definitions...................................................................................... 3
Article II CERTAIN ADDITIONAL DEFINITIONS; REPRESENTATIONS AND WARRANTIES............................... 6
2.1 Authority to Enter into Transaction; No Conflict; Authority and Enforceability................... 7
2.2 Borrower Not "Foreign Person".................................................................... 8
Article III BORROWER' S COVENANTS....................................................................... 8
3.1 Payment and Performance by Borrower.............................................................. 8
3.2 Borrower's Compliance with Legal Requirements.................................................... 8
3.3 Borrower's Payment of Impositions................................................................ 8
3.4 Maintenance of First Lien Status of Mortgage: No Subordinate Mortgages or Other Liens Permitted.. 8
3.5 Borrower's Maintenance of Property in Good Repair; No Waste: Alterations and Additions........... 8
3.6 Borrower's Maintenance of Insurance; Waiver of Subrogation....................................... 8
3.7 Lender's Right to Inspect Mortgaged Property..................................................... 10
3.8 Borrower's Provision of Financial Statements and Rent Rolls; Inspection of Books and Records..... 11
3.9 Borrower's Payment for Labor and Materials....................................................... 12
3.10 Further Assurances; Corrections; Recording of Loan Documents; Payment of Stamp Taxes............ 12
3.11 Borrower's Payment of Taxes on Mortgage......................................................... 12
3.12 Borrower's Estoppel Certificate................................................................. 12
3.13 Lender's Expenses and Attorneys' Fees; Default Rate Applicable to
Unpaid Amounts....................................................................................... 12
3.14 Borrower's Address.............................................................................. 13
3.15 Financial Covenants............................................................................. 13
3.16 Improper Use of Mortgaged Property; Condominium or Cooperative.................................. 13
3.17 Replacement of Fixtures and Personalty.......................................................... 13
3.18 Change in Zoning; Grant of Easements; Use of Property; Tax Parcel............................... 13
3.19 Borrower's Defense of Lender.................................................................... 13
3.20 No Transfers of Mortgaged Property or Interests in Borrower Permitted........................... 14
3.21 Notice of Claims and Litigation................................................................. 14
3.22 Intentionally Omitted........................................................................... 14
3.23 Environmental Matters........................................................................... 14
Article IV LEASES....................................................................................... 17
4.1 Borrower's License with Respect to Leases........................................................ 17
4.2 Authorization and Direction to Lessees........................................................... 17
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4.3 Intentionally Omitted............................................................................ 17
4.4 Notification to Lessees; Security Deposits....................................................... 17
4.5 Enforcement...................................................................................... 17
4.6 Anticipation of Rents............................................................................ 17
4.7 Lender's Approval Required for New Leases; Subordination of Leases............................... 18
4.8 Execution, Cancellation or Modification of Leases................................................ 18
4.9 No Sublease or Assignment........................................................................ 18
4.10 Delivery of Leases: Further Acts and Assurances................................................. 18
Article V INSURANCE AND CONDEMNATION PROCEEDS........................................................... 18
5.1 Notice of Damage or Destruction or Taking or Condemnation........................................ 18
5.2 Adjustment of Insurance Claims................................................................... 18
5.3 Application of Insurance Proceeds................................................................ 19
5.4 Condemnation Proceeds Payable to Lender.......................................................... 19
5.5 Application of Condemnation Proceeds............................................................. 19
5.6 Conditions Applicable if Restoration Permitted................................................... 20
Article VI SECURITY AGREEMENT........................................................................... 20
6.1 Security Interest................................................................................ 20
6.2 Financing Statements............................................................................. 21
6.3 Fixture Filing................................................................................... 21
Article VII EVENTS OF DEFAULT........................................................................... 21
7.1 Payment Defaults................................................................................. 21
7.2 Covenant Defaults................................................................................ 21
7.3 False Representations, Warranties and Statements................................................. 21
7.4 Default Under Other Liens........................................................................ 22
7.5 Dissolution. The dissolution, termination, liquidation or merger of Borrower..................... 22
7.6 No Further Encumbrances.......................................................................... 22
7.7 Transfer of Mortgaged Property or Beneficial Interest in Borrower................................ 22
7.8 Insolvency; Bankruptcy........................................................................... 22
7.9 Insurance........................................................................................ 22
7.10 Other Loan Documents............................................................................ 22
Article VIII REMEDIES................................................................................... 22
8.1 Lender's Remedies Upon Default................................................................... 22
8.2 Possession After Foreclosure..................................................................... 26
8.3 Application of Foreclosure and Other Proceeds.................................................... 26
8.4 Miscellaneous Matters Relating to Exercise of Remedies........................................... 27
Article IX MISCELLANEOUS................................................................................ 28
9.1 Borrower's Right to Contest Certain Matters...................................................... 28
9.2 Intentionally Omitted............................................................................ 29
9.3 Notices.......................................................................................... 29
9.4 Covenants Running with the Land: Bind and Inure.................................................. 30
9.5 No Waiver: Severability.......................................................................... 30
9.6 Counterparts..................................................................................... 30
9.7 Applicable Law: Service of Process............................................................... 30
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
9.8 Usury............................................................................................ 31
9.9 Change of Security............................................................................... 31
9.10 Headings for Convenience Only................................................................... 31
9.11 No Representation by Lender..................................................................... 31
9.12 Lender's Right to Assign and Participate Interests.............................................. 31
9.13 Entire Agreement: Amendments in Writing......................................................... 31
9.14 Waiver of Right to Trial by Jury................................................................ 32
Article X SPECIAL STATE PROVISIONS...................................................................... 32
10.1 Mortgage Covenants.............................................................................. 32
10.2 Mortgage Condition.............................................................................. 32
10.3 Open-End Provision.............................................................................. 32
</TABLE>
EXHIBITS
Exhibit A - Legal Description
Exhibit B - Permitted Exceptions
-iii-
<PAGE>
Preamble:
- --------
Hologic, Inc., a Delaware corporation, having a mailing address of 35
Crosby Drive, Bedford, MA ("Borrower"), for consideration paid, does hereby
GRANT, BARGAIN, SELL, MORTGAGE, CONFIRM, WARRANT and CONVEY unto Trex Medical
Systems Corporation, having an address at 81 Wyman Street, P.O. Box 9046,
Waltham, MA 02254-9046 (the "Lender"), with MORTGAGE COVENANTS, to secure
payment of TWENTY-FIVE MILLION AND 00/100 DOLLARS ($25,000,000.00) (the "Loan"),
with interest thereon on such part thereof as shall from time to time remain
unpaid, and all other sums evidenced by or due under that certain Secured
Promissory Note of even date herewith from Borrower to Lender (together with any
and all renewals, modifications, rearrangements, reinstatements, enlargement, or
extensions of such note or of any promissory note or notes given in renewal,
modification, rearrangement, substitution or replacement therefor, the "Note")
or advanced under or secured by the Loan Documents (hereinafter defined), and
any other amounts, payments, or premiums payable under the Note, this Open-End
Mortgage, Security Agreement and Assignment of Leases and Rents (this
"Mortgage") or the other Loan Documents (the "Indebtedness"), all payable as
provided in the Note and in all other Loan Documents, the following
(collectively, the "Mortgaged Property"):
The land located on 36 Apple Ridge Road, Danbury, Fairfield County,
Connecticut, as more particularly described in Exhibit A attached hereto,
---------
together with all right, title, interest and privileges of Borrower in and to
(i) streets, easements, rights-of-way, licenses, vehicle parking right and other
rights appurtenant to or used in connection with such real property or the
Improvements (hereinafter defined) including, without limitation, any drainage
ponds or other like drainage areas not located on the Land (hereinafter defined)
which may be required for water run-off and any easements necessary to obtain
access from the Land to such drainage areas, or to any other area to which
Borrower has a right to drain water or sewer; (ii) any strips or gores of real
property between such real property and abutting or adjacent properties; and
(iii) all water and water rights, mineral rights, timer and crops,
appurtenances, reversions and remainder in, to or relating to such real property
(collectively, the "Land"); and
All buildings, open parking areas, structures and other improvements, and
any and all additions or appurtenances thereto, now or hereafter located on the
Land (the "Improvements"); and
All materials, supplies, equipment, machinery, goods, systems, apparatus,
and other items now owned or hereafter acquired by Borrower and now or hereafter
attached to, installed in, or used in connection with the Improvements or the
Land, together with all appurtenances, replacements, betterments, and
substitutions for any of the foregoing and the proceeds thereof (collectively,
the "Fixtures"); and
All of the right, title, and interest of Borrower in and to the following,
to the extent the same are necessary to the proper use and operation of the
Improvements: (i) furnishings, equipment and machinery which, if attached to the
Improvements, would be Fixtures; (ii) all
-1-
<PAGE>
refundable fees, deposits or other funds or evidences of credit or indebtedness
deposited by or on behalf of Borrower with any governmental authority,
corporation or provider of utility services relating to the Mortgaged Property,
(iii) any awards, settlements, or compensation made by any Governmental
Authority relating to the Mortgaged Property, including those for any change of
grade in any streets and those for municipal utility district or other utility
costs incurred or deposits made in connection with the Land or the Improvements;
(iv) all refunds, rebates or credits in connection with a reduction in taxes
charged against the Mortgaged Property as a result of any applications or
proceedings for reduction or abatement; (v) unearned premiums on any insurance
required to be maintained by Borrower hereunder relating to the Mortgaged
Property; and (vi) all books of account and records relating to the operation of
Mortgaged Property whether or not stored, managed or contained on computer
software or hardware, together with all accessions, replacements, and
substitutions thereto or therefor and the products and/or proceeds thereof
(collectively, the "Personalty"); and
All of the right, title, and interest of Borrower in, to, and under any and
all of the following, whether now or hereafter existing: (i) all contracts and
rights relating to the operation and maintenance, of the Mortgaged Property
(except Leases (hereinafter defined)), including but not limited to management
agreements, maintenance agreements and service contracts; and (ii) warranties
and guarantees relating to the Improvements (collectively, the "Contracts"); and
Any and all leases, master leases, subleases, licenses, concessions, or
other agreements (written or oral, now or hereafter in effect), including any
renewals, extensions, amendments and supplements, which grant to third parties a
possessory interest in and to, or the right to use, all or any part of the
Mortgaged Property, together with all security and other deposits or payments
made in connection therewith (collectively, the "Leases"); and
All of the rents, revenues, income, proceeds, profits, security and other
types of deposits (after Borrower acquires title thereto), and other benefits
paid or payable by parties to the Contracts and/or Leases other than Borrower,
for using, leasing, occupy licensing, possessing, operating from, or otherwise
enjoying all or any portion of the Mortgaged Property, whether due now or
hereafter, including, without limitation, any payments made by a lessee arising
out of the cancellation or termination of any Lease (collectively, the "Rents").
TO HAVE AND TO HOLD the Mortgaged Property unto Lender, forever, subject,
however, to the matters described in Exhibit B hereto ("Permitted Exceptions"),
---------
and upon the terms and conditions of this Mortgage, with the Power of Sale and
right of entry as provided below, and Borrower does hereby bind itself, its
successors and assigns to WARRANT AND FOREVER DEFEND the title to the Mortgaged
Property unto Lender against every person whomever claiming the same or any part
thereof.
-2-
<PAGE>
Article I
DEFINITIONS
-----------
1.1 Definitions. All capitalized terms not otherwise defined in the body
-----------
of this Mortgage shall have the meanings set forth below:
APA. That certain Asset Purchase and Sale Agreement dated August 13, 2000
---
between Borrower and Lender.
Borrower: The individual or entity described as Borrower in the initial
--------
paragraph of this Mortgage and any and all subsequent owners of the Mortgaged
Property (without implying Lender's consent to any Transfer of the Mortgaged
Property).
Code: The Uniform Commercial Code, as amended from time to time, in effect
----
in the state in which the Mortgaged Property is located provided, however, that
in the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the Lender's security interest in the
Mortgaged Property is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than that in which the Mortgaged Property is located, the
term "Code" shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.
Consolidated Tangible Net Worth: The excess of Consolidated Total Assets
-------------------------------
over Consolidated Total Liabilities, and less the sum of:
(a) the total book value of all assets of the Borrower and its
Subsidiaries properly classified as intangible assets under generally accepted
accounting principles, including such items as lease acquisition costs, deferred
charges, goodwill, the purchase price of acquired assets in excess of the fair
market value thereof, trademarks, trade names, service marks, brand names,
copyrights, patents and licenses, and rights with respect to the foregoing; plus
----
(b) all amounts representing any write-up in the book value of any
assets of the Borrower or its Subsidiaries resulting from a revaluation thereof
after September 25, 1999.
Consolidated Total Assets: All assets of the Borrower and its Subsidiaries
-------------------------
determined on a consolidated basis in accordance with generally accepted
accounting principles.
Consolidated Total Liabilities: All liabilities of the Borrower and its
------------------------------
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles.
Contracts: As defined in the Preamble of this Mortgage.
---------
Debtor Relief Laws: Title 11 of the United States Code or any other
------------------
applicable federal or state law, as now or hereafter in effect, relating to
bankruptcy, insolvency, liquidation,
-3-
<PAGE>
receivership, reorganization, arrangement or composition, extension or
adjustment of debts, or similar laws affecting the rights of creditors.
Default Rate: As defined in the Note.
------------
Disposal: The actual or alleged presence, release, spill, transportation,
--------
migration, generation, treatment, processing, storage use or disposal of
Hazardous Materials on, in, under, above or emanating from any portion of the
Mortgaged Property, whether intentional or unintentional, direct or indirect,
foreseeable or unforeseeable.
Distribution: The declaration or payment of any dividend on or in respect
------------
of any shares of any class of capital stock of the Borrower, other than
dividends payable solely in shares of common stock of the Borrower; the
purchase, redemption, or other retirement of any shares of any class of capital
stock of the Borrower, directly or indirectly through a Subsidiary of the
Borrower or otherwise (other than the repurchase or redemption of shares of
common stock of the Borrower or any Subsidiary whose employment or retention is
terminated by the Borrower or any such Subsidiary in an aggregate amount not to
exceed $100,000 during any fiscal year of the Borrower); the return of capital
by the Borrower to its shareholders as such; or any other distribution on or in
respect of any shares of any class of capital stock of the Borrower.
Environmental Claim: Any and all administrative, regulatory or judicial
-------------------
actions, suits, demands, demand letters, claims, liens, notices of non-
compliance or violation, investigations, proceedings, consent orders or consent
agreements (collectively, "Claims") relating in any way to (a) the actual,
-------
threatened or alleged presence or release of Hazardous Materials on, in, under
or at the Mortgaged Property or (b) any Environmental Law, including without
limitation (i) any and all Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and (ii) any and all Claims by any
third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from any release or threatened
release of Hazardous Materials or arising from alleged injury or threat of
injury or damage to health, safety or the environment.
Environmental Laws: As defined in Article II of this Mortgage.
------------------ ----------
Event of Default: As defined in Article VII of this Mortgage.
---------------- -----------
Fixtures: As defined in the Preamble of this Mortgage.
--------
Generally Accepted Accounting Principles or generally accepted accounting
-------------------------------------------------------------------------
principles: Principles that are consistent with the principles promulgated or
- ----------
adopted by the Financial Accounting Standards Board and its predecessors, in
effect for the Borrower's fiscal year ended on September 25, 1999.
Governmental Authority. Any board, agency, commission or department of any
----------------------
federal, state or municipal government having jurisdiction over the Mortgaged
Property.
-4-
<PAGE>
Hazardous Materials: As defined in Article II of this Mortgage.
------------------- ----------
Impositions: (i) All real estate and personal property taxes, charges,
-----------
assessments, and levies and any interest, costs, or penalties with respect
thereto, of any kind and nature whatsoever which at any time may be assessed,
levied, or imposed upon the Mortgaged Property or the ownership, use, occupancy,
or enjoyment thereof; (ii) any sums payable for or under any easement, license,
or agreement maintained for the benefit of the Mortgaged Property; (iii) utility
charges and fees relating to the Mortgaged Property; and (iv) assessments and
charges arising under any subdivision, condominium, planned unit development, or
other declarations, restrictions, regimes, or agreements affecting the Mortgaged
Property.
Improvements: As defined in the Preamble of this Mortgage.
------------
Indebtedness: As defined in the Preamble of this Mortgage.
------------
Indemnified Matters: All obligations (including removal and remedial
-------------------
actions), losses, claims, suits, judgments, liabilities, penalties, damages
(including punitive damages and consequential damages), costs and expenses
(including attorneys', consultants', and contractors' fees and expenses) of any
kind or nature whatsoever that may at any time be incurred by, imposed on or
asserted against Borrower, the Mortgaged Property or any Indemnitee directly or
indirectly based on, or arising or resulting from, any Environmental Claim
relating in any way to (a) Borrower or the Mortgaged Property, or (b) the
exercise by the Lender of any of its rights under any of the provisions of the
Loan Documents, excluding, however, any matter to the extent Lender has provided
to Borrower an indemnity therefor under the APA.
Indemnitee: Each of Lender and any and all subsequent holder(s) of the
----------
Note, plus with respect to each of the foregoing, any and all of their
respective subsidiaries, advisors, trustees, and the directors, officers,
agents, attorneys, employees, participants and successors and assigns of Lender,
all subsequent holder(s) of the Note, and their respective subsidiaries,
advisors and trustees.
Land: As defined in the Preamble of this Mortgage.
----
Legal Requirements: As defined in Article II of this Mortgage.
------------------ ----------
Lender: The individual or entity described as Lender in the initial
------
paragraph of this Mortgage and/or their (its) affiliate(s), separate account(s),
nominee(s) or subsidiary(ies) and any investor, participant, co-lender or
assignee to whom the Loan, in whole or in part, may be sold.
Lessees: The tenants and lessees under the Leases.
-------
Loan Documents: As defined in the Note.
--------------
Mortgaged Property: As defined in the Preamble of this Mortgage.
------------------
-5-
<PAGE>
Note: As defined in the Preamble of this Mortgage.
----
Obligations: Any and all of the covenants, conditions, warranties,
-----------
representation, and other obligations made or undertaken by Borrower or any
other person or party to the Loan Documents as set forth in the Loan Documents.
Permits: As defined in Article II of this Mortgage.
------- ----------
Permitted Exceptions: As defined in the Preamble of this Mortgage.
--------------------
Personalty: As defined in the Preamble of this Mortgage.
----------
Rents: As defined in the Preamble of this Mortgage.
-----
Subordinate Mortgage: Any mortgage, deed of trust, pledge, lien, security
--------------------
interest, encumbrance or charge, or conditional sale or other title retention
agreement, covering all or any portion of the Mortgaged Property, the lien of
which is subordinate and inferior to the lien of this Mortgage.
Subsidiary: Any corporation, association, trust, or other business entity
----------
of which the designated parent shall at any time own directly or indirectly
through a Subsidiary or Subsidiaries at least a majority (by number of votes) of
the outstanding voting stock and the accounts of which are consolidated with the
Borrower in accordance with Generally Accepted Accounting Principles.
Transfer: Any sale, lease, exchange, assignment, conveyance, transfer,
--------
trade, or other transfer or disposition of all or any portion of the Mortgaged
Property (or any related real property interest therein) or any part of the
ownership interest in Borrower which constitutes a "Change of Control" as
defined in the Note, but excluding the following: (a) sales or transfers of
items of Personalty which have become obsolete or worn beyond practical use and
which have been replaced by adequate substitutes having a similar utility and a
value equal to or greater than the replaced items when new; and (b) Approved
Leases.
Article II
CERTAIN ADDITIONAL DEFINITIONS;
REPRESENTATIONS AND WARRANTIES
------------------------------
The following capitalized terms not otherwise defined in the body of this
Mortgage shall have the meaning as set forth below:
Environmental Laws: All federal, state or local laws, rules and regulations
------------------
(whether now existing or hereafter enacted or promulgated, as they may be
amended from time to time) pertaining to Hazardous Materials, environmental
regulations, contamination by hazardous wastes, clean-up of hazardous wastes or
disclosures relating to Hazardous Materials or
-6-
<PAGE>
hazardous wastes, and any judicial or administrative interpretation thereof,
including any judicial or administrative orders or judgments including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. Section 9601 et seq. ("CERCLA"); the Federal Resource
------
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. ("RCRA");
----
Superfund Amendments and Reauthorization Act of 1986, Public Law No. 99-499
("SARA"); Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq. ("TSCA");
---- ----
and all state superlien or environmental clean-up or disclosure statutes in the
state in which the Mortgaged Property is located.
Hazardous Materials: Any petroleum product and all hazardous or toxic
-------------------
substances or wastes or any substances which because of their quantitative
concentration, chemical, radioactive, flammable, explosive, infectious or other
characteristics, constitute or may reasonably be expected to constitute or
contribute to a danger or hazard to public health, safety or welfare or to the
environment, including, without limitation, any asbestos (whether or not
friable) and any asbestos-containing materials, waste oils, solvents and
chlorinated oils, polychlorinated biphenyls (PCBs), toxic metals, etchants,
pickling and plating wastes, explosives, reactive metals and compounds,
pesticides, herbicides, radon gas, urea formaldehyde foam insulation and
chemical, biological and radioactive wastes, or any other similar materials or
any other hazardous or toxic wastes or substances which are included under or
regulated by any Environmental Laws.
Legal Requirements: (a) All present and future laws, rules, regulations
------------------
and permits of any Governmental Authority applicable to the Mortgaged Property,
(b) all covenants, conditions, and restrictions contained in any deeds or other
instruments which relate to the Mortgaged Property, the failure of compliance
with which would materially adversely affect Lender's interest in, or the value
of, the Mortgaged Property, (c) all of Borrower's obligations under all Permits
affecting the Mortgaged Property and all conditions thereof binding upon the
Mortgaged Property.
Permits: All permits, licenses, certificates and approvals issued by
-------
Governmental Authorities or otherwise necessary for the Mortgaged Property to
comply with all Legal Requirements.
Borrower represents, warrants, agrees and confirms that, as of the date
hereof, as follows:
2.1 Authority to Enter into Transaction; No Conflict; Authority and
---------------------------------------------------------------
Enforceability. Borrower has the right to borrow from Lender all funds
- --------------
evidenced by the Note, to encumber its interest in the Mortgaged Property, and
to execute and deliver the Loan Documents. The execution and delivery of the
Loan Documents will not conflict with or constitute a default under any
agreement or Legal Requirement binding upon Borrower. The execution, delivery
and performance of the Loan Documents have been duly authorized by all necessary
actions of Borrower, and the Loan Documents will be legal, valid and binding
obligations of Borrower, enforceable in accordance with their terms.
-7-
<PAGE>
2.2 Borrower Not "Foreign Person". Borrower is not a "foreign person"
-----------------------------
under the Foreign Investment in Real Property Tax Act 1980, or the regulations
promulgated pursuant to such Act or any amendment to such Act or regulations.
Article III
BORROWER' S COVENANTS
---------------------
Borrower covenants and agrees with Lender as follows:
3.1 Payment and Performance by Borrower. Borrower will pay the
-----------------------------------
Indebtedness and perform and discharge the Obligations on or before the time for
performance specified in the Loan Documents.
3.2 Borrower's Compliance with Legal Requirements. Subject to Section 9.1
---------------------------------------------
(Borrower's Right to Contest Certain Matters) Borrower will promptly and
faithfully comply with, conform to, and obey all Legal Requirements.
3.3 Borrower's Payment of Impositions. Subject to Section 9.1 (Borrower's
---------------------------------
Right to Contest Certain Matters), Borrower will pay and discharge the
Impositions not later than thirty (30) days after the due date thereof, and
Borrower shall at Lender's request, deliver to Lender a written' receipt
evidencing the payment of each Imposition no later than ten (10) days prior to
the due date thereof.
3.4 Maintenance of First Lien Status of Mortgage: No Subordinate Mortgages
----------------------------------------------------------------------
or Other Liens Permitted. Borrower will protect the first lien and security
- ------------------------
interest status of this Mortgage and the other Loan Documents and will not
permit to be created or to exist any Subordinate Mortgage or any other lien or
security interest on a parity with, superior to, or inferior to, any of the
liens or security interests of this Mortgage, except for the Permitted
Exceptions.
3.5 Borrower's Maintenance of Property in Good Repair; No Waste:
------------------------------------------------------------
Alterations and Additions. Borrower will keep the Mortgaged Property in good
- -------------------------
order and condition, reasonable wear and tear excepted, and will make all
repairs, replacements, alterations and additions which are reasonably necessary
to keep the Mortgaged Property in such order and condition. Borrower will
prevent any act, occurrence, or neglect which might materially impair the value
or usefulness of the Mortgaged Property for its intended use. Borrower will not
commit or permit any waste of the Mortgaged Property. All alterations or
additions shall be completed promptly in a good and workmanlike manner and in
compliance with all Legal Requirements and other obligations by which Borrower
or the Mortgaged Property is bound. No alterations or additions shall adversely
affect the value or utility of the Mortgaged Property.
3.6 Borrower's Maintenance of Insurance; Waiver of Subrogation. Borrower
----------------------------------------------------------
will obtain and maintain the following insurance upon and relating to the
Mortgaged Property:
-8-
<PAGE>
(a) owner's (and during any period of construction by a third party,
contractors') policy of comprehensive general public liability insurance
(including automobile coverage) on an occurrence basis, with a combined single
limit of not less than $1,000,000 and excess or umbrella liability of at least
$25,000,000, or such higher amount as Lender may reasonably require;
(b) fire and extended coverage insurance against all risks of loss,
including collapse, in an amount not less than the greater of (i) the
outstanding Loan amount or (ii) 100% of the full replacement cost of all
Improvements, including the cost of debris removal, with an agreed-amount
endorsement sufficient at all times to prevent Borrower from becoming a
coinsurer, with no deduction for depreciation;
(c) Intentionally Omitted;
(d) if the Mortgaged Property is now or hereafter becomes situated in
a "flood hazard area," and if required by Lender, a flood insurance policy;
(e) worker's compensation insurance for Borrower and any general
contractor or agent performing any construction work or other services on or
with respect to the Mortgaged Property, in the statutory limits;
(f) Intentionally Omitted;
(g) broad form boiler and machinery insurance (without exclusion for
explosion) covering all boilers or other pressure vessels, machinery and
equipment located in, on or about the Mortgaged Property and insurance against
loss of occupancy or use arising from any breakdown in such amounts as are
generally available at premiums as are generally required by institutional
lenders for properties similar to the Mortgaged Property;
(h) Intentionally Omitted; and
(i) such other insurance, if any, as Lender may reasonably require
from time to time.
Lender acknowledges that the insurance may be provided under a blanket
insurance policy provided that Lender shall be satisfied that sufficient
coverage (as determined by Lender) is allocated under such policy to the
Mortgaged Property and that all requirements of this Section are satisfied by
such policy.
Each insurance policy obtained by Borrower shall provide by way of
endorsements, riders or otherwise that: (a) with respect to liability insurance,
Lender shall be named as an additional insured; with respect to the other
insurance required hereunder (other than worker's compensation insurance), and
with respect to any business interruption, rental value or earthquake insurance
which Borrower may at its option, obtain, Lender shall be named under a standard
noncontributory mortgagee clause providing for such amounts to be payable to
Lender
-9-
<PAGE>
as a mortgagee or loss payee and not as a coinsured; (b) the coverage of Lender
shall not be terminated, reduced, or affected in any manner regardless of any
breach or violation by Borrower of any warranties, declarations, or conditions
in such policy; (c) no such insurance policy shall be canceled, endorsed,
altered, or reissued to effect a change in coverage for any reason and to any
extent unless such insurer shall have first given Lender thirty (30) days' prior
written notice thereof; and (d) Lender may, but shall not be obligated to, make
premium payments to prevent any cancellation, endorsement, alteration, or
reissuance, and such payments shall be accepted by the insurer to prevent the
same; however, Lender shall not be liable for the failure to make such payment
or obtain such insurance, or for the amount, coverage or type of insurance
obtained, the form or legal sufficiency of any such insurance contract, or the
solvency of any such insurance company.
Lender shall be furnished with the original of each initial policy (or
other evidence of insurance acceptable to Lender) simultaneously with the
execution of this Mortgage and the original of each renewal policy (or other
evidence of insurance acceptable to Lender) not less than thirty (30) days'
prior to the expiration of the initial policy or each immediately preceding
renewal policy. All insurance policies required under this Mortgage shall be
with a company or companies authorized to do business in the state in which the
Mortgaged Property is located with a claims paying ability rating of A:XII or
higher, according to the standards set by A.M. Best Company (or a similar rating
by an equivalent rating company satisfactory to Lender). Borrower shall promptly
provide to Lender copies of any and all notices of cancellation, non-renewal,
coverage changes, claims, and demands which Borrower receives from insurers of
the Mortgaged Property.
If Borrower shall fail to obtain any insurance policy or policies required
by Lender, or shall fail to assign and deliver such policies to Lender, then
Lender may, but shall not be required to, obtain such insurance and pay the
premium or premiums therefor, in which event Borrower shall, on demand of
Lender, repay such premium or premiums to Lender and such repayment shall be
secured by the lien of this Mortgage. If Borrower fails to maintain the level
and coverages of insurance required under this Mortgage, then Borrower shall
indemnify Lender to the extent that a casualty occurs and insurance proceeds
would have been available had such insurance been maintained.
Borrower waives any and all right to claim, recover, or obtain subrogation
against Lender or its officers, directors, employees, agents, attorneys, or
representatives for loss or damage to Borrower, the Mortgaged Property,
Borrower's property or the property of others under Borrower's control from any
cause insured against or required to be insured against by the provisions of the
Loan Documents.
3.7 Lender's Right to Inspect Mortgaged Property. Borrower will permit
--------------------------------------------
Lender, and its agents, upon reasonable advance notice to Borrower from time to
time, to enter on and to inspect the Mortgaged Property at reasonable times.
-10-
<PAGE>
3.8 Borrower's Provision of Financial Statements and Rent Rolls;
------------------------------------------------------------
Inspection of Books and Records. Borrower will maintain full and accurate books
- -----------------
of account and other records reflecting the results of the operations of the
Mortgaged Property. Borrower will deliver to the Lender:
(a) as soon as practicable, but in any event not later than one
hundred ten (110) days after the end of each fiscal year of the Borrower, the
consolidated balance sheet of the Borrower and its Subsidiaries as at the end of
such year, and the related consolidated statement of income and consolidated
statement of cash flow for such year, each setting forth in comparative form the
figures for the previous fiscal year and all such consolidated statements to be
in reasonable detail, prepared in accordance with generally accepted accounting
principles (which reporting requirement may be satisfied, for so long as the
Borrower is subject to the reporting requirements of the Securities Exchange Act
of 1934, by the delivery of the Borrower's Annual Report on Form 10-K (or any
successor thereto)), and (unless such certification is included in such Form 10-
K) certified without qualification by the Borrower's independent certified
public accountants; and
(b) as soon as practicable, but in any event not later than sixty-
five (65) days after the end of each of the first three fiscal quarters of the
Borrower, copies of the unaudited consolidated balance sheet of the Borrower and
its Subsidiaries as at the end of such quarter, and the related consolidated
statement of income and consolidated statement of cash flow for the portion of
the Borrower's fiscal year then elapsed, all in reasonable detail and prepared
in accordance with generally accepted accounting principles (which reporting
requirement may be satisfied, for so long as the Borrower is subject to the
reporting requirement of the Securities Exchange Act of 1934, by the delivery of
the Borrower's Quarterly Report on Form 10-Q (or any successor thereto))
together with a certification by the chief financial officer or the treasurer of
the Borrower that to the best of the Borrower's knowledge, the information
contained in such financial statements fairly presents the financial position of
the Borrower and its Subsidiaries on the date thereof (subject to year-end
adjustments).
Each of the items required to be delivered pursuant to subparagraphs
(a) and (b) above shall be accompanied by a certification of Borrower executed
by its chief financial officer that the Borrower has not violated and is not in
violation of the provisions of Section 3.15 hereof, and shall include a
------------
calculation demonstrating compliance with Section 3.15(b) hereof.
Lender shall have the right, at reasonable times and upon reasonable
notice, to audit, examine, make and take away copies or extracts of Borrower's
books of account and records relating to the Mortgaged Property, all of which
shall be maintained and made available to Lender and Lender's representatives
for such purpose at the address specified herein for Borrower or at such other
location as Lender may approve, such approval not to be unreasonably withheld.
-11-
<PAGE>
3.9 Borrower's Payment for Labor and Materials. Subject to Section 9.1
------------------------------------------
(Borrower's Right to Contest Certain Matters) Borrower will promptly pay when
due all bills and costs for labor and materials incurred in connection with the
Mortgaged Property.
3.10 Further Assurances; Corrections; Recording of Loan Documents; Payment
---------------------------------------------------------------------
of Stamp Taxes. From time to time, at the request of Lender, Borrower will (i)
- --------------
promptly correct any defect, error, or omission which may be discovered in the
contents of any Loan Document or in the execution or acknowledgment thereof;
(ii) execute and deliver such further instruments and perform such further acts
and provide such further assurances as may be reasonably necessary, desirable,
or proper, in Lender's opinion, to carry out more effectively the purposes of
this Mortgage and the Loan Documents and to subject to the liens and security
interests of this Mortgage and the Loan Documents any property intended by the
terms hereof or thereof to be covered hereby or thereby, including without
limitation, any renewals, additions, substitutions, replacements, or
appurtenances to the Mortgaged Property; (iii) execute, acknowledge, deliver,
procure, file, and/or record the Loan Documents (as requested by Lender) and if
necessary, replacements thereof, and any other document or instrument deemed
advisable by Lender to protect the liens and the security interests herein
granted against the rights or interests of third persons; and (iv) pay all
documentary stamp taxes, fees and other costs connected with any of the
foregoing.
3.11 Borrower's Payment of Taxes on Mortgage. If at any time any law shall
---------------------------------------
be enacted imposing or authorizing the imposition of any tax upon this Mortgage,
or upon any rights, titles, liens, or security interests created hereby, or upon
the Indebtedness or any part thereof, Borrower will immediately pay all such
taxes; provided, however, that if such law makes it unlawful for Borrower to pay
such tax, then (i) Borrower shall not pay nor be obligated to pay such tax, and
(ii) Borrower must prepay the Indebtedness in full within ninety (90) days after
demand therefor by Lender, and no prepayment penalty or premium shall be payable
thereon.
3.12 Borrower's Estoppel Certificate. In the event of a proposed sale of
-------------------------------
the Loan or an interest thereon by Lender, upon ten (10) days written request of
Lender, Borrower will furnish Lender a written certificate, in form reasonably
satisfactory to Lender, confirming the unpaid balance of the Indebtedness and
that there are no offsets or defenses against full payment of the Indebtedness
and the terms hereof, or if there are any such offsets or defenses, specifying
them and certifying that there does not exist an event which constitutes, or
which upon due notice or lapse of time or both would constitute, an Event of
Default, or if an Event of Default exists, specifying the nature thereof.
3.13 Lender's Expenses and Attorneys' Fees; Default Rate Applicable to
------------------------------------------------------------------
Unpaid Amounts. Borrower will pay on demand all reasonable out-of-pocket costs
- --------------
and expenses including, but not limited to, reasonable professional fees and
expenses including, without limitation, those of architects, engineers or
attorneys, paid or incurred by Lender in connection with the review of any
consent, approval or waiver requested by Borrower under any of the Loan
Documents, and any suit to which Lender is a party involving this Mortgage or
the Mortgaged
-12-
<PAGE>
Property and those attorneys' fees and expenses incurred or incident to the
enforcement or collection of the Indebtedness or the exercise of any right or
remedy under any Loan Document. All such sums, and any other amounts required to
be reimbursed to Lender pursuant to this Mortgage shall be added to the
Indebtedness and shall bear interest from and after the date due at the Default
Rate.
3.14 Borrower's Address. Borrower shall give written notice to Lender of
------------------
any change of address of Borrower at least ten (10) days prior to the effective
date of such change of address.
3.15 Financial Covenants.
-------------------
(a) Distribution. The Borrower will not declare or make any
------------
Distributions.
(b) Minimum Net Worth. The Borrower will not permit Consolidated
-----------------
Tangible Net Worth to be, as at the end of any fiscal quarter, less than Sixty
Two Million Five Hundred Thousand ($62,500,000.00) Dollars.
3.16 Improper Use of Mortgaged Property; Condominium or Cooperative.
--------------------------------------------------------------
Borrower will not allow the use, maintenance, operation, or occupancy of the
Mortgaged Property in any manner which (i) violates any Legal Requirement, or
(ii) makes void, voidable, or cancelable any insurance then in force with
respect thereto. Borrower will not allow the Mortgaged Property to be subject to
a condominium or cooperative form of ownership and will not subdivide the
Mortgaged Property.
3.17 Replacement of Fixtures and Personalty. Borrower will not, without the
--------------------------------------
prior written consent of Lender, permit any material Fixture or Personalty to be
removed from the Land or Improvements unless the item is removed temporarily for
maintenance and repair or, if removed permanently, is replaced by an article of
equal utility and value and is owned by Borrower, free and clear of any lien or
security interest.
3.18 Change in Zoning; Grant of Easements; Use of Property; Tax Parcel.
-----------------------------------------------------------------
Borrower will not seek or acquiesce in a zoning reclassification of all or any
portion of the Mortgaged Property or grant or consent to any easement,
dedication, plat, or restriction affecting the Mortgaged Property, without
Lender's prior written consent, which will not be unreasonably withheld,
conditioned or delayed. The Mortgaged Property will at all times be operated as
it is currently operated or as is commercially reasonable for the conduct of
Borrower's business as currently conducted, and for no other purpose and
Borrower shall not take any action which would cause the Land to not be a
separate tax parcel, separate and apart from any other property owned by
Borrower or anyone else.
3.19 Borrower's Defense of Lender. At its own cost and expense, Borrower
----------------------------
will defend with counsel approved by Lender, such approval not to be
unreasonably withheld, and will hold Lender harmless from, any action,
proceeding, or claim affecting the Mortgaged Property or the Loan Documents, and
all costs and expenses incurred by Lender in such an event
-13-
<PAGE>
(including all court costs and fees of attorneys and experts) shall be borne by
Borrower, excluding, however, from the foregoing any action, proceeding or claim
to the extent Lender has provided to Borrower an indemnity therefor under the
APA.
3.20 No Transfers of Mortgaged Property or Interests in Borrower Permitted.
---------------------------------------------------------------------
Without Lender's prior written consent, which Lender may withhold in its sole
discretion, Borrower will not make a Transfer, or allow, or enter into any
agreement to make or allow, a Transfer.
3.21 Notice of Claims and Litigation. Borrower shall promptly (and in any
-------------------------------
event within fifteen (15) days after Borrower's own receipt of notice) notify
Lender in writing of any pending or threatened suits, or proceedings at law or
in equity, or before or by any Governmental Authority, which (i) if adversely
determined would materially affect the financial condition of Borrower or the
Mortgaged Property or (ii) involve the validity or enforceability of the Loan
Documents or the priority of the lien of the Mortgage against the Mortgaged
Property. Borrower shall also notify Lender in writing as soon as it has
knowledge of any default with respect to any order, writ, injunction, decree or
demand of any Governmental Authority affecting Borrower or the Mortgaged
Property, where such default could materially affect or impair Borrower's
financial condition, or the Mortgage Property. Borrower covenants and warrants
that it shall promptly (and in any event within thirty (30) days after delivery
or receipt of communications regarding the same) notify Lender in writing of any
actual litigation affecting the Mortgaged Property involving claims in excess of
$100,000, any such litigation threatened in a writing received by Borrower
involving claims in excess of $100,000, and the existence of any mechanics'
liens.
3.22 Intentionally Omitted
---------------------
3.23 Environmental Matters. Borrower shall not allow any Hazardous
---------------------
Materials to exist or be stored, disposed of, located, discharged, generated,
managed, processed or otherwise handled on the Mortgaged Property other than
those Hazardous Materials which are customarily used by Borrower and other
tenants and occupants in the course of their business and then only in strict
compliance with all Environmental Laws affecting such materials and the
Mortgaged Property.
Borrower shall immediately notify Lender in writing should it become aware
of (i) any release or threatened release of Hazardous Materials or the
occurrence of any other environmental concern or liability with respect to the
Mortgaged Property, or any real property adjoining or in the vicinity of the
Mortgaged Property which could materially affect the Mortgaged Property or
subject Borrower or the Mortgaged Property to a claim under any Environmental
Laws or to any restriction on ownership, occupancy, transferability or use of
the Mortgaged Property; (ii) any Environmental Claim; or (iii) any notice given
to Borrower from any tenant or other occupant of the Mortgaged Property or any
notice from any other person, entity or Governmental Authority with respect to
any release or presence or threatened release of Hazardous Materials at or
affecting the Mortgaged Property.
-14-
<PAGE>
In the event that any investigation, site monitoring, containment, clean-
up, removal, restoration or other remedial work of any kind or nature is
required under any applicable Environmental Law, excluding, however, any matter
to the extent Lender has provided to Borrower an indemnity therefor under the
APA (the "Remedial Work") because of, or in connection with, a current or future
violation of Environmental Laws or Disposal, Borrower shall, within thirty (30)
days after written demand for performance thereof by Lender (or such shorter
period of time as may be required under any applicable Environmental Law),
commence and thereafter diligently prosecute to completion, all such Remedial
Work in compliance with all applicable Environmental Laws. Borrower shall pay
the costs of all environmental audits and follow-up reports required by Lender
to evidence the completion of the Remedial Work in compliance with all
applicable Environmental Laws. All Remedial Work shall be performed by
contractors approved (which approval shall not be unreasonably withheld or
delayed) in advance by Lender, and under the supervision of a consulting
engineer approved (which approval shall not be unreasonably withheld or delayed)
by Lender. All costs and expenses of such Remedial Work shall be paid by
Borrower including, without limitation, Lender's reasonable attorneys' fees,
paralegal fees and costs incurred in connection with monitoring or review of
such Remedial Work. In the event Borrower shall fail to timely prosecute to
completion such Remedial Work and if such failure continues for thirty (30) days
after notice by Lender to Borrower (or such shorter period of time as may be
required by any applicable Environmental Law or by any notice from any
governmental authority having jurisdiction over the Mortgaged Property with
respect to any Environmental Law), Lender may, but shall not be required to,
cause such Remedial Work to be performed and all costs and expenses thereof, or
incurred in connection therewith, shall become part of the Indebtedness and be
secured by the lien of this Mortgage.
Borrower covenants and agrees that Lender or Lender's agent may, but shall
not be obligated to, enter the Mortgaged Property to make reasonable inspections
and tests thereof related to the presence of Hazardous Materials or to determine
whether Hazardous Materials are present, at reasonable times upon reasonable
advance notice.
Borrower covenants and agrees that if Lender retains counsel or consultants
for advice, representation, testing, analysis or remediation (i) in any way
relating to any Environmental Claim, excluding, however, any matter to the
extent Lender has provided to Borrower an indemnity therefor under the APA; or
(ii) to enforce Borrower's obligations under this Section 3.23, then all of the
reasonable fees, costs and expenses arising from such services and all related
expenses and costs, if any, shall be payable by Borrower to Lender within five
(5) days after demand of Lender. All such sums shall be added to the
Indebtedness and shall bear interest from and after the date due at the Default
Rate.
Borrower shall defend (using counsel approved in writing by the Lender,
which approval will not be unreasonably withheld), indemnify and hold harmless
each Indemnitee from and against all Indemnified Matters regardless of when such
Indemnified Matters arise, but excluding (i) with respect to any Indemnitee, any
Indemnified Matter based solely on the gross negligence or willful misconduct of
such Indemnitee, and (ii) any such Indemnified Matter
-15-
<PAGE>
relating solely to Hazardous Materials that are first placed on the Mortgaged
Property after Lender acquires title thereto or takes possession by foreclosure
or otherwise.
Upon written request of Lender, at Lender's sole option, Borrower shall
undertake the defense of each Indemnitee, at Borrower's sole expense, with
counsel approved by Lender, which approval shall not be unreasonably withheld,
in connection with any obligation set forth herein for which Borrower has an
obligation to indemnify, defend, and hold harmless the Indemnitees.
If Borrower either refuses or fails to promptly commence or to diligently
defend Lender and the other Indemnitees at Borrower's sole cost and expense with
counsel approved by Lender as aforesaid in accordance with Borrower's
obligations under this Mortgage, and Lender elects to undertake its own defense
and the defense of the other Indemnitees, the reasonable attorneys' fees and
related costs incurred by Lender in so doing shall be additional indemnification
duties subject to reimbursement by the Borrower hereunder and shall be part of
the Indebtedness and secured by this Mortgage. If Lender elects to undertake its
own defense as aforesaid, Borrower shall nevertheless have the right to
participate in such defense at Borrower's sole cost and expense.
Lender shall not elect a settlement of any Environmental Claim that is
subject to the indemnification obligations of Borrower under this Mortgage
without the prior written consent of the Borrower, which consent shall not be
unreasonably withheld or delayed. Borrower shall not effect a settlement of any
Environmental Claim without the prior written consent of Lender, which consent
shall not be unreasonably withheld or delayed.
Any defense undertaken by Borrower hereunder may be effected under a
reservation of rights without Borrower admitting that the Environmental Claim is
subject to the indemnification obligations of Borrower under this Agreement. In
the event it is determined that the matter being defended is not an
Environmental Claim subject to indemnification hereunder, the Borrower shall not
seek reimbursement from Lender or any Indemnitee of any defense costs
theretofore incurred except to the extent that in bad faith Lender required
Borrower to defend such Environmental Claim.
Borrower agrees that the provisions of this Section shall survive the
payment of the Indebtedness and the satisfaction of the Obligations for a period
of one year if Lender never acquires title to the Mortgaged Property by
foreclosure or otherwise or takes possession thereof, and otherwise shall
survive for the maximum period of time permitted by law, and shall survive the
foreclosure of the Mortgaged Property by Lender or acquisition of title thereto
by other means for the maximum period of time permitted by law, provided that
Borrower shall not be responsible for any Indemnified Matter relating solely to
Hazardous Materials that are first placed on the Mortgaged Property after Lender
acquires title thereto by foreclosure or otherwise or takes possession thereof.
-16-
<PAGE>
Article IV
LEASES
------
4.1 Borrower's License with Respect to Leases. Lender hereby grants to
-----------------------------------------
Borrower a license ("Borrower's License") under which, provided there exists no
Event of Default, Borrower may collect all of the Rents upon, but not prior to,
accrual.
4.2 Authorization and Direction to Lessees. Borrower hereby consents to
--------------------------------------
and irrevocably authorizes and directs the Lessees, upon notice from Lender
following an Event of Default of Lender's right to receive the Rents and demand
therefor, to pay the Rents to Lender. Written demand by Lender delivered to any
Lessee for payment of Rents by reason of the occurrence of any Event of Default
claimed by Lender shall be sufficient evidence of each such Lessee's obligation
and authority to make all future payments of Rents to Lender without the
necessity for further consent by the Borrower, notwithstanding any notice from
or claim by Borrower to the contrary. Borrower shall have no right or claim
against any Lessee for the payment of any Rents to Lender hereunder, and
Borrower hereby indemnifies and agrees to defend and hold harmless each Lessee
from and against all liability, loss, cost, damage or expense suffered or
incurred by such Lessee by reason of such Lessee's compliance with any demand
for payment of Rents made by Lender pursuant to this Section 4.2.
-----------
4.3 Intentionally Omitted.
4.4 Notification to Lessees; Security Deposits. From time to time, upon
------------------------------------------
request of Lender following an Event of Default, Borrower shall notify and
direct, in writing, each present or future Lessee that any security deposit or
other deposits heretofore delivered to Borrower have been assigned and delivered
to Lender. From and after the occurrence of an Event of Default, and upon the
written demand by Lender, Borrower shall pay to Lender any and all security
deposits for which the lessor under the Leases shall be liable to Lessees. Upon,
but only to the extent of, receipt by Lender of such security deposits, Lender
shall be responsible for and liable to such Lessees with respect to such
security deposits.
4.5 Enforcement. Borrower shall appear in and defend any action or
-----------
proceeding arising under, occurring out of or in any manner connected with the
Leases or the obligations, duties or liabilities of the Borrower and any Lessee,
and upon Lender's request, Borrower will do so in the name and on behalf of the
Lender, but at Borrower's expense. Borrower shall pay all costs and expenses of
Lender, including reasonable attorneys' fees and disbursements, in any action or
proceeding in which the Lender may appear.
4.6 Anticipation of Rents. Borrower shall neither receive nor collect any
---------------------
Rents whether in cash or by evidence of indebtedness from any present or future
Lessee more than one (1) month in advance of the date on which such Rents are
due (except for last months' rent and security deposits); nor in any way
transfer, encumber or assign future payments of Rents.
-17-
<PAGE>
4.7 Lender's Approval Required for New Leases; Subordination of Leases.
------------------------------------------------------------------
Borrower shall not enter into any Leases after the date hereof without Lender's
prior written consent, which shall not be unreasonably withheld. At Lender's
request Borrower shall obtain and deliver to Lender a subordination, non-
disturbance and attornment agreement ("SNDA") in form reasonably satisfactory to
Lender from each tenant under a Lease executed during term of the Loan, it being
agreed, however, that, notwithstanding anything to the contrary contained
herein, in no event shall Lender be obligated to grant an SNDA to any particular
Lessee or agree to recognize any particular Lease. Lender may, in its sole
discretion, waive the requirement of a subordination, non-disturbance and
attornment agreement for any particular tenant. In addition, Lender may, at its
sole option, require that any or all Leases affecting the Mortgaged Property be
made superior and prior to the Mortgage.
4.8 Execution, Cancellation or Modification of Leases. Without Lender's
-------------------------------------------------
prior written consent, which shall not be unreasonably withheld, Borrower shall
not: (a) cancel, terminate or consent to any surrender of any Lease; (b)
commence any action of ejectment or any summary proceedings for dispossession of
any Lessee; (c) exercise any right of recapture provided in any Lease; (d)
modify or in any way alter the terms of any Lease or grant any concession in
connection therewith; (e) renew or extend the term of any Lease unless an option
therefor was originally reserved by the Lessee, and then only for a fixed and
definite rental; (f) relocate any Lessee within the Mortgaged Property; or (g)
consent to any modification of the permitted uses under any Lease.
4.9 No Sublease or Assignment. Borrower shall not consent to any
-------------------------
subletting of the Mortgaged Property or any part thereof, nor to any assignment
of any Lease by any Lessee thereunder, nor to any assignment or further
subletting of any sublease, without obtaining in each instance the prior written
consent of Lender which shall not be unreasonably withheld.
4.10 Delivery of Leases: Further Acts and Assurances. Borrower will deliver
-----------------------------------------------
to the Lender a copy of all existing and future Leases when executed. Borrower
hereby covenants and agrees to make, execute and deliver to Lender, upon demand
and at any time or times, any and all assignments and other documents and
instruments which Lender may deem advisable to carry out the true purpose and
intent of this Assignment.
Article V
INSURANCE AND CONDEMNATION PROCEEDS
-----------------------------------
5.1 Notice of Damage or Destruction or Taking or Condemnation. Borrower
---------------------------------------------------------
will give Lender prompt notice of any damage to or destruction of the Mortgaged
Property or of any proposed or actual taking or condemnation of the Mortgaged
Property.
5.2 Adjustment of Insurance Claims. In case of loss covered by policies of
------------------------------
insurance, Lender is hereby authorized, at Lender's option, either (i) to settle
and adjust any claim under such policies without the consent of Borrower, or
(ii) to allow Borrower to agree with the
-18-
<PAGE>
insurance company or companies on the amount to be paid upon the loss; provided
that Borrower may adjust losses aggregating not in excess of $250,000 if such
adjustment is carried out in a competent and timely manner, and provided that in
any case Lender shall and is hereby irrevocably authorized by Borrower to
collect any such insurance proceeds; and the expenses incurred by Lender in the
adjustment and collection of insurance proceeds shall be part of the
Indebtedness and shall be reimbursed to Lender upon demand, and shall bear
interest at the Default Rate.
5.3 Application of Insurance Proceeds. The proceeds of insurance resulting
---------------------------------
from any insured casualty shall, at the sole option of Lender, (i) be paid
directly to Lender for application to reduction of the principal indebtedness at
par or (ii) be applied to reimburse Borrower for the cost of restoration or
repair of the Mortgaged Property, as provided for in Section 5.6 (Conditions
-----------
Applicable if Restoration Permitted). Notwithstanding the foregoing, provided no
Event of Default exists hereunder, Lender shall allow the proceeds of insurance
to be applied as described in clause (ii) above if, within 90 days of the
casualty, Lender receives a written certification from an engineer satisfactory
to it that the cost of restoration or repair will be $1,000,000 or less. Any
such proceeds held by Lender may be commingled with the general funds of Lender,
shall not bear interest and shall constitute additional security for the payment
of the Loan. Any principal reduction at par from an early involuntary prepayment
as a result of an insurance settlement will be without prepayment penalty and
will cause a pro-rata reduction in debt service payments based upon the reduced
Loan balance, and the Interest Rate.
5.4 Condemnation Proceeds Payable to Lender. Lender shall be entitled to
---------------------------------------
receive any and all sums which may be awarded and become payable to Borrower for
condemnation of the Mortgaged Property for public or quasi-public use, or by
virtue of private sale in lieu thereof, and any sums which may be awarded or
become payable to Borrower for damages caused by public works or construction on
or near the Mortgaged Property. All such sums are hereby assigned to Lender, and
Borrower shall, upon request of Lender, make, execute, acknowledge, and deliver
any and all additional assignments and documents as may be necessary from time
to time to enable Lender to collect any such sums. Lender shall not be, under
any circumstances, liable or responsible for failure to collect, or exercise
diligence in the collection of, any such sums.
5.5 Application of Condemnation Proceeds. Any sums received by Lender as a
------------------------------------
result of condemnation shall be applied to the payment of the Indebtedness.
Notwithstanding the foregoing, provided no Event of Default exists hereunder,
Lender shall allow any sums received as a result of condemnation to be applied
to restoration or repair of the Mortgaged Property if, within 90 days of the
condemnation, Lender receives a written certification from an engineer
satisfactory to it that the cost of restoration or repair will be $150,000 or
less. Any such proceeds held by Lender may be commingled with the general funds
of Lender, shall not bear interest and shall constitute additional security for
the payment of the Loan. Any principal reduction at par from an early
involuntary prepayment as a result of the application of such condemnation
proceeds will be without any prepayment penalty and will cause a pro-rata
-19-
<PAGE>
reduction in debt service payments based upon the reduced Loan balance, the
remaining amortization schedule and the Interest Rate.
5.6 Conditions Applicable if Restoration Permitted. In the event that
----------------------------------------------
proceeds of insurance or a taking award shall be made available to Borrower for
the restoring, repairing, replacing or rebuilding ("Restoration") of the
Mortgaged Property, Borrower shall restore the same to be of substantially equal
value and of substantially the same character as prior to such damage or
destruction, all to be effected in accordance with applicable Legal Requirements
and plans and specifications approved in advance by Lender and conducted under
the supervision of an architect or engineer approved by Lender. At Lender's
option, the proceeds shall be held and released under escrow/construction
funding arrangements satisfactory to Lender.
Further, such proceeds shall be disbursed from time to time upon Lender
being furnished with (i) evidence satisfactory to it of the estimated cost of
completion of the Restoration, (ii) funds, (or, at Lender's option, evidence
satisfactory to Lender of the availability of such funds), which shall be
sufficient in addition to the proceeds of insurance to complete the proposed
Restoration, and (iii) such architect's certificates, waivers of lien,
contractor's sworn statements, title insurance endorsements, bonds, plats of
survey and such other evidence of cost, payment and performance as Lender may
reasonably require and approve. No payment made prior to the final completion of
the Restoration shall exceed ninety percent (90%) of the value of the work
performed from time to time; funds other than proceeds of insurance or, if
applicable, taking award, shall be disbursed prior to disbursement of such
proceeds; and at all times, the undisbursed balance of such proceeds remaining
in the hands of Lender, together with funds deposited for that purpose or
irrevocably committed to the satisfaction of Lender by or on behalf of Borrower
for that purpose, shall be at least sufficient in the reasonable judgment of
Lender to pay for the cost of completing the Restoration, free and clear of all
liens. Any surplus which may remain out of insurance or condemnation proceeds
held by Lender or an escrow agent after payment of such costs of Restoration,
shall be applied to the payment at par of the Indebtedness. Any principal
reduction from an early involuntary prepayment as a result of excess
condemnation or insurance proceeds shall be without any prepayment penalty and
will cause a pro rata reduction in debt service payments based upon the reduced
Loan balance and the Interest Rate.
Article VI
SECURITY AGREEMENT
------------------
6.1 Security Interest. This Mortgage is a security agreement on personal
-----------------
property within the meaning of the Code, and shall constitute a first and prior
security interest under the Code with respect to the Personalty, Fixtures,
Contracts, Permits, Leases and Rents. To this end, Borrower has GRANTED,
BARGAINED, CONVEYED, ASSIGNED, TRANSFERRED and SET OVER, and does hereby GRANT,
BARGAIN, CONVEY, ASSIGN, TRANSFER and SET OVER, unto Lender, a first and prior
security interest, in all of Borrower's right, title and interest, in, to, under
and with respect to the Personalty, Fixtures, Contracts, Permits, Leases and
-20-
<PAGE>
Rents to secure the payment of the Indebtedness and performance and discharge of
the Obligations.
6.2 Financing Statements. Borrower hereby agrees with Lender to execute
--------------------
and deliver to Lender, in form and substance satisfactory to Lender, such
financing statements and such further assurances as Lender may, from time to
time, reasonably consider necessary to create, perfect and preserve Lender's
security interest granted herein. Lender may cause such statements and
assurances to be recorded and filed, at such times and places as may be required
or permitted by law to so create, perfect and preserve such security interest,
and Borrower hereby grants to Lender an irrevocable power of attorney (coupled
with an interest) to exercise in Borrower's name and stead any such statements
and assurances.
6.3 Fixture Filing. THIS MORTGAGE SHALL CONSTITUTE A "FIXTURE FILING" FOR
--------------
THE PURPOSES OF THE CODE. Information concerning the security interest granted
herein may be obtained from the parties at the address of the parties set forth
herein. For purposes of the security interest granted herein, the address of
debtor (Borrower) and the address of the secured party (Lender) are set forth in
the first paragraph of this Mortgage.
Article VII
EVENTS OF DEFAULT
-----------------
The term "Event of Default," as used herein and in the Loan Documents,
shall mean the occurrence or happening, at any time and from time to time, of
any one or more of the following:
7.1 Payment Defaults. Failure of the Borrower to pay any amount due under
----------------
the Note, this Mortgage or any of the other Loan Documents, in full, within five
(5) days of the due date of such payment in the case of any regularly scheduled
payments, and within 15 days after notice from Lender in the case of any other
payment.
7.2 Covenant Defaults. Except as otherwise provided in this Article VII, a
-----------------
default by Borrower in the due performance of any of its covenants or agreements
contained in any Loan Document if such default continues for more than 30 days
after notice thereof from Lender, provided that if such default cannot be cured
with the exercise of diligent efforts within such 30 days but is reasonably
susceptible of cure, such 30 day period shall be extended for a period of time
as shall be reasonably required for Borrower, in the exercise of diligent
efforts, to cure the default if the Borrower commences such efforts within 30
days after notice thereof from Lender and thereafter diligently pursues such
efforts.
7.3 False Representations, Warranties and Statements. The making of a
------------------------------------------------
materially false or materially misleading representation, warranty, or statement
made by Borrower, or others in any Loan Documents, affidavit or other instrument
executed or delivered in connection with the Loan.
-21-
<PAGE>
7.4 Default Under Other Liens. If Borrower shall default under and
-------------------------
pursuant to any other mortgage or security agreement which covers or affects any
part of the Mortgaged Property (without implying Lender's consent thereto), if
such default has not been cured at least five (5) days prior to the expiration
of any notice or cure period under such mortgage or security agreement.
7.5 Dissolution. The dissolution, termination, liquidation or merger of
-----------
Borrower.
7.6 No Further Encumbrances. The creation or placement of any lien on the
-----------------------
Mortgaged Property, which lien was not approved by Lender or permitted by the
Loan Documents and not removed or bonded off to Lender's reasonable satisfaction
within 30 days of the creation or placement of such lien.
7.7 Transfer of Mortgaged Property or Beneficial Interest in Borrower. A
-----------------------------------------------------------------
Transfer.
7.8 Insolvency; Bankruptcy. The occurrence of any event of insolvency,
----------------------
bankruptcy or dissolution, whether voluntary or involuntary, of Borrower or any
guarantor of the Obligations, unless such proceeding is involuntary in which
case the affected party shall have sixty (60) days from the date of filing
during which to cause such proceedings to be permanently dismissed or
discharged.
7.9 Insurance. The failure of Borrower to maintain required insurance.
---------
7.10 Other Loan Documents. Any matter defined as an Event of Default under
--------------------
the Note or any of the other Loan Documents.
Article VIII
REMEDIES
--------
8.1 Lender's Remedies Upon Default. Upon the occurrence of an Event of
------------------------------
Default Lender may, at Lender's option, by itself or otherwise, do any one or
more of the following (unless and to the extent Lender expressly waives the
Event of Default in writing):
(a) Right to Perform Borrower's Covenants. Lender may, but shall not
-------------------------------------
be obligated to, perform or attempt to perform any of Borrower's covenants. Any
payment made or expense incurred in the performance or attempted performance of
any such covenant shall be and become a part of the Indebtedness, and Borrower
shall pay to Lender all sums so advanced or paid by Lender, with interest from
the date when paid or incurred by Lender at the Default Rate. No such payment or
performance by Lender shall constitute a waiver of any Event of Default. Lender
shall be subrogated to all rights, titles, liens, and security interests
securing the payment of any debt, claim, tax, or assessment for the payment of
which Lender may make an advance, or which Lender may pay.
-22-
<PAGE>
(b) Right of Entry. Lender may enter upon the Mortgaged Property, and
--------------
take exclusive possession of the Mortgaged Property and of all books, records,
and accounts relating thereto and exercise without interference from Borrower
any and all rights which Borrower has with respect to the Mortgaged Property.
Lender shall have the right to rent the Mortgaged Property for the account of
Borrower, for any term, including beyond the discharge or foreclosure of this
Mortgage, and to deduct from such Rents all costs, expenses, and liabilities
incurred by Lender in collecting such Rents and in managing, operating,
maintaining, protecting, or preserving the Mortgaged Property and apply the
remainder of such Rents to the Indebtedness in such manner as Lender may elect.
All such costs, expenses and liabilities incurred by Lender, if not paid out of
Rents, shall constitute a part of the Indebtedness and shall bear interest from
the date of expenditure until paid at the Default Rate. Lender shall not be
liable for any loss sustained by Borrower resulting from any failure to let the
Mortgaged Property, or from any other act or omission of the Lender in managing
the Mortgaged Property unless such loss is caused by the willful misconduct or
gross negligence of Lender, nor shall Lender be obligated to perform or
discharge any obligation, duty, or liability under any Lease by reason hereof or
the exercise of rights or remedies hereunder.
If necessary to possess the Mortgaged Property, Lender may invoke any
legal remedies to dispossess Borrower, including actions for forcible entry and
detainer, trespass to try title and restitution.
(c) Right to Accelerate. Lender may, without notice, demand,
-------------------
presentment, notice of nonpayment or nonperformance, protest, notice of protest,
notice of intent to accelerate, notice of acceleration, or any other notice or
any other action, all of which are hereby waived by Borrower and all other
parties obligated in any manner whatsoever on the Indebtedness, declare the
entire unpaid balance of the Indebtedness immediately due and payable.
(d) Lender's Judicial Remedies. Lender may proceed by suit or suits,
--------------------------
at law or in equity, to enforce the payment of the Indebtedness and the
performance and discharge of the Obligations in accordance with the terms
hereof, of the Note, and the other Loan Documents, to foreclose the liens and
security interests of this Mortgage as against all or any part of the Mortgaged
Property, and to have all or any part of the Mortgaged Property sold under the
judgment or decree of a court of competent jurisdiction.
(e) Lender's Right to Appointment of Receiver. Lender shall be
-----------------------------------------
entitled, without notice to Borrower, to the appointment of a receiver or
receivers of the Mortgaged Property and of the Rents, and Borrower hereby
irrevocably consents to the appointment of a receiver or receivers. Any receiver
appointed pursuant to the provisions of this subsection shall have the usual
powers and duties of receivers in such matters.
(f) Foreclosure -- Power of Sale. Lender may institute a proceeding
----------------------------
or proceedings, judicial or private, by advertisement or otherwise, for the
complete or partial foreclosure of this Mortgage or the complete or partial sale
of the Mortgaged Property under the power of sale contained herein or under any
applicable provision of law. Lender may sell the
-23-
<PAGE>
Mortgaged Property, and all estate, right, title, interest, claim and demand of
Borrower therein, and all rights of redemption thereof, at one or more sales, as
an entirety or in parcels, with such elements of real and/or personal property,
and at such time and place and upon such terms as it may deem expedient, or as
may be required by applicable law, and in the event of a sale, by foreclosure or
otherwise, of less than all of the Mortgaged Property, this Mortgage shall
continue as a lien and security interest on the remaining portion of the
Mortgaged Property.
Subject to the provisions or other requirements of law and except as
otherwise provided herein, the following provisions shall apply to any sale or
sales of all or any portion of the Mortgaged Property under or by virtue of this
Section 8.1(f), whether made under the power of sale herein granted or by virtue
- --------------
of judicial proceedings or of a judgment or decree of foreclosure and sale:
(i) Lender may conduct any number of sales from time to time. The
power of sale set forth herein shall not be exhausted by any one or more such
sales as to any part of the Mortgaged Property which shall not have been sold,
nor by any sale which is not completed or is defective in Lender's opinion,
until the Indebtedness shall have been paid in full;
(ii) Any sale may be postponed or adjourned by public announcement at
the time and place appointed for such sale or for such postponed or adjourned
sale without further notice;
(iii) After each sale, Lender or an officer of any court empowered to
do so shall execute and deliver to the purchaser or purchasers at such sale a
good and sufficient instrument or instruments granting, conveying, assigning and
transferring all right, title and interest of Borrower in and to the property
and rights sold and shall receive the proceeds of said sale or sales and apply
the same as herein provided. Effective upon an Event of Default, Lender is
hereby appointed the true and lawful attorney-in-fact of Borrower, which
appointment is irrevocable and coupled with an interest, to make all necessary
conveyances, assignments, transfers and deliveries of the property and rights so
sold, and for that purpose Lender may execute all necessary instruments of
conveyance, assignment, transfer and delivery, and may substitute one or more
persons with like power, Borrower hereby ratifying and confirming all that said
attorney or such substitute or substitutes shall lawfully do by virtue thereof;
(iv) Any purchaser of any property or rights sold shall not be bound
to see to the application of such purchase price or any part thereof upon or for
any trust or purpose of this Mortgage or, in any manner whatsoever, be
answerable for any loss, misapplication or non-application of any such purchase
money, or part thereof, or be bound to inquire as to the authorization,
necessity, expediency or regularity of any such sale;
(v) Any sale or sales shall operate to divest all of the estate,
right, title, interest, claim and demand whatsoever, whether at law or in
equity, of Borrower in and to the properties and rights so sold, and shall be a
perpetual bar both at law and in equity against Borrower and any and all persons
claiming or who may claim the same, or any part thereof or
-24-
<PAGE>
any interest therein, by, through or under Borrower to the fullest extent
permitted by applicable law;
(vi) Upon any such sale or sales, Lender may bid for and acquire the
Mortgaged Property and, in lieu of paying cash therefor, may make settlement for
the purchase price by crediting against the Indebtedness the amount of the bid
made therefor, after deducting therefrom the expenses of the sale, the cost of
any enforcement proceeding hereunder, and any other sums which Lender is
authorized to deduct under the terms hereof, to the extent necessary to satisfy
such bid; and
(vii) Upon any such sale, it shall not be necessary for Lender or any
public officer acting under execution or order of court to have present or
constructively in its possession any of the Mortgaged Property.
(g) Lender's Uniform Commercial Code Remedies. The Lender may exercise its
-----------------------------------------
rights of enforcement with respect to Personalty, Fixtures, Contracts, Permits,
Leases and Rents under the Code, and in conjunction with, in addition to or in
substitution for the rights and remedies under the Code:
(i) Lender may, without demand or notice to Borrower, enter upon the
Mortgaged Property to take possession of, assemble, receive, and collect the
Personalty, or any part thereof;
(ii) Lender may require Borrower to assemble the Personalty and make
it available at a place the Lender designates which is mutually convenient to
allow the Lender to take possession or dispose of the Personalty;
(iii) written notice mailed to Borrower as provided herein at least
ten (10) days prior to the date of public sale of the Personalty or prior to the
date after which private sale of the Personalty will be made shall constitute
reasonable notice;
(iv) any sale made pursuant to the provisions of this subsection
shall be deemed to have been a public sale conducted in a commercially
reasonable manner if held contemporaneously with the sale of all or a portion of
the Land and Improvements under power of sale as provided herein upon giving the
same notice with respect to the sale of the Personalty hereunder as is required
for such sale of all or a portion of the Land and Improvements under power of
sale, and such sale shall be deemed to be pursuant to a security agreement
covering both real and personal property under the Code;
(v) in the event of a foreclosure sale, whether made by Lender under
the terms hereof, or under judgment of a court, the Personalty and the other
Mortgaged Property may, at the option of the Lender, be sold as a whole;
(vi) it shall not be necessary that the Lender take possession of the
Personalty, or any part thereof, prior to the time that any sale pursuant to the
provisions of this
-25-
<PAGE>
subsection is conducted, and it shall not be necessary that the Personalty or
any part thereof be present at the location of such sale;
(vii) after notification, if any, as hereafter provided in this
subsection, Lender may sell, lease, or otherwise dispose of the Personalty, or
any part thereof, in one or more parcels at public or private sale or sales, at
Lender's offices or elsewhere, for cash, on credit, or for future delivery.
Borrower shall be liable for all reasonable expenses of retaking, holding,
preparing for sale, or the like, and all reasonable attorneys' fees, legal
expenses, and all other costs and expenses incurred by Lender in connection with
the collection of the Indebtedness and the enforcement of Lender's rights under
the Loan Documents. Lender shall apply the proceeds of the sale of the
Personalty against the Indebtedness in accordance with the provisions of Section
-------
8.3 (Application of Foreclosure and Other Proceeds). Borrower waives all rights
- ---
of marshalling in respect of the Personalty; and
(viii) Lender may appoint or delegate any one or more persons as agent
to perform any act or acts necessary or incident to any sale held by Lender,
including the sending of notices and the conduct of the sale, but in the name
and on behalf of Lender.
(h) Other Rights. Lender (i) may surrender the insurance policies
------------
maintained pursuant to Section 3.6 (Borrower's Maintenance of Insurance; Waiver
---
of Subrogation), and upon receipt shall apply the unearned premiums as a credit
on the Indebtedness, in accordance with the provisions of Section 8.3
-----------
(Application of Foreclosure and Other Proceeds), and, in connection therewith,
Borrower hereby irrevocably appoints Lender, effective as of an Event of
Default, as agent and attorney-in-fact for Borrower, coupled with an interest,
to collect such premium; (ii) may apply the reserve for Impositions and
insurance premiums, if any, required by this Mortgage, toward payment of the
Indebtedness; and (iii) shall have and may exercise any and all other rights and
remedies which Lender may have at law or in equity, or by virtue of any Loan
Document or under the Code, or otherwise.
8.2 Possession After Foreclosure. If the liens or security interests
----------------------------
hereof shall be foreclosed by power of sale granted herein, by judicial action,
or otherwise, the purchaser at any such sale shall receive, as an incident to
purchaser's ownership, immediate possession of the property purchased, and if
Borrower or Borrower's successors shall hold possession of said property or any
part thereof subsequent to foreclosure, Borrower and Borrower's successors shall
be considered as tenants at sufferance of the purchaser at foreclosure sale
(without limitation of other rights or remedies, at a reasonable rental per day,
due and payable daily, based upon the value of the portion of the Mortgaged
Property so occupied and sold to such purchaser), and anyone occupying such
portion of the Mortgaged Property, after demand is made for possession thereof,
shall be guilty of forcible detainer and shall be subject to eviction and
removal, forcibly or otherwise, with or without process of law, and all damages
by reason thereof are hereby expressly waived.
8.3 Application of Foreclosure and Other Proceeds. The proceeds from any
---------------------------------------------
sale, lease, or other disposition made pursuant to this Article VIII, or any
------------
Rents collected by Lender
-26-
<PAGE>
from the Mortgaged Property, or the reserve for insurance premiums, ground rents
or Impositions, if any, required by the provisions of this Mortgage and other
sums received pursuant to Section 8.1 (Lender's Remedies Upon Default) hereof,
-----------
which Lender elects to apply to the Indebtedness, shall be applied by Lender to
the Indebtedness in the following order and priority: (i) first to the payment
of all expenses of advertising, selling, and conveying the Mortgaged Property or
part thereof, and/or prosecuting or otherwise collecting Rents, proceeds,
premiums, or other sums, and to the payment of all expenses, liabilities and
advances made or incurred by Lender hereunder, together with interest thereon at
the Default Rate; (ii) next, to the Indebtedness as follows: first, to the
accrued but unpaid interest, late charges and other fees, second, to the matured
portion of principal of the Indebtedness, third, to prepayment of the unmatured
portion, if any, of principal of the Indebtedness applied to installments of
principal in inverse order of maturity, and fourth, to the full performance and
discharge of the Obligations; and (iii) next, to the extent permitted by law, to
be set aside by Lender as adequate security in its judgment for the payment of
sums which would have been paid by application of clause (i) above to Lender,
arising out of any obligations or liability with respect to which Borrower has
agreed to indemnify or reimburse Lender, but which sums are not yet due and
payable or liquidated, (iv) next to the holder of any inferior liens covering
the Mortgaged Property, if any, in order of the priority of such inferior liens
(Lender shall hereby be entitled to rely exclusively upon a commitment for title
insurance issued to determine such priority); and (v) finally, to the Borrower.
The application of proceeds of sale or other proceeds as otherwise provided
herein shall be deemed to be a payment of the Indebtedness like any other
payment (provided, however, that insurance and condemnation proceeds shall be
treated as set forth in Article 5 hereof). The balance of the Indebtedness
remaining unpaid, if any, shall remain fully due and owing in accordance with
the terms of the Note or the other Loan Documents.
8.4 Miscellaneous Matters Relating to Exercise of Remedies.
------------------------------------------------------
(a) In case Lender shall have proceeded to invoke any right, remedy,
or recourse permitted under the Loan Documents and shall thereafter elect to
discontinue or abandon same for any reason, Lender shall have the unqualified
right so to do and, in such event, Borrower and Lender shall be restored to
their former positions with respect to the Indebtedness, the Loan Documents, the
Mortgaged Property or otherwise, and the rights, remedies, recourses and powers
of Lender shall continue as if same had never been invoked.
(b) All rights, remedies, and recourses of Lender granted in the
Note, this Mortgage, the other Loan Documents, any other pledge of collateral,
or otherwise available at law or equity: (i) shall be cumulative and concurrent;
(ii) may be pursued separately, successively, or concurrently against Borrower,
the Mortgaged Property, or any one or more of them, or any other person, at the
sole discretion of Lender; (iii) may be exercised as often as occasion therefor
shall arise, it being agreed by Borrower that the exercise or failure to
exercise any of same shall in no event be construed as a waiver or release
thereof or of any other right, remedy, or recourse; (iv) shall be nonexclusive;
(v) shall not be conditioned upon Lender exercising or pursuing any remedy in
relation to the Mortgaged Property prior to Lender bringing suit to recover the
Indebtedness or suit on the Obligations; and (vi) in the event Lender
-27-
<PAGE>
elects to bring suit on the Indebtedness and/or the Obligations and obtains a
judgment against Borrower prior to exercising any remedies in relation to the
Mortgaged Property, all liens and security interests, including the lien of this
Mortgage, shall remain in full force and effect and may be exercised thereafter
at Lender's option.
(c) Any statements of fact or other recitals made in any deed, bill
of sale, or other instrument evidencing a foreclosure, and any statement made by
Lender as to nonpayment of the Indebtedness, or as to the occurrence of any
Event of Default, or as to Lender having declared all or any part of the
Indebtedness to be due and payable, or as to the request to sell, or as to
notice of time, place and terms of sale and of the property or rights to be sold
having been duly given, or as to any other act or thing having been duly done by
Borrower or Lender, shall be taken as prima facie evidence of the truth of the
----- -----
facts so stated and recited. Lender may appoint or delegate any one or more
persons as agent to perform any act or acts necessary or incident to any sale so
held, including the posting of notices and the conduct of sale.
(d) Lender may release, regardless of consideration, any part of the
Mortgaged Property without, as to the remainder, in any way impairing,
affecting, subordinating, or releasing the lien or security interests created by
this Mortgage or the other Loan Documents or affecting the obligations of
Borrower or any other party to pay the Indebtedness or perform and discharge the
Obligations. For payment of the Indebtedness, Lender may resort to any of the
collateral therefor in such order and manner as Lender may elect. No collateral
heretofore, herewith, or hereafter taken by Lender shall in any manner impair or
affect the collateral given pursuant to the Loan Documents.
Article IX
MISCELLANEOUS
-------------
9.1 Borrower's Right to Contest Certain Matters. Notwithstanding the
-------------------------------------------
provisions of Sections 3.2 (Borrower's Compliance with Legal Requirements),
Sections 3.3. (Borrower's Payment of Impositions) or 3.9 (Borrower's Payment for
- ------------ ---
Labor and Materials), Borrower shall not be in default for failure to pay or
discharge any Imposition or mechanic's or materialman's lien asserted against
the Mortgaged Property or to comply with any Legal Requirement if, and so long
as, (i) Borrower shall have notified Lender of same within thirty (30) days of
obtaining knowledge thereof; (ii) Borrower shall diligently and in good faith
contest the same by appropriate legal proceedings which shall operate to prevent
the enforcement or collection of the same and the sale of the Mortgaged Property
or any part thereof, to satisfy the same; (iii) if requested by Lender in the
case of any matter, the cost to cure of which will exceed $15,000, Borrower
shall have furnished to Lender a cash deposit, or an indemnity bond reasonably
satisfactory to Lender with a surety satisfactory to Lender, in such amount as
Lender deems reasonable to prevent Lender from incurring any loss, cost, expense
or damage as a result of any such contest, to amount or assure payment of the
matters under contest and to prevent any sale or forfeiture of the Mortgaged
Property or any part thereof; (iv) Borrower shall promptly upon final
determination thereof pay the amount of any such Imposition or claim so
determined, together
-28-
<PAGE>
with all costs, interest and penalties which may be payable in connection
therewith or comply with the applicable Legal Requirement, as the case may be;
(v) the failure to pay the Imposition or mechanic's or materialman's lien claim
or to comply with any Legal Requirement does not constitute a default under any
other deed of trust, mortgage or security interest covering or affecting any
part of the Mortgaged Property; and (vi) notwithstanding the foregoing, Borrower
shall immediately upon request of Lender pay any such Imposition or claim or
comply with the applicable Legal Requirement, as the case may be,
notwithstanding such contest, if in the reasonable opinion of Lender the
Mortgaged Property shall be in jeopardy or in danger of being forfeited or
foreclosed (and if Borrower shall fail so to do, Lender may, but shall not be
required to, pay, perform or cause to be discharged or bonded against any such
Imposition, claim, lien or Legal Requirement, and, Borrower shall reimburse
Lender its cost thereof on demand, together with interest thereon at the Default
Rate). Lender may pay over any such cash deposit made pursuant to clause (iii)
above or part thereof to the claimant entitled thereto at any time when, in the
judgment of Lender, the entitlement of such claimant is established.
9.2 Intentionally Omitted.
9.3 Notices. Any notice, request, demand, statement or consent made
-------
hereunder shall be in writing signed by the party giving such notice, request,
demand, statement or consent, and shall be deemed to have been properly given if
either delivered personally, delivered to a reputable overnight delivery service
providing a receipt or deposited in the United States Mail, postage prepaid and
certified return receipt requested, at the address set forth below, or at such
other address within the continental United States of America as may have
theretofore been designated in writing. The effective date of any notice given
as aforesaid shall be the date of personal service, one (1) business day after
delivery to such overnight delivery service, or three (3) business days after
being deposited in the United States Mail, whichever is applicable. The phrase
"business day" or "Business Day", and similar phrases, as used in this Mortgage
shall mean any day other than a Saturday, a Sunday or a Federal holiday on which
the U.S. Postal Service offices are closed for business in Boston,
Massachusetts. For purposes hereof, the addresses are as follows:
If to Lender: Trex Medical Corporation
81 Wyman Street
P.O. Box 9406
Waltham, Massachusetts 02254-9046
Attn: James H. DaCosta
With a copy to: Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attn: Hal J. Leibowitz, Esq.
If to Borrower: Hologic, Inc.
35 Crosby Drive
-29-
<PAGE>
Bedford, Massachusetts 01730
Attn: Glenn Muir
With a copy to: Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, Massachusetts 02111
Attn: Philip Flink, Esq.
9.4 Covenants Running with the Land: Bind and Inure. All Obligations
-----------------------------------------------
contained in this Mortgage and the other Loan Documents are intended by Borrower
and Lender to be, and shall be construed as, covenants running with the
Mortgaged Property. Subject to the provisions of Section 3.20 (No Transfers of
------------
Mortgaged Property or Interests in Borrower Permitted) hereof, all of the terms
of the Loan Documents shall apply to, be binding upon, and inure to the benefit
of the parties thereto, their successors, assigns, heirs, and legal
representatives, and all other persons claiming by, through, or under them.
9.5 No Waiver: Severability. Any failure by Lender to insist, or any
-----------------------
election by Lender not to insist, upon strict performance by Borrower or others
of any of the terms, provisions, or conditions of the Loan Documents shall not
be deemed to be a waiver of same or of any other terms, provisions, or
conditions thereof, and Lender shall have the right at any time or times
thereafter to insist upon strict performance by Borrower or others of any and
all of such terms, provisions, and conditions. The Loan Documents are intended
to be performed in accordance with, and only to the extent permitted by, all
applicable Legal Requirements. If any provision of any of the Loan Documents or
the application thereof to any person or circumstance shall, for any reason and
to any extent, be invalid or unenforceable, then neither the remainder of the
instrument in which such provision is contained nor the application of such
provision to other persons or circumstances nor the other instruments referred
to herein shall be affected thereby, but rather shall be enforced to the
greatest extent permitted by law.
9.6 Counterparts. To facilitate execution, this Mortgage may be executed
------------
in as many counterparts as may be convenient or required. It shall not be
necessary that the signature and acknowledgment of, or on behalf of, each party,
or that the signature and acknowledgment of all persons required to bind any
party, appear on each counterpart. All counterparts shall collectively
constitute a single instrument.
9.7 Applicable Law: Service of Process. This Mortgage shall be governed by
----------------------------------
and construed according to the laws of the Commonwealth of Massachusetts, except
the provisions hereof relating to the exercise by Lender of its remedies
relating to the Mortgaged Property, which shall be governed by the laws of the
State of Connecticut. Service of process may be made upon the Borrower by
mailing a copy of the summons and any complaint to the Borrower, by certified or
registered mail, return receipt requested, at the address to be used for the
giving of notice to the Borrower under this Agreement.
-30-
<PAGE>
9.8 Usury. It is hereby expressly agreed that if from any circumstances
-----
whatsoever fulfillment of any provision of this Mortgage or any other Loan
Document, at the time performance of such provision shall be due, shall involve
transcending the limit of validity then prescribed by any applicable usury
statute or any other law, with regard to obligations of like character and
amount, then ipso facto the obligation to be fulfilled shall be reduced to the
---- -----
limit of such validity, so that in no event shall any exaction be possible under
this Mortgage or any other Loan Document that is in excess of the limit of such
validity. In no event shall Borrower be bound to pay for the use, forbearance or
detention of the money loaned pursuant hereto interest of more than the legal
limit in effect at the time, the right to demand any such excess being hereby
expressly waived by Lender.
9.9 Change of Security. Any part of the Mortgaged Property may be
------------------
released, regardless of consideration, by Lender from time to time without
impairing, subordinating, or affecting in any way the lien, security interest,
and other rights hereof against the remainder. The lien, security interest, and
other rights granted hereby shall not be affected by any other security taken
for the Indebtedness or Obligations, or any part thereof. The taking of
additional collateral, or the amendment, extension, renewal, or rearrangement of
the Indebtedness or Obligations, or any part thereof, shall not release or
impair the lien, security interest, and other rights granted hereby, or affect
the liability of any indemnitor, endorser or guarantor or improve the right of
any junior lienholder; and this Mortgage, as well as any instrument given to
secure any amendment, extension, renewal, or rearrangement of the Indebtedness
or Obligations, or any part thereof, shall be and remain a first and prior lien,
except as otherwise provided herein, on all of the Mortgaged Property not
expressly released until the Indebtedness is fully paid and the Obligations are
fully performed and discharged.
9.10 Headings for Convenience Only. The headings of the Articles, Sections,
-----------------------------
and Subsections hereof are inserted for convenience of reference only and shall
in no way alter, modify, or define, or be used in construing the text of such
Articles, Sections, or Subsections.
9.11 No Representation by Lender. By accepting or approving anything
---------------------------
required to be observed, performed, or fulfilled or to be given to Lender
pursuant to the Loan Documents, Lender shall not be deemed to have warranted,
consented to, or affirmed the sufficiency, legality, effectiveness, or legal
effect of the same.
9.12 Lender's Right to Assign and Participate Interests. Lender may, at any
--------------------------------------------------
time, sell, transfer, assign or grant participations in the Note, this Mortgage
and the Loan Documents, and Lender may forward to each assignee or participant,
and each prospective assignee or participant, all documents and information
which Lender now has or may hereafter acquire relating to the Indebtedness or
Obligations and to Borrower and the Mortgaged Property.
9.13 Entire Agreement: Amendments in Writing. THIS MORTGAGE AND THE OTHER
---------------------------------------
LOAN DOCUMENTS EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND
SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND
UNDERSTANDINGS, WHETHER WRITTEN
-31-
<PAGE>
OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS
AMONG THE PARTIES HERETO. The provisions of this Mortgage and the Loan Documents
may be amended or waived only by an instrument in writing signed by the Borrower
and Lender.
9.14 Waiver of Right to Trial by Jury. BORROWER AND LENDER HEREBY
--------------------------------
IRREVOCABLY AND UNCONDITIONALLY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,
SUIT, PROCEEDING, OR COUNTERCLAIM THAT RELATES TO OR ARISES OUT OF ANY OF THE
LOAN DOCUMENTS OR THE ACTS OR FAILURE TO ACT OF OR BY LENDER IN THE ENFORCEMENT
OF ANY OF THE TERMS OR PROVISIONS OF THIS MORTGAGE OR THE OTHER LOAN DOCUMENTS.
Article X
SPECIAL STATE PROVISIONS
------------------------
10.1 Mortgage Covenants. The Mortgage is granted with MORTGAGE COVENANTS,
------------------
and is upon the STATUTORY CONDITION.
10.2 Mortgage Condition. The condition of this Mortgage is such that the
------------------
Borrower is justly indebted to the Lender in the sum of $25,000,000.00, which
sum is evidenced by Borrower's Promissory Note for said sum, dated of even date
herewith, payable to Lender, a copy of which is attached hereto as Exhibit "C"
-----------
and made a part hereof."
10.3 Open-End Provision. This is an "Open-End" Mortgage and the holder
------------------
hereof shall have all the rights, powers and protection to which the holder of
an Open-End Mortgage is entitled. It is further agreed that upon request of
Borrower, Lender may hereafter, at its option, at any time before full payment
of this Mortgage, make further advances, to Borrower, in amounts and at such
rates of interest as Lender shall determine, and every such further advance,
with interest, shall be secured by this Mortgage and evidenced by an additional
Note given by the Borrower, provided, that the amount of the Principal secured
by this Mortgage and remaining unpaid shall at no time exceed the original
principal sum secured hereby and provided that the time of repayment of such
advancement shall not extend the time of repayment beyond the maturity of the
original debt hereby secured.
-32-
<PAGE>
EXECUTED under seal as of the date first set forth above.
BORROWER:
Hologic, Inc.
By:/s/ Glenn P. Muir
------------------------------
Glenn P. Muir
Title: Vice President, Finance and
Treasurer
(Principal Financial Officer)
Hereunto duly authorized
WITNESSES:
/s/ Julia Steen
- ------------------------------
Name:
/s/ Daniel Gusenoff
- ------------------------------
Name:
-33-
<PAGE>
ACKNOWLEDGMENT
--------------
COMMONWEALTH OF MASSACHUSETTS (S)
COUNTY OF SUFFOLK (S)
Personally Appeared
Glenn P. Muir as aforesaid Signer of the foregoing Instrument, and acknowledged
the same to be his free act and deed as such Vice President, Finance and
Treasurer and the free act and deed of said corporation, before me.
/s/ Cathie Dalissuie
- ------------------------------
Notary Public
My Commission Expires: 6/9/06
-34-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.25
<SEQUENCE>8
<FILENAME>0008.txt
<DESCRIPTION>BEDFORD, MA. MORTGAGE, SECURITY AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.25
Bedford, MA
MORTGAGE, SECURITY AGREEMENT
AND ASSIGNMENT OF LEASES AND RENTS
by
HOLOGIC, INC., ("Borrower")
for the benefit of
TREX MEDICAL SYSTEMS CORPORATION ("Lender")
September 15, 2000
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I DEFINITIONS........................................................................................................ 3
1.1 Definitions........................................................................................................... 3
Article II CERTAIN ADDITIONAL DEFINITIONS; REPRESENTATIONS AND WARRANTIES.................................................... 6
2.1 Conduct of Business................................................................................................... 7
2.2 Payment of Taxes...................................................................................................... 7
2.3 Authority to Enter into Transaction; No Conflict; Authority and Enforceability........................................ 7
2.4 Title to the Mortgaged Property; Compliance with Laws; No Notices of Violation; No Flood Hazard; Issuance of Permits.. 8
2.5 No Condemnation....................................................................................................... 8
2.6 No Litigation......................................................................................................... 8
2.7 Payment for Work; No Mechanics' Liens................................................................................. 8
2.8 Leases................................................................................................................ 8
2.9 Leasing Commissions: Management Agreements............................................................................ 8
2.10 Separate Tax Parcel.................................................................................................. 9
2.11 Condominium or Cooperative........................................................................................... 9
2.12 Borrower Not "Foreign Person"........................................................................................ 9
2.13 Payment of Real Estate Taxes and Impositions......................................................................... 9
2.14 Utilities Are Available to the Mortgaged Property.................................................................... 9
2.15 Proper Drainage...................................................................................................... 9
2.16 Environmental Matters................................................................................................ 9
Article III BORROWER'S COVENANTS............................................................................................. 10
3.1 Payment and Performance by Borrower................................................................................... 11
3.2 Borrower's Compliance with Legal Requirements......................................................................... 11
3.3 Borrower's Payment of Impositions..................................................................................... 11
3.4 Maintenance of First Lien Status of Mortgage: No Subordinate Mortgages or Other Liens Permitted....................... 11
3.5 Borrower's Maintenance of Property in Good Repair; No Waste: Alterations and Additions................................ 11
3.6 Borrower's Maintenance of Insurance; Waiver of Subrogation............................................................ 11
3.7 Lender's Right to Inspect Mortgaged Property.......................................................................... 13
3.8 Borrower's Provision of Financial Statements and Rent Rolls; Inspection of Books and Records.......................... 13
3.9 Borrower's Payment for Labor and Materials............................................................................ 14
3.10 Further Assurances; Corrections; Recording of Loan Documents; Payment of Stamp Taxes................................. 14
3.11 Borrower's Payment of Taxes on Mortgage.............................................................................. 15
3.12 Borrower's Estoppel Certificate...................................................................................... 15
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
3.13 Lender's Expenses and Attorneys' Fees; Default Rate Applicable to
Unpaid Amounts............................................................................................................ 15
3.14 Borrower's Address................................................................................................... 15
3.15 Financial Covenants.................................................................................................. 15
3.16 Improper Use of Mortgaged Property; Condominium or Cooperative....................................................... 16
3.17 Replacement of Fixtures and Personalty............................................................................... 16
3.18 Change in Zoning; Grant of Easements; Use of Property; Tax Parcel.................................................... 16
3.19 Borrower's Defense of Lender......................................................................................... 16
3.20 No Transfers of Mortgaged Property or Interests in Borrower Permitted................................................ 16
3.21 Notice of Claims and Litigation...................................................................................... 16
3.22 Intentionally Omitted................................................................................................ 17
3.23 Environmental Matters................................................................................................ 17
Article IV LEASES............................................................................................................ 19
4.1 Borrower's License with Respect to Leases............................................................................. 19
4.2 Authorization and Direction to Lessees................................................................................ 19
4.3 Intentionally Omitted................................................................................................. 20
4.4 Notification to Lessees; Security Deposits............................................................................ 20
4.5 Enforcement........................................................................................................... 20
4.6 Anticipation of Rents................................................................................................. 20
4.7 Lender's Approval Required for New Leases; Subordination of Leases.................................................... 20
4.8 Execution, Cancellation or Modification of Leases..................................................................... 20
4.9 No Sublease or Assignment............................................................................................. 21
4.10 Delivery of Leases: Further Acts and Assurances...................................................................... 21
Article V INSURANCE AND CONDEMNATION PROCEEDS................................................................................ 21
5.1 Notice of Damage or Destruction or Taking or Condemnation............................................................. 21
5.2 Adjustment of Insurance Claims........................................................................................ 21
5.3 Application of Insurance Proceeds..................................................................................... 21
5.4 Condemnation Proceeds Payable to Lender............................................................................... 22
5.5 Application of Condemnation Proceeds.................................................................................. 22
5.6 Conditions Applicable if Restoration Permitted........................................................................ 22
Article VI SECURITY AGREEMENT................................................................................................ 23
6.1 Security Interest..................................................................................................... 23
6.2 Financing Statements.................................................................................................. 23
6.3 Fixture Filing........................................................................................................ 23
Article VII EVENTS OF DEFAULT................................................................................................ 24
7.1 Payment Defaults...................................................................................................... 24
7.2 Covenant Defaults..................................................................................................... 24
7.3 False Representations, Warranties and Statements...................................................................... 24
7.4 Default Under Other Liens............................................................................................. 24
7.5 Dissolution. The dissolution, termination, liquidation or merger of Borrower.......................................... 24
7.6 No Further Encumbrances............................................................................................... 24
7.7 Transfer of Mortgaged Property or Beneficial Interest in Borrower..................................................... 24
7.8 Insolvency; Bankruptcy................................................................................................ 24
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
7.9 Insurance............................................................................................................. 25
7.10 Other Loan Documents................................................................................................. 25
Article VIII REMEDIES........................................................................................................ 25
8.1 Lender's Remedies Upon Default........................................................................................ 25
8.2 Possession After Foreclosure.......................................................................................... 29
8.3 Application of Foreclosure and Other Proceeds......................................................................... 29
8.4 Miscellaneous Matters Relating to Exercise of Remedies................................................................ 30
Article IX MISCELLANEOUS..................................................................................................... 31
9.1 Borrower's Right to Contest Certain Matters........................................................................... 31
9.2 Intentionally Omitted................................................................................................. 31
9.3 Notices............................................................................................................... 32
9.4 Covenants Running with the Land: Bind and Inure....................................................................... 32
9.5 No Waiver: Severability............................................................................................... 33
9.6 Counterparts.......................................................................................................... 33
9.7 Applicable Law: Service of Process.................................................................................... 33
9.8 Usury................................................................................................................. 33
9.9 Change of Security.................................................................................................... 33
9.10 Headings for Convenience Only........................................................................................ 34
9.11 No Representation by Lender.......................................................................................... 34
9.12 Lender's Right to Assign and Participate Interests................................................................... 34
9.13 Entire Agreement: Amendments in Writing.............................................................................. 34
9.14 Waiver of Right to Trial by Jury..................................................................................... 34
Article X SPECIAL STATE PROVISIONS........................................................................................... 35
</TABLE>
EXHIBITS
Exhibit A - Legal Description
Exhibit B - Permitted Exceptions
-iii-
<PAGE>
Preamble:
- --------
Hologic, Inc., a Delaware corporation, having a mailing address of 35
Crosby Drive, Bedford, MA ("Borrower"), for consideration paid, does hereby
GRANT, BARGAIN, SELL, MORTGAGE, CONFIRM, WARRANT and CONVEY unto Trex Medical
Systems Corporation, having an address at 81 Wyman Street, P.O. Box 9046,
Waltham, MA 02254-9046 (the "Lender"), with MORTGAGE COVENANTS, to secure
payment of TWENTY-FIVE MILLION AND 00/100 DOLLARS ($25,000,000.00) (the "Loan"),
with interest thereon on such part thereof as shall from time to time remain
unpaid, and all other sums evidenced by or due under that certain Secured
Promissory Note of even date herewith from Borrower to Lender (together with any
and all renewals, modifications, rearrangements, reinstatements, enlargement, or
extensions of such note or of any promissory note or notes given in renewal,
modification, rearrangement, substitution or replacement therefor, the "Note")
or advanced under or secured by the Loan Documents (hereinafter defined), and
any other amounts, payments, or premiums payable under the Note, this Mortgage,
Security Agreement and Assignment of Leases and Rents (this "Mortgage") or the
other Loan Documents (the "Indebtedness"), all payable as provided in the Note
and in all other Loan Documents, the following (collectively, the "Mortgaged
Property"):
The land located on 35 Crosby Drive, Bedford, Middlesex County,
Massachusetts, as more particularly described in Exhibit A attached hereto,
---------
together with all right, title, interest and privileges of Borrower in and to
(i) streets, easements, rights-of-way, licenses, vehicle parking right and other
rights appurtenant to or used in connection with such real property or the
Improvements (hereinafter defined) including, without limitation, any drainage
ponds or other like drainage areas not located on the Land (hereinafter defined)
which may be required for water run-off and any easements necessary to obtain
access from the Land to such drainage areas, or to any other area to which
Borrower has a right to drain water or sewer; (ii) any strips or gores of real
property between such real property and abutting or adjacent properties; and
(iii) all water and water rights, mineral rights, timer and crops,
appurtenances, reversions and remainder in, to or relating to such real property
(collectively, the "Land"); and
All buildings, open parking areas, structures and other improvements, and
any and all additions or appurtenances thereto, now or hereafter located on the
Land (the "Improvements"); and
All materials, supplies, equipment, machinery, goods, systems, apparatus,
and other items now owned or hereafter acquired by Borrower and now or hereafter
attached to, installed in, or used in connection with the Improvements or the
Land, together with all appurtenances, replacements, betterments, and
substitutions for any of the foregoing and the proceeds thereof (collectively,
the "Fixtures"); and
All of the right, title, and interest of Borrower in and to the following,
to the extent the same are necessary to the proper use and operation of the
Improvements: (i) furnishings, equipment and machinery which, if attached to
the Improvements, would be Fixtures; (ii) all
-1-
<PAGE>
refundable fees, deposits or other funds or evidences of credit or indebtedness
deposited by or on behalf of Borrower with any governmental authority,
corporation or provider of utility services relating to the Mortgaged Property,
(iii) any awards, settlements, or compensation made by any Governmental
Authority relating to the Mortgaged Property, including those for any change of
grade in any streets and those for municipal utility district or other utility
costs incurred or deposits made in connection with the Land or the Improvements;
(iv) all refunds, rebates or credits in connection with a reduction in taxes
charged against the Mortgaged Property as a result of any applications or
proceedings for reduction or abatement; (v) unearned premiums on any insurance
required to be maintained by Borrower hereunder relating to the Mortgaged
Property; and (vi) all books of account and records relating to the operation of
Mortgaged Property whether or not stored, managed or contained on computer
software or hardware, together with all accessions, replacements, and
substitutions thereto or therefor and the products and/or proceeds thereof
(collectively, the "Personalty"); and
All of the right, title, and interest of Borrower in, to, and under any and
all of the following, whether now or hereafter existing: (i) all contracts and
rights relating to the operation and maintenance, of the Mortgaged Property
(except Leases (hereinafter defined)), including but not limited to management
agreements, maintenance agreements and service contracts; and (ii) warranties
and guarantees relating to the Improvements (collectively, the "Contracts"); and
Any and all leases, master leases, subleases, licenses, concessions, or
other agreements (written or oral, now or hereafter in effect), including any
renewals, extensions, amendments and supplements, which grant to third parties a
possessory interest in and to, or the right to use, all or any part of the
Mortgaged Property, together with all security and other deposits or payments
made in connection therewith (collectively, the "Leases"); and
All of the rents, revenues, income, proceeds, profits, security and other
types of deposits (after Borrower acquires title thereto), and other benefits
paid or payable by parties to the Contracts and/or Leases other than Borrower,
for using, leasing, occupy licensing, possessing, operating from, or otherwise
enjoying all or any portion of the Mortgaged Property, whether due now or
hereafter, including, without limitation, any payments made by a lessee arising
out of the cancellation or termination of any Lease (collectively, the "Rents").
TO HAVE AND TO HOLD the Mortgaged Property unto Lender, forever, subject,
however, to the matters described in Exhibit B hereto ("Permitted Exceptions"),
---------
and upon the terms and conditions of this Mortgage, with the Power of Sale and
right of entry as provided below, and Borrower does hereby bind itself, its
successors and assigns to WARRANT AND FOREVER DEFEND the title to the Mortgaged
Property unto Lender against every person whomever claiming the same or any part
thereof.
-2-
<PAGE>
Article I
DEFINITIONS
-----------
1.1 Definitions. All capitalized terms not otherwise defined in the body
-----------
of this Mortgage shall have the meanings set forth below:
APA. That certain Asset Purchase and Sale Agreement dated August 13, 2000
---
between Borrower and Lender.
Borrower: The individual or entity described as Borrower in the initial
--------
paragraph of this Mortgage and any and all subsequent owners of the Mortgaged
Property (without implying Lender's consent to any Transfer of the Mortgaged
Property).
Code: The Uniform Commercial Code, as amended from time to time, in effect
----
in the state in which the Mortgaged Property is located provided, however, that
in the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the Lender's security interest in the
Mortgaged Property is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than that in which the Mortgaged Property is located, the
term "Code" shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.
Consolidated Tangible Net Worth: The excess of Consolidated Total Assets
-------------------------------
over Consolidated Total Liabilities, and less the sum of:
(a) the total book value of all assets of the Borrower and its
Subsidiaries properly classified as intangible assets under generally accepted
accounting principles, including such items as lease acquisition costs, deferred
charges, goodwill, the purchase price of acquired assets in excess of the fair
market value thereof, trademarks, trade names, service marks, brand names,
copyrights, patents and licenses, and rights with respect to the foregoing; plus
----
(b) all amounts representing any write-up in the book value of
any assets of the Borrower or its Subsidiaries resulting from a revaluation
thereof after September 25, 1999.
Consolidated Total Assets: All assets of the Borrower and its Subsidiaries
-------------------------
determined on a consolidated basis in accordance with generally accepted
accounting principles.
Consolidated Total Liabilities: All liabilities of the Borrower and its
------------------------------
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles.
Contracts: As defined in the Preamble of this Mortgage.
---------
Debtor Relief Laws: Title 11 of the United States Code or any other
------------------
applicable federal or state law, as now or hereafter in effect, relating to
bankruptcy, insolvency, liquidation,
-3-
<PAGE>
receivership, reorganization, arrangement or composition, extension or
adjustment of debts, or similar laws affecting the rights of creditors.
Default Rate: As defined in the Note.
------------
Disposal: The actual or alleged presence, release, spill, transportation,
--------
migration, generation, treatment, processing, storage use or disposal of
Hazardous Materials on, in, under, above or emanating from any portion of the
Mortgaged Property, whether intentional or unintentional, direct or indirect,
foreseeable or unforeseeable.
Distribution: The declaration or payment of any dividend on or in respect
------------
of any shares of any class of capital stock of the Borrower, other than
dividends payable solely in shares of common stock of the Borrower; the
purchase, redemption, or other retirement of any shares of any class of capital
stock of the Borrower, directly or indirectly through a Subsidiary of the
Borrower or otherwise (other than the repurchase or redemption of shares of
common stock of the Borrower or any Subsidiary whose employment or retention is
terminated by the Borrower or any such Subsidiary in an aggregate amount not to
exceed $100,000 during any fiscal year of the Borrower); the return of capital
by the Borrower to its shareholders as such; or any other distribution on or in
respect of any shares of any class of capital stock of the Borrower.
Environmental Claim: Any and all administrative, regulatory or judicial
-------------------
actions, suits, demands, demand letters, claims, liens, notices of non-
compliance or violation, investigations, proceedings, consent orders or consent
agreements (collectively, "Claims") relating in any way to (a) the actual,
-------
threatened or alleged presence or release of Hazardous Materials on, in, under
or at the Mortgaged Property or (b) any Environmental Law, including without
limitation (i) any and all Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and (ii) any and all Claims by any
third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from any release or threatened
release of Hazardous Materials or arising from alleged injury or threat of
injury or damage to health, safety or the environment.
Environmental Laws: As defined in Article II of this Mortgage.
------------------ ----------
Event of Default: As defined in Article VII of this Mortgage.
---------------- -----------
Fixtures: As defined in the Preamble of this Mortgage.
--------
Generally Accepted Accounting Principles or generally accepted accounting
-------------------------------------------------------------------------
principles: Principles that are consistent with the principles promulgated or
- ----------
adopted by the Financial Accounting Standards Board and its predecessors, in
effect for the Borrower's fiscal year ended on September 25, 1999.
Governmental Authority. Any board, agency, commission or department of any
----------------------
federal, state or municipal government having jurisdiction over the Mortgaged
Property.
-4-
<PAGE>
Hazardous Materials: As defined in Article II of this Mortgage.
------------------- ----------
Impositions: (i) All real estate and personal property taxes, charges,
-----------
assessments, and levies and any interest, costs, or penalties with respect
thereto, of any kind and nature whatsoever which at any time may be assessed,
levied, or imposed upon the Mortgaged Property or the ownership, use, occupancy,
or enjoyment thereof; (ii) any sums payable for or under any easement, license,
or agreement maintained for the benefit of the Mortgaged Property; (iii) utility
charges and fees relating to the Mortgaged Property; and (iv) assessments and
charges arising under any subdivision, condominium, planned unit development, or
other declarations, restrictions, regimes, or agreements affecting the Mortgaged
Property.
Improvements: As defined in the Preamble of this Mortgage.
------------
Indebtedness: As defined in the Preamble of this Mortgage.
------------
Indemnified Matters: All obligations (including removal and remedial
-------------------
actions), losses, claims, suits, judgments, liabilities, penalties, damages
(including punitive damages and consequential damages), costs and expenses
(including attorneys', consultants', and contractors' fees and expenses) of any
kind or nature whatsoever that may at any time be incurred by, imposed on or
asserted against Borrower, the Mortgaged Property or any Indemnitee directly or
indirectly based on, or arising or resulting from, any Environmental Claim
relating in any way to (a) Borrower or the Mortgaged Property, or (b) the
exercise by the Lender of any of its rights under any of the provisions of the
Loan Documents.
Indemnitee: Each of Lender and any and all subsequent holder(s) of the
----------
Note, plus with respect to each of the foregoing, any and all of their
respective subsidiaries, advisors, trustees, and the directors, officers,
agents, attorneys, employees, participants and successors and assigns of Lender,
all subsequent holder(s) of the Note, and their respective subsidiaries,
advisors and trustees.
Land: As defined in the Preamble of this Mortgage.
----
Legal Requirements: As defined in Article II of this Mortgage.
------------------ ----------
Lender: The individual or entity described as Lender in the initial
------
paragraph of this Mortgage and/or their (its) affiliate(s), separate account(s),
nominee(s) or subsidiary(ies) and any investor, participant, co-lender or
assignee to whom the Loan, in whole or in part, may be sold.
Lessees: The tenants and lessees under the Leases.
-------
Loan Documents: As defined in the Note.
--------------
Mortgaged Property: As defined in the Preamble of this Mortgage.
------------------
Note: As defined in the Preamble of this Mortgage.
----
-5-
<PAGE>
Obligations: Any and all of the covenants, conditions, warranties,
-----------
representation, and other obligations made or undertaken by Borrower or any
other person or party to the Loan Documents as set forth in the Loan Documents.
Permits: As defined in Article II of this Mortgage.
------- ----------
Permitted Exceptions: As defined in the Preamble of this Mortgage.
--------------------
Personalty: As defined in the Preamble of this Mortgage.
----------
Rents: As defined in the Preamble of this Mortgage.
-----
Subordinate Mortgage: Any mortgage, deed of trust, pledge, lien, security
--------------------
interest, encumbrance or charge, or conditional sale or other title retention
agreement, covering all or any portion of the Mortgaged Property, the lien of
which is subordinate and inferior to the lien of this Mortgage.
Subsidiary: Any corporation, association, trust, or other business entity
----------
of which the designated parent shall at any time own directly or indirectly
through a Subsidiary or Subsidiaries at least a majority (by number of votes) of
the outstanding voting stock and the accounts of which are consolidated with the
Borrower in accordance with Generally Accepted Accounting Principles.
Transfer: Any sale, lease, exchange, assignment, conveyance, transfer,
--------
trade, or other transfer or disposition of all or any portion of the Mortgaged
Property (or any related real property interest therein) or any part of the
ownership interest in Borrower which constitutes a "Change of Control" as
defined in the Note, but excluding the following: (a) sales or transfers of
items of Personalty which have become obsolete or worn beyond practical use and
which have been replaced by adequate substitutes having a similar utility and a
value equal to or greater than the replaced items when new; and (b) Approved
Leases.
Article II
CERTAIN ADDITIONAL DEFINITIONS;
REPRESENTATIONS AND WARRANTIES
------------------------------
The following capitalized terms not otherwise defined in the body of this
Mortgage shall have the meaning as set forth below:
Environmental Laws: All federal, state or local laws, rules and regulations
------------------
(whether now existing or hereafter enacted or promulgated, as they may be
amended from time to time) pertaining to Hazardous Materials, environmental
regulations, contamination by hazardous wastes, clean-up of hazardous wastes or
disclosures relating to Hazardous Materials or hazardous wastes, and any
judicial or administrative interpretation thereof, including any judicial or
administrative orders or judgments including, without limitation, the
Comprehensive
-6-
<PAGE>
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Section 9601 et seq. ("CERCLA"); the Federal Resource Conservation and Recovery
------
Act, 42 U.S.C. Section 6901 et seq. ("RCRA"); Superfund Amendments and
----
Reauthorization Act of 1986, Public Law No. 99-499 ("SARA"); Toxic Substances
----
Control Act, 15 U.S.C. Section 2601 et seq. ("TSCA"); and all state superlien or
----
environmental clean-up or disclosure statutes in the state in which the
Mortgaged Property is located.
Hazardous Materials: Any petroleum product and all hazardous or toxic
-------------------
substances or wastes or any substances which because of their quantitative
concentration, chemical, radioactive, flammable, explosive, infectious or other
characteristics, constitute or may reasonably be expected to constitute or
contribute to a danger or hazard to public health, safety or welfare or to the
environment, including, without limitation, any asbestos (whether or not
friable) and any asbestos-containing materials, waste oils, solvents and
chlorinated oils, polychlorinated biphenyls (PCBs), toxic metals, etchants,
pickling and plating wastes, explosives, reactive metals and compounds,
pesticides, herbicides, radon gas, urea formaldehyde foam insulation and
chemical, biological and radioactive wastes, or any other similar materials or
any other hazardous or toxic wastes or substances which are included under or
regulated by any Environmental Laws.
Legal Requirements: (a) All present and future laws, rules, regulations
------------------
and permits of any Governmental Authority applicable to the Mortgaged Property,
(b) all covenants, conditions, and restrictions contained in any deeds or other
instruments which relate to the Mortgaged Property, the failure of compliance
with which would materially adversely affect Lender's interest in, or the value
of, the Mortgaged Property, (c) all of Borrower's obligations under all Permits
affecting the Mortgaged Property and all conditions thereof binding upon the
Mortgaged Property.
Permits: All permits, licenses, certificates and approvals issued by
-------
Governmental Authorities or otherwise necessary for the Mortgaged Property to
comply with all Legal Requirements.
Borrower represents, warrants, agrees and confirms that, as of the date
hereof, as follows:
2.1 Conduct of Business. Borrower has all Permits necessary to use and
-------------------
operate the Mortgaged Property.
2.2 Payment of Taxes. All income, franchise and personal property,
----------------
excise and other Taxes, charges and fees due and payable as of the date hereof
by Borrower to all Governmental Authorities the non-payment of which could
result in a lien upon the Mortgaged Property have been fully paid.
2.3 Authority to Enter into Transaction; No Conflict; Authority and
---------------------------------------------------------------
Enforceability. Borrower has the right to borrow from Lender all funds
- --------------
evidenced by the Note, to encumber its interest in the Mortgaged Property, and
to execute and deliver the Loan Documents. The
-7-
<PAGE>
execution and delivery of the Loan Documents will not conflict with or
constitute a default under any agreement or Legal Requirement binding upon
Borrower. The execution, delivery and performance of the Loan Documents have
been duly authorized by all necessary actions of Borrower, and the Loan
Documents will be legal, valid and binding obligations of Borrower, enforceable
in accordance with their terms.
2.4 Title to the Mortgaged Property; Compliance with Laws; No Notices of
--------------------------------------------------------------------
Violation; No Flood Hazard; Issuance of Permits. Borrower has good, record and
- -----------------------------------------------
marketable title to the Mortgaged Property, free and clear of all mortgages,
deeds of trust, liens or other encumbrances of any kind or nature except the
Permitted Exceptions. The use and occupancy of the Mortgaged Property is in
material compliance with all Legal Requirements, without depending upon property
or rights other than the Mortgaged Property (which for the purposes hereof shall
include appurtenant easements). No uncured notice of any asserted violation of
any Legal Requirement has been given to Borrower. Borrower has not received any
notices of proposed rezoning of the Mortgaged Property or of any proposed
municipal or county assessments against the Mortgaged Property. The Mortgaged
Property is not in a Flood Hazard Area as defined in the "Flood Disaster
Protection Act of 1973", as amended, or identified as such by the Federal
Emergency Management Agency. All governmental authorities have issued all
Permits required for the use and operation of the Mortgaged Property.
2.5 No Condemnation. No part of the Mortgaged Property has been taken in
---------------
condemnation or any similar proceeding, and no part of the Mortgaged Property
has been transferred by deed in lieu of condemnation or other like proceeding.
To the best of Borrower's knowledge, no condemnation or other like proceeding is
pending or threatened with respect to the Mortgaged Property.
2.6 No Litigation. There is no pending or, to the best of Borrower's
-------------
knowledge, threatened litigation against Borrower relating to the Mortgaged
Property, or to the title, use, occupancy or operation thereof.
2.7 Payment for Work; No Mechanics' Liens. All construction, alterations
-------------------------------------
and repairs with respect to the Mortgaged Property have been paid for in full,
except for repair work performed in the ordinary course of business for which
payment is not yet due and payable. No uncured notice of any mechanic's or
materialmen's lien has been received by Borrower, and no mechanic's or
materialmen's liens claims are threatened, with respect to the Mortgaged
Property.
2.8 Leases. Borrower has delivered to Lender true, correct and complete
------
copies of all leases and occupancy agreements ("Leases") affecting the Mortgaged
Property. Borrower is not in material default under any Lease, and to
Borrower's knowledge no other party to any Lease is in material default
thereunder.
2.9 Leasing Commissions: Management Agreements. There are no agreements
------------------------------------------
to pay leasing commissions for existing Leases, or any management agreements
for the Mortgaged Property. The obligation to pay leasing commissions and
management fees are and will be (a)
-8-
<PAGE>
subject, subordinate and inferior to this Mortgage and (b) not enforceable
against Lender or anyone claiming by, through or under Lender.
2.10 Separate Tax Parcel. No land or improvements which will not be
-------------------
encumbered by this Mortgage is included within the tax assessment or assessments
of the Mortgaged Property or the tax lots corresponding to the Mortgaged
Property.
2.11 Condominium or Cooperative. The Mortgaged Property has not been
--------------------------
subjected to a condominium or cooperative form of ownership.
2.12 Borrower Not "Foreign Person". Borrower is not a "foreign person"
-----------------------------
under the Foreign Investment in Real Property Tax Act 1980, or the regulations
promulgated pursuant to such Act or any amendment to such Act or regulations.
2.13 Payment of Real Estate Taxes and Impositions. All water charges,
--------------------------------------------
sewer rents, ad valorem taxes, assessments, vault charges and other similar
liens or impositions relating to the Mortgaged Property which are due and
payable have been paid in full.
2.14 Utilities Are Available to the Mortgaged Property. To the best of
-------------------------------------------------
Borrower's knowledge, all utilities, including, without limitation, electricity,
gas, steam, public water, public storm and sanitary sewers and telephone
service, required for the current and intended use and operation of the
Mortgaged Property are available at the lot lines thereof or through existing
easements appurtenant to the Mortgaged Property, have been connected to the
improvements, are in full service, have been accepted or approved by the
appropriate Governmental Authorities with all necessary Permits required by
Legal Requirements having been issued. The existing utilities are of adequate
capacity for the Mortgaged Property.
2.15 Proper Drainage. Design and as-built conditions of the Mortgaged
---------------
Property are such that no material drainage of surface or other water across
land of others is expected to occur.
2.16 Environmental Matters. Except as to any matters disclosed in the
---------------------
Borrower's Environmental Disclosure Documents (described below), true, correct
and complete copies of which Borrower has delivered to Lender:
(a) Reasonable Investigation; Site Evaluation. Borrower has
-----------------------------------------
performed or relied upon the performance by others of appropriate
investigations, studies and tests to discover (i) any environmental
contamination in, on, under threatening to or emanating from the Mortgaged
Property; and (ii) any potential or actual liabilities for clean-up of Hazardous
Materials with respect to the Mortgaged Property, and such investigations,
studies and tests have disclosed no environmental contamination, Hazardous
Materials, facts which may give rise to environmental claims or past or current
violations of any Environmental Laws.
(b) No Knowledge of Hazardous Materials. To the best of the
-----------------------------------
Borrower's knowledge: no prior owner of the Mortgaged Property or current or
prior tenant, subtenant or
-9-
<PAGE>
other occupant of the Mortgaged Property has used Hazardous Materials on, from
or affecting the Mortgaged Property whether or not in a manner that violates any
of the Environmental Laws governing the contamination, use, generation,
placement, treatment, transportation, manufacture, refinement, handling,
production, disposal or storage of Hazardous Materials; there have been no
releases of Hazardous Materials either at, upon, under or within the Mortgaged
Property; no Hazardous Materials have migrated to the Mortgaged Property; no
Hazardous Materials are located on or have been stored on (other than those
Hazardous Materials which are customarily used by Borrower and other tenants and
occupants in the course of their business and then only in strict compliance
with all Environmental Laws affecting such materials and the Mortgaged
Property), generated at, processed or disposed of on, or released or discharged
from (including ground water contamination) the Mortgaged Property; no above or
underground storage tanks currently exist or previously existed on the Mortgaged
Property; and the Mortgaged Property does not contain and has not in the past
contained any asbestos containing material or other airborne contamination
including any potential contamination that would be caused by maintenance of the
Mortgaged Property, equipment therein, operations or activities conducted
thereon or finishes in the Improvements.
(c) Limitation on Hazardous Materials Allowed on Mortgaged Property;
----------------------------------------------------------------
Future Compliance with Environmental Laws. Borrower shall not allow any
- -----------------------------------------
Hazardous Materials to exist or be stored, disposal of, located, discharged,
generated, managed, processed or otherwise handled on the Mortgaged Property
other than those Hazardous Materials which are customarily used by Borrower and
other tenants and occupants in the course of their business and then only in
strict compliance with all Environmental Laws affecting such materials and the
Mortgaged Property.
(d) No Outstanding Notices of Violation; Mortgaged Property
-------------------------------------------------------
Currently Complies with Environmental Laws. Neither Borrower nor the Mortgaged
- ------------------------------------------
Property (i) has received notice of or is subject to any private or governmental
lien or judicial or administrative notice, order or action relating to Hazardous
Materials or environmental concerns, impairments or liabilities with respect to
the Mortgaged Property, or (ii) is in, or with any applicable notice or lapse of
time, or failure to take curative or remedial actions, will be in, either direct
or indirect violation of any Environmental Laws.
(e) Borrower's Environmental Disclosure Documents. For purposes
---------------------------------------------
hereof, "Borrower's Environmental Disclosure Documents" shall be as defined in
the APA.
Article III
BORROWER' S COVENANTS
---------------------
Borrower covenants and agrees with Lender as follows:
-10-
<PAGE>
3.1 Payment and Performance by Borrower. Borrower will pay the
-----------------------------------
Indebtedness and perform and discharge the Obligations on or before the time for
performance specified in the Loan Documents.
3.2 Borrower's Compliance with Legal Requirements. Subject to Section 9.1
---------------------------------------------
(Borrower's Right to Contest Certain Matters) Borrower will promptly and
faithfully comply with, conform to, and obey all Legal Requirements.
3.3 Borrower's Payment of Impositions. Subject to Section 9.1 (Borrower's
---------------------------------
Right to Contest Certain Matters), Borrower will pay and discharge the
Impositions not later than thirty (30) days after the due date thereof, and
Borrower shall at Lender's request, deliver to Lender a written' receipt
evidencing the payment of each Imposition no later than ten (10) days prior to
the due date thereof.
3.4 Maintenance of First Lien Status of Mortgage: No Subordinate Mortgage;
----------------------------------------------------------------------
or Other Liens Permitted. Borrower will protect the first lien and security
- ------------------------
interest status of this Mortgage and the other Loan Documents and will not
permit to be created or to exist any Subordinate Mortgage or any other lien or
security interest on a parity with, superior to, or inferior to, any of the
liens or security interests of this Mortgage, except for the Permitted
Exceptions.
3.5 Borrower's Maintenance of Property in Good Repair; No Waste:
------------------------------------------------------------
Alterations and Additions. Borrower will keep the Mortgaged Property in good
- -------------------------
order and condition, reasonable wear and tear excepted, and will make all
repairs, replacements, alterations and additions which are reasonably necessary
to keep the Mortgaged Property in such order and condition. Borrower will
prevent any act, occurrence, or neglect which might materially impair the value
or usefulness of the Mortgaged Property for its intended use. Borrower will not
commit or permit any waste of the Mortgaged Property. All alterations or
additions shall be completed promptly in a good and workmanlike manner and in
compliance with all Legal Requirements and other obligations by which Borrower
or the Mortgaged Property is bound. No alterations or additions shall adversely
affect the value or utility of the Mortgaged Property.
3.6 Borrower's Maintenance of Insurance; Waiver of Subrogation. Borrower
----------------------------------------------------------
will obtain and maintain the following insurance upon and relating to the
Mortgaged Property:
(a) owner's (and during any period of construction by a third party,
contractors') policy of comprehensive general public liability insurance
(including automobile coverage) on an occurrence basis, with a combined single
limit of not less than $1,000,000 and excess or umbrella liability of at least
$25,000,000, or such higher amount as Lender may reasonably require;
(b) fire and extended coverage insurance against all risks of loss,
including collapse, in an amount not less than the greater of (i) the
outstanding Loan amount or (ii) 100% of the full replacement cost of all
Improvements, including the cost of debris removal, with an
-11-
<PAGE>
agreed-amount endorsement sufficient at all times to prevent Borrower from
becoming a coinsurer, with no deduction for depreciation;
(c) Intentionally Omitted;
(d) if the Mortgaged Property is now or hereafter becomes situated in
a "flood hazard area," and if required by Lender, a flood insurance policy;
(e) worker's compensation insurance for Borrower and any general
contractor or agent performing any construction work or other services on or
with respect to the Mortgaged Property, in the statutory limits;
(f) Intentionally Omitted;
(g) broad form boiler and machinery insurance (without exclusion for
explosion) covering all boilers or other pressure vessels, machinery and
equipment located in, on or about the Mortgaged Property and insurance against
loss of occupancy or use arising from any breakdown in such amounts as are
generally available at premiums as are generally required by institutional
lenders for properties similar to the Mortgaged Property;
(h) Intentionally Omitted; and
(i) such other insurance, if any, as Lender may reasonably require
from time to time.
Lender acknowledges that the insurance may be provided under a blanket
insurance policy provided that Lender shall be satisfied that sufficient
coverage (as determined by Lender) is allocated under such policy to the
Mortgaged Property and that all requirements of this Section are satisfied by
such policy.
Each insurance policy obtained by Borrower shall provide by way of
endorsements, riders or otherwise that: (a) with respect to liability
insurance, Lender shall be named as an additional insured; with respect to the
other insurance required hereunder (other than worker's compensation insurance),
and with respect to any business interruption, rental value or earthquake
insurance which Borrower may at its option, obtain, Lender shall be named under
a standard noncontributory mortgagee clause providing for such amounts to be
payable to Lender as a mortgagee or loss payee and not as a coinsured; (b) the
coverage of Lender shall not be terminated, reduced, or affected in any manner
regardless of any breach or violation by Borrower of any warranties,
declarations, or conditions in such policy; (c) no such insurance policy shall
be canceled, endorsed, altered, or reissued to effect a change in coverage for
any reason and to any extent unless such insurer shall have first given Lender
thirty (30) days' prior written notice thereof; and (d) Lender may, but shall
not be obligated to, make premium payments to prevent any cancellation,
endorsement, alteration, or reissuance, and such payments shall be accepted by
the insurer to prevent the same; however, Lender shall not be liable for the
failure to make such payment or obtain such insurance, or for the amount,
coverage or type of insurance obtained, the
-12-
<PAGE>
form or legal sufficiency of any such insurance contract, or the solvency of any
such insurance company.
Lender shall be furnished with the original of each initial policy (or
other evidence of insurance acceptable to Lender) simultaneously with the
execution of this Mortgage and the original of each renewal policy (or other
evidence of insurance acceptable to Lender) not less than thirty (30) days'
prior to the expiration of the initial policy or each immediately preceding
renewal policy. All insurance policies required under this Mortgage shall be
with a company or companies authorized to do business in the state in which the
Mortgaged Property is located with a claims paying ability rating of A:XII or
higher, according to the standards set by A.M. Best Company (or a similar rating
by an equivalent rating company satisfactory to Lender). Borrower shall
promptly provide to Lender copies of any and all notices of cancellation, non-
renewal, coverage changes, claims, and demands which Borrower receives from
insurers of the Mortgaged Property.
If Borrower shall fail to obtain any insurance policy or policies required
by Lender, or shall fail to assign and deliver such policies to Lender, then
Lender may, but shall not be required to, obtain such insurance and pay the
premium or premiums therefor, in which event Borrower shall, on demand of
Lender, repay such premium or premiums to Lender and such repayment shall be
secured by the lien of this Mortgage. If Borrower fails to maintain the level
and coverages of insurance required under this Mortgage, then Borrower shall
indemnify Lender to the extent that a casualty occurs and insurance proceeds
would have been available had such insurance been maintained.
Borrower waives any and all right to claim, recover, or obtain subrogation
against Lender or its officers, directors, employees, agents, attorneys, or
representatives for loss or damage to Borrower, the Mortgaged Property,
Borrower's property or the property of others under Borrower's control from any
cause insured against or required to be insured against by the provisions of the
Loan Documents.
3.7 Lender's Right to Inspect Mortgaged Property. Borrower will permit
--------------------------------------------
Lender, and its agents, upon reasonable advance notice to Borrower from time to
time, to enter on and to inspect the Mortgaged Property at reasonable times.
3.8 Borrower's Provision of Financial Statements and Rent Rolls;
------------------------------------------------------------
Inspection of Books and Records. Borrower will maintain full and accurate
- -------------------------------
books of account and other records reflecting the results of the operations of
the Mortgaged Property. Borrower will deliver to the Lender:
(a) as soon as practicable, but in any event not later than one
hundred ten (110) days after the end of each fiscal year of the Borrower, the
consolidated balance sheet of the Borrower and its Subsidiaries as at the end of
such year, and the related consolidated statement of income and consolidated
statement of cash flow for such year, each setting forth in comparative form the
figures for the previous fiscal year and all such consolidated statements to
-13-
<PAGE>
be in reasonable detail, prepared in accordance with generally accepted
accounting principles (which reporting requirement may be satisfied, for so long
as the Borrower is subject to the reporting requirements of the Securities
Exchange Act of 1934, by the delivery of the Borrower's Annual Report on Form
10-K (or any successor thereto)), and (unless such certification is included in
such Form 10-K) certified without qualification by the Borrower's independent
certified public accountants; and
(b) as soon as practicable, but in any event not later than sixty-
five (65) days after the end of each of the first three fiscal quarters of the
Borrower, copies of the unaudited consolidated balance sheet of the Borrower and
its Subsidiaries as at the end of such quarter, and the related consolidated
statement of income and consolidated statement of cash flow for the portion of
the Borrower's fiscal year then elapsed, all in reasonable detail and prepared
in accordance with generally accepted accounting principles (which reporting
requirement may be satisfied, for so long as the Borrower is subject to the
reporting requirement of the Securities Exchange Act of 1934, by the delivery of
the Borrower's Quarterly Report on Form 10-Q (or any successor thereto))
together with a certification by the chief financial officer or the treasurer of
the Borrower that to the best of the Borrower's knowledge, the information
contained in such financial statements fairly presents the financial position of
the Borrower and its Subsidiaries on the date thereof (subject to year-end
adjustments).
Each of the items required to be delivered pursuant to subparagraphs
(a) and (b) above shall be accompanied by a certification of Borrower executed
by its chief financial officer that the Borrower has not violated and is not in
violation of the provisions of Section 3.15 hereof, and shall include a
------------
calculation demonstrating compliance with Section 3.15(b) hereof.
Lender shall have the right, at reasonable times and upon reasonable
notice, to audit, examine, make and take away copies or extracts of Borrower's
books of account and records relating to the Mortgaged Property, all of which
shall be maintained and made available to Lender and Lender's representatives
for such purpose at the address specified herein for Borrower or at such other
location as Lender may approve, such approval not to be unreasonably withheld.
3.9 Borrower's Payment for Labor and Materials. Subject to Section 9.1
------------------------------------------
(Borrower's Right to Contest Certain Matters) Borrower will promptly pay when
due all bills and costs for labor and materials incurred in connection with the
Mortgaged Property.
3.10 Further Assurances; Corrections; Recording of Loan Documents;
-------------------------------------------------------------
Payment of Stamp Taxes. From time to time, at the request of Lender, Borrower
- ----------------------
will (i) promptly correct any defect, error, or omission which may be discovered
in the contents of any Loan Document or in the execution or acknowledgment
thereof; (ii) execute and deliver such further instruments and perform such
further acts and provide such further assurances as may be reasonably necessary,
desirable, or proper, in Lender's opinion, to carry out more effectively the
purposes of this Mortgage and the Loan Documents and to subject to the liens and
security interests of this Mortgage and the Loan Documents any property intended
by the terms hereof or thereof to be
-14-
<PAGE>
covered hereby or thereby, including without limitation, any renewals,
additions, substitutions, replacements, or appurtenances to the Mortgaged
Property; (iii) execute, acknowledge, deliver, procure, file, and/or record the
Loan Documents (as requested by Lender) and if necessary, replacements thereof,
and any other document or instrument deemed advisable by Lender to protect the
liens and the security interests herein granted against the rights or interests
of third persons; and (iv) pay all documentary stamp taxes, fees and other costs
connected with any of the foregoing.
3.11 Borrower's Payment of Taxes on Mortgage. If at any time any law
---------------------------------------
shall be enacted imposing or authorizing the imposition of any tax upon this
Mortgage, or upon any rights, titles, liens, or security interests created
hereby, or upon the Indebtedness or any part thereof, Borrower will immediately
pay all such taxes; provided, however, that if such law makes it unlawful for
Borrower to pay such tax, then (i) Borrower shall not pay nor be obligated to
pay such tax, and (ii) Borrower must prepay the Indebtedness in full within
ninety (90) days after demand therefor by Lender, and no prepayment penalty or
premium shall be payable thereon.
3.12 Borrower's Estoppel Certificate. In the event of a proposed sale of
-------------------------------
the Loan or an interest thereon by Lender, upon ten (10) days written request of
Lender, Borrower will furnish Lender a written certificate, in form reasonably
satisfactory to Lender, confirming the unpaid balance of the Indebtedness and
that there are no offsets or defenses against full payment of the Indebtedness
and the terms hereof, or if there are any such offsets or defenses, specifying
them and certifying that there does not exist an event which constitutes, or
which upon due notice or lapse of time or both would constitute, an Event of
Default, or if an Event of Default exists, specify