FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the quarter ended: December 30, 2000 Commission File Number: 1-10730
----------------- -------
HAEMONETICS CORPORATION
-----------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2882273
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 Wood Road, Braintree, MA 02184
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(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 848-7100
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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) (2.) has been subject to the
filing requirements for at least the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
25,332,958 shares of Common Stock, $ .01 par value, as of
---------------------------------------------------------
December 30, 2000
HAEMONETICS CORPORATION
INDEX
PAGE
----
PART I. Financial Information
Unaudited Consolidated Statements of Operations - 2
Three and Nine Months Ended December 30, 2000
and December 25, 1999
Unaudited Consolidated Balance Sheets - December 30, 2000 3
and April 1, 2000
Unaudited Consolidated Statements of Stockholders' Equity - 4
Nine Months Ended December 30, 2000
Unaudited Consolidated Statements of Cash Flows - 5
Nine Months Ended December 30, 2000 and December 25, 1999
Notes to Unaudited Consolidated Financial Statements 6-13
Management's Discussion and Analysis of Financial Condition and 14-28
Results of Operations
Quantitative and Qualitative Disclosures about Market Risk 29-30
PART II. Other Information 31
Signatures 32
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands, except share data)
Three Months Ended Nine Months Ended
-------------------- -------------------
Dec. 30, Dec. 25 Dec. 30, Dec. 25
2000 1999 2000 1999
-------------------------------------------
Net revenues $75,899 $70,778 $216,162 $208,094
Cost of goods sold 36,903 37,601 110,364 110,461
--------------------------------------------
Gross profit 38,996 33,177 105,798 97,633
Operating expenses:
Research and development 5,204 3,796 13,644 11,209
Selling, general and administrative 22,825 20,546 64,613 61,818
In process research and development (Note 11) - 2,871 18,606 2,871
Other unusual charges relating to
acquisition (Note 10) - 343 4,613 343
--------------------------------------------
Total operating expenses 28,029 27,556 101,476 76,241
--------------------------------------------
Operating income 10,967 5,621 4,322 21,392
Interest expense (859) (1,229) (2,728) (3,296)
Interest income 999 1,349 3,307 3,714
Other income, net 959 652 2,609 1,584
--------------------------------------------
Income from continuing operations
before provision for income taxes 12,066 6,393 7,510 23,394
Provision for income taxes 3,103 3,074 7,441 8,514
--------------------------------------------
Income from continuing operations 8,963 $ 3,319 69 14,880
============================================
Discontinued operations: (Note 8)
Income from discontinued operations, net
of income tax expense of $68 in FY 00 - - - 144
--------------------------------------------
Net income $ 8,963 $ 3,319 $ 69 $ 15,024
============================================
Basic income per common share
Continuing operations $ 0.355 $ 0.129 $ 0.003 $ 0.566
Discontinued operations - - - 0.005
Net income 0.355 0.129 0.003 0.572
Income per common share assuming dilution
Continuing operations $ 0.345 $ 0.127 $ 0.003 $ 0.561
Discontinued operations - - - 0.005
Net income 0.345 0.127 0.003 0.566
Weighted average shares outstanding
Basic 25,259 25,696 25,213 26,278
Diluted 25,991 26,097 25,820 26,530
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except share data)
December 30, April 1,
ASSETS 2000 2000
------------------------
(Note 10)
Current assets:
Cash and short term investments $ 59,212 $ 61,328
Accounts receivable, less allowance of
$ 1,079 at December 30, 2000 and $1,149
at April 1, 2000 60,253 59,140
Inventories 52,768 59,817
Current investment in sales-type
leases, net 6,355 8,036
Deferred tax asset 19,434 16,360
Other prepaid and current assets 4,976 5,237
----------------------
Total current assets 202,998 209,918
----------------------
Property, plant and equipment 199,428 185,432
Less accumulated depreciation 117,172 103,824
----------------------
Net property, plant and equipment 82,256 81,608
Other assets:
Investment in sales-type leases, net
(long-term) 5,880 10,775
Distribution rights, net 10,000 11,356
Goodwill, less accumulated amortization of
$855 at December 30, 2000 and $662
at April 1, 2000 4,739 1,832
Deferred tax asset 20,806 14,806
Other assets, net 15,764 15,187
----------------------
Total other assets 57,189 53,956
----------------------
Total assets $342,443 $345,482
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities
of long-term debt $ 19,172 $ 32,896
Accounts payable 9,726 17,224
Accrued payroll and related costs 9,641 8,456
Accrued income taxes 18,788 15,700
Other accrued liabilities 14,765 14,199
----------------------
Total current liabilities 72,092 88,475
----------------------
Deferred income taxes 16,290 10,722
Long-term debt, net of current maturities 50,720 41,306
Other long-term liabilities 2,136 2,164
Stockholders' equity:
Common stock, $.01 par value;
Authorized - 80,000,000 shares;
Issued 30,273,348 shares at December 30, 2000;
30,004,811 shares at April 1, 2000 303 300
Additional paid-in capital 78,648 73,662
Retained earnings (Note 10) 227,158 227,104
Cumulative translation adjustments (15,448) (13,078)
----------------------
Stockholders' equity before treasury stock. 290,661 287,988
Less: treasury stock 4,940,390 shares at
cost at December 30, 2000 and 4,728,762 shares
at cost at April 1, 2000 89,456 85,173
----------------------
Total stockholders' equity 201,205 202,815
----------------------
Total liabilities and stockholders' equity $342,443 $345,482
======================
The accompanying notes are an integral part of these consolidated financial
statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited in thousands)
Common Stock Additional Cumulative Total
------------ Paid-in Treasury Retained Translation Stockholders' Comprehensive
Shares $'s Capital Stock Earnings Adjustment Equity Loss
---------------------------------------------------------------------------------------------
Balance, April 1, 2000
Restated 30,005 $300 $73,662 $(85,173) $227,104 $(13,078) $202,815
Employee stock purchase
plan --- --- --- 446 --- 446
Exercise of stock options
and related tax benefit 269 3 4,986 --- (15) --- 4,974
Purchase of treasury stock --- --- --- (4,729) --- --- (4,729)
Net Income --- --- --- --- 69 --- 69 $ 69
Foreign currency
translation adjustment --- --- --- --- --- (2,370) (2,370) (2,370)
Comprehensive loss --- --- --- --- --- --- --- $(2,301)
------------------------------------------------------------------------------------------
Balance, December 30, 2000 30,274 $303 $78,648 $(89,456) $227,158 $(15,448) $201,205
===========================================================================
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited- in thousands)
Nine Months Ended
--------------------
Dec 30, Dec 25,
2000 1999
--------------------
Cash Flows from Operating Activities:
Net income $ 69 $ 15,024
Less net income from discontinued operations - 144
--------------------
Net income from continuing operations 69 14,880
Adjustments to reconcile net income to net
cash provided by operating activities:
Non cash items:
Depreciation and amortization 18,006 21,586
Deferred tax (expense) benefit (161) 64
In process research and development (note 11) 18,606 2,871
Equity in losses of investment (note 10) 1,353 343
Other unusual non-cash charges 1,282 2,015
Change in operating assets and liabilities:
(Increase) in accounts receivable - net (1,821) (7,772)
Decrease (increase) in inventories 1,662 (4,763)
Decrease in sales-type leases (current) 1,681 2,431
(Increase) decrease in prepaid income taxes (1,224) 356
Decrease in other assets 212 1,047
(Decrease) in accounts payable, accrued
expenses and other current liabilities (5,496) (4,058)
--------------------
Net cash provided by operating
activities, continuing operations 34,169 29,000
--------------------
Net cash used in operating
activities, discontinued operations 0 (4,932)
--------------------
Net cash provided by operating
activities 34,169 24,068
Cash Flows from Investing Activities:
Capital expenditures on property, plant
and equipment, net of retirements
and disposals (9,620) (16,548)
Acquisition of Transfusion Technologies
Corporation, net of cash acquired (26,572) (15,000)
Net decrease in sales-type leases (long-term) 4,108 4,774
--------------------
Net cash used in investing activities,
continuing operations (32,084) (26,774)
--------------------
Net cash provided by investing activities,
discontinued operations 0 3,562
--------------------
Net cash used in investing activities (32,084) (23,212)
Cash Flows from Financing Activities:
Proceeds (payments) on long-term
real estate mortgage 9,652 (8,191)
Net (decrease) increase in short-term revolving
credit agreements (14,138) 24,267
Net (decrease) increase in long-term
credit agreements (261) 415
Employee stock purchase plan purchases 434 379
Exercise of stock options and related
tax benefit 4,986 2,184
Purchase of treasury stock (4,729) (29,437)
--------------------
Net cash used in financing activities (4,056) (10,383)
Effect of exchange rates on cash and
cash equivalents (145) (267)
--------------------
Net decrease in cash and cash equivalents (2,116) (9,794)
Cash and cash equivalents at beginning of period 61,328 56,319
--------------------
Cash and cash equivalents at end of period $ 59,212 $ 46,525
====================
Non-cash investing and financing activities:
Transfers from inventory to fixed assets for
placements of Haemonetics equipment $ 5,348 $ 4,650
Supplemental disclosures of cash flow information:
Net decrease in cash and cash equivalents,
discontinued operations $ 0 $ (1,370)
Net decrease in cash and cash equivalents,
continuing operations $ (2,116) $ (8,424)
Interest paid $ 3,206 $ 3,606
Income taxes paid $ 5,092 $ 11,345
====================
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
1. BASIS OF PRESENTATION
The results of operations for the interim periods shown in this
report are not necessarily indicative of results for any future interim
period or for the entire fiscal year. The Company believes that the
quarterly information presented includes all adjustments (consisting only
of normal, recurring adjustments) that the Company considers necessary for
a fair presentation in accordance with generally accepted accounting
principles. Certain reclassifications were made to prior year balances to
conform with the presentation of the financial statements for the nine
months ended December 30, 2000. The accompanying consolidated financial
statements and notes should be read in conjunction with the Company's
audited annual financial statements.
2. FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to the last
day of March. Both fiscal years 2001 and 2000 include 52 weeks with the
third quarter of fiscal year 2000 including 12 weeks and the third quarter
of fiscal year 2001 including 13 weeks.
3. COMPREHENSIVE INCOME
In the first quarter of fiscal year 1999, the Company adopted the
provisions of Statement of Financial Accounting Standard (SFAS) NO. 130,
"Reporting Comprehensive Income," which established standards for reporting
and display of comprehensive income and its components. Comprehensive
income is the total of net income and all other non-owner changes in
stockholders' equity, which for the Company, is foreign currency
translation. At December 30, 2000 and April 1, 2000, the cumulative foreign
currency translation adjustment totaled ($15.4) million and ($13.1)
million, respectively. For the three and nine months ended December 30,
2000, the Comprehensive income (loss) was $9.2 million and ($ 2.3) million,
respectively. For the three and nine months ended December 25, 1999, the
Comprehensive income was $5.1 million and $17.1 million, respectively.
4. NEW PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which the Company will be required to adopt by the end of the
fourth quarter of fiscal year 2001. SAB 101 provides additional guidance on
the accounting for revenue recognition including both broad conceptual
discussions, as well as certain industry-specific guidance. The Company is
in the process of reviewing SAB 101. Management does not anticipate a
required change to its revenue recognition policy resulting from the
application of SAB 101.
In June 1998, Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133, as amended by FASB Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133-An Amendment of FASB Statement No. 133," and
by FASB Statement No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities - An Amendment of FASB Statement No. 133,"
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 its fair value. SFAS No. 133 as amended requires that
changes in the derivatives fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Additionally, a company
must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 as amended is
effective for fiscal years beginning after June 15, 2000. The Company is in
the process of assessing the impact of the implementation of SFAS No. 133
as amended on its financial statements. It expects that the derivative
financial instruments acquired in connection with the Company's hedge
program will qualify for hedge accounting under SFAF No. 133 as amended.
The Company will adopt SFAF No. 133 as amended in the first quarter of
fiscal year 2002.
5. FOREIGN CURRENCY
Foreign currency transactions and financial statements are translated
into U.S. dollars following the provisions of SFAS No. 52, "Foreign
Currency Translation." Accordingly, assets and liabilities of foreign
subsidiaries are translated into U.S. dollars at exchange rates in effect
at period end. Net revenues and costs and expenses are translated at
average rates in effect during the period. The effect of exchange rate
changes on the Company's assets and liabilities are included in the
cumulative translation adjustment account. Included in other income in the
consolidated statement of operations for the nine months of fiscal year
2001 and fiscal year 2000 are ($776,400) and ($19,400) respectively, in
foreign currency transaction losses.
The Company enters into forward exchange contracts to hedge certain
firm sales commitments by customers that are denominated in foreign
currencies. The purpose of the Company's foreign hedging activities is to
minimize, for a period of time, the unforeseen impact on the Company's
results of operations of fluctuations in foreign exchange rates. The
Company also enters into forward contracts that settle within 35 days to
hedge certain inter-company receivables denominated in foreign currencies.
Actual gains and losses on all forward contracts are recorded in
operations, offsetting the gains and losses on the underlying transactions
being hedged. These derivative financial instruments are not used for
trading purposes. The cash flows related to the gains and losses on these
foreign currency hedges are classified in the consolidated statements of
cash flows as part of cash flows from operating activities.
At December 30, 2000 and December 25, 1999, the Company had forward
exchange contracts, all maturing in less than twelve months, to exchange
foreign currencies (major European currencies and Japanese yen) primarily
for U.S. dollars totaling $131.7 million and $151.5 million, respectively.
Of the respective balances, $27.6 million and $51.0 million represented
contracts related to inter-company receivables that settled within 35 days.
The balance of the contracts relate to firm sales commitments. The fair
value of the contracts related to hedging firm sales commitments, was a
$2.9 million gain at December 30, 2000, and a $2.1 million gain and a
($8.7) million loss at December 25, 1999. Deferred gains and losses are
recognized in earnings when the transactions being hedged are recognized.
Management anticipates that these deferred amounts at December 30, 2000
will be offset by the foreign exchange effect on sales of products to
international customers in future periods.
The Company is exposed to credit loss in the event of nonperformance
by counter-parties on these foreign exchange contracts. The Company does
not anticipate nonperformance by any of these parties.
6. INVENTORIES
Inventories are stated at the lower of cost or market and include the
cost of material, labor and manufacturing overhead. Cost is determined on
the first-in, first-out method.
Inventories consist of the following:
Dec. 30, April 1,
2000 2000
--------------------
(In thousands)
Raw materials $16,225 $14,081
Work-in-process 4,297 7,199
Finished goods 32,246 38,537
-------------------
$52,768 $59,817
===================
7. Net Income Per Share
The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations, as
required by SFAS No. 128, "Earnings Per Share." Basic EPS is computed by
dividing reported earnings available to stockholders by weighted average
shares outstanding. Diluted EPS includes the effect of other common stock
equivalents.
For the three months ended
----------------------------
December 30, December 25,
2000 1999
----------------------------
Basic EPS
- ---------
Net income $ 8,963 $ 3,319
Weighted Average Shares 25,259 25,696
-----------------------
Basic income per share $ .355 $ .129
-----------------------
Diluted EPS
- -----------
Net income $ 8,963 $ 3,319
Basic Weighted Average shares 25,259 25,696
Effect of Stock options 732 401
-----------------------
Diluted Weighted Average shares 25,991 26,097
-----------------------
Diluted income per share $ .345 $ .127
-----------------------
For the nine months ended
----------------------------
December 30, December 25,
2000 1999
----------------------------
Basic EPS
- ---------
Net income $ 69 $15,024
Weighted Average Shares 25,213 26,278
-----------------------
Basic income per share $ .003 $ .572
-----------------------
Diluted EPS
- -----------
Net income $ 69 $15,024
Basic Weighted Average shares 25,213 26,278
Effect of Stock options 607 252
-----------------------
Diluted Weighted Average shares 25,820 26,530
-----------------------
Diluted income per share $ .003 $ .566
-----------------------
8. DISCONTINUED OPERATIONS
During fiscal year 1999, the Company sold six of its seven regional
blood systems for total cash proceeds of $5,325,000. Additionally, on May
2, 1999, the Company sold its one remaining center completing the
divestiture of its BBMS business. The Company completed its accounting for
the divestiture as of October 2, 1999 with the reversal of the excess
reserve of $144,000, net of taxes of $68,000.
The operating results for BBMS have been segregated from the results
for the continuing operations and reported as a separate line on the
consolidated statements of operations for all periods presented. For the
nine months ended December 25, 1999, the operating loss for BBMS of
$403,000 was charged to the discontinued operations provision established
in the fourth quarter of fiscal year 1998.
The operating losses, in thousands, for BBMS are detailed as follows
for nine months ending:
December 25,
1999
------------
(in thousands)
Net Revenues $ 413
Gross Profit (24)
Operating expense
Research and Development -
Selling, general and administrative 569
-----
Total operating expenses 569
Operating loss (593)
Other expense --
Tax benefit (190)
-----
Net loss (403)
Operating loss (net of taxes)
charged to reserve 403
Recovery of remaining reserve 144
-----
Reflected on Consolidated Statement of Operations $ 144
=====
No interest was allocated for the nine months ended December 25,
1999, as all blood centers have been divested effective May 1999. The
allocation of corporate interest was calculated based upon the percentage
of net assets of BBMS to total domestic assets.
9. SEGMENT INFORMATION
Segment Definition Criteria
The Company manages its business on the basis of one operating
segment: the design, manufacture and marketing of automated blood
processing systems. Haemonetics chief operating decision-maker uses
consolidated results to make operating and strategic decisions.
Manufacturing processes, as well as the regulatory environment in which the
Company operates, are largely the same for all product lines.
Product and Service Segmentation
The Company's principal product offerings include blood bank,
surgical and plasma products.
The blood bank products comprise machines and single use disposables
that perform "apheresis," the separation of whole blood into its components
and subsequent collection of certain components. The device used for blood
component therapy is the MCS(r)+, mobile collection system.
Surgical products comprise machines and single use disposables that
perform intraoperative autologous transfusion ("IAT") or surgical blood
salvage, as it is more commonly known. Surgical blood salvage is a
procedure whereby shed blood is cleansed and then returned back to a
patient. The devices used to perform this are a full line of Cell Saver(r)
autologous blood recovery systems.
Plasma collection products are machines and disposables that, like
blood bank, perform apheresis for the separation of whole blood components
and subsequent collection of plasma. The device used in automated plasma
collection is the PCS(r)2.
Three months ended (in thousands)
December 30, 2000 Blood Bank Surgical Plasma Other Total
----------------- ---------- -------- ------ ----- -----
Revenues from external customers 31,807 17,626 22,740 3,726 75,899
December 25, 1999
-----------------
Revenues from external customers 29,851 16,514 21,391 3,022 70,778
Nine months ended (in thousands)
December 30, 2000 Blood Bank Surgical Plasma Other Total
----------------- ---------- -------- ------ ----- -----
Revenues from external customers 91,356 49,203 64,193 11,410 216,162
December 25, 1999
-----------------
Revenues from external customers 87,347 47,489 64,691 8,567 208,094
10. ACQUISITION
On September 18, 2000, Haemonetics Corporation, ("Haemonetics")
completed the acquisition of Transfusion Technologies Corporation, a
Delaware Corporation ("Transfusion") pursuant to an Agreement and Plan of
Merger (the "Merger Agreement") dated September 4, 2000 among Haemonetics,
Transfusion, Transfusion Merger Co., the holders of a majority of
outstanding shares of Preferred and Common Stock of Transfusion and certain
principals of Transfusion. The acquisition was effected in the form of a
merger (the "Merger") of Transfusion Merger Co., a wholly owned subsidiary
of Haemonetics, with and into Transfusion. Transfusion was the surviving
corporation in the merger.
Transfusion Technologies designs, develops and markets systems for
the processing of human blood for transfusion to patients. Its systems are
based on centrifuge technology called the Dynamic Disk (tm) and consist of
sterile, single-use disposable sets and computer controlled
electromechanical devices that control the blood processing procedure. The
systems have applications in both autotransfusion and blood component
collection technologies.
The aggregate purchase price, before transaction costs and cash
acquired, of approximately $50.1 million is comprised of $36.5 million to
Transfusion's common and preferred stockholders, and warrant and option
holders, and $13.6 million, representing the economic value of Haemonetics'
19.8% preferred stock investment in Transfusion made in November 1999. The
cash required to purchase the remaining 80.2% interest in Transfusion, was
$26.6 million, net of cash acquired.
The Transfusion merger was accounted for using the purchase method of
accounting for business combinations. Accordingly, the accompanying
Consolidated Statement of Operations includes Transfusion Technologies'
results of operations commencing on the date of acquisition. The purchase
price was allocated to the net assets acquired based on the Company's
estimates of fair value at the acquisition date. For certain assets
acquired in property, plant and equipment, representing Transfusion's
equipment placed at customer locations, net book value was used as a proxy
for fair market value. The allocation of the purchase price continues to be
subject to adjustment upon final valuation of certain acquired assets and
liabilities. The excess of the purchase price over the fair market value of
the net assets acquired has been recorded as goodwill in the amount of $3.1
million. The goodwill is being amortized over 20 years.
The present allocation of the purchase price over the fair market
value of the assets acquired is as follows:
Consideration Paid $45,305,375
Plus other estimated transaction costs 1,606,969 (i)
Total estimated purchase price 46,912,344
Less: estimated fair value of Transfusion'
identifiable net assets on December 30, 2000 43,832,084
Total estimated goodwill due to acquisition 3,080,260
(i) Transaction costs primarily include professional fees, costs to close
down the Transfusion Technologies' facility and severance costs.
Subsequent to the third fiscal quarter ended December 30, 2000,
additional consideration due to common and preferred stockholders resulting
from the finalization of actual cash balances at the effective time was
determined. The amount of the adjustment to the estimate made in the
original accounting is $259,652, reflecting less consideration to be paid
than originally estimated. The effect of this adjustment will be accounted
for in the Company's fourth quarter financial statements.
The following unaudited pro forma summary combines the consolidated
results of operations of Haemonetics Corporation and Transfusion
Technologies as if the acquisition had occurred as of the beginning of the
fiscal year presented after giving effect to certain adjustments including
adjustments to reflect reductions in depreciation expense, increases in
intangible and goodwill amortization expense and lost interest income. This
pro forma summary is not necessarily indicative of the results of
operations that would have occurred if Haemonetics and Transfusion
Technologies had been combined during such periods. Moreover, the pro forma
summary is not intended to be indicative of the results of operations to be
attained in the future.
Nine Months Ended
December 30,
---------------------
2000 1999
---------------------
(In thousands, except
per share amounts)
Net revenues $217,538 $208,901
Operating income 17,359 16,852
Income from continuing operations 14,514 10,991
Basic and diluted income per common share
from continuing operations:
Basic $ 0.576 $ 0.418
Diluted $ 0.562 $ 0.414
Weighted average number of common shares outstanding:
Basic 25,213 26,278
Diluted 25,820 26,530
Unusual charges expensed as a result of the acquisition of
Transfusion Technologies amounted to $4.6 million for the nine months ended
December 30, 2000. Included in the unusual charges were $2.8 million in
bonuses paid to key Transfusion executives hired by Haemonetics and
severance to employees laid off due to overlaps created by the merger, a
$0.5 million write-off of an investment in a technology which the Company
decided not to pursue in lieu of the technologies acquired in the merger,
and the adjustment required to modify the 19.8% investment of Transfusion
by Haemonetics in November of fiscal year 2000 from the cost method to the
equity method of accounting as required by generally accepted accounting
principles. To effect this change, the historic cost of the 19.8%
investment made by Haemonetics' was written down by its 19.8% share of the
monthly losses incurred by Transfusion Technologies from November of fiscal
year 2000. For fiscal year 2001, the charge to the statement of operations
related to this cost to equity adjustment was $1.3 million for the nine
months ended December 30, 2000. In addition the Company restated its
investment in Transfusion Technologies on the balance sheet for losses
incurred through April 1, 2000 of $3.6 million. Retained earnings at April
1, 2000 were also reduced by $3.6 million. Reflected in the Statement of
Operations for the nine months ended December 25, 1999 was $3.1 million of
the $3.6 million, $0.3 million of the charge related to the cost to equity
method of accounting adjustment and $2.9 million related to the in-process
research and development charges.
11 IN-PROCESS RESEARCH AND DEVELOPMENT
Included in the purchase price allocation for the acquisition of
Transfusion Technologies was an aggregate amount of purchased in-process
research and development ("IPR&D") of $21.5 million, $2.9 million of which
is reflected in the restatement of the third quarter of fiscal year 2000
relative to Haemonetics' original 19.8% investment and $18.6 million of
which is reflected in the nine months ended December 30, 2000 Consolidated
Statement of Operations. The values represent purchased in-process
technology that had not yet reached technical feasibility and had no
alternative future use. Accordingly, the amounts were immediately expensed
in the Consolidated Statement of Operations.
An independent valuation was performed to assess and allocate a value
to the purchased IPR&D. The value represents the estimated fair market
value based on risk-adjusted future cash flows generated by the products
employing the in-process projects over a ten-year period. Estimated future
after-tax cash flows for each product were based on Transfusion
Technologies' and Haemonetics' estimates of revenue, operating expenses,
income taxes, and charges for the use of contributory assets. Additionally,
these cash flows were adjusted to compensate for the existence of any core
technology and development efforts that were to be completed post-
acquisition.
Revenues were estimated based on relevant market size and growth
factors, expected industry trends, individual product sales cycles, and the
estimated life of each product's underlying technology. Estimated operating
expenses include cost of goods sold, selling, general and administrative,
and research and development ("R&D") expenses. The estimated R&D expenses
include only those costs needed to maintain the products once they have
been introduced into the market. Operating expense estimates were
consistent with expense levels for similar products.
The discount rates used to present-value the projected cash flows
were based on a weighted average cost of capital relative to Transfusion
Technologies and it's industry adjusted for the product-specific risk
associated with the purchased IPR&D projects. Product-specific risk
includes such factors as: the stage of completion of each project, the
complexity of the development work completed to date, the likelihood of
achieving technological feasibility, and market acceptance.
The forecast data employed in the valuation were based upon
projections created by Transfusion Technologies' management and Haemonetics
management's estimate of the future performance of the business. The inputs
used in valuing the purchased IPR&D were based on assumptions that
management believes to be reasonable but which are inherently uncertain and
unpredictable. These assumptions may be incomplete or inaccurate, and no
assurance can be given that unanticipated events or circumstances will not
occur. Accordingly, actual results may vary from the forecasted results.
While management believes that all of the development projects will be
successfully completed, failure of any of these projects to achieve
technological feasibility, and/or any variance from forecasted results, may
result in a material adverse effect on Haemonetics' financial condition and
results of operations.
A brief description of the IPR&D projects related to the acquisition
of Transfusion Technologies, including their estimated stage of completion
and associated discount rates, is outlined below.
Chairside Separator ("CSS"). The CSS is a portable, automated device
used for the donor-side collection and processing of a single unit of whole
blood into a unit of red cell concentrate and plasma. The system is
designed for use in a blood center, hospital, or mobile blood drive
location and can be powered either through a standard AC outlet or by DC
battery packs. At the time of the acquisition, Haemonetics estimated that
the CSS project was 95 percent complete and that product sales would
commence by the fourth quarter 2001. The IPR&D value assigned to the CSS
was $17.6 million. A discount rate of 33 percent was employed in the
analysis.
Red Cell Collector ("RCC"). The RCC is a portable, automated device
used for the collection and processing of two units of red blood cells from
donors. The system collects and automatically anticoagulates the whole
blood while separating it into red blood cells and plasma. The plasma and
500ml of saline is then re-infused back to the donor. The system is
designed for use in a blood center, hospital, or mobile blood drive
location and can be powered either through a standard AC outlet or by DC
battery packs. At the time of the acquisition, Haemonetics estimated that
the RCC project was 65 percent complete and that product sales would
commence by the second quarter 2003. The IPR&D value assigned to the RCC
was $3.9 million. A discount rate of 33 percent was employed in the
analysis.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
The table outlines the components of the consolidated statements of
income for continuing operations as a percentage of net revenues:
Percentage of Net Revenues Percentage Incr/(Decr)
Three Months Ended Three Months Ended
Dec 30, 2000 Dec 25, 1999 2000/1999
- ---------------------------------------------------------------------------------------------------------
Net revenues 100.0% 100.0% 7.2%
Cost of goods sold 48.6 53.1 (1.9)
------------------------------------------
Gross Profit 51.4 46.9 17.5
Operating Expenses:
Research and development 6.9 5.4 37.1
Selling, general and administrative 30.1 29.0 11.1
In process research and development - 4.1 (100.0)
Other unusual charges relating to acquisition - 0.5 (100.0)
------------------------------------------
Total operating expenses 36.9 38.9 1.7
Operating income 14.5 7.9 95.1
Interest expense (1.3) (1.7) (30.1)
Interest income 1.3 1.9 (25.9)
Other income, net 1.3 0.9 47.0
------------------------------------------
Income from continuing operations before
provision for income taxes 15.9 9.0 88.7
Provision for income taxes 4.1 4.3 0.9
------------------------------------------
Earnings from continuing operations 11.8% 4.7% 170.1%
==========================================
Three Months Ended December 30, 2000 Compared to Three Months Ended
December 25, 1999
Percent Increase / (Decrease)
-----------------------------
Actual dollars At constant
By geography: 2000 1999 as reported currency
- ------------- ---------------------------------------------------
United States $24,453 $21,840 12.0 12.0
International 51,446 48,938 5.1 (0.2)
-----------------------------------------------
Net revenues $75,899 $70,778 7.2 3.6
Percent Increase / (Decrease)
-----------------------------
Actual dollars At constant
By product type: 2000 1999 as reported currency
- ---------------- ---------------------------------------------------
Disposables $68,940 $64,685 6.6 1.7
Misc. & service 3,726 3,022 23.3 31.6
Equipment 3,233 3,071 5.3 16.5
-----------------------------------------------
Net revenues $75,899 $70,778 7.2 3.6
Percent Increase / (Decrease)
Disposables -----------------------------
- ----------- Actual dollars At constant
by product line: 2000 1999 as reported Currency
- ---------------- ---------------------------------------------------
Surgical $16,478 $15,420 6.9 6.8
Blood bank* 30,132 28,250 6.7 (0.3)
Plasma 22,330 21,015 6.3 1.3
-----------------------------------------------
Disposable revenues $68,940 $64,685 6.6 1.7
* Includes red cell disposables
Three months ended December 30, 2000 compared to three months ended
December 25, 1999
Net Revenues
Net revenues in 2000 increased 7.2% to $75.9 million from $70.8
million in 1999. With currency rates held constant, net revenues increased
3.6% from 1999 to 2000.
Disposable sales increased 6.6% year over year at actual rates. With
currency rates held constant, disposable sales increased 1.7%. Year over
year constant currency disposable sales growth was a result of growth in
worldwide Red Cells (which is included in Blood Bank and was up 39.7%),
worldwide Surgical (up 6.8%) and worldwide Plasma (up 1.3%). The increase
in worldwide red cell sales is attributable to volume increases in both the
US and Europe as the rollout of this new technology in these markets
continues to gain strength. The growth in the worldwide surgical disposable
sales is mainly attributed to volume increase and the mix effect of
products sold in the US, Asia and Japan markets. The Company views the
increasing prices of red cells around the world, and the favorable
autotransfusion economics its Surgical product offerings deliver, as
factors contributing to the volume increases. The growth in worldwide
Plasma disposables sales is mainly attributed to volume increases of
products sold in the US due to an upturn in plasma collections. Offsetting
these increases were decreases in Platelets disposables sales volumes in
Europe and the U.S.
Constant currency sales of disposable products, excluding service and
other miscellaneous revenue, accounted for approximately 90% and 91% of net
revenues for 2000 and 1999, respectively.
Service revenue generated from equipment repairs performed under
preventive maintenance contracts or emergency service billings and
miscellaneous revenues accounted for approximately 5.1% and 4.0% of the
Company's net revenues, at constant currency, for 2000 and 1999,
respectively.
Equipment revenues increased approximately 5.3% from $3.1 million in
1999. With currency rates held constant, equipment revenues increased 16.5%
from 1999 to 2000. The 16.5% increase was a result of regular fluctuations
in equipment sales with the most significant increase year over year in
Europe for platelet and plasma equipment. Offsetting those sales increases
were decreases in equipment revenues in the blood bank and surgical product
lines, mainly in the US. The decrease in revenue recognized on equipment
shipments represents a continuing trend of customer preference for, and the
Company's policy of, moving toward placing on loan Company-owned equipment
versus selling it under long-term sales-type leases. Reasons for customer
preference vary significantly but included the customers' preference to be
relieved from certain risks of ownership, particularly the equipment's
economic useful life and technological feasibility. From the Company's
point of view, placing company owned equipment versus selling it, allows
the Company to better track the location and the utilization of the
equipment.
International sales as reported accounted for approximately 67.8% and
69.1% of net revenues for 2000 and 1999, respectively. As in the US, the
sales outside the US are susceptible to risks and uncertainties from
regulatory changes, the Company's ability to forecast product demand and
market acceptance of the Company's products, changes in economic
conditions, the impact of competitive products and pricing and changes in
health care policy.
Gross profit
Gross profit of $39.0 million in fiscal year 2001 increased $5.8
million or 4.5% as a percent of sales from $33.2 million in fiscal year
2000. At constant currency, gross profit as a percent of sales increased by
0.1% and increased in dollars by $1.3 million from 1999 to 2000. The $1.3
million gross profit increase from 1999 was a result of higher sales and
cost savings of approximately $0.6 million from the Company's Customer
Oriented Redesign for Excellence ("CORE") Program. In 1998, the Company
initiated the CORE Program to increase operational effectiveness and
improve all aspects of customer service. The CORE Program is based on Total
Quality of Management, ("TQM"), principals, and the Program aims to
increase the efficiency and the quality of, processes and products, and to
improve the quality of management at Haemonetics. The $0.6 million in CORE
savings in the third quarter resulted from savings in material and labor
costs as a result of redesigning the way products are made and by
negotiating lower material prices with vendors.
Expenses
The Company expended $5.2 million (6.9% of net revenues) on research
and development in 2000 and $3.8 million (5.4% of net revenues) in 1999. At
constant currency rates, research and development as a percent of sales
increased by 1.6% and increased in dollars by $1.3 million from 1999 to
2000. The increase in research and development was a result of the
Company's objective to reinvest available funds into new product
development in order to fuel future top line growth.
Selling, general and administrative expenses increased $2.3 million
from $20.5 million in 1999. At constant currency, selling, general and
administrative expenses increased $2.0 million from 1999 to 2000 and
increased 1.7% as a percent of sales from 1999 to 2000. Increased spending
behind the Company's new product selling and marketing activities
contributed to the increase. The CORE Program contributed approximately
$0.3 million to reductions in distribution related selling, general and
administrative expenses. More specifically, the distribution savings were
generated by lowering freight costs with the move of the Company's European
distribution center from the Netherlands to Germany, by renegotiating lower
freight rates with vendors and by increasing local sourcing of raw
materials abroad.
In Process Research and Development (IPR&D) and Other Unusual charges
Relating to the Acquisition
a) In Process Research and Development (IPR&D)
On September 15, 2000, the Company completed the acquisition of
Transfusion Technologies Corporation, a Delaware Corporation
("Transfusion") pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") dated September 4, 2000 among Haemonetics, Transfusion,
Transfusion Merger Co., the holders of a majority of outstanding shares of
Preferred and Common Stock of Transfusion and certain principals of
Transfusion. The acquisition was effected in the form of a merger (the
"Merger") of Transfusion Merger Co., a wholly owned subsidiary of
Haemonetics, with and into Transfusion. Transfusion was the surviving
corporation in the merger.
Included in the purchase price allocation for the acquisition of
Transfusion Technologies was an aggregate amount of purchased in-process
research and development ("IPR&D") of $21.5 million, $2.9 million of which
is reflected in the restatement of the third quarter of fiscal year 2000
relative to Haemonetics' original 19.8% investment and $18.6 million of
which is reflected in the nine months ended December 30, 2000 Consolidated
Statement of Operations. The values represent purchased in-process
technology that had not yet reached technical feasibility and had no
alternative future use. Accordingly, the amounts were immediately expensed
in the Consolidated Statement of Operations. (See Notes 10 and 11 to the
unaudited condensed consolidated financial statements and M, D&A for nine
months ended December 30,2000 for further discussion of the acquisition and
IPR&D charges.)
b) Other Unusual Charges Relating to the Acquisition
The Consolidated Statement of Operations for the three months ended
December 25, 1999 include an adjustment required to modify the 19.8%
investment of Transfusion by Haemonetics in November of fiscal year 2000
from the cost method to the equity method of accounting as required by
generally accepted accounting principles. To effect this change, the
historic cost of the 19.8% investment made by Haemonetics' was written down
by its 19.8% share of the monthly losses incurred by Transfusion
Technologies from November of fiscal year 2000. For fiscal year 2000, the
charge to the statement of operations related to this cost to equity
adjustment was $0.3 million for the three months ended December 25, 1999.
Operating Income
Operating income, as a percentage of net revenues, increased 6.6
percentage points to 14.5% in the third quarter of fiscal 2001 from 7.9% in
fiscal 2000. At constant currency, operating income, as a percent of sales,
increased 1.3 percentage points from fiscal 2000 or $1.2 million. The $1.2
million increase in operating income year over year is largely the result
of the cost to equity accounting adjustments relating to the acquisition of
Transfusion Technologies included in the prior year totaling $3.2 million.
Higher fiscal 2001 third quarter sales, and cost savings realized related
to the Company's Core program were invested back into R&D and S,G&A
spending yielding a $2.0 million decrease in operating income at constant
currency excluding the prior year purchase price accounting adjustments.
Other Income and Expense
Interest expense for the third quarter decreased $0.4 million from
fiscal 2000 to fiscal 2001 due to a reduction in the average outstanding
borrowings and lower interest rates. Interest income decreased $0.4
million from 1999 to 2000. Other income net increased $0.3 million due to
increases in income earned from points on forward contracts, which was
partially offset by increases in foreign exchange transaction losses.
Points on forward contracts are amounts, either paid or earned, based on
the interest rate differential between two foreign currencies in a forward
hedge contract.
Taxes
The provision for income taxes, as a percentage of pretax income, was
32.0% in the third quarter of fiscal year 2000 before the effect of the
Transfusion Technologies acquisition and 25.7% in the third quarter of
fiscal year 2001. The 25.7% rate in the third quarter of fiscal year 2001
reflects a year to date adjustment decreasing the Company's year to date
tax provision from 28% to 27%. The decrease in the effective tax rate from
32% for fiscal year 2000 to 27% for fiscal year 2001 was primarily
attributable to an increase in export benefits generated by the Company's
Foreign Sales Corporation, benefits associated with repatriating funds and
modifying the geographic distribution of income. The Company expects its
tax rate for its next fiscal year to be approximately 28%.
Nine Months Ended December 30, 2000 Compared to Nine Months Ended December
25, 1999
Percentage of Net Revenues Percentage Incr/(Decr)
Nine Months Ended Nine Months Ended
Dec 30, 2000 Dec 25, 1999 2000/1999
- ---------------------------------------------------------------------------------------------------------
Net revenues 100.0% 100.0% 3.9%
Cost of goods sold 51.1 53.1 (0.1)
------------------------------------------
Gross Profit 48.9 46.9 8.4
Operating Expenses:
Research and development 6.3 5.4 21.7
Selling, general and administrative 29.9 29.7 4.5
In process research and development 8.6 1.4 548.1
Other unusual items 2.1 0.2 1,245.0
------------------------------------------
Total operating expenses 46.9 36.6 33.1
Operating income 2.0 10.3 (79.8)
Interest expense (1.3) (1.6) (17.2)
Interest income 1.5 1.8 (11.0)
Other income 1.2 0.8 64.7
------------------------------------------
Income from continuing operations before
provision for income taxes 3.5 11.2 (67.9)
Provision for income taxes 3.4 4.1 (12.6)
------------------------------------------
Earnings from continuing operations (0.0)% 7.2% (99.5)%
==========================================
Nine Months Ended December 30, 2000 Compared to Nine Months Ended December
25, 1999
Percent Increase / (Decrease)
-----------------------------
Actual dollars At constant
By geography: 2000 1999 as reported currency
- ------------- -----------------------------------------------------
United States $ 68,761 $ 66,386 3.6 3.6
International 147,401 141,708 4.0 0.7
-------------------------------------------------
Net revenues $216,162 $208,094 3.9 1.6
Percent Increase / (Decrease)
-----------------------------
Actual dollars At constant
By product type: 2000 1999 as reported currency
- ---------------- -----------------------------------------------------
Disposables $195,851 $188,789 3.7 0.8
Misc. & service 11,409 8,561 33.2 41.4
Equipment 8,902 10,744 (17.1) (14.2)
-------------------------------------------------
Net revenues $216,162 $208,094 3.9 1.6
Percent Increase / (Decrease)
-----------------------------
Disposables Actual dollars At constant
by product line: 2000 1999 as reported currency
- --------------- -----------------------------------------------------
Surgical $ 45,536 $ 43,633 4.4 5.0
Blood bank* 86,769 82,128 5.7 1.5
Plasma 63,546 63,028 0.8 (2.4)
-------------------------------------------------
Disposable revenues $195,851 $188,789 3.7 0.8
* Includes red cell disposables
Net Revenues
Net revenues in fiscal 2001 increased 3.9% to $216.2 million from
$208.1 million in fiscal 2000. With currency rates held constant, net
revenues increased 1.6%.
Disposable sales increased 3.7% year over year at actual rates. With
currency rates held constant, disposable sales increased 0.8%. Year over
year constant currency disposable sales growth for the nine months was a
result of growth in worldwide Red Cell sales (which is included in Blood
Bank and was up 30.7%) and worldwide Surgical sales (up 5.0%) which were
offset by a decrease in worldwide Plasma sales (down 2.4%). The increase in
worldwide Red Cell sales is attributable to volume increases in both the US
and Europe as the rollout of this new technology in these markets continues
to gain strength. The growth in the worldwide surgical disposable sales is
mainly attributed to volume increase and the mix effect of products sold in
the US, Asia and Japan markets. The Company views the increasing prices of
red cells around the world, and the favorable autotransfusion economics its
Surgical product offerings deliver, as factors contributing to the volume
increases.
The decrease in Plasma sales is attributable most significantly to
volume decreases due to reduced demand resulting from various market
factors in the U.S., Japan, Asia and Europe.
Constant currency sales of disposable products, excluding service and
other miscellaneous revenue, accounted for approximately 90% and 91% of net
revenues for the nine months of fiscal 2001 and fiscal 2000, respectively.
Service generated from equipment repairs performed under preventive
maintenance contracts or emergency service billings and miscellaneous
revenues accounted for approximately 5.4% and 3.9% of the Company's net
revenues, at constant currency, for fiscal 2001 and 2000, respectively.
Equipment revenues decreased 17.1% from $10.7 million in fiscal 2000
at actual rates and decreased 14.2% year over year with currency rates held
constant. The 14.2% decrease was a result of lower equipment revenues in
the blood bank, surgical and plasma product lines, mainly in the U.S. and
in Asia due to a large non-recurring equipment sale in the prior year. The
overall decrease in revenue recognized on equipment shipments represents a
continuing trend of customer preference for, and the Company's policy of,
moving toward placing on loan Company-owned equipment versus selling it
under long-term, sales-type leases. Reasons for customer preference vary
significantly but included the customers' preference to be relieved from
certain risks of ownership, particularly the equipment's economic useful
life and technological feasibility. From the Company's point of view,
placing company owned equipment versus selling it, allows the Company to
better track the location and the utilization of the equipment.
International sales as reported accounted for approximately 68.2% and
68.1% of net revenues for fiscal 2001 and 2000, respectively. As in the US,
the sales outside the US are susceptible to risks and uncertainties from
regulatory changes, the Company's ability to forecast product demand and
market acceptance of the Company's products, changes in economic
conditions, the impact of competitive products and pricing and changes in
health care policy.
Gross profit
Gross profit of $105.8 million in fiscal 2001 increased $8.2 million
from $97.6 million in fiscal 2000. With currency rates held constant, gross
profit increased by 1.0%, or $1.0 million, but decreased as a percentage of
sales by 0.3%. The $1.0 million constant currency gross profit increase
from fiscal 2000 was a result of higher sales and cost savings of
approximately $1.8 million from the Company's CORE Program, which were
partially offset by higher other product costs. The $1.8 million in savings
for the nine months ended December 30, 2000, resulted primarily from
savings in material costs as a result of redesigning the way products are
made to use less material and by negotiating lower material prices with
vendors.
Expenses
The Company expended $13.6 million (6.3% of net revenues) on research
and development for the first nine months of fiscal 2001 and $11.2 million
(5.4% of net revenues) for the same period in fiscal 2000. With currency
rates held constant, research and development spending increased by 21.5%,
or $2.4 million from fiscal 2000 to 2001. The increase in research and
development spending is a result of the Company's objective to reinvest
available funds into new product development in order to fuel future top
line growth.
Selling, general and administrative expenses increased $2.8 million
from $61.8 million in fiscal 2000. At constant currency rates, selling,
general and administrative expenses increased $2.7 million from fiscal 2000
to 2001 and increased 0.7% as a percent of sales year over year. Offsetting
increases in spending related to the Company's new product selling and
marketing activities, were cost savings of approximately $0.6 million from
the Company's CORE Program. The $0.6 million savings for the nine months
ended December 30, 2000 was due to reductions in distribution related
selling, general and administrative expenses. More specifically, the
distribution savings were generated by lowering freight costs with the move
of Company's European distribution center from the Netherlands to Germany.
In Process Research and Development (IPR&D) and Other Unusual charges
Relating to the Acquisition of Transfusion Technologies Corporation
a) In Process Research and Development (IPR&D)
Upon consummation of the Transfusion Technologies acquisition in the
second quarter of fiscal 2001, the Company incurred a charge of $18.6
million representing the value of the research and development projects.
Included in the purchase price allocation for the acquisition of
Transfusion Technologies was an aggregate amount of purchased in-process
research and development ("IPR&D") of $21.5 million, $2.9 million of which
is reflected in the restatement of the third quarter of fiscal year 2000
relative to Haemonetics' original 19.8% investment and $18.6 million of
which is reflected in the nine months ended December 30, 2000 Consolidated
Statement of Operations. The values represent purchased in-process
technology that had not yet reached technical feasibility and had no
alternative future use. Accordingly, the amounts were immediately expensed
in the Consolidated Statement of Operations. (See Notes 10 and 11 in the
unaudited condensed consolidated financial statements for further
discussion of the acquisition and IPR&D charges.)
An independent valuation was performed to assess and allocate a value
to the purchased IPR&D. The value represents the estimated fair market
value based on risk-adjusted future cash flows generated by the products
employing the in-process projects over a ten-year period. Estimated future
after-tax cash flows for each product were based on Transfusion
Technologies' and Haemonetics' estimates of revenue, operating expenses,
income taxes, and charges for the use of contributory assets. Additionally,
these cash flows were adjusted to compensate for the existence of any core
technology and development efforts that were to be completed post-
acquisition.
Revenues were estimated based on relevant market size and growth
factors, expected industry trends, individual product sales cycles, and the
estimated life of each product's underlying technology. Estimated operating
expenses include cost of goods sold, selling, general and administrative,
and research and development ("R&D") expenses The estimated R&D expenses
include only those costs needed to maintain the products once they have
been introduced into the market. Operating expense estimates were
consistent with expense levels for similar products.
The discount rates used to calculate the present-value of the
projected cash flows were based on a weighted average cost of capital
relative to Transfusion Technologies and it's industry adjusted for the
product-specific risk associated with the purchased IPR&D projects.
Product-specific risk includes such factors as: the stage of completion of
each project, the complexity of the development work completed to date, the
likelihood of achieving technological feasibility, and market acceptance.
The forecast data employed in the valuation were based upon
projections created by Transfusion Technologies' management and Haemonetics
management's estimate of the future performance of the business. The inputs
used in valuing the purchased IPR&D were based on assumptions that
management believes to be reasonable but which are inherently uncertain and
unpredictable. These assumptions may be incomplete or inaccurate, and no
assurance can be given that unanticipated events or circumstances will not
occur. Accordingly, actual results may vary from the forecasted results.
While management believes that all of the development projects will be
successfully completed, failure of any of these projects to achieve
technological feasibility, and/or any variance from forecasted results, may
result in a material adverse effect on Haemonetics' financial condition and
results of operations.
Haemonetics plans to use its existing cash to develop the in-process
technologies related to the Transfusion Technologies acquisition into
commercially viable products. This primarily consists of the completion of
planning, designing, prototyping, manufacturing verification and testing
activities that are necessary to establish that a product can be produced
to meet its design specifications including functions and technical
performance requirements. Bringing the in-process technology to market also
includes completion of clinical trials, submission of a 510K to the Food
and Drug Administration ("FDA") and subsequent approval of the 510K by the
FDA. The approval process timeframe can be lengthy and difficult to
estimate.
A description of the IPR&D projects and the status of them is
discussed below.
Chairside Separator ("CSS"). The CSS is a portable, automated device
used for the donor-side collection and processing of a single unit of whole
blood into a unit of red cell concentrate and plasma. The system is
designed for use in a blood center, hospital, or mobile blood drive
location and can be powered either through a standard AC outlet or by DC
battery packs. At the time of the acquisition, Haemonetics estimated that
the CSS project was 95 percent complete and that product sales would
commence by the fourth quarter 2001. The IPR&D value assigned to the CSS
was $17.6 million. A discount rate of 33 percent was employed in the
analysis.
As of the third quarter ending December 30, 2000, the Company
estimates that the CSS project is 98% complete with only a clinical safety
study remaining to be done prior to submission of the 510K to the FDA,
which is anticipated in June 2001. Product sales will commence upon
approval by the FDA which could be one year, or greater, from submission
date. The estimated cost of the final clinical trials of $150,000 will be
incurred in the fourth quarter of fiscal 2001 and the first quarter of
fiscal 2002.
Red Cell Collector ("RCC"). The RCC is a portable, automated device
used for the collection and processing of two units of red blood cells from
donors. The system collects and automatically anticoagulates the whole
blood while separating it into red blood cells and plasma. The plasma and
500ml of saline is then re-infused back to the donor. The system is
designed for use in a blood center, hospital, or mobile blood drive
location and can be powered either through a standard AC outlet or by DC
battery packs. At the time of the acquisition, Haemonetics estimated that
the RCC project was 65 percent complete and that product sales would
commence by the beginning of fiscal 2004. The IPR&D value assigned to the
RCC was $3.9 million. A discount rate of 33 percent was employed in the
analysis.
As of the third quarter ending December 30, 2000, the Company's
estimate of percent completion remained unchanged from prior estimates. As
such, the expected date that product sales will commence may shift slightly
further into fiscal 2004. All other estimates for cost of sales, S, G&A
costs and income tax rates relative to the RCC project are unchanged with
the exception of timing. Significant design, software programming,
disposable set development and sourcing requirements are still to be
completed. In addition, clinical trials will be conducted prior to
submission of a 510K to the FDA. The estimated cost to be incurred to
develop the purchased in-process RCC technology into a commercially viable
product is approximately $0.4 million in fiscal 2001, $1.8million in fiscal
2002, $1.9million in fiscal 2003 and $2.5 million in fiscal 2004.
b) Other Unusual Charges Relating to the Acquisition
Unusual charges expensed in fiscal year 2001, in the nine months
ended December 30, 2000 as a result of the acquisition of Transfusion
Technologies amounted to $4.6 million and included $2.8 million in bonuses
paid to key Transfusion Executives hired by Haemonetics and severance to
employees laid off due to overlaps created by the merger, a $0.5 million
write-off of an investment in fluid warming technology which Haemonetics
decided not to pursue in lieu of the technologies acquired in the merger,
and the adjustment required to modify the 19.8% investment of Transfusion
by Haemonetics in November of fiscal year 2000 from the cost method to the
equity method of accounting as required by generally accepted accounting
principles. To effect this change, the historic cost of the 19.8%
investment made by Haemonetics' was written down by its 19.8% share of the
monthly losses incurred by Transfusion Technologies from November of fiscal
year 2000. For fiscal year 2001, the charge to the statement of operations
related to this cost to equity adjustment was $1.3 million for the nine
months ended December 30, 2000. The adjustment related to prior year was
$0.3 million for the nine months ended December 25, 1999.
Operating Income
Operating income for the nine months, as a percentage of net
revenues, decreased 8.3 percentage points to 2.0% in fiscal 2001 from 10.3%
in fiscal 2000. At constant currency rates, operating income decreased
100.3% from fiscal 2000 or by $24.1 million. The $24.1 million decrease in
operating income resulted largely from the $20.0.million year over year
increase in combined IPR&D and other unusual items related to the
acquisition of Transfusion Technologies as well as $4.0 million combined
increases in operating expenses for investments in R&D and new product
selling and marketing programs.
Foreign Exchange
The Company generates greater than two-thirds of its revenues outside
the U.S. in foreign currencies. As such, the Company uses a combination of
business and financial tools comprised of various natural hedges,
(offsetting exposures from local production costs and operating expenses),
and forward contracts to hedge its balance sheet and P&L exposures. Hedging
through the use of forward contracts does not eliminate the volatility of
foreign exchange rates, but because the Company generally enters into
forward contracts one year out, rates are fixed for a one-year period,
thereby facilitating financial planning and resource allocation.
The Company computes a composite rate index for purposes of
measuring, comparatively, the change in foreign currency hedge spot rates
from the hedge spot rates of the corresponding period in the prior year.
The relative value of currencies in the index corresponds to the value of
sales in those currencies. The composite was set at 1.00 based upon the
weighted rates at March 31, 1997.
For fiscal year 2000 and 2001, the indexed hedge rates were 3.9% less
favorable and 9.1% more favorable than the respective prior years. For the
first three quarters of fiscal 2001, the indexed hedge spot rates
appreciated 5.4%, 8.2%, and 12.9%, respectively and for the first two
quarters of fiscal 2002, the indexed hedge spot rates appreciated 5.2% and
3.3%, respectively, and depreciated 8.6% for the third quarter over the
corresponding quarters of the preceding years. These indexed hedge rates
represent the change in spot value (value on the day the hedge contract is
undertaken) of the Haemonetics specific hedge rate index. These indexed
hedge rates impact sales, cost of sales and SG&A in the Company's financial
statements.
The final impact of currency fluctuations on the results of
operations is dependent on the local currency amounts hedged and the actual
local currency results.
Composite Index Favorable / (Unfavorable)
Hedge Spot Rates Change vs Prior Year
---------------------------------------------
FY1999 Q1 0.98 (9.4%)
Q2 1.06 (13.4%)
Q3 1.03 (5.9%)
Q4 1.05 (7.4%)
1999 Total 1.03 (9.1%)
FY2000 Q1 1.10 (10.8%)
Q2 1.09 (2.8%)
Q3 1.04 (0.6%)
Q4 1.07 (1.0%)
2000 Total 1.07 (3.9%)
FY2001 Q1 1.04 5.4%
Q2 1.00 8.2%
Q3 0.92 12.9%
Q4 0.97 10.2%
2001 Total 0.98 9.1%
FY2002 Q1 0.99 5.2%
Q2 0.97 3.3%
Q3 1.01 (8.6%)
Other Income and Expense
Interest expense decreased $0.6 million from fiscal 2000 to fiscal
2001 due to a reduction in the average outstanding borrowings and lower
interest rates. Interest income decreased $0.4 million for the nine months
of fiscal 2001 compared to fiscal 2000. Other income net increased $1.0
million due to increases in income earned from points on forward contracts,
which was partially offset by an increase in foreign exchange transaction
losses. Points on forward contracts are amounts, either paid or earned,
based on the interest rate differential between two foreign currencies in a
forward hedge contract.
Taxes
The provision for income taxes, as a percentage of pretax income, was
32.0% during the first nine months of fiscal year 2000 before the effect of
the Transfusion Technologies acquisition and 27.0% cumulatively for the
first nine months of fiscal year 2001. The 25.7% rate in the third quarter
of fiscal year 2001 reflects a year to date adjustment decreasing the
Company's year to date tax provision from 28% to 27%. The decrease in the
effective tax rate from 32% for fiscal year 2000 to 27% for fiscal year
2001 was primarily attributable to an increase in export benefits generated
by the Company's Foreign Sales Corporation, benefits associated with
repatriating of funds, and modifying the geographic distribution of income.
The Company expects its tax rate for its next fiscal year to be
approximately 28%.
RESULTS OF DISCONTINUED OPERATIONS (BLOOD BANK MANAGEMENT SERVICES, "BBMS")
Accounting for the divestiture of all BBMS centers effective May
1999, was completed during the second quarter of 1999 with the recovery of
the excess reserve amounting to $144,000 (net of $68,000 of taxes).
LIQUIDITY AND CAPITAL RESOURCES
The Company has satisfied its cash requirements principally from
internally generated cash flow and borrowings. The Company's need for funds
is derived primarily from capital expenditures, acquisitions, new business
development and working capital.
During the nine months ended December 30, 2000, the Company decreased
its cash balances, before the effect of exchange rates, by $2.0 million
from operating, investing and financing activities which represents a
decrease in cash utilization of $7.7 million from the $9.5 million utilized
in the Company's operating, investing and financing activities during the
nine months ended December 25, 1999.
Operating Activities:
The Company generated $34.2 million in cash from operating activities
of continuing operations for the nine months in fiscal year 2001 as
compared to $29.0 million generated during fiscal 2000. The $5.2 million
increase in operating cash flow generated from continuing operations from
fiscal year 2000 to fiscal year 2001 was a result of $7.8 million in
additional funds generated by various working capital activities and
operating assets and liabilities, offset by $2.6 million less cash
generated by net income adjusted for non-cash items. Specifically, the $7.8
million in additional cash generated resulted from targeted reductions in
inventory levels and decreases in the investment in accounts receivable.
Increases in prepaid income taxes and decreases in accounts payable,
accrued expenses and other current liabilities nine months to nine months
utilized cash, partially offsetting the funds generated by inventory and
accounts receivable.
The Company measures its performance using an operating cash flow
metric defined as net income adjusted for depreciation, amortization and
other non-cash items; capital expenditures for property, plant and
equipment together with the investment in Haemonetics equipment at customer
sites, including sales-type leases; and the change in operating working
capital, including change in accounts receivable, inventory, accounts
payable and accrued expenses, excluding tax accounts and the effects of
currency translation. This alternative measure of operating cash flows is
a non-GAAP measure that may not be comparable to similarly titled measures
reported by other companies. It is intended to assist readers of the report
who employ "free cash flow" and similar measures that do not include tax
assets and liabilities, equity investments and other sources and uses that
are outside the day-to-day activities of a Company.
As measured by the Company's operating cash flow metric, the Company
generated $33.8 million and $25.5 million of operating cash during the nine
months ended December 30, 2000 and December 25, 1999, respectively. The
$33.8 million of operating cash generated for the nine months ended
December 30, 2000 was calculated excluding the $26.6 of cash spent to
acquire Transfusion Technologies. The $33.8 of operating cash flow resulted
from $25.3 million of net income adjusted for non-cash items, $3.0 million
from reduced working capital investment, primarily due to lower inventories
partly offset by higher accounts receivable and lower accrued payables and
payroll, and $11.5 million from the reduction of the Company's net
investment in property, plant and equipment and sales-type leases. The
$25.5 million of operating cash generated for the nine months ended
December 25, 1999 resulted from $19.3 million of net income adjusted for
non-cash items, a $(6.7) million in higher working capital investment, due
mainly to increased accounts receivable, and $12.9 million from the
reduction of the Company's net investment in property, plant and equipment
and sales-type leases. Non-cash transfers from inventory to property, plant
and equipment have been excluded for purposes of this calculation and
amounted to approximately $5.3 million and $4.7 million in the nine-month
periods for fiscal 2001 and 2000, respectively.
During fiscal 2000, the Company's discontinued operations utilized
$4.9 million in operating cash flows stemming from working capital changes.
Investing Activities
The Company utilized $32.1 million in cash for investing activities
from continuing operations in fiscal year 2001, an increase of $5.3 million
from fiscal year 2000. In fiscal year 2001, the Company acquired the
remaining 80.2% of Transfusion Technologies utilizing $26.6 million of
cash, an increase of $11.6 million from the fiscal year 2000 purchase of
the 19.8% of Transfusion Technologies. This cash utilization was partially
offset by a decrease in capital expenditures for fiscal year 2001 of $6.9
million, net of retirements and disposals.
At the time of the acquisition, the Company estimated that the cash
and non-cash costs of restructuring, integrating and consolidating the
operations of Haemonetics and Transfusion Technologies over a six month
period would be approximately $1.5 million, net of tax of $0.6 million,
which is charged to income as incurred. Further, the Company expects the
cash outlays to be financed by internally generated cash flows. These
estimates remain largely unchanged at December 30, 2000.
During fiscal year 2000, the Company's discontinued operations
provided $3.6 million in operating cash flows as a result of the sale of
capital assets relative to the dissolution of the discontinued operations.
Financing Activities:
During the nine months ended December 30, 2000, the Company utilized
$6.3 million less cash as a result of its financing activities than during
the nine months ended December 25,1999. During fiscal 2001, the Company
refinanced its Braintree headquarters real estate mortgage and paid down
$7.0 million in Japanese short-term debt. During the nine months ended
December 25, 1999, the Company increased Japanese short-term borrowings by
$18.0 million. This increase in cash utilized year over year relative to
debt pay down was partially offset by the fact that the Company repurchased
fewer shares for its treasury during fiscal 2001 as compared to fiscal
2000, representing a $24.7 million offset to increases in cash used in
financing activities.
At December 30, 2000, the Company had working capital of $130.9
million. This reflects an increase of $9.5 million in working capital for
the nine months ended December 30, 2000. The Company has received a $10.0
million mortgage secured by the company owned headquarters and
manufacturing facility in Braintree, Massachusetts. The transaction closed
during the third quarter of fiscal year 2001. The funds received from this
transaction will be used for general corporate purposes. The Company
believes all its anticipated sources of cash are adequate to meet its
projected needs.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which the Company will be required to adopt in the fourth
quarter of fiscal year 2001. SAB 101 provides additional guidance on the
accounting for revenue recognition including both broad conceptual
discussions, as well as certain industry-specific guidance. The Company is
in the process of reviewing SAB 101. Management does not anticipate a
required change to its revenue recognition policy resulting from the
application of SAB 101.
In June 1998, Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133, as amended by FASB Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133-An Amendment of FASB Statement No. 133," and
by FASB Statement No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities - An Amendment of FASB Statement No. 133."
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 its fair value. The SFAS No. 133 as amended requires
that changes in the derivatives fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Additionally, a
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 as amended is
effective for fiscal years beginning after June 15, 2000. The Company is in
the process of assessing the impact of the implementation of SFAS No. 133
as amended on its financial statements. It expects that the derivative
financial instruments acquired in connection with the Company's hedge
program will qualify for hedge accounting under SFAF No. 133 as amended.
The Company will adopt SFAF No. 133 as amended in the first quarter of
fiscal year 2002.
Cautionary Statement Regarding Forward-Looking Information
Statements contained in this report, as well as oral statements made
by the Company that are prefaced with the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," "designed" and
similar expressions, are intended to identify forward looking statements
regarding events, conditions and financial trends that may affect the
Company's future plans of operations, business strategy, results of
operations and financial position. These statements are based on the
Company's current expectations and estimates as to prospective events and
circumstances about which the Company can give no firm assurance. Further,
any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date
on which such statement is made. As it is not possible to predict every new
factor that may emerge, forward-looking statements should not be relied
upon as a prediction of actual future financial condition or results. These
forward-looking statements, like any forward-looking statements, involve
risks and uncertainties that could cause actual results to differ
materially from those projected or unanticipated. Such risks and
uncertainties include technological advances in the medical field and the
Company's ability to successfully implement products that incorporate such
advances, product demand and market acceptance of the Company's products,
regulatory uncertainties, the effect of economic conditions, the impact of
competitive products and pricing, foreign currency exchange rates, changes
in customers' ordering patterns, the effect of uncertainties in markets
outside the U.S. (including Europe and Asia) in which the Company operates.
EURO CURRENCY
Effective January 1, 1999, 11 of the 15 countries in the European
Union (Austria, Belgium, Finland, France, Germany, Holland, Ireland, Italy,
Luxembourg, Portugal and Spain) adopted a single currency known as the
Euro. For the three years following January 1, 1999, these countries will
be allowed to transact business in both the Euro and in their own
currencies at fixed exchange rates. Beginning on July 1, 2002, the Euro
will become the only currency for these 11 countries.
Operations in Europe
The introduction of the Euro will impact the Company's operations.
The Company has 10 subsidiaries located throughout Europe, that generate
one-third of its sales.
State of Readiness
The Company has formed a Euro Steering Committee (the "Committee") to
address all issues related to the Euro. The Committee has prepared a
detailed action plan which covers all effected areas of concern including
information systems, finance, tax, treasury, legal, marketing and human
resources.
As a part of the detailed action plan, a comprehensive questionnaire
was distributed to the Company's European subsidiaries to gain a better
understanding of the impact of the Euro currency in each location. The
responses to the questionnaires were analyzed and specific action plans
were developed for each subsidiary.
Date of conversion
The target date for conversion of the Company's local and corporate
information systems to the Euro is April 1, 2001, which is the first day of
the Company's fiscal year 2002.
Business activities
The introduction of the Euro will likely result in greater
transparency of pricing throughout Europe and make price comparison easier
between countries. It is anticipated that these changes will have little
impact on Haemonetics in the short-term but could result in some long-term
price harmonization. The Company's products are heavily regulated by
organizations specific to each country and as a result, transactions
between countries are infrequent.
Information systems
The Company is continuing a thorough review of the impact of the Euro
conversion on its information systems. The Committee has identified all
effected systems and determined their state of Euro readiness. The Company
understands the technical requirements to adapt information technology and
other systems to accommodate Euro-denominated transactions. Testing of all
local transactional systems is complete with a high success rate. The
Company's customized programs are now being analyzed and completion with
successful testing is expected in the fourth quarter of fiscal year 2001.
The Company believes the cost of adapting these systems is not significant.
Accounting, Finance & Treasury
At the point the Company adopts the Euro, it expects to experience
the benefits of simplified hedging, banking and financial transaction
systems.
The Corporate local currency bank accounts have been consolidated to
a single Euro account. Each subsidiary will maintain bank accounts, which
are capable of processing transactions in both the local currency and the
Euro. The transactions between the local currency accounts and Euro
accounts throughout Europe do not result in any additional expense for the
Company.
Tax
It is expected that some of the European countries will allow costs
related to the introduction of the Euro to be fully deductible.
Additionally, it is anticipated that most countries will allow tax relief
by means of a one-time depreciation or amortization charge related to
assets utilized in the Euro conversion.
Legal
The EU has adopted regulations precluding a party from using the Euro
conversion as the reason for breaching or changing its contractual
obligations, unless the other parties to the contract are in agreement. The
Company is now in the process of identifying any contracts between the
Company and parties outside the USA, which fall under these regulations. At
this point, the Company is not aware of substantial risk related to such
contracts.
The conversion to Euro on April 1, 2001 will result in the conversion
of the share capital of the 6 subsidiaries within the European Monetary
Union (EMU). The Committee has concluded that if the converted share
capital results in uneven amounts, they will be rounded by increasing or
decreasing the share capital.
The Committee has identified the new amounts of the share capital per
the requested minimum capital requirements issued by the EU. The Committee
is currently in the process of coordinating all activities related to these
changes such as meetings of the subsidiary board of directors, shareholder
meetings, changes in by-laws and defining the appropriate accounting
transactions. The Company anticipates that all required changes will be
completed during the fourth quarter of fiscal year 2001. The Company does
not anticipate material exposure resulting from the share capital
conversion.
Human Resources
The Committee has decided not to rewrite the existing employee
contracts in subsidiaries located in the EMU, but rather, to give a letter
to each employee which will form an integrated part of the existing
employee contract. This letter will indicate the salary amount in Euro, as
well as provide general information about the Euro. The effective date of
this letter will be April 1, 2001.
A Euro contact person responsible for organizing regular employee
updates and for communicating the company-wide progress of the Euro
implementation has been identified at each European subsidiary.
Costs
The Company does not believe that the total cost will be significant
or have a material impact on its business, results of operations, financial
position or cash flows.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposures relative to market risk are due to foreign
exchange risk and interest rate risk.
Foreign exchange risk
Over two-thirds of the Company's revenues are generated outside the
U.S., yet the Company's reporting currency is the U.S. dollar. Foreign
exchange risk arises because the Company engages in business in foreign
countries in local currency. Exposure is partially mitigated by producing
and sourcing product in local currency. Accordingly, whenever the US dollar
strengthens relative to the other major currencies, there is an adverse
affect on the Company's results of operations and alternatively, whenever
the U.S. dollar weakens relative to the other major currencies, there is a
positive effect on the Company's results of operations.
It is the Company's policy to minimize for a period of time, the
unforeseen impact on its results of operations of fluctuations in foreign
exchange rates by using derivative financial instruments known as forward
contracts to hedge the majority of its firm sales commitments to customers
that are denominated in foreign currencies. The Company also enters into
forward contracts that settle within 35 days to hedge certain intercompany
receivables denominated in foreign currencies. Actual gains and losses on
all forward contracts are recorded in operations, offsetting the gains and
losses on the underlying transactions being hedged. These derivative
financial instruments are not used for trading purposes. The Company's
primary foreign currency exposures in relation to the U.S. dollar are the
Japanese Yen and the Euro equivalent of the French Franc, Deutsche Mark and
Italian Lire.
At December 30, 2000, the Company had the following significant
foreign exchange contracts to hedge certain firm sales commitments
denominated in foreign currency outstanding:
Hedged (BUY)/SELL Weighted Forward USS@ Unrealized
Currency Local Currency Contract Rate Current Fwd Gain/(Loss) Maturity
- ----------------------------------------------------------------------------------------------------
Euro Equivalent 8,100,000 $1.004 7,182,560 $ 946,070 Jan-Mar 2001
Euro Equivalent 7,500,000 $0.915 6,674,500 $ 185,875 Apr-Jun 2001
Euro Equivalent 6,500,000 $0.942 5,810,200 $ 313,300 Jul-Sept 2001
Euro Equivalent 7,450,000 $0.860 6,659,360 $ (252,205) Oct-Dec 2001
Japanese Yen 1,900,000,000 100.8 per US$ 17,958,885 $ 892,548 Jan-Mar 2001
Japanese Yen 2,000,000,000 101.2 per US$ 19,185,334 $ 568,595 Apr-Jun 2001
Japanese Yen 1,925,000,000 101.2 per US$ 18,747,394 $ 281,345 Jul-Sept 2001
Japanese Yen 1,950,000,000 102.9 per US$ 18,989,525 $ (46,214) Oct-Dec 2001
---------------------------------------------
Total: 101,207,757 $2,889,314
---------------------------------------------
The Company estimated the change in the fair value of all forward
contracts assuming both a 10% strengthening and weakening of the U.S.
dollar relative to all other major currencies. In the event of a 10%
strengthening of the U.S. dollar, the change in fair value of all forward
contracts would result in a $8.5 million unrealized gain; whereas a 10%
weakening of the U.S. dollar would result in a $9.5 million unrealized
loss.
Interest Rate Risk
Approximately 98%, of the Company's long-term debt is at fixed rates.
Accordingly, a change in interest rates has an insignificant effect on the
Company's interest expense amounts. The fair value of the Company's long-
term debt, however, would change in response to interest rates movements
due to its fixed rate nature. At December 30, 2000, the fair value of the
Company's long-term debt was approximately $4.3 million higher than the
value of the debt reflected on the Company's financial statements. This
higher fair market is primarily related to the $40.0 million, 7.05% fixed
rate senior notes and the $10.0 million, 8.41% fixed rate mortgage the
Company holds. These notes represent approximately 98% of the Company's
outstanding long-term borrowings at December 30, 2000. At December 25,
1999, the fair value of the Company's long-term debt was approximately $0.4
million higher than the value of the debt reflected on the Company's
financial statements.
Using scenario analysis, the Company changed the interest rate on all
long-term maturities by 10% from the rate levels, which existed at December
30, 2000. The effect was a change in the fair value of the Company's long-
term debt, of approximately $1.9 million.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On December 14, 2000 the Company held a special meeting of
stockholders. At the meeting, the stockholders approved the
Haemonetics Corporation 2000 Long-Term Incentive Plan. The vote
was as follows:
For 13,191,522 Against 8,253,098 Abstain 1,076,825
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a). Exhibits
The following exhibits will be filed as part of this form 10-Q:
Exhibit 10A Haemonetics Corporation 2000 Long-Term Incentive Plan
Exhibit 10B Braintree, Massachusetts Note and Mortgage
(b). Reports on Form 8-K.
An amended report on Form 8-K was filed on November 22, 2000
reporting under Item 7 financial information regarding the
Acquisition of Transfusion Technologies Corporation.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAEMONETICS CORPORATION
Date: February 8, 2001 By: /s/ James L. Peterson
---------------------
James L. Peterson, President and
Chief Executive Officer
Date: February 8, 2001 By: /s/ Ronald J. Ryan
------------------
Ronald J. Ryan, Sr. Vice
President and Chief Financial Officer,
(Principal Accounting Officer)
HAEMONETICS CORPORATION
2000 Long-Term Incentive Plan
1. Purpose of the Plan.
--------------------
The purpose of the 2000 Long-Term Incentive Plan (the "Plan") of
Haemonetics Corporation (the "Company") is to promote the interests of the
Company and its stockholders by strengthening the Company's ability to
attract and retain competent employees, officers, and directors and to
encourage ownership of the Company's stock by employees, officers, and
directors of the Company and its present and future subsidiaries upon whose
efforts and initiative the growth and success of the Company depends.
Under the Plan, stock options ("stock options" or "options") may be
designated as either incentive stock options meeting the requirements of
Section 422 of the Internal Revenue Code of 1986 (the "Code"), or non-
qualified options which are not intended to meet the requirements of the
Code.
2. Stock Subject to the Plan.
--------------------------
(a) The maximum number of shares ("shares") of common stock, $.01
par value, of the Company ("Common Stock") available for stock options
granted under the Plan shall be 3,500,000 shares of Common Stock. The
maximum number of shares of Common Stock available for grants of incentive
stock options under the Plan shall be 3,500,000. The maximum number of
shares of Common Stock available for grants shall be subject to adjustment
in accordance with Section 5 thereof. Shares issued under the Plan may be
authorized but unissued shares of Common Stock or shares of Common Stock
held in treasury.
(b) To the extent that any stock option shall lapse, terminate,
expire or otherwise be cancelled without the issuance of shares of Common
Stock, the shares of Common Stock covered by such grants shall again be
available for the granting of stock options. Further, if any stock option
is exercised through the full or partial payment of shares of Common Stock
owned by the optionee, shares equal in number to those tendered by the
optionee shall be added to the maximum number of shares available for
future grants under this Plan.
(c) Common Stock issuable under the Plan may be subject to such
restrictions on transfer, repurchase rights or other restrictions as shall
be determined by the Committee.
(d) The maximum number of shares of the Company's Common Stock with
respect to which an option may be granted under the Plan to any employee in
any one fiscal year of the Company shall not exceed 500,000 shares (in the
aggregate for all such options taken together), subject to adjustment in
accordance with Section 5.
3. Administration of the Plan.
---------------------------
The Plan shall be administered by a committee (the "Committee")
consisting of two or more members of the Company's Board of Directors. The
Board may from time to time appoint a member or members of the Committee in
substitution for or in addition to the member or members then in office and
may fill vacancies on the Committee however caused. The Committee shall
choose one of its members as Chairman and shall hold meetings at such times
and places as it shall deem advisable. A majority of the members of the
Committee shall constitute a quorum and any action may be taken by a
majority of those present and voting at any meeting. Any action may also be
taken without the necessity of a meeting by a written instrument signed by
a majority of the Committee. The Committee shall have the full and
exclusive authority to interpret the Plan and to adopt, amend, and rescind
such rules and regulations as, in its opinion, may be advisable in the
administration of the Plan. The Committee may correct any defect or supply
any omission or reconcile any inconsistency in the Plan or in any option
agreement in the manner and to the extent it shall deem expedient to carry
the Plan into effect and shall be the sole and final judge of such
expediency. The decision of the Committee as to all questions pertaining to
the Plan shall be final, binding and conclusive on all persons. No
Committee member shall be liable for any action or determination made in
good faith.
4. Options.
--------
(a) Options granted pursuant to the Plan shall be authorized by
action of the Committee and may be designated as either incentive stock
options meeting the requirements of the Code or non-qualified options which
are not intended to meet the requirements of the Code, the designation to
be in the sole discretion of the Committee. Options designated as incentive
stock options that do not continue to meet the requirements of Section 422
of the Code shall be redesignated as non-qualified options automatically
without further action by the Committee on the date such failure to
continue to meet the requirements of Section 422 of the Code occurs.
(b) Options designated as incentive stock options may be granted
only to employees and officers of the Company or of any "subsidiary
corporation" as defined in Section 424 of the Code and the Treasury
Regulations promulgated thereunder (the "Regulations"). Options designated
as non-qualified options may be granted to employees, officers, and
directors of the Company or of any of its subsidiaries. In determining a
person's eligibility to be granted an option, the Committee shall take into
account the person's position and responsibilities, the nature and value to
the Company or its subsidiaries of such person's service and
accomplishments, such person's present and potential contribution to the
success of the Company or its subsidiaries, and such other factors as the
Committee may deem relevant.
(c) No option designated as an incentive stock option shall be
granted to any employee of the Company or any subsidiary corporation if
such employee owns, immediately prior to the grant of an option, stock
representing more than 10% of the voting power or more than 10% of the
value of all classes of stock of the Company or a parent or a subsidiary
corporation, unless the purchase price for the stock under such option
shall be at least 110% of its fair market value at the time such option is
granted and the option, by its terms, shall not be exercisable more than
five years from the date it is granted. In determining the stock ownership
under this paragraph, the provisions of Section 424(d) of the Code shall be
controlling. In determining the fair market value under this paragraph, the
provisions of subparagraph (e) below shall apply.
(d) Each option shall be evidenced by an option agreement (the
"Agreement") duly executed on behalf of the Company and by the optionee to
whom such option is granted, which Agreement shall comply with and be
subject to the terms and conditions of the Plan. The Agreement may contain
such other terms, provisions and conditions which are not inconsistent with
the Plan (including pre-established performance objectives and forfeiture
of option gain for competition with the Company) as may be determined by
the Committee, provided that options designated as incentive stock options
shall meet all of the conditions for incentive stock options as defined in
Section 422 of the Code. The date of grant of an option shall be as
determined by the Committee. More than one option may be granted to an
optionee.
(e) The option price or prices of shares of the Company's Common
Stock for non-qualified and incentive stock options shall be no less than
the fair market value of such Common Stock at the time the option is
granted as determined by the Committee. Except for adjustments pursuant to
Section 5(a) (relating to the adjustment of shares), the exercise price for
any outstanding option granted under the Plan may not be decreased after
the date of grant nor may an outstanding option granted under the Plan be
surrendered to the Company as consideration for the grant of a new option
with a lower exercise price.
(f) An option granted under the Plan may provide in the Agreement
for the payment of the exercise price by (1) delivery of cash or a check
payable to the order of the Company in an amount equal to the exercise
price of such option, (2) delivery of certificates of shares of Common
Stock of the Company owned by the optionee and acceptable to the Committee
having a fair market value equal in amount to the exercise price of the
option being exercised, or attestation of beneficial ownership of such
shares, (3) authorizing a third party to sell shares of Common Stock (or a
sufficient portion of the shares) acquired upon exercise of the option and
remitting to the Company a sufficient portion of the sales proceeds to pay
the exercise price, (4) using the proceeds of a recourse loan from the
Company to pay the exercise price, or (5) any combination thereof. The fair
market value of any shares of the Company's Common Stock which may be
delivered (actually or by attestation) upon exercise of an option shall be
determined by the Committee.
(g) To the extent that the right to purchase shares under an option
has accrued and is in effect, an option may be exercised in full at one
time or in part from time to time, by giving written notice, signed by the
person or persons exercising the option, to the Company, stating the number
of shares with respect to which the option is being exercised, accompanied
by payment in full for such shares as provided in subparagraph (f) above.
(h) Each option granted under the Plan shall, subject to Section 5
hereof, be exercisable at such time or times and during such period as
shall be set forth in the Agreement; provided, however, that no option
granted under the Plan shall have a term in excess of ten (10) years from
the date of grant.
(i) Except as provided in the Agreement, the right of any optionee
to exercise any option granted to him or her shall not be assignable or
transferable by such optionee otherwise than by will or the laws of descent
and distribution, and any such option shall be exercisable during the
lifetime of such optionee only by him or her. Any option granted under the
Plan shall be null and void and without effect upon any attempted
assignment or transfer, except as herein provided, including without
limitation any purported assignment, whether voluntary or by operation of
law, pledge, hypothecation or other disposition, attachment, trustee
process or similar process, whether legal or equitable, upon such option.
5. Recapitalizations, Reorganizations, and Other Adjustments.
----------------------------------------------------------
(a) In the event that the outstanding shares of the Common Stock of
the Company are changed into or exchanged for a different number or kind of
shares or other securities of the Company or of another corporation by
reason of any reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, spin-off,
distribution of assets, or dividends payable in capital stock, appropriate
adjustment shall be made in the number and kind of shares as to which
options may be granted under the Plan (including the share limits of
Sections 2(a) and 2(d)), and as to which outstanding options or portions
thereof then unexercised shall be exercisable, to the end that the
proportionate interest of the optionee shall be maintained as before the
occurrence of such event; such adjustment in outstanding options shall be
made without change in the total price applicable to the unexercised
portion of such options and with a corresponding adjustment in the option
price per share.
(b) In addition, unless otherwise determined by the Committee in
its sole discretion, in the case of any (1) sale or conveyance to another
entity of all or substantially all of the property and assets of the
Company, or (2) Change in Control (as hereinafter defined) of the Company,
the purchaser(s) of the Company's assets or stock may, in his, her or its
discretion, deliver to the optionee the same kind of consideration that is
delivered to the shareholders of the Company as a result of such sale,
conveyance or Change in Control, or the Committee may cancel all
outstanding options in exchange for consideration in cash or in kind which
consideration in both cases shall be equal in value to the value of those
shares of stock or other securities the optionee would have received had
the option been exercised (to the extent then exercisable) and no
disposition of the shares acquired upon such exercise been made prior to
such sale, conveyance or Change in Control, less the option price therefor.
Upon receipt of such consideration by the optionee, his or her option shall
immediately terminate and be of no further force and effect. The value of
the stock or other securities the optionee would have received if the
option had been exercised shall be determined in good faith by the
Committee, and in the case of shares of the Common Stock of the Company, in
accordance with the provisions of Section 4(e) hereof. The Committee may
provide in any Agreement that the vesting of any option shall automatically
accelerate in full or in part upon such a sale, conveyance, Change in
Control, or other similar event. The Committee shall also have the power
and right to accelerate the exercisability of any options, notwithstanding
any limitations in this Plan or in the Agreement upon such a sale,
conveyance or Change in Control. Upon such acceleration, any options or
portion thereof originally designated as incentive stock options that no
longer qualify as incentive stock options under Section 422 of the Code as
a result of such acceleration shall be redesignated as non-qualified stock
options. A "Change in Control" shall be deemed to have occurred if any
person, or any two or more persons acting as a group, and all affiliates of
such person or persons, who prior to such time owned less than thirty five
percent (35%) of the then outstanding Common Stock of the Company, shall
acquire such additional shares of the Company's Common Stock in one or more
transactions, or series of transactions, such that following such
transaction or transactions, such person or group and affiliates
beneficially own thirty five percent (35%) or more of the Company's Common
Stock outstanding.
(c) Upon dissolution or liquidation of the Company, all options
granted under this Plan shall terminate, but each optionee (if at such time
in the employ of or otherwise associated with the Company or any of its
subsidiaries) shall have the right, immediately prior to such dissolution
or liquidation, to exercise his or her option to the extent then
exercisable.
(d) In the case of a corporate merger, consolidation, acquisition
of property or stock, separation, reorganization, liquidation or other
similar transaction, to which Section 424(a) of the Code applies, then,
notwithstanding any other provision of the Plan, the Committee may grant an
option or options upon such terms and conditions as it may deem appropriate
for the purpose of assumption of the outstanding options, or substitution
of new options for the outstanding option, in conformity with the
provisions of such Section 424(a) of the Code and the Regulations
thereunder, and any such action shall not reduce the number of shares
otherwise available for issuance under the Plan.
(e) No fraction of a share shall be purchasable or deliverable upon
the exercise of any option, but in the event any adjustment hereunder of
the number of shares covered by the option shall cause such number to
include a fraction of a share, such number shall be adjusted to the nearest
smaller whole number of shares.
6. No Special Employment Rights.
-----------------------------
Nothing contained in the Plan or in any option granted under the Plan
shall confer upon any option holder any right with respect to the
continuation of his or her employment by the Company (or any subsidiary) or
interfere in any way with the right of the Company (or any subsidiary),
subject to the terms of any separate employment agreement to the contrary,
at any time to terminate such employment or to increase or decrease the
compensation of the option holder from the rate in existence at the time of
the grant of an option. Whether an authorized leave of absence, or absence
in military or government service, shall constitute termination of
employment shall be determined by the Committee at the time.
7. Withholding.
------------
As a condition of the exercise of any option granted under the Plan
and the delivery of any shares, the option holder and any permitted
transferees or beneficiaries shall make such arrangements as the Committee
may require for the satisfaction of all applicable tax withholding
obligations. With the approval of the Committee, which it shall have sole
discretion to grant, and on such terms and conditions as the Committee may
impose, the option holder may satisfy the foregoing condition by electing
to have the Company withhold from delivery shares having a value equal to
the minimum amount of tax required to be withheld. The Committee shall also
have the right to require that shares be withheld from delivery to satisfy
such condition.
8. Restrictions on Issue of Shares.
--------------------------------
(a) Notwithstanding the provisions of Section 7, the Company may
delay the issuance of shares covered by the exercise of an option and the
delivery of a certificate for such shares until the delivery or
distribution of any shares under this Plan complies with all applicable
laws (including without limitation, the Securities Act of 1933, as
amended), and with the applicable rules of any stock exchange upon which
the shares of the Company are listed or traded.
(b) It is intended that all exercises of options shall be
effective, and the Company shall use its best efforts to bring about
compliance with all applicable legal and regulatory requirements within a
reasonable time, except that the Company shall be under no obligation to
qualify shares or to cause a registration statement or a post-effective
amendment to any registration statement to be prepared for the purpose of
covering the issue of shares in respect of which any option may be
exercised, except as otherwise agreed to by the Company in writing.
9. Approval of Stockholders.
-------------------------
The Plan shall be subject to approval by a vote of Company
stockholders within twelve (12) months after the adoption of the Plan by
the Board of Directors of the Company and shall take effect as of the date
of adoption by the Board upon such stockholder approval. The Committee may
grant options under the Plan prior to such approval, but any such option
shall be conditioned on such approval and, accordingly, no such option may
be exercisable prior to such approval.
10. Termination and Amendment.
--------------------------
Unless sooner terminated as herein provided, the Plan shall terminate
ten (10) years from the date upon which the Plan was duly adopted by the
Board of Directors of the Company. The Board of Directors may at any time
terminate the Plan or make such modification or amendment thereof as it
deems advisable; provided, however, that except as provided in this Section
10, the Board of Directors may not, without the approval of the
stockholders of the Company obtained in the manner stated in Section 9,
make any change in the Plan which (i) requires stockholder approval under
applicable law or regulations, (ii) increases the number of shares
available for stock options, (iii) expands the class of participants
eligible to receive stock option grants under the Plan, or (iv) materially
increases benefits available under the Plan by expanding the types of
permissible awards (such as by authorizing the grant of stock awards or
stock appreciation rights). The Committee may terminate, amend, or modify
any outstanding option without the consent of the option holder, provided
however, that, except as provided in Section 5, without the consent of the
optionee, the Committee shall not change the number of shares subject to an
option, nor the exercise price thereof, nor extend the term of such option.
11. Limitation of Rights in the Option Shares.
------------------------------------------
An optionee shall not be deemed for any purpose to be a stockholder
of the Company with respect to any of the options except to the extent that
the option shall have been exercised with respect thereto and, in addition,
a certificate shall have been issued theretofore and delivered to the
optionee.
12. Notices.
--------
Any communication or notice required or permitted to be given under
the Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: General Counsel, and, if to an optionee, to the address as
appearing on the records of the Company.
13. Governing Law.
--------------
The Plan and all determinations made and actions taken with respect
thereto shall be governed by the laws of the Commonwealth of Massachusetts,
without regard to its conflict of law rules.
Approved by the Stockholders: December 14, 2000
Loan No. 050-4715-001
PROMISSORY NOTE
$10,000,000.00 December 12, 2000
FOR VALUE RECEIVED, HAEMONETICS CORPORATION, a Massachusetts business
corporation (93BORROWER94), promises to pay to the order of GENERAL
ELECTRIC CAPITAL BUSINESS ASSET FUNDING CORPORATION ("GE CAPITAL") at GE
CAPITAL's office at 10900 NE 4th Street, Suite 500, Bellevue, Washington
98004, Attention: Real Estate Department, or at such other address as GE
CAPITAL may from time to time designate in writing, the principal sum of
TEN MILLION AND NO/100 DOLLARS ($10,000,000.00) together with interest from
the date the proceeds of the loan (the 93Loan94) evidenced by this
Promissory Note (this 93Note94) are initially disbursed until maturity on
the principal balance from time to time remaining unpaid hereon at the rate
of 8.41% per annum (computed on the basis of a 360-day year of twelve (12)
consecutive thirty (30)-day months) in installments as follows: (i)
interest only in advance at the rate of $2,336.11 per day shall be due and
payable on the date the proceeds of the Loan are initially disbursed to or
for the benefit of BORROWER (including, without limitation, disbursement
into an escrow for the benefit of BORROWER) for the period beginning on the
date of such disbursement and ending on December 3 1, 2000; (ii) one
hundred seventy-nine (179) installments of principal and interest in the
amount of $97,947. 11 each shall be payable commencing on February 1, 2001,
and continuing on the first day of each and every succeeding month until
and including December 1, 2015, and (iii) on January 1, 2015 (the "Maturity
Date"), all then unpaid principal and interest hereon shall be due and
payable.
If any periodic payment due hereunder shall not be paid when due and
shall remain unpaid for ten (10) days, BORROWER shall pay an additional
charge equal to five percent (5.00%) of the delinquent payment or the
highest additional charge permitted by law, whichever is less.
Upon not less than thirty (30) days advance written notice to GE
CAPITAL at any time after February 1,2006, and upon payment of the
Prepayment Premium, BORROWER shall have the right to prepay all, but not
less than all, of the outstanding balance of this Note on any regularly
scheduled principal and interest payment date. The Prepayment Premium shall
be determined by (i) calculating the decrease (expressed in basis points)
in the current weekly average yield of Ten (10)-year U.S. Treasury Constant
Maturities (as published in Federal Reserve Statistical Release H. 15
[5191) (the "Index") from Friday, July 7, 2000, to the Friday immediately
preceding the week in which the prepayment is made, (ii) dividing the
decrease by 100, (iii) multiplying the result by the following described
applicable premium factor (the "Premium Factor"), and (iv) multiplying the
product by the principal balance to be prepaid. If the Index is unchanged
or has increased from Friday, July 7, 2000, to the Friday immediately
preceding the prepayment date, no Prepayment Premium shall be due. The
Premium Factor shall be the amount shown on the following chart for the
month in which prepayment occurs:
Number of Months
Remaining (Years) Premium Factor
- ---------------- ------- --------------
180-169 (15) 0.073
168-157 (14) 0.069
156-145 (13) 0.064
144-133 (12) 0.059
132-121 (11) 0.054
120-109 (10) 0.049
108-97 (9) 0.044
96-85 (8) 0.039
84-73 (7) 0 035
72-61 (6) 0.030
60-49 (5) 0.025
48-37 (4) 0.020
36-25 (3) 0.015
24-13 (2) 0.010
12-1 (1) 0.005
If the Federal Reserve Board ceases to publish the Index, then the
decrease in the weekly average yield of Ten (10)-year U.S. Treasury
Constant Maturities will be determined from another source designated by GE
CAPITAL. Notwithstanding anything contained herein to the contrary,
prepayment prior to February 1, 2006 will not be permitted.
If GE CAPITAL at any time accelerates this Note after an Event of
Default (defined below), then BORROWER shall be obligated to pay the
Prepayment Premium in accordance with the foregoing schedule. The
Prepayment Premium shall not be payable with respect to condemnation awards
or insurance proceeds from fire or other casualty which GE CAPITAL applies
to prepayment, nor with respect to BORROWER92s prepayment of the Note in
full during the last three (3) months of the term of this Note unless an
Event of Default has occurred. BORROWER expressly acknowledges that the
Prepayment Premium is not a penalty but is intended solely to compensate GE
CAPITAL for the loss of its bargain and the reimbursement of internal
expenses and administrative fees and expenses incurred by GE CAPITAL.
The Loan is secured, in part, by a certain Commercial Mortgage,
Security Agreement, Assignment of Leases and Rents and Fixture Filing (the
"Mortgage") covering the real property and other assets (the "Property")
described therein, and by certain other documents executed and delivered in
connection herewith (the Mortgage and such other documents are collectively
called the "Loan Documents").
Subject to the exceptions described below, GE CAPITAL shall not seek
any deficiency judgment against BORROWER, it being understood and agreed
that BORROWER shall not have any personal liability for the payment of the
indebtedness evidenced by the Loan Documents, and such indebtedness shall
be considered limited recourse to BORROWER.
The foregoing notwithstanding, GE CAPITAL shall have full recourse
against BORROWER for the full payment of any Prepayment Premium; the full
amount of any taxes, insurance premiums or other amounts advanced by GE
CAPITAL on behalf of BORROWER pursuant to the Loan Documents; and all
reasonable attorney's fees or other out-of-pocket costs of collection
incurred by GE CAPITAL pursuant to any of the Loan Documents. In addition,
GE CAPITAL shall have full recourse against BORROWER for the full payment
of all indebtedness evidenced by the Loan Documents in the event of fraud
or intentional misrepresentation by BORROWER of any material facts under
any of the Loan Documents.
BORROWER shall also be liable for (i) the full amount of all rents,
profits, insurance proceeds, condemnation awards, security deposits or
other sums or payments received by or on behalf of BORROWER and not paid or
applied in accordance with the provisions of the Loan Documents, and (ii)
the amount of any damage, loss, cost, or expenses arising from the breach
by BORROWER of any of its obligations under any lease of the Property (or
any part thereof).
Nothing herein shall limit the liability of BORROWER under the
certificate and indemnity agreement regarding hazardous substances or
environmental indemnity agreement executed in favor of GE CAPITAL.
Each of the following shall constitute an Event of Default (93Event
of Default94) hereunder and under the Mortgage:
(a) Failure of or refusal by BORROWER to make any payment of
principal, interest, or any Prepayment Premium due under this Note
when due, and such failure or refusal shall continue for a period
often (10) days after written notice is given to BORROWER by GE
CAPITAL specifying such failure; or
(b) Failure of BORROWER within the time required by the
Mortgage to make any payment for taxes, insurance or for reserves for
such payments, or any other payment necessary to prevent the filing
of any lien, and such failure shall continue for a period of ten (10)
days after written notice is given to BORROWER by GE CAPITAL
specifying such failure; or
(c) Failure of BORROWER to observe or perform any of its
obligations under any of the lease agreements covering the Property
continuing beyond applicable grace and cure periods; or
(d) The Property or any part or interest in the Property is
transferred in any manner whatsoever without the prior written
consent of GE CAPITAL; or
(e) If any lien or encumbrance is filed against the Property
without GE CAPITAL's prior written consent and the same is not
discharged or bonded over as provided in Section 4 of the Mortgage;
or
(f) If any lease agreement covering any portion of the
Property is executed by Borrower without GE CAPITAL's prior written
consent; or
(g) Filing by BORROWER of a voluntary petition in bankruptcy
or filing by BORROWER of any petition or answer seeking or
acquiescing in any reorganization, arrangement, composition,
readjustment, liquidation, or similar relief for itself under any
present or future federal, state or other statute, law or regulation
relating to bankruptcy, insolvency or other relief for debtors, or
the seeking, consenting to, or acquiescing by BORROWER in the
appointment of any trustee, receiver, custodian, conservator or
liquidator for BORROWER, any part of the Property, or any of the
income or rents of the Property, or the making by BORROWER of any
general assignment for the benefit of creditors, or the inability of
or failure of BORROWER to pay its debts generally as they become due,
or the insolvency on a balance sheet basis or business failure of
BORROWER, or the making or suffering of a preference within the
meaning of federal bankruptcy law or the making of a fraudulent
transfer under applicable federal or state law, or concealment by
BORROWER of any of its property in fraud of creditors, or the
imposition of a lien upon any of the property of BORROWER which is
not discharged in the manner permitted by the Mortgage, or the giving
of notice by BORROWER to any governmental body of insolvency or
suspension of operations; or
(h) Filing of a petition against BORROWER seeking any
reorganization, arrangement, composition, readjustment, liquidation,
or similar relief under any present or future federal, state or other
law or regulation relating to bankruptcy, insolvency or other relief
for debts, or the appointment of any trustee, receiver, custodian,
conservator or liquidator of BORROWER, of any part of the Property or
of any of the income or rents of the Property, unless such petition
shall be dismissed within sixty (60) days after such filing, but in
any event prior to the entry of an order, judgment or decree
approving such petition; or
(i) The institution of any proceeding for the dissolution or
termination of BORROWER voluntarily, involuntarily, or by operation
of law; or
(j) A material adverse change occurs in the assets,
liabilities or net worth of BORROWER with the result that BORROWER's
ability to perform its obligations hereunder is materially impaired;
or
(k) Any warranty, representation or statement furnished to GE
CAPITAL by or on behalf of BORROWER under this Note, the Mortgage, or
any of the Loan Documents shall prove to have been false or
misleading in any material respect and, if such false or misleading
warranty, representation or statement was not intentionally false or
misleading and can be cured by BORROWER, if BORROWER fails to cure
the same to the satisfaction of GE CAPITAL within thirty (30) days
after written notice thereof is delivered to BORROWER; or
(l) Failure of BORROWER to observe or perform any other
obligation under the Mortgage or any of the Loan Documents when such
observance or performance is due, and such failure shall continue
beyond the applicable cure period set forth in the Mortgage or the
Loan Documents or, if no such cure period is provided, for a period
of thirty (30) days after written notice of such failure is delivered
to BORROWER; provided, however, that if any such failure cannot be
cured by BORROWER within thirty (30) days, BORROWER shall have an
additional period of sixty (60) days to cure such failure if BORROWER
promptly commences efforts to cure such failure and diligently
pursues such efforts to completion. No notice of default and no
opportunity to cure shall be required if during the prior twelve (12)
months GE CAPITAL has already sent a notice to BORROWER concerning
default in performance of the same obligation.
Upon the occurrence of any Event of Default, GE CAPITAL shall have
the option to declare the entire amount of principal and interest due under
this Note immediately due and payable without notice or demand, and GE
CAPITAL may exercise any of its rights under this Note, under the Mortgage
and under the Loan Documents. After acceleration or maturity, BORROWER
shall pay interest on the outstanding principal balance of this Note at the
rate of five percent (5.00%) per annum above Chase Manhattan Banks prime
interest rate in effect from time to time, or fifteen percent (15.00%) per
annum, whichever is higher, provided that such interest rate shall not
exceed the maximum interest rate permitted by law.
All payments of the principal and interest on this Note shall be made
in coin or currency of the United States of America which at the time shall
be the legal tender for the payment of public and private debts. If this
Note is placed in the hands of an attorney for collection, BORROWER agrees
to pay reasonable attorneys' fees and out-of-pocket costs incurred by GE
CAPITAL in connection therewith, and in the event suit or action is
instituted to enforce or interpret this Note (including without limitation
efforts to modify or vacate any automatic stay or injunction), the
prevailing party shall be entitled to recover all out-of-pocket expenses
reasonably incurred at, before or after trial and on appeal, whether or not
taxable as costs, or in any bankruptcy proceeding, or in connection with
post-judgment collection efforts, including, without limitation, attorneys'
fees, witness fees (expert and otherwise), deposition costs, copying
charges and other expenses.
This Note shall be governed and construed in accordance with the laws
of the Commonwealth of Massachusetts applicable to contracts made and to be
performed therein (excluding choice-of-law principles). BORROWER hereby
irrevocably submits to the jurisdiction of any state or federal court
sitting in Massachusetts in any action or proceeding brought to enforce or
otherwise arising out of or relating to this Note, and hereby waives any
objection to venue in any such court and any claim that such forum is an
inconvenient forum.
This Note may be declared due prior to the Maturity Date, all in the
events, on the terms, and in the manner provided for in the Mortgage.
BORROWER and all sureties, endorsers, guarantors and other parties
now or hereafter liable for the payment of this Note, in whole or in part,
hereby severally (i) waive demand, notice of demand, presentment for
payment, notice of nonpayment, notice of default (except as expressly
provided herein), protest, notice of protest, notice of intent to
accelerate, notice of acceleration and all other notices, and further waive
diligence in collecting this Note or in enforcing any of the security for
this Note; (ii) agree to any substitution, subordination, exchange or
release of any security for this Note or the release of any party primarily
or secondarily liable for the payment of this Note; (iii) agree that GE
CAPITAL shall not be required to first institute suit or exhaust its
remedies hereon against BORROWER or others liable or to become liable for
the payment of this Note or to enforce its rights against any security for
the payment of this Note; and (iv) consent to any extension of time for the
payment of this Note, or any installment hereof, made by agreement by GE
CAPITAL with any person now or hereafter liable for the payment of this
Note, even if BORROWER is not a party to such agreement.
BORROWER authorizes GE CAPITAL or its agent to insert in the spaces
provided herein the appropriate interest rate and the payment amounts as of
the date of the initial advance under this Note.
All agreements between BORROWER and GE CAPITAL, whether now existing
or hereafter arising and whether written or oral, are hereby limited so
that in no contingency, whether by reason of demand or acceleration of the
final maturity of this Note or otherwise, shall the interest contracted
for, charged, received, paid or agreed to be paid to GE CAPITAL exceed the
maximum amount permissible under the applicable law. If, from any
circumstance whatsoever, interest would otherwise be payable to GE CAPITAL
in excess of the maximum amount permissible under applicable law, the
interest payable to GE CAPITAL shall be reduced to the maximum amount
permissible under applicable law; and if from any circumstance GE CAPITAL
shall ever receive anything of value deemed interest by applicable law in
excess of the maximum amount permissible under applicable law, an amount
equal to the excessive interest shall be applied to the outstanding
principal balance hereof, or if such excessive amount of interest exceeds
the unpaid balance of principal hereof, such excess shall be refunded to
BORROWER. All interest paid or agreed to be paid to GE CAPITAL shall, to
the extent permitted by applicable law, be amortized, prorated, allocated,
and spread throughout the full period (including any renewal or extension)
until payment in full of the principal so that the interest hereon for such
full period shall not exceed the maximum amount permissible under
applicable law. GE CAPITAL expressly disavows any intent to contract for,
charge or receive interest in an amount which exceeds the maximum amount
permissible under applicable law. This paragraph shall control all
agreements between BORROWER and GE CAPITAL.
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER
TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACTMAY BE LEGALLY
ENFORCED. YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER
WRITTEN AGREEMENT.
IN WITNESS WHEREOF, BORROWER has caused this Note to be executed as
of the year and day first written above.
BORROWER:
HAEMONETICS CORPORATION,
a Massachusetts business corporation
By:
--------------------------------
Print:
-----------------------------
Its:
-------------------------------
Prepared by, recording requested
by, and after recording return to:
George C. Dunlap, Jr.
Jenkens & Gilchrist
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2 799
Loan No. 050-4715-001
COMMERCIAL MORTGAGE,
SECURITY AGREEMENT,
ASSIGNMENT OF LEASES AND RENTS,
AND FIXTURE FILING
THIS MORTGAGE (herein "Instrument') is made as of December 12, 2000,
by HAEMONETICS CORPORATION, a Massachusetts business corporation, whose
address is 400 Wood Road. Braintree, Massachusetts 02184 (herein
"Mortgagor"), in favor of the Mortgagee, GENERAL ELECTRIC CAPITAL BUSINESS
ASSET FUNDING CORPORATION, a Delaware corporation, whose address is Real
Estate Department, 10900 N E 4th Street, Suite 500, Bellevue, Washington,
98004 (herein "Mortgagee").
W I T N E S S E T H:
THAT, WHEREAS, Mortgagor is justly indebted to Mortgagee in the sum
of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), as evidenced by a
certain Promissory Note (as hereinafter described),
NOW, THEREFORE, Mortgagor, in consideration of the indebtedness
herein recited and the trust herein created, irrevocably gives, grants,
conveys, bargains, sells and assigns to Mortgagee, its successors and
assigns, WITH MORTGAGE COVENANTS, UPON THE STATUTORY CONDITION AND WITH THE
STATUTORY POWER OF SALE, all of Mortgagor's estate, right, title and
interest, now owned or hereafter acquired, including any reversion or
remainder interest, in the real property located in Norfolk County,
Massachusetts described on Exhibit A attached hereto and incorporated
herein including all Heretofore or hereafter vacated alleys and streets
abutting the property, and all easements, rights, appurtenances, tenements,
hereditaments, rents, royalties, mineral, oil and gas rights and profits,
water, water rights, and water stock appurtenant to the property
(collectively, the "Premises");
TOGETHER with all of Mortgagor's estate, right, title and interest,
now owned or hereafter acquired, in:
(a) all buildings, structures, improvements, parking areas,
landscaping, equipment, fixtures and articles of property now or
hereafter erected on, attached to, or used or adapted for use in the
operation of the Premises; including but without being limited to,
all heating, air conditioning and incinerating apparatus and
equipment, all boilers, engines, motors, dynamos, generating
equipment, piping and plumbing fixtures, water heaters, ranges,
cooking apparatus and mechanical kitchen equipment, refrigerators,
freezers, cooling, ventilating, sprinkling and vacuum cleaning
systems, fire extinguishing apparatus, gas and electric fixtures,
carpeting, floor coverings, underpadding, elevators, escalators,
partitions, mantels, built-in mirrors, window shades, blinds,
draperies, screens, storm sash, awnings, signs, furnishings of public
spaces, halls and lobbies, and shrubbery and plants, and including
also all interest of any owner of the Premises in any of such items
hereafter at any time acquired under conditional sale contract,
chattel mortgage or other title retaining or security instrument, all
of which property mentioned in this clause (a) shall be deemed part
of the realty covered by this Instrument and not severable wholly or
in part without material injury to the freehold of the Premises (all
of the foregoing together with replacements and additions thereto are
referred to herein as "Improvements"); and
(b) all compensation, awards, damages, rights of action and
proceeds, including interest thereon and/or the proceeds of any
policies of insurance therefor, arising out of or relating to a (i)
taking or damaging of the Premises or Improvements thereon by reason
of any public or private improvement, condemnation proceeding
(including change of grade), sale or transfer in lieu of
condemnation, or fire, earthquake or other casualty, or (ii) any
injury to or decrease in the value of the Premises or the
Improvements for any reason whatsoever;
(c) return premiums or other payments upon any insurance any
time provided for the benefit of or naming Mortgagee, and refunds or
rebates of taxes or assessments on the Premises;
(d) all the right, title and interest of Mortgagor in, to and
under all written and oral leases and rental agreements (including
extensions, renewals and subleases; all of the foregoing shall be
referred to collectively herein as the "Leases") now or hereafter
affecting the Premises including, without limitation, all rents,
issues, profits and other revenues and income therefrom and from the
renting, leasing or bailment of Improvements and equipment, all
guaranties of tenants' performance under the Leases, and all rights
and claims of any kind that Mortgagor may have against any tenant
under the Leases or in connection with the termination or rejection
of the Leases in a bankruptcy or insolvency proceeding; and the
leasehold estate in the event this Instrument is on a leasehold;
(e) plans, specifications, contracts and agreements relating
to the design or construction of the Improvements; Mortgagor's rights
under any payment, performance, or other bond in connection with the
design or construction of the Improvements; all landscaping and
construction materials, supplies, and equipment used or to be used or
consumed in connection with construction of the Improvements, whether
stored on the Premises or at some other location; and contracts,
agreements, and purchase orders with contractors, subcontractors,
suppliers, and materialmen incidental to the design or construction
of the Improvements;
(f) all contracts, accounts, rights, claims or causes of
action pertaining to or affecting the Premises or the Improvements,
including, without limitation, all options or contracts to acquire
other property for use in connection with operation or development of
the Premises or Improvements, management contracts, service or supply
contracts, deposits, bank accounts, general intangibles (including
without limitation trademarks, trade names and symbols), permits,
licenses, franchises and certificates, and all commitments or
agreements, now or hereafter in existence, intended by the obligor
thereof to provide Mortgagor with proceeds to satisfy the loan
evidenced hereby or improve the Premises or Improvements, and the
right to receive all proceeds due under such commitments or
agreements including refundable deposits and fees;
(g) all books, records, surveys, reports and other documents
related to the Premises, the Improvements, the Leases, or other items
of collateral described herein; and
(h) all additions, accessions, replacements, substitutions,
proceeds and products of the real and personal property, tangible and
intangible, described herein.
All of the foregoing described collateral is exclusive of any
furniture, furnishings or trade fixtures owned and supplied by tenants of
the Premises. The Premises, the Improvements, the Leases and all of the
rest of the foregoing property are herein referred to as the "Property."
THIS MORTGAGE IS MADE UPON THE STATUTORY CONDITIONS, FOR ANY EACH OF
WHICH MORTGAGEE SHALL HAVE THE STATUTORY POWER OF SALE.
TO HAVE AND TO HOLD the Property and all parts, rights, members and
appurtenances thereof to the use, benefit and behoof of Mortgagee and its
successors and assigns in fee simple forever.
TO SECURE TO Mortgagee (a) the repayment of the indebtedness
evidenced by Mortgagor 's note dated of even date herewith in the principal
sum of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), with interest
thereon as set forth in the note, and all renewals, extensions and
modifications thereof (herein the "Note"), and with a final maturity date
of January 1, 2016; (b) the repayment of any future advances, with interest
thereon, made by Mortgagee to Mortgagor pursuant to Section 30 hereof
(herein "Future Advances"); (c) the payment of all other sums, with
interest thereon, advanced in accordance herewith to protect the security
of this Instrument or to fulfill any of Mortgagor's obligations hereunder
or under the other Loan Documents (as defined below); (d) the performance
of the covenants and agreements of Mortgagor contained herein or in the
other Loan Documents; and (e) the repayment of all sums now or hereafter
owing to Mortgagee by Mortgagor pursuant to any instrument which recites
that it is secured hereby. The indebtedness and obligations described in
clauses (a)-(e) above are collectively referred to herein as the
"Indebtedness." The Note, this Instrument, and all other documents
evidencing, securing or guarantying the Indebtedness (except any-
Certificate and Indemnity Agreement Regarding Hazardous Substances), as the
same may be modified or amended from time to time, are referred to herein
as the "Loan Documents." The terms of the Note secured hereby may provide
that the interest rate or payment terms or balance due may be indexed,
adjusted, renewed, or renegotiated from time to time, and this Instrument
shall continue to secure the Note notwithstanding any such indexing,
adjustment, renewal or renegotiation.
PROVIDED, ALWAYS, that if Mortgagor shall pay unto Mortgagee the
Indebtedness and if Mortgagor shall duly, promptly and fully perform,
discharge, execute, effect, complete and comply with and abide by each and
every of the stipulations, agreements, conditions and covenants of the Note
and this Instrument, then this Instrument and all assignments contained
herein and liens created hereby shall cease and be null and void; otherwise
to remain in full force and effect.
Mortgagor represents and warrants that Mortgagor has good, marketable
and insurable title to, and has the right to grant, convey and assign an
indefeasible fee simple estate in, the Premises, Improvements, rents and
leases (or, if this Instrument is on a leasehold, good, marketable and
insurable title to, and the right to convey the leasehold estate and that
the ground lease is in full force and effect without modification except as
noted above and without default on the part of either lessor or lessee
thereunder), that the Property is unencumbered except as disclosed in
writing to and approved by Mortgagee prior to the date hereof, and that
Mortgagor will warrant and forever defend unto Mortgagee the title to the
Property against all claims and demands, subject only to the permitted
exceptions set forth in Exhibit B attached hereto.
This conveyance is intended to constitute a security agreement as
required under the Uniform Commercial Code as enacted in the Commonwealth
of Massachusetts. Debtor's and Secured Party's address and the location of
the collateral are set forth on page one (1) hereof.
Mortgagor represents, warrants, covenants and agrees for the benefit
of Mortgagee as follows:
1. PAYMENT OF PRINCIPAL AND INTEREST Mortgagor shall promptly
pay when due the principal of and interest on the Indebtedness, any
prepayment and other charges provided in the Loan Documents and all
other sums secured by this Instrument.
2. FUNDS FOR TAXES. INSURANCE AND OTHER CHARGES. At
Mortgagee's sole option at any time after the occurrence of an Event
of Default (hereinafter defined) Mortgagor shall pay in addition to
each monthly payment on the Note, one-twelfth of the annual real
estate taxes, insurance premiums, assessments, water and sewer rates,
ground rents and other charges (herein "Impositions") payable with
respect to the Property (as reasonably estimated by Mortgagee in its
sole discretion), to be held by Mortgagee without interest to
Mortgagor, for the payment of such obligations.
If the amount of such additional payments held by Mortgagee ("Funds")
at the time of the annual accounting thereof shall exceed the amount deemed
necessary by Mortgagee to provide for the payment of Impositions as they
fall due, such excess shall be at Mortgagor's option, either repaid to
Mortgagor or credited to Mortgagor on the next monthly installment or
installments of Funds due. If at any time the amount of the Funds held by
Mortgagee shall be less than the amount deemed necessary by Mortgagee to
pay Impositions as they fall due, Mortgagor shall pay to Mortgagee any
amount necessary to make up the deficiency within thirty (30) days after
notice from Mortgagee to Mortgagor requesting payment thereof.
Upon Mortgagor's breach of any covenant or agreement of Mortgagor in
this Instrument, Mortgagee may apply, in any amount and in any order as
Mortgagee shall determine in Mortgagee's sole discretion, any Funds held by
Mortgagee at the time of application (i) to pay Impositions which are now
or will hereafter become due, or (ii) as a credit against sums secured by
this Instrument. Upon payment in frill of all sums secured by this
Instrument, Mortgagee shall refund to Mortgagor any Funds held by
Mortgagee.
3. APPLICATION OF PAYMENTS. Unless applicable law provides
otherwise, each complete installment payment received by Mortgagee
from Mortgagor under the Note or this Instrument shall be applied by
Mortgagee first in payment of amounts payable to Mortgagee by
Mortgagor under Section 2 hereof, then to interest payable on the
Note, then to principal of the Note, and then to interest and
principal on any Future Advances in such order as Mortgagee, at
Mortgagee's sole discretion, shall determine. Upon Mortgagor's breach
of any covenant or agreement of Mortgagor in this Instrument,
Mortgagee may apply, in any amount and in any order as Mortgagee
shall determine in Mortgagee's sole discretion, any payments received
by Mortgagee under the Note or this Instrument. Any partial payment
received by Mortgagee shall, at Mortgagee's option, be held in a non-
interest bearing account until Mortgagee receives funds sufficient to
equal a complete installment payment.
4. CHARGES. LIENS. Mortgagor shall pay all Impositions
attributable to the Property in the manner provided under Section 2
hereof or, if not paid in such manner, by Mortgagor making payment,
when due, directly to the payee thereof, or in such other manner as
Mortgagee may designate in writing. If requested by Mortgagee,
Mortgagor shall promptly furnish to Mortgagee all notices of
Impositions which become due, and in the event Mortgagor shall make
payment directly, Mortgagor shall promptly furnish to Mortgagee
receipts evidencing such payments. Mortgagor shall promptly discharge
any lien which has, or may have, priority over or equality with, the
lien of this Instrument. Without Mortgagee's prior written
permission, Mortgagor shall not allow any lien inferior to this
Instrument to be perfected against the Property. If any lien inferior
to this Instrument is filed against the Property without Mortgagee's
prior written permission and without the consent of Mortgagor,
Mortgagor shall, within sixty (60) days after receiving notice of the
filing of such lien, either (a) cause such lien to be released of
record and deliver evidence of such release to Mortgagee or (b)
deliver to Mortgagee a bond in form, in an amount and issued by a
surety acceptable to Mortgagee, and which bond operates to release
the Property from the claim evidenced by such lien.
5. INSURANCE. Mortgagor shall obtain and maintain the
following types of insurance upon and relating to the Property:
(a) "All Risk" property and fire insurance (with
extended coverage endorsement including malicious mischief and
vandalism) in an amount not less than the full replacement
value of the Property (with a deductible not to exceed $50,000
and with co-insurance limited to a maximum of 10% of the amount
of the policy), naming Mortgagee under a lender's loss payee
endorsement (form 438BFU or equivalent) and including agreed
amount, inflation guard, replacement cost and waiver of
subrogation endorsements;
(b) Comprehensive general liability insurance in an
amount not less than $2,000,000.00 insuring against personal
injury, death and property damage and naming Mortgagee as
additional insured;
(c) Business interruption insurance covering loss of
rental or other income (including all expenses payable by
tenants) for up to twelve (12) months; and
(d) Such other types of insurance or endorsements to
existing insurance as may be reasonably required from time to
time by Mortgagee.
Upon each reasonable request of Mortgagee, Mortgagor shall increase
the coverages under any of the insurance policies required to be maintained
hereunder or otherwise modify such policies in accordance with Mortgagee's
request. All of the insurance policies required hereunder shall be issued
by corporate insurers licensed to do business in the state in which the
Property is located and rated A:X or better by AM. Best Company, and shall
be in form acceptable to Mortgagee. If and to the extent that the Property
is located within an area that has been or is hereafter designated or
identified as an area having special flood hazards by the Department of
Housing and Urban Development or such other official as shall from time to
time be authorized by federal or state law to make such designation
pursuant to any national or state program of flood insurance, Mortgagor
shall carry flood insurance with respect to the Property in amounts not
less than the maximum limit of coverage then available with respect to the
Property or the amount of the Indebtedness, whichever is less. Certificates
of all insurance required to be maintained hereunder shall be delivered to
Mortgagee, along with evidence of payment in full of all premiums required
thereunder, contemporaneously with Mortgagor's execution of this
Instrument. All such certificates shall be in form acceptable to Mortgagee
and shall require the insurance company to give to Mortgagee at least
thirty (30) days' prior written notice before canceling the policy for any
reason or materially amending it. Certificates evidencing all renewal and
substitute policies of insurance shall be delivered to Mortgagee, along
with evidence of the payment in full of all premiums required thereunder,
at least fifteen (15) days before termination of the policies being renewed
or substituted. If any loss shall occur at any time after an Event of
Default occurs hereunder, Mortgagee shall be entitled to the benefit of all
insurance policies held or maintained by Mortgagor, to the same extent as
if same had been made payable to Mortgagee, and upon foreclosure hereunder,
Mortgagee shall become the owner thereof Mortgagee shall have the right,
but not the obligation, to make premium payments, at Mortgagor's expense,
to prevent any cancellation, endorsement, alteration or reissuance of any
policy of insurance maintained by Mortgagor, and such payments shall be
accepted by the insurer to prevent same.
If any act or occurrence of any kind or nature (including any
casualty for which insurance was not obtained or obtainable) shall result
in damage to or destruction of the Property (such event being called a
"Loss"), Mortgagor will give prompt written notice thereof to Mortgagee.
All insurance proceeds paid or payable in connection with any Loss shall be
paid to Mortgagee. If(i) no Event of Default has occurred and is continuing
hereunder, (ii) Mortgagor provides evidence satisfactory to Mortgagee of
its ability to pay all amounts becoming due under the Note during the
pendency of any restoration or repairs to or replacement of the Property,
(iii) the available insurance proceeds are, in Mortgagee's reasonable
judgment, sufficient to fully and completely restore, repair or replace the
Property and (iv) Mortgagor provides evidence satisfactory to Mortgagee
that none of the tenants of the Property will terminate their lease
agreements as a result of either the Loss or the repairs to or replacement
of the Property, Mortgagor shall have the right to apply all insurance
proceeds received in connection with such Loss either (a) to restore,
repair, replace and rebuild the Property as nearly as possible to its
value, condition and character immediately prior to such Loss, or (b) to
the payment of the Indebtedness in such order as Mortgagee may elect. If an
Event of Default has occurred and is continuing hereunder at the time of
such Loss, if Mortgagee determines that Mortgagor will be unable to pay all
amounts becoming due under the Note during the pendency of any restoration
or repairs to or replacement of the Property, if the available insurance
proceeds are insufficient, in Mortgagee's reasonable judgment, to fully and
completely restore, repair or replace the Property or if Mortgagee
reasonably believes that one or more tenants of the Property will terminate
their lease agreements as a result of either the Loss or the repairs to or
replacement of the Property, then all of the insurance proceeds payable
with respect to such Loss will be applied to the payment of the
Indebtedness, or if so instructed by Mortgagee, Mortgagor will promptly, at
Mortgagor's sole cost and expense and regardless of whether sufficient
insurance proceeds shall be available, commence to restore, repair, replace
and rebuild the Property as nearly as possible to its value, condition,
character immediately prior to such Loss. Mortgagor shall diligently
prosecute any restoration, repairs or replacement of the Property
undertaken by or on behalf of Mortgagor pursuant to this Section 5. All
such work shall be conducted pursuant to written contracts reasonably
approved by Mortgagee in writing. Notwithstanding anything contained herein
to the contrary, in the event the insurance proceeds received by Mortgagee
following any Loss are insufficient in Mortgagee's reasonable judgment to
fully and completely restore, repair or replace the Property, and if
Mortgagor has complied with all of the other conditions described in this
Section 5, Mortgagor may elect to restore, repair or replace the Property
if it first deposits with Mortgagee such additional sums as Mortgagee
determines are necessary in order to fully and completely restore, repair
or replace the Property. In the event any insurance proceeds remain
following the restoration, repair or replacement of the Property, such
proceeds shall be applied to the Indebtedness in such order as Mortgagee
may elect and any remaining balance shall be paid to Mortgagor.
6. PRESERVATION AND MAINTENANCE OF PROPERTY; LEASEHOLDS.
Mortgagor (a) shall not commit waste or permit impairment or
deterioration of the Property, (b) shall not abandon the Property,
(c) shall restore or repair promptly and in a good and workmanlike
manner all or any part of the Property to the equivalent of its
original condition, or such other condition as Mortgagee may approve
in writing, in the event of any damage, injury or loss thereto,
whether or not insurance proceeds are available to cover in whole or
in part the costs of such restoration or repair (subject to Mortgagee
making any insurance proceeds payable as a result of such damage,
injury or loss available for such restoration or repair), (d) shall
keep the Property, including all improvements, fixtures, equipment,
machinery and appliances thereon, in good repair and shall replace
fixtures, equipment, machinery and appliances on the Property when
necessary to keep such items in good repair, (e) shall comply with
all laws, ordinances, regulations and requirements of any
governmental body applicable to the Property, (f) if all or part of
the Property is for rent or lease, then Mortgagee, at its option
after the occurrence of an Event of Default, may require Mortgagor to
provide for professional management of the Property by a property
manager satisfactory to Mortgagee pursuant to a contract approved by
Mortgagee in writing, unless such requirement shall be waived by
Mortgagee in writing, and (g) shall give notice in writing to
Mortgagee of and, unless otherwise directed in writing by Mortgagee,
appear in and defend any action or proceeding purporting to affect
the Property, the security of this Instrument or the rights or powers
of Mortgagee hereunder. Neither Mortgagor nor any tenant or other
person, without the written approval of Mortgagee, shall remove,
demolish or alter any improvement now existing or hereafter erected
on the Property or any fixture, equipment, machinery or appliance in
or on the Property except when incident to the replacement of
fixtures, equipment, machinery and appliances with items of like
kind.
Mortgagor represents, warrants and covenants that the Property is and
shall be in compliance with the Americans with Disabilities Act of 1990 and
all of the regulations promulgated thereunder, as the same may be amended
from time to time.
7. USE OF PROPERTY. Unless required by applicable law or
unless Mortgagee has otherwise agreed in writing, Mortgagor shall not
allow changes in the use for which all or any part of the Property
was intended at the time this Instrument was executed. Mortgagor
shall not, without Mortgagee's prior written consent, (i) initiate or
acquiesce in a change in the zoning classification (including any
variance under any existing zoning ordinance applicable to the
Property), (ii) permit the use of the Property to become a non-
conforming use under applicable zoning ordinances, (iii) file any
subdivision or parcel map affecting the Property, or (iv) amend,
modify or consent to any easement or covenants, conditions and
restrictions pertaining to the Property.
8. PROTECTION OF MORTGAGEE'S SECURITY. If Mortgagor fails to
perform any of the covenants and agreements contained in this
Instrument, or if any action or proceeding is commenced which affects
the Property or title thereto or the interest of Mortgagee therein,
including, but not limited to, eminent domain, insolvency, code
enforcement, or arrangements or proceedings involving a bankrupt or
decedent, then Mortgagee at Mortgagee's option may make such
appearances, disburse such sums and take such action as Mortgagee
deems necessary, in its sole discretion, to protect Mortgagee's
interest, including, but not limited to, (i) disbursement of
attorneys' fees, (ii) entry upon the Property to make repairs, (iii)
procurement of satisfactory insurance as provided in Section 5
hereof, and (iv) if this Instrument is on a leasehold, exercise of
any option to renew or extend the ground lease on behalf of Mortgagor
and the curing of any default of Mortgagor in the terms and
conditions of the ground lease.
Any amounts disbursed by Mortgagee pursuant to this Section 8, with
interest thereon, shall become additional Indebtedness of Mortgagor secured
by this Instrument. Unless Mortgagor and Mortgagee agree to other terms of
payment, such amounts shall be immediately due and payable and shall bear
interest from the date of disbursement at the highest rate which may be
collected from Mortgagor under applicable law or, at Mortgagee's option,
the rate stated in the Note. Mortgagor hereby covenants and agrees that
Mortgagee shall be subrogated to the lien of any mortgage or other lien
discharged, in whole or in part, by the Indebtedness. Nothing contained in
this Section 8 shall require Mortgagee to incur any expense or take any
action hereunder.
9. INSPECTION. Mortgagee may make or cause to be made
reasonable entries upon the Property to inspect the interior and
exterior thereof at all reasonable times.
10. FINANCIAL DATA. Mortgagor will furnish to Mortgagee within
ninety (90) days after the close of each calendar year, (i) a balance
sheet and a profit and loss statement for the immediately preceding
calendar year prepared in accordance with generally accepted
accounting principles and practices consistently applied and, if
Mortgagee so requires after the occurrence of an Event of Default,
accompanied by the annual audit report of an independent certified
public accountant reasonably acceptable to Mortgagee, (ii) an
operating statement for the immediately preceding calendar year
together with a complete rent roll and other supporting data
reflecting all material information with respect to the operation of
the Property and Improvements during the period covered thereby, and
(iii) all other financial information and reports that Mortgagee
may from time to time reasonably request, including, if Mortgagee
so requires, income tax returns of Mortgagor and financial statements
of any tenant of the Property designated by Mortgagee.
11. CONDEMNATION. If the Property, or any part thereof, shall
be condemned for any reason, including, without limitation, fire or
earthquake damage, or otherwise taken for public or quasi-public use
under the power of eminent domain, or be transferred in lieu thereof,
all damages or other amounts awarded for the taking of, or injury to,
the Property shall be paid to Mortgagee, and Mortgagee shall have the
right, in its sole and absolute discretion, to apply the amounts so
received against (a) the costs and expenses of Mortgagee or Trustee,
including reasonable attorneys fees incurred in connection with
collection of such amounts, and (b) the balance against the
Indebtedness; provided, however, that if(i) no Event of Default shall
have occurred and be continuing hereunder, (ii) Mortgagor provides
evidence satisfactory to Mortgagee of its ability to pay all amounts
becoming due under the Note during the pendency of any restoration or
repairs to or replacement of the Property, (iii) Mortgagee
determines, in its sole discretion, that the proceeds of such award
are sufficient to restore, repair, replace and rebuild the Property
as nearly as possible to its value, condition and character
immediately prior to such taking (or, if the proceeds of such award
are insufficient for such purpose, if Mortgagor provides additional
sums to Mortgagee's satisfaction so that the aggregate of such sums
and the proceeds of such award will be sufficient for such purpose),
and (iv) Mortgagor provides evidence satisfactory to Mortgagee that,
as a result of either the condemnation or taking or the repairs to or
replacement of the Property, none of the tenants of the Property will
terminate their lease agreements, then the proceeds of such award,
together with additional sums provided by Mortgagor, shall be placed
in a separate account for the benefit of Mortgagee and Mortgagor to
be used to restore, repair, replace and rebuild the Property as
nearly as possible to its value, condition and character immediately
prior to such taking. All work to be performed in connection
therewith shall be pursuant to a written contract therefor, which
contract shall be subject to the prior approval of Mortgagee. To the
extent that any funds remain after the Property has been so restored
and repaired, the same shall be applied against the Indebtedness in
such order as Mortgagee may elect. To enforce its rights hereunder,
Mortgagee shall be entitled to participate in and control any
condemnation proceedings and to be represented therein by counsel of
its own choice, and Mortgagor will deliver, or cause to be delivered
to Mortgagee such instruments as may be requested by Mortgagee from
time to time to permit such participation. In the event Mortgagee, as
a result of any such judgment, decree or award, believes that the
payment or performance of any of the Indebtedness is or shall be
impaired, Mortgagee may declare all of the Indebtedness immediately
due and payable.
12. MORTGAGOR AND LIEN NOT RELEASED. From time to time,
Mortgagee may, at Mortgagee's option, without giving notice to or
obtaining the consent of Mortgagor, Mortgagor's successors or assigns
or of any junior lienholder, without liability on Mortgagee's part
and notwithstanding Mortgagor's breach of any covenant or agreement
of Mortgagor in this Instrument, extend the time for payment of the
Indebtedness or any part thereof, reduce the payments thereon,
release anyone liable on any of the Indebtedness, accept an extension
or modification or renewal note or notes therefor, modify the terms
and time of payment of the Indebtedness, release from the lien of
this Instrument any part of the Property, take or release other or
additional security, reconvey any part of the Property, consent to
any map or plan of the Property, consent to the granting of any
easement, join in any extension or subordination agreement, and agree
in writing with Mortgagor to modify the rate of interest or period of
amortization of the Note or decrease the amount of the monthly
installments payable thereunder. Any actions taken by Mortgagee
pursuant to the terms of this Section 12 shall not affect the
obligation of Mortgagor or Mortgagor's successors or assigns to pay
the sums secured by this Instrument and to observe the covenants of
Mortgagor contained herein and shall not affect the lien or priority
of the lien hereof on the Property. Mortgagor shall pay Mortgagee a
service charge, together with such title insurance premiums and
attorneys' fees as may be incurred at Mortgagee's option, for any
such action if taken at Mortgagor's request.
13. FORBEARANCE BY MORTGAGEE NOT A WAIVER. Any forbearance by
Mortgagee in exercising any right or remedy hereunder, or otherwise
afforded by applicable law, shall not be a waiver of or preclude the
exercise of any other right or remedy. The acceptance by Mortgagee of
payment of any sum secured by this Instrument after the due date of
such payment shall not be a waiver of Mortgagee's right to either
require prompt payment when due of all other sums so secured or to
declare a default for failure to make prompt payment. The procurement
of insurance or the payment of taxes or other liens or charges by
Mortgagee shall not be a waiver of Mortgagee's right to accelerate
the maturity of the Indebtedness secured by this Instrument, nor
shall Mortgagee's receipt of any awards, proceeds or damages under
Sections 5 and 11 hereof operate to cure or waive Mortgagor's default
in payment of sums secured by this Instrument.
14. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This
Instrument is intended to be a security agreement pursuant to the
Uniform Commercial Code for any of the items specified above as part
of the Property which, under applicable law, may be subject to a
security interest pursuant to the Uniform Commercial Code, and
Mortgagor hereby grants and conveys to Mortgagee a first and prior
security interest in all of the Property that constitutes personalty,
whether now owned or hereafter acquired. Mortgagor agrees that
Mortgagee may file this Instrument, or a reproduction thereof, in the
real estate records or other appropriate index, as a financing
statement for any of the items specified above as part of the
Property. Any reproduction of this Instrument or of any other
security agreement or financing statement shall be sufficient as a
financing statement. In addition, Mortgagor agrees to execute and
deliver to Mortgagee, upon Mortgagee's request, any financing
statements, as well as extensions, renewals and amendments thereof,
and reproductions of this Instrument in such form as Mortgagee may
require to perfect a security interest with respect to the foregoing
items. Mortgagor shall pay all costs of filing such financing
statements and any extensions, renewals, amendments and releases
thereof, and shall pay all costs and expenses of any record searches
for financing statements Mortgagee may require. Without the prior
written consent of Mortgagee, Mortgagor shall not create or suffer to
be created pursuant to the Uniform Commercial Code any other security
interest in said items, including replacements and additions thereto.
Upon Mortgagor's breach of any covenant or agreement of Mortgagor
contained in this Instrument, including the covenants to pay when due
all sums secured by this Instrument, Mortgagee shall have the
remedies of a secured party under the Uniform Commercial Code, and
Mortgagee may also invoke the remedies provided in Section 26 of this
Instrument as to such items. In exercising any of said remedies
Mortgagee may proceed against the items of real property and any
items of personal property specified above separately or together and
in any order whatsoever, without in any way affecting the
availability of Mortgagee's remedies under the Uniform Commercial
Code or of the remedies provided in Section 26 of this Instrument.
Within ten (10) days following any request therefor by Mortgagee,
Mortgagor shall prepare and deliver to Mortgagee a written inventory
specifically listing all of the personal property covered by the
security interest herein granted, which inventory shall be certified
by Mortgagor as being true, correct, and complete.
15. LEASES OF THE PROPERTY. As used in this Section 15, the
word "Lease" shall include subleases if this Instrument is on a
leasehold and shall also include the lease. Mortgagor shall comply
with and observe Mortgagor's obligations as landlord under all Leases
of the Property or any part thereof All Leases now or hereafter
entered into will be in form and substance subject to the approval of
Mortgagee. All Leases of the Property shall specifically provide that
such Leases are subordinate to this Instrument; that the tenant
attorns to Mortgagee, such attornment to be effective upon
Mortgagee's acquisition of title to the Property; that the tenant
agrees to execute such further evidences of attornment as Mortgagee
may from time to time request; that the attornment of the tenant
shall not be terminated by foreclosure; and that Mortgagee may, at
Mortgagee's option, accept or reject such attornments. Mortgagor
shall not, without Mortgagee's written consent, request or consent to
the subordination of any Lease of all or any part of the Property to
any lien subordinate to this Instrument. If Mortgagor becomes aware
that any tenant proposes to do, or is doing, any act or thing which
may give rise to any right of set-off against rent, Mortgagor shall
(i) take such steps as shall be reasonably calculated to prevent the
accrual of any right to a set-off against rent, (ii) immediately
notify Mortgagee thereof in writing and of the amount of said set-
offs, and (iii) within ten (10) days after such accrual, reimburse
the tenant who shall have acquired such right to set-off or take such
other steps as shall effectively discharge such setoff and as shall
assure that rents thereafter due shall continue to be payable without
set-off or deduction. Upon Mortgagee's receipt of notice of the
occurrence of any default or violation by Mortgagor of any of its
obligations under the Leases, Mortgagee shall have the immediate
right, but not the duty or obligation, without prior written notice
to Mortgagor or to any third party, to enter upon the Property and to
take such actions as Mortgagee may deem necessary to cure the default
or violation by Mortgagor under the Leases. The reasonable, out-of-
pocket costs incurred by Mortgagee in taking any such actions
pursuant to this paragraph shall become part of the Indebtedness,
shall bear interest at the rate provided in the Note, and shall be
payable by Mortgagor to Mortgagee on demand Mortgagee shall have no
liability to Mortgagor or to any third party for any actions taken by
Mortgagee or not taken pursuant to this paragraph.
16. REMEDIES CUMULATIVE. Each remedy provided in this
Instrument is distinct and cumulative to all other rights or remedies
under this Instrument or afforded by law or equity, and may be
exercised concurrently, independently, or successively, in any order
whatsoever.
17. TRANSFERS OF THE PROPERTY OR BENEFICIAL INTERESTS IN
MORTGAGOR; ASSUMPTION. Mortgagee may, at its option, declare all sums
secured by this Instrument to be immediately due and payable, and
Mortgagee may invoke any remedies permitted by Section 26 of this
Instrument, if title to the Property is changed without the prior
written consent of Mortgagee, which consent shall be at Mortgagee's
sole discretion. Any transfer of any interest in the Property or in
the income therefrom, by sale, lease (except for leases to tenants in
the ordinary course of managing income producing property which are
approved by Mortgagee pursuant to Section 15 of this Instrument),
contract, mortgage, deed of trust, further encumbrance or otherwise
(including any such transfers as security for additional financing of
the Property), and any change in or transfer, assignment,
hypothecation or pledge of any of the ownership interests in
Mortgagor (including any change in or transfer, assignment,
hypothecation or pledge of any of the ownership interests of any
legal entities which comprise or control Mortgagor), except transfers
and changes in ownership by devise or descent, shall be considered a
change of title. Mortgagee shall have the right to condition its
consent to any proposed sale or transfer described in this Section 17
upon, among other things, Mortgagee's approval of the transferee's
creditworthiness and management ability, and the transferee's
execution, prior to the sale or transfer, of a written assumption
agreement containing such terms as Mortgagee may require, including,
if required by Mortgagee, the imposition of a transfer fee of one
percent (1%) of the then outstanding balance of the Indebtedness.
Consent by Mortgagee to one transfer of the Property shall not
constitute consent to subsequent transfers or waiver of the
provisions of this Section 17. No transfer by Mortgagor shall relieve
Mortgagor of liability for payment of the Indebtedness.
18. NOTICE. Except for any notice required under applicable
law to be given in another manner, any and all notices, elections,
demands, or requests permitted or required to be made under this
Instrument or under the Note shall be in writing, signed by the party
giving such notice, election, demand or request, and shall be
delivered personally, or sent by registered, certified, or Express
United States mail, postage prepaid, or by Federal Express or similar
service requiring a receipt, to the other party at the address stated
above, or to such other party and at such other address within the
United States of America as any party may designate in writing as
provided herein. The date of receipt of such notice, election, demand
or request shall be the earliest of(i) the date of actual receipt,
(ii) one (1) business day after the date of mailing by Express Mail
or the delivery (for redelivery) to Federal Express or another
similar nationally recognized service requiring a receipt (if sent
for overnight, next day delivery), or (iii) the date of personal
delivery (or refusal upon presentation for delivery).
19. SUCCESSORS AND ASSIGNS BOUND; JOINT AND SEVERAL LIABILITY;
AGENTS; CAPTIONS. The covenants and agreements herein contained shall
bind, and the rights hereunder shall inure to, the respective heirs,
successors and assigns of Mortgagee and Mortgagor, subject to the
provisions of Section 17 hereof In exercising any rights hereunder or
taking any actions provided for herein, Mortgagee may act through its
employees, agents or independent contractors as authorized by
Mortgagee. The captions and headings of the sections of this
Instrument are for convenience only and are not to be used to
interpret or define the provisions hereof.
20. WAIVER OF STATUTE OF LIMITATIONS. Mortgagor hereby waives
the right to assert any statute of limitations as a bar to the
enforcement of the lien of this Instrument or to any action brought
to enforce the Note or any other obligation secured by this
Instrument.
21. WAIVER OF MARSHALING. Notwithstanding the existence of any
other security interests in the Property held by Mortgagee or by any
other party, Mortgagee shall have the right to determine the order in
which any or all of the Property shall be subjected to the remedies
provided herein. Mortgagee shall have the right to determine the
order in which any or all portions of the Indebtedness secured hereby
are satisfied from the proceeds realized upon the exercise of the
remedies provided herein. Mortgagor, any party who consents to this
Instrument and any party who now or hereafter acquires a security
interest in the Property and who has actual or constructive notice
hereof hereby waives any and all right to require the marshaling of
assets in connection with the exercise of any of the remedies
permitted by applicable law or provided herein.
22. HAZARDOUS WASTE. Mortgagor has furnished to Mortgagee an
Environmental Site Assessment Relative to the Release of Oil or
Hazardous Materials dated November 17, 2000, prepared by Gale
Associates, Inc. and an undated Environmental Questionnaire
(collectively, the "Report"). Except as disclosed to Mortgagee in the
Report, Mortgagor has received no notification of any kind suggesting
that the Property or any adjacent property is or may be contaminated
with any hazardous waste or materials or is or may be required to be
cleaned up in accordance with any applicable law or regulation; and
Mortgagor further represents and warrants that, except as previously
disclosed to Mortgagee in writing, to the best of its knowledge as of
the date hereof, there are no hazardous waste or materials located
in, on or under the Property or any adjacent property or incorporated
in any Improvements, nor has the Property or any adjacent property
ever been used as a landfill or a waste disposal site, or a
manufacturing, handling, storage, distribution or disposal facility
for hazardous waste or materials. As used herein, the term "hazardous
waste or materials" includes any substance or material defined in or
designated as hazardous or toxic wastes, hazardous or toxic material,
a hazardous, toxic or radioactive substance, or other similar term,
by any federal, state or local statute, regulation or ordinance now
or hereafter in effect. Mortgagor shall promptly comply with all
statutes, regulations and ordinances, and with all orders, decrees or
judgments of governmental authorities or courts having jurisdiction,
relating to the use, collection, treatment, disposal, storage,
control, removal or cleanup of hazardous waste or materials in, on or
under the Property or any adjacent property, or incorporated in any
Improvements, at Mortgagor's expense. In the event that Mortgagee at
any time has a reasonable belief that hazardous waste or materials at
levels requiring reporting and/or remediation under applicable laws
are present on the Property, or that Mortgagor has violated any
applicable environmental law with respect to the Property, then
promptly upon request by Mortgagee, Mortgagor shall obtain and
furnish to Mortgagee, at Mortgagors sole cost and expense, an
environmental audit and inspection of the Property from an expert
satisfactory to Mortgagee. In the event that Mortgagor fails to
promptly obtain such audit or inspection, Mortgagee or its agents may
perform or obtain such audit or inspection at Mortgagor's sole cost
and expense. Following the occurrence of an Event of Default,
Mortgagee may, but is not obligated to, enter upon the Property and
take such actions and incur such costs and expenses to effect such
compliance as it deems advisable to protect its interest in the
Property; and whether or not Mortgagor has actual knowledge of the
existence of hazardous waste or materials on the Property or any
adjacent property as of the date hereof, Mortgagor shall reimburse
Mortgagee as provided in Section 23 below for the full amount of all
reasonable, out-of-pocket costs and expenses incurred by Mortgagee
prior to Mortgagee acquiring title to the Property through
foreclosure or acceptance of a deed in lieu of foreclosure, in
connection with such compliance activities. Neither this provision
nor any of the other Loan Documents shall operate to put Mortgagee in
the position of an owner of the Property prior to any acquisition of
the Property by Mortgagee. The rights granted to Mortgagee herein and
in the other Loan Documents are granted solely for the protection of
Mortgagee's lien and security interest covering the Property, and do
not grant to Mortgagee the right to control Mortgagor's actions,
decisions or policies regarding hazardous waste or materials.
23. ADVANCES, COSTS AND EXPENSES. Mortgagor shall pay within
ten (10) days after written demand from Mortgagee all sums advanced
by Mortgagee and all costs and expenses incurred by Mortgagee in
taking any actions pursuant to the Loan Documents including
attorneys' fees and disbursements, reasonable accountants' fees,
reasonable appraisal and inspection fees and the costs for title
reports together with interest thereon at the rate applicable under
the Note after an Event of Default from the date such costs were
advanced or incurred. All such costs and expenses incurred by
Mortgagee, and advances made, shall constitute advances under this
Instrument to protect the Property and shall be secured by and have
the same priority as the lien of this Instrument. If Mortgagor fails
to pay any such advances, costs and expenses and interest thereon,
Mortgagee may apply any undisbursed loan proceeds to pay the same,
and, without foreclosing the lien of this Instrument, may at its
option commence an independent action against Mortgagor for the
recovery of the costs, expenses and/or advances, with interest,
together with costs of suit, costs of title reports and guaranty of
title, disbursements of counsel and reasonable attorneys' fees
incurred therein or in any appeal therefrom.
24. ASSIGNMENT OF LEASES AND RENTS. Mortgagor, for good and
valuable consideration, the receipt of which is hereby acknowledged,
to secure the Indebtedness, does hereby absolutely and
unconditionally grant, bargain, sell, transfer, assign, convey, set
over and deliver unto Mortgagee all right, title and interest of
Mortgagor in, to and under the Leases of the Property, whether now in
existence or hereafter entered into, and all guaranties, amendments,
extensions and renewals of said Leases and any of them, and all
rents, income and profits which may now or hereafter be or become due
or owing under the Leases, and any of them, or on account of the use
of the Property.
Mortgagor represents, warrants, covenants and agrees with Mortgagee
as follows:
(a) The sole ownership of the entire lessor's interest in the
Leases is vested in Mortgagor, and Mortgagor has not, and shall not,
perform any acts or execute any other instruments which might prevent
Mortgagee from fully exercising its rights with respect to the Leases
under any of the terms, covenants and conditions of this Instrument.
(b) The Leases are and shall be valid and enforceable in
accordance with their terms and have not been and shall not be
altered, modified, amended, terminated, canceled, renewed or
surrendered except as approved in writing by Mortgagee. The terms and
conditions of the Leases have not been and shall not be waived in any
manner whatsoever except as approved in writing by Mortgagee.
(c) Mortgagor shall not materially alter the term or the
amount of rent payable under any Lease without prior written notice
to Mortgagee and Mortgagee's consent, which shall not be unreasonably
withheld.
(d) To the best of Mortgagor's knowledge, there are no
defaults now existing under any of the Leases and there exists no
state of facts which, with the giving of notice or lapse of time or
both, would constitute a default under any of the Leases.
(e) Mortgagor shall give prompt written notice to Mortgagee of
any notice received by Mortgagor claiming that a default has occurred
under any of the Leases on the part of Mortgagor, together with a
complete copy of any such notice.
(f) Each of the Leases shall remain in full force and effect
irrespective of any merger of the interest of lessor and any lessee
under any of the leases.
(g) Mortgagor will not permit any Lease to become subordinate
to any lien other than the lien of this Instrument.
(h) Mortgagor shall not permit or consent to the assignment by
any tenant of its rights under its Lease without the prior written
consent of Mortgagee. Without limitation of the foregoing, Mortgagor
shall not permit or consent to the filing of any encumbrance against
the tenant's interest under any Lease including, without limitation,
any leasehold mortgage.
This assignment is absolute, is effective immediately, and is
irrevocable by Mortgagor so long as the Indebtedness remains outstanding.
Notwithstanding the foregoing, until a Notice is sent to Mortgagor in
writing that an Event of Default has occurred (which notice is hereafter
called a "Notice"), Mortgagor may receive, collect and enjoy the rents,
income and profits accruing from the Property.
Upon the occurrence of an Event of Default hereunder, Mortgagee may,
at its option, after service of a Notice, receive and collect all such
rents, income and profits from the Property as they become due. Mortgagee
shall thereafter continue to receive and collect all such rents, income and
profits, as long as such default or defaults shall exist, and during the
pendency of any foreclosure proceedings.
Mortgagor hereby irrevocably appoints Mortgagee its true and lawful
attorney with power of substitution and with full power for Mortgagee in
its own name and capacity or in the name and capacity of Mortgagor, from
and after service of a Notice, to demand, collect, receive and give
complete acquittances for any and all rents, income and profits accruing
from the Property, either in its own name or in the name of Mortgagor or
otherwise, which Mortgagee may deem necessary or desirable in order to
collect and enforce the payment of the rents, income and profits of and
from the Property. Lessees of the Property are hereby expressly authorized
and directed, following receipt of a Notice from Mortgagee, to pay any and
all amounts due Mortgagor pursuant to the Leases to Mortgagee or such
nominee as Mortgagee may designate in a writing delivered to and received
by such lessees, and the lessees of the Property are expressly relieved of
any and all duty, liability or obligation to Mortgagor in respect of all
payments so made.
Upon the occurrence of any Event of Default, from and after service
of a Notice, Mortgagee is hereby vested with full power to use all
measures, legal and equitable, deemed by it to be necessary or proper to
enforce this Section 24 and to collect the rents, income and profits
assigned hereunder, including the right of Mortgagee or its designee, to
enter upon the Property, or any part thereof, and take possession of all or
any part of the Property together with all personal property, fixtures,
documents, books, records, papers and accounts of Mortgagor relating
thereto, and Mortgagee may exclude Mortgagor, its agents and servants,
wholly therefrom. Mortgagor hereby grants full power and authority to
Mortgagee to exercise all rights, privileges and powers herein granted at
any and all times after service of a Notice, with full power to use and
apply all of the rents and other income herein assigned to the payment of
the costs of managing and operating the Property and of any indebtedness or
liability of Mortgagor to Mortgagee, including but not limited to the
payment of taxes, special assessments, insurance premiums, damage claims,
the costs of maintaining, repairing, rebuilding and restoring the
improvements on the Property or of making the same rentable, reasonable
attorneys' fees incurred in connection with the enforcement of this
Instrument, and of principal and interest payments due from Mortgagor to
Mortgagee on the Note and this Instrument, all in such order as Mortgagee
may determine. Mortgagee shall be under no obligation to exercise or
prosecute any of the rights or claims assigned to it hereunder or to
perform or carry out any of the obligations of the lessor under any of the
Leases and does not assume any of the liabilities in connection with or
arising or growing out of the covenants and agreements of Mortgagor in the
Leases. It is further understood that the assignment set forth in this
Section 24 shall not operate to place responsibility for the control, care,
management or repair of the Property, or parts thereof, upon Mortgagee, nor
shall it operate to make Mortgagee liable for the performance of any of the
terms and conditions of any of the Leases, or for any waste of the Property
by any lessee under any of the Leases, or any other person, or for any
dangerous or defective condition of the Property or for any negligence in
the management, upkeep, repair or control of the Property resulting in loss
or injury or death to any lessee, licensee, employee or stranger.
Notwithstanding anything contained herein to the contrary, in no
event shall this Instrument be deemed to reduce the indebtedness evidenced
by the Note by an amount in excess of the actual amount of cash received by
Mortgagee under the Leases, whether before, during or after the occurrence
of an Event of Default, and Mortgagor acknowledges that in no event shall
the Indebtedness be reduced by the value from time to time of the rents,
income and profits of or from the Property. In addition, Mortgagee reserves
the right, at any time, whether before or after the occurrence of an Event
of Default, to recharacterize the assignment in this Section 24 as merely
constituting security for the Indebtedness, which recharacterization shall
be made by written notice delivered to Mortgagor.
25. DEFAULT. The following shall each constitute an event of
default ("Event of Default"):
(a) Failure of or refusal by Mortgagor to pay any
portion of the sums secured by this Instrument when due and the
continuance of such failure for a period often (10) days after
Mortgagee delivers written notice thereof to Mortgagor; or
(b) Failure of Mortgagor within the time required by
this Instrument to make any payment for taxes, insurance or for
reserves for such payments, or any other payment necessary to
prevent filing of or discharge of any lien and the continuance
of such failure for a period often (10) days after Mortgagee
delivers written notice thereof to Mortgagor; or
(c) Failure by Mortgagor to observe or perform any of
its obligations under any of the Leases; or
(d) The Property or any part or interest in the Property
is transferred in any maimer whatsoever without the prior
written consent of Mortgagee; or
(e) If any lease agreement covering all or any portion
of the Property is executed by Mortgagor without such execution
being conditioned on Mortgagee's written consent; or
(f) Filing by Mortgagor of a voluntary petition in
bankruptcy or filing by Mortgagor of any petition or answer
seeking or acquiescing in any reorganization, arrangement,
composition, readjustment, liquidation, or similar relief for
itself under any present or future federal, state or other
statute, law or regulation relating to bankruptcy, insolvency
or other relief for debtors, or the seeking, consenting to, or
acquiescing by Mortgagor in the appointment of any trustee,
receiver, custodian, conservator or liquidator for Mortgagor,
any part of the Property, or any of the income or rents of the
Property, or the making by Mortgagor of any general assignment
for the benefit of creditors, or the inability of or-failure by
Mortgagor to pay its debts generally as they become due, or the
insolvency on a balance sheet basis or business failure of
Mortgagor, or the making or suffering of a preference within
the meaning of federal bankruptcy law or the making of a
fraudulent transfer under applicable federal or state law, or
concealment by Mortgagor of any of its property in fraud of
creditors, or the imposition of a lien upon any of the property
of Mortgagor which is not discharged or bonded in the manner
permitted by Section 4 of this Instrument, or the giving of
notice by Mortgagor to any governmental body of insolvency or
suspension of operations; or
(g) Filing of a petition against Mortgagor seeking any
reorganization, arrangement, composition, readjustment,
liquidation, or similar relief under any present or future
federal, state or other law or regulation relating to
bankruptcy, insolvency or other relief for debts, or the
appointment of any trustee, receiver, custodian, conservator or
liquidator of Mortgagor, of any part of the Property or of any
of the income or rents of the Property, unless such petition
shall be dismissed within sixty (60) days after such filing,
but in any event prior to the entry of an order, judgment or
decree approving such petition; or
(h) The institution of any proceeding for the
dissolution or termination of Mortgagor voluntarily,
involuntarily, or by operation of law, unless, with respect to
an involuntary proceeding, the same is dismissed within sixty
(60) days after the date of its filing; or
(i) A material adverse change occurs in the assets,
liabilities or net worth of Mortgagor or any of the guarantors
of the indebtedness evidenced by the Note from the assets,
liabilities or net worth of Mortgagor or any of the guarantors
of the indebtedness evidenced by the Note previously disclosed
to Mortgagee with the result that Mortgagor's ability to
perform its obligations hereunder is materially impaired; or
(j) Any material warranty, representation or statement
furnished to Mortgagee by or on behalf of Mortgagor under the
Note, this Instrument, any of the other Loan Documents or the
Certificate and Indemnity Agreement Regarding Hazardous
Substances, shall prove to have been false or misleading in any
material respect and, if such false or misleading warranty,
representation or statement was not intentionally false or
misleading and can be cured by Mortgagor, if Mortgagor fails to
cure the same to the satisfaction of Mortgagee within thirty
(30) days after written notice thereof is delivered to
Mortgagor; or
(k) Failure of Mortgagor to observe or perform any other
covenant, condition or obligation under this Instrument when
such observance or performance is due, and such failure shall
continue for thirty (30) days after written notice thereof is
delivered to Mortgagor; provided, however, that if any such
failure cannot be cured by Mortgagor within thirty (30) days,
Mortgagor shall have an additional period of sixty (60) days to
cure such failure if Mortgagor promptly commences efforts to
cure such failure and diligently pursues such efforts to
completion; or
(l) The occurrence of any default (beyond the expiration
of any applicable cure period) under any of the documents
evidencing and/or securing any other indebtedness now or
hereafter owed to Mortgagee by Mortgagor, any of the guarantors
of the Note or any entity related to Mortgagor.
26. RIGHTS AND REMEDIES ON DEFAULT.
Upon the occurrence of any Event of Default and at any time
thereafter, Mortgagee may exercise any one or more of the following rights
and remedies:
(a) Mortgagee may declare the entire Indebtedness, including
the then unpaid principal balance on the Note, the accrued but unpaid
interest thereon, court costs and attorney's fees hereunder
immediately due and payable, without notice, presentment, protest,
demand or action of any nature whatsoever (each of which hereby is
expressly waived by Mortgagor), whereupon the same shall become
immediately due and payable. Additionally, Mortgagee shall not be
required to make any further advances on the Note or other Loan
Documents upon the occurrence of an Event of Default or an event
which, with the giving of notice or passing of time, would constitute
an Event of Default.
(b) Mortgagee may enter upon the Property and take exclusive
possession thereof and of all books, records and accounts relating
thereto without notice and without being guilty of trespass, and
hold, lease, manage, operate or otherwise use or permit the use
of the Property, either itself or by other persons, firms or
entities, in such manner, for such time and upon such other terms as
Mortgagee may deem to be prudent and reasonable under the
circumstances (making such repairs, alterations, additions and
improvements thereto and taking any and all other action with
reference thereto, from time to time, as Mortgagee shall deem
necessary or desirable), and apply all rents and other amounts
collected by Mortgagee in connection therewith in accordance with the
provisions of subsection (h) of this Section 26. Mortgagor hereby
irrevocably appoints Mortgagee as the agent and attorney-in-fact of
Mortgagor, with full power of substitution, and in the name of
Mortgagor, if Mortgagee elects to do so, to (i) endorse the name of
Mortgagor on any checks or drafts representing proceeds of the
insurance policies, or other checks or instruments payable to
Mortgagor with respect to the Property, (ii) prosecute or defend any
action or proceeding incident to the Property, and (iii) take any
action with respect to the Property that Mortgagee may at any time
and from time to time deem necessary or appropriate. Mortgagee shall
have no obligation to undertake any of the foregoing actions, and if
Mortgagee should do so, it shall have no liability to Mortgagor for
the sufficiency or adequacy of any such actions taken by Mortgagee.
(c) Mortgagee may foreclose this Instrument in the manner
permitted by the laws of the Commonwealth of Massachusetts.
(d) Mortgagee may sell or offer for sale the Property in such
manner as permitted or required by the statutes of the Commonwealth
of Massachusetts relating to the sale of real estate or by the
Uniform Commercial Code relating to the sale of collateral after
default by a debtor, or by any other present or subsequent enactments
relating to the same. Such sales shall be made in accordance with the
requirements therefor of the laws of the Commonwealth of
Massachusetts, including, to the extent there relevant, the version
of the Uniform Commercial Code adopted by the Commonwealth of
Massachusetts. Nothing contained in this paragraph shall be construed
to limit in any way Mortgagee's right to sell the Property by private
sale if, and to the extent that such private sale is permitted under
the laws of the Commonwealth of Massachusetts or by public or private
sale after entry of a judgment by any court of competent jurisdiction
ordering same. At any such sale:
A. whether made under any legal requirement or by virtue
of any judicial proceedings or any other legal right, remedy or
recourse, it shall not be necessary for Mortgagee to have
physically present. or to have constructive possession of, the
Property (Mortgagor shall deliver to Mortgagee any portion of
the Property not actually or constructively possessed by
Mortgagee immediately upon demand by Mortgagee) and the title
to and right of possession of any such property shall pass to
the purchaser thereof as completely as if the same had been
actually present and delivered to purchaser at such sale;
B. to the fullest extent permitted by law, Mortgagor
shall be completely and irrevocably divested of all of its
right, title, interest, claim and demand whatsoever, either at
law or in equity, in and to the property sold, and such sale
shall be a perpetual bar, both at law and in equity, against
Mortgagor and against all other persons claiming or to claim
the property sold or to any part thereof by, through or under
Mortgagor; and
C. to the extent and under such circumstances as are
permitted by law, Mortgagee may be a purchaser at any such
sale.
(e) After sale of the Property, or any portion thereof,
Mortgagor will be divested of any and all interest and claim thereto,
including any interest or claim to all insurance policies, bonds,
loan commitments and other intangible property covered hereby.
Additionally, Mortgagor will be considered a tenant at sufferance of
the purchaser of the Property, and said purchaser shall be entitled
to immediate possession thereof, and if Mortgagor shall fail to
vacate the Property immediately, the purchaser may and shall have
the right, without further notice to Mortgagor, to go into any
justice court in any precinct or county in which the Property is
located and file an action in forcible entry and detainer, which
action shall lie against Mortgagor or its assigns or legal
representatives, as a tenant at sufferance. This remedy is cumulative
of any and all remedies the purchaser may have hereunder or
otherwise.
(f) (i) Upon, or at any time after, commencement of
foreclosure of the lien and security interest provided for herein or
any legal proceedings hereunder, Mortgagee may make application to a
court of competent jurisdiction, as a matter of strict right and
without notice to Mortgagor or regard to the adequacy of the Property
for the repayment of the Indebtedness, for appointment of a receiver
of the Property, and Mortgagor does hereby irrevocably consent to
such appointment. Any such receiver shall have all the usual powers
and duties of receivers in similar cases, including the full power to
rent, maintain and otherwise operate the Property upon such terms as
may be approved by the court, and shall apply such Rents in
accordance with the provisions of subsection (h) of this Section 26.
(ii) Mortgagee may exercise any and all other rights,
remedies and recourses granted under the Loan Documents or now
or hereafter existing in equity, at law, by virtue of statute
or otherwise.
(g) Mortgagee shall have all rights, remedies and recourses
granted in the Loan Documents and available at law or equity and the
same (i) shall be cumulative and concurrent; (ii) may be pursued
separately, successively or concurrently against Mortgagor, any
guarantor of the Indebtedness or others obligated under the Note, or
against the Property, or against any of them at the sole discretion
of Mortgagee, (iii) may be exercised as often as occasion therefor
shall arise, it being agreed by Mortgagor that the exercise or
failure to exercise any of the same shall in no event be construed as
a waiver or release thereof or of any other right, remedy or
recourse; and (iv) are intended to be, and shall be, nonexclusive.
(h) To the fullest extent permitted by law, Mortgagor hereby
irrevocably and unconditionally waives and releases (i) all benefits
that might accrue to Mortgagor by any present or future laws
exempting the Property from attachment, levy or sale on execution or
providing for any appraisement, valuation, stay of execution,
exemption from civil process, redemption or extension of time for
payment; (ii) all notices of any Event of Default (except as may be
specifically provided for under the terms hereof), presentment,
demand, notice of intent to accelerate, notice of acceleration and
any other notice of Mortgagee's election to exercise or the actual
exercise of any right, remedy or recourse provided for under the Loan
Documents; (iii) any right to appraisal or marshaling of assets or a
sale in inverse order of alienation; (iv) the exemption of homestead;
and (v) the administration of estates of decedents, or other matter
to defeat, reduce or affect the right of Mortgagee under the terms
of this Instrument to sell the Property for the collection of the
Indebtedness secured hereby (without any prior or different resort
for collection) or the right of Mortgagee, under the terms of this
Instrument, to receive the payment of the Indebtedness out of the
proceeds of sale of the Property in preference to every other person
and claimant whatever (only reasonable expenses of such sale being
first deducted).
(i) The proceeds of any sale of, and the rents, profits and
other income generated by the holding, leasing, operating or other
use of the Property, shall be applied by Mortgagee (or the receiver,
if one is appointed) to the extent that funds are so available
therefrom in the following orders of priority: (i) first, to the
payment of the reasonable out-of-pocket costs and expenses of taking
possession of the Property and of holding, using, leasing,
maintaining, repairing, improving and selling the same, including,
without limitation, (A) receiver's fees; (B) costs of advertisement;
(C) attorneys' and accountants' fees; and (D) court costs; if any;
(ii) second, to the payment of all amounts, other than the principal
amount and accrued but unpaid interest on the Note which may be due
to Mortgagee under the Loan Documents, including all Indebtedness,
together with interest thereon as provided therein, in such order and
manner as Mortgagee may determine; (iii) third, to the payment of the
principal amount outstanding on the Note in such order and manner as
Mortgagee may determine and all other Indebtedness; (iv) fourth, to
the payment of all accrued but unpaid interest due on the Note in
such order and manner as Mortgagee may determine; and (v) fifth, to
Mortgagor. Mortgagor, and any other party liable on the Indebtedness
shall be liable for any deficiency remaining in the Indebtedness
subsequent to any sale referenced in this subsection (i).
(j) Mortgagee shall have the right to become the purchaser at
any sale of the Property hereunder and shall have the right to be
credited on the amount of its bid therefor all of the Indebtedness
due and owing as of the date of such sale.
(k) If Mortgagee shall accelerate the Indebtedness following
the occurrence of an Event of Default, any payments received by
Mortgagee following such acceleration, whether as the result of
voluntary payments made by Mortgagor or as a result of the sale of
the Property by Mortgagee shall be deemed voluntary prepayments of
the Note and accordingly, the prepayment fee required under the Note
shall also be payable, subject to the terms of the Note.
(l) The purchaser at any trustee's or foreclosure sale
hereunder may disaffirm any easement granted, or rental, lease or
other contract made in violation of any provisions of this Instrument
and may take immediate possession of the Property free from, and
despite the terms of, any such grant of easement, rental, lease or
other contract.
27. RECONVEYANCE. Upon payment of all sums secured by this
Instrument, Mortgagee shall reconvey the Property and shall surrender
this Instrument and all notes evidencing Indebtedness secured by this
Instrument to the person legally entitled thereto. Such person or
persons shall pay Mortgagee's costs incurred in so reconveying the
Property.
28. USE OF PROPERTY. The Property is not currently used for
agricultural, farming, timber or grazing purposes. Mortgagor warrants
that this Instrument is and will at all times constitute a commercial
mortgage, as defined under appropriate state law.
29. FUTURE ADVANCES. Upon request of Mortgagor, Mortgagee, at
Mortgagee's option so long as this Instrument secures Indebtedness
held by Mortgagee, may make Future Advances to Mortgagor. Such Future
Advances, with interest thereon, shall be secured by this Instrument
when evidenced by promissory notes stating that said notes are
secured hereby.
30. IMPOSITION OF TAX BY STATE.
A. State Taxes Covered. The following constitute state taxes
to which this Section applies:
(i) A specific tax upon trust deeds or upon all or any
part of the indebtedness secured by a trust deed.
(ii) A specific tax on a grantor which the taxpayer is
authorized or required to deduct from payments on the
indebtedness secured by a trust deed.
(iii) A tax on a trust deed chargeable against the
beneficiary or the holder of the note secured.
B. Remedies. If any state ta.xto which this Section applies is
enacted subsequent to the date of this Instrument, this shall have
the same effect as an Event of Default, and Mortgagee may exercise
any or all of the remedies available to it unless the following
conditions are met:
(i) Mortgagor may lawfully pay the tax or charge imposed
by state tax, and
(ii) Mortgagor pays the tax or charge within thirty (30)
days after notice from Mortgagee that the tax law has been
enacted
31. ATTORNEYS' FEES. In the event suit or action is instituted
to enforce or interpret any of the terms of this Instrument
(including without limitation efforts to modify or vacate any
automatic stay or injunction), the prevailing party shall be entitled
to recover all expenses reasonably incurred at, before and after
trial and on appeal whether or not taxable as costs, or in any
bankruptcy proceeding including, without limitation, attorneys' fees,
witness fees (expert and otherwise), deposition costs, copying
charges and other expenses. Whether or not any court action is
involved, all reasonable expenses, including but not limited to the
costs of searching records, obtaining title reports, surveyor
reports, title insurance and attorney fees, incurred by Mortgagee
that are necessary at any time in Mortgagee's opinion for the
protection of its interest or enforcement of its rights shall become
a part of the Indebtedness payable on demand and shall bear interest
from the date of expenditure until repaid at the interest rate as
provided in the Note. The term "attorneys' fees" as used in the Loan
Documents shall be deemed to mean such fees as are reasonable and are
actually incurred.
32. GOVERNING LAW SEVERABILITY. This Instrument shall be
governed by the law of the Commonwealth of Massachusetts applicable
to contracts made and to be performed therein (excluding choice-of-
law principles). In the event that any provision or clause of this
Instrument or the Note conflicts with applicable law, such conflict
shall not affect other provisions of this Instrument or the Note
which can be given effect without the conflicting provision, and to
this end the provisions of this Instrument and the Note are declared
to be severable.
33. TIME OF ESSENCE. Time is of the essence of this
Instrument.
34. CHANGES IN WRITING. This Instrument and any of its terms
may only be changed, waived, discharged or terminated by an
instrument in writing signed by the party against which enforcement
of the change, waiver, discharge or termination is sought. Any
agreement subsequently made by Mortgagor or Mortgagee relating to
this Instrument shall be superior to the rights of the holder of any
intervening lien or encumbrance.
35. NO OFFSET. Mortgagor's obligation to make payments and
perform all obligations, covenants and warranties under this
Instrument and under the Note shall be absolute and unconditional and
shall not be affected by any circumstance, including without
limitation any setoff, counterclaim, abatement, suspension,
recoupment, deduction, defense or other right that Mortgagor or any
guarantor may have or claim against Mortgagee or any entity
participating in making the loan secured hereby. The foregoing
provisions of this section, however, do not constitute a waiver of
any claim or demand which Mortgagor or any guarantor may have in
damages or otherwise against Mortgagee or any other person, or
preclude Mortgagor from maintaining a separate action thereon;
provided, however, that Mortgagor waives any right it may have at law
or in equity to consolidate such separate action with any action or
proceeding brought by Mortgagee.
37. AUTHORIZATION TO INSERT. Mortgagor authorizes Mortgagee or
its agent to insert in the spaces provided herein the amount of the
Note, the mortgagee's loan policy number, the title company issuing
such policy, the total amounts of the obligations secured, and the
last payment due dates, if any of the foregoing information is not
typed in on this document.
38. WAIVER OF JURY TRIAL. MORTGAGOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTELLIGENTLY WAIVES ANY AND ALL RIGHTS THAT EACH
PARTY TO THIS INSTRUMENT MAY NOW OR HEREAFTER HAVE UNDER THELAWS OF
THE UNITED STATES OF AMERICA OR THE COMMONWEALTH OF MASSACHUSETTS, TO
A TRIAL BY JURY OF ANY AND ALL ISSUES ARISINGDIRECTLY OR INDIRECTLY
IN ANY ACTION OR PROCEEDING RELATING TO THIS INSTRUMENT, THE LOAN
DOCUMENTS OR ANY TRANSACTIONS CONTEMPLATED THEREBY OR RELATED
THERETO. IT IS INTENDED THAT THIS WAIVER SHALL APPLY TO ANY AND ALL
DEFENSES, RIGHTS, CLAIMS AND/OR COUNTERCLAIMS IN ANY SUCH ACTION OR
PROCEEDING.
MORTGAGOR UNDERSTANDS THAT THIS WAIVER IS A WAIVER OF A
CONSTITUTIONAL SAFEGUARD, AND EACH PARTY INDIVIDUALLY BELIEVES THAT THERE
ARE SUFFICIENT ALTERNATE PROCEDURAL AND SUBSTANTIVE SAFEGUARDS, INCLUDING,
A TRIAL BY AN IMPARTIAL JUDGE, THAT ADEQUATELY OFFSET THE WAIVER CONTAINED
HEREIN.
39. MAXIMUM INTEREST CHARGES. Notwithstanding anything
contained herein or in any of the Loan Documents to the contrary, in
no event shall Mortgagee be entitled to receive interest on the loan
secured by this Instrument (the "Loan") in amounts which, when added
to all of the other interest charged, paid to or received by
Mortgagee on the Loan, causes the rate of interest on the Loan to
exceed the highest lawful rate. Mortgagor and Mortgagee intend to
comply with the applicable law governing the highest lawful rate
and the maximum amount of interest payable on or in connection with
the Loan. If the applicable law is ever judicially interpreted so as
to render usurious any amount called for under the Loan Documents, or
contracted for, charged, taken, reserved or received with respect to
the Loan, or if acceleration of the final maturity date of the Loan
or if any prepayment by Mortgagor results Mortgagor having paid or
demand having been made on Mortgagor to pay, any interest in excess
of the amount permitted by applicable law, then all excess amounts
theretofore collected by Mortgagee shall be credited on the principal
balance of the Note (or, if the Note has been or would thereby be
paid in full, such excess amounts shall be refunded to Mortgagor),
and the provisions of the Note, this Instrument and any demand on
Mortgagor shall immediately be deemed reformed and the amounts
thereafter collectible thereunder and hereunder shall be reduced,
without the necessity of the execution of any new document, so as to
comply with the applicable law, but so as to permit the recovery of
the fullest amount otherwise called for thereunder and hereunder. The
right to accelerate the final maturity date of the Loan does not
include the right to accelerate any interest which has not otherwise
accrued on the date of such acceleration, and Mortgagee does not
intend to collect any unearned interest in the event of acceleration.
All sums paid or agreed to be paid to Mortgagee for the use,
forbearance or detention of the Loan shall, to the extent permitted
by applicable law, be amortized, prorated, allocated and spread
through the full term of the Loan until payment in full so that the
rate or amount of interest on account of the Loan does not exceed the
applicable usury ceiling. By execution of this Instrument, Mortgagor
acknowledges that it believes the Loan to be nonusurious and agrees
that if, at any time, Mortgagor should have reason to believe that
the Loan is in fact usurious, it will give Mortgagee written notice
of its belief and the reasons why Mortgagor believes the Loan to be
usurious, and Mortgagor agrees that Mortgagee shall have ninety (90)
days following its receipt of such written notice in which to make
appropriate refund or other adjustment in order to correct such
condition if it in fact exists.
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE
READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO
OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE
LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY
ANOTHER WRITTEN AGREEMENT.
IN WITNESS WI-IEREOF, Mortgagor has executed this Instrument or has
caused the same to be executed by its representatives thereunto duly
authorized.
MORTGAGOR:
Signed, sealed and delivered HAEMONETICS CORPORATION,
in the presence of a Massachusetts business corporation
/s/ Alicia R. Lopez By: /s/ James L. Peterson /s/ Ron Ryan
- ----------------------------- -------------------------------------
Signature of First Witness Print: James L. Peterson Ron Ryan
Alicia R. Lopez Its: CEO CFO
- -----------------------------
Typed Name of First Witness
/s/ Steven H. Kasok
- -----------------------------
Signature of Second Witness
Steven H. Kasok
- -----------------------------
Typed Name of Second Witness
STATE OF MASSACHUSETTS )
)ss:
COUNTY OF NORFOLK )
Then and there personally appeared James L. Peterson & Ron Ryan and
acknowledged himself to be the CEO and CFO, an authorization signatory of
HAEMONETICS CORPORATION a Massachusetts business corporation, and further
acknowledged that he, as such CEO and CFO, being authorized so to do,
executed the foregoing instrument, for the purposes therein contained, as
his free act and deed, and the free act and deed of said corporation,
before me.
/s/ Lorraine A. Bird
----------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires: 10-04-02
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[SEAL]
EXHIBIT "A"
-----------
Legal Description
That certain parcel of land situate in Braintree in the County of Norfolk,
Commonwealth of
Massachusetts, bounded and described as follow:
EASTERLY by the Westerly line of Wood Road, shown on the plan
hereinafter referred to, one hundred sixty and
52/100(160.52) feet;
SOUTHEASTERLY Five and 36/100 (5.36) feet;
NORTHEASTERLY four hundred twenty-one and 92/100 (421.92) feet, by lot
Numbered 30, shown on said plan;
SOUTHEASTERLY by the Northwesterly line of Route 128, shown on
said plan, Eight hundred seventy-one and 54/100
(871.54) feet;
WESTERLY eight hundred twenty and 27/100 (820.27) feet;
NORTHWESTERLY seven hundred thirty-two (732) feet, by land now or
formerly of the Commonwealth of Massachusetts; and
NORTHEASTERLY by lot number 32, shown on said plan, three hundred
eight and 08/100 (308.00) feet.
Said parcel is shown as lot numbered 31 on a plat drawn by Ernest W.
Branch, Inc., Surveyors, dated April 25, 1980, as approved by the Land
Court, filed in the Land Registration Office as No. 11973M, a copy of a
portion of which is filed in Norfolk Registry District with Certificate No.
111018, Sheet 2, Book 556.
Excepting and excluding from said parcel so much of the fee and soil
in said Wood Road as lies opposite said lot numbered 31.
Together with the right to use Wood Road, in common with others, and
with the benefit of other rights and easements, in common with others, all
as and to the extent set forth in the deed from Boston Safe Deposit and
Trust Company, and others, Trustees, to Haemonetics Corporation, dated June
11, 1980, registered with said District as Document 402936.
Together with the rights of way as set forth in Certificate No.
10555, as affected by Document Nos. 74454 and 74455.
The above described land is subject also to and has the benefit of
restrictions as set forth in Document No. 402938, expiring on December 21,
2010, as affected by Document No. 479104.
The above described land is subject also to and has the benefit of
rights and easements as set forth in Document No. 402938.
EXHIBIT "B"
-----------
Permitted Exceptions
1. The"no access" provisions applicable to the Southeasterly boundary of
locus along Route 128, as set forth in the Order of Taking dated May
15, 1956, by the Commonwealth of Massachusetts laying out Route 128,
filed as Document No. 182231, as affected by Certificate of Entry
dated May 29, 1956, filed as Document No. 182472.
2. Assessment and lien for use of common sewer, as set forth in a
Certificate dated June 6, 1966, of the Braintree Sewer Commissioners,
registered as Document 275217, however, this policy insures the
insured that all charges due and owing have been paid.
3. Restrictions imposed on Lot 31 by, rights and easements reserved in,
and agreement respecting operating and maintenance costs in Wood Road
set forth in paragraphs A through H, including subparagraphs 1, 2 3,
4(a) - (e), 5 and 6 of deed to Haemonetics Corporation from C. Healy
Company, filed as Document No. 402938, as affected by Document No.
479104.
