-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FBI4r0P0rF0a9YRWReZ8uEE0XHutT1doyUwC8hfFMonpo6y9TVo5wyrCydZ0aaYq bsjVq6i8OrA/KnWGijJGGw== 0000931763-01-502106.txt : 20020410 0000931763-01-502106.hdr.sgml : 20020410 ACCESSION NUMBER: 0000931763-01-502106 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOVOSTE CORP /FL/ CENTRAL INDEX KEY: 0001012131 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 592787476 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20727 FILM NUMBER: 1785470 BUSINESS ADDRESS: STREET 1: 3890 STEVE REYNOLDS BLVD CITY: NORCROSS STATE: GA ZIP: 30093 BUSINESS PHONE: 7707170904 MAIL ADDRESS: STREET 1: 4350 C INTERNATIONAL BLVD CITY: NORCROSS STATE: GA ZIP: 30093 10-Q 1 d10q.txt QUARTERLY FINANCIAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the Securities - ----- Exchange Act of 1934. For the quarterly period ended September 30, 2001 Transition period pursuant to Section 13 or 15(d) of the Securities - ----- Exchange Act of 1934. For the transition period from _____________ to ______________. 0-20727 ------- (Commission File Number) Novoste Corporation ------------------- (Exact Name of Registrant as Specified in Its Charter) Florida 59-2787476 ------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 3890 Steve Reynolds Blvd., Norcross, GA 30093 ---------------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone, including area code: (770) 717-0904 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. (Item 1) Yes X No ------- ------- (Item 2) Yes X No ------- ------- As of November 1, 2001 there were 16,231,569 shares of the Registrant's Common Stock outstanding. NOVOSTE CORPORATION FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION PAGE NO. -------- Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of September 30, 2001 (unaudited) and December 31, 2000 3 Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2001 and 2000 4 Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2001 and 2000 5 Notes to Unaudited Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-15 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 PART II. OTHER INFORMATION Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17
2 NOVOSTE CORPORATION UNAUDITED CONSOLIDATED BALANCE SHEETS
September 30, 2001 December 31, 2000 ------------------ ----------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 14,377,259 $ 26,512,398 Short-term investments 22,134,142 30,655,436 Accounts receivable, net of allowance 13,923,403 4,469,781 Inventories 2,682,649 1,251,687 Prepaid expenses and other current assets 1,099,769 482,383 ------------- ------------- Total current assets 54,217,222 63,371,685 ------------- ------------- Property and equipment, net 8,951,527 7,277,734 Radiation and transfer devices, net 12,100,439 5,480,948 Other assets 1,498,348 942,427 ------------- ------------- Total assets $ 76,767,536 $ 77,072,794 ============= ============= Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 2,976,790 $ 3,425,250 Accrued expenses 8,227,905 5,415,277 Unearned revenue 3,541,659 580,817 Capital lease obligations 62,011 208,805 ------------- ------------- Total current liabilities 14,808,365 9,630,149 ------------- ------------- Long-term liabilities Capital lease obligations 475,152 400,526 ------------- ------------- Shareholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued and outstanding - - Common stock, $.01 par value, 25,000,000 shares authorized; 16,223,649 and 16,094,635 shares issued, respectively 162,236 160,946 Additional paid-in-capital 187,104,201 184,511,610 Accumulated other comprehensive income (loss) (311,591) (93,690) Accumulated deficit (124,113,621) (116,274,687) ------------- ------------- 62,841,225 68,304,179 Less treasury stock, 5,780 shares of common stock at cost (23,840) (23,840) Unearned compensation (1,333,366) (1,238,220) ------------- ------------- Total shareholders' equity 61,484,019 67,042,119 ------------- ------------- Total liabilities and shareholders' equity $ 76,767,536 $ 77,072,794 ============= =============
See accompanying notes. 3 NOVOSTE CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended September 30, Nine months ended September 30, -------------------------------------- --------------------------------------- 2001 2000 2001 2000 -------------------------------------- --------------------------------------- Net Sales $ 20,916,639 $ 1,445,527 $47,497,974 $ 3,583,575 Cost of Sales 5,118,949 977,146 14,589,293 2,594,894 ------------ ----------- ----------- ------------ Gross Margin 15,797,690 468,381 32,908,681 988,681 ------------ ----------- ----------- ------------ Operating expenses Research and Development 2,941,372 5,248,267 10,261,939 13,974,188 Sales and Marketing 8,990,636 3,171,584 25,425,965 8,528,790 General and Administrative 2,252,761 1,855,862 6,739,757 4,271,017 ------------ ----------- ----------- ------------ Total operating expenses 14,184,769 10,275,713 42,427,661 26,773,995 ------------ ----------- ----------- ------------ Income/(Loss) from operations 1,612,921 (9,807,332) (9,518,980) (25,785,314) ------------ ----------- ----------- ------------ Interest Income 492,933 1,108,202 1,742,068 2,769,783 Interest Expense 19,613 5,652 62,022 17,329 ------------ ----------- ----------- ------------ 473,320 1,102,550 1,680,046 2,752,457 ------------ ----------- ----------- ------------ Net income/(loss) $ 2,086,241 $(8,704,782) $(7,838,934) $(23,032,857) ============ =========== =========== ============ Basic earnings per share $ 0.13 $ (0.54) $ (0.49) $ (1.50) ============ =========== =========== ============ Weighted average shares outstanding - basic 16,188,275 16,005,921 16,132,954 15,382,341 ============ =========== =========== ============ Weighted average shares outstanding - diluted 16,418,391 16,005,921 16,132,954 15,382,341 ============ =========== =========== ============
See accompanying notes. 4 NOVOSTE CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2001 2000 ---------------- ----------------- Cash flows from operating activities: Net loss $ (7,383,934) $ (23,032,857) Adjustments to reconcile net loss to net cash used by Operating activities: Depreciation and amortization 1,770,425 961,686 Issuance of stock for services or compensation 155,246 379,661 Amortization of deferred compensation 826,222 470,866 Amortization of radiation & transfer devices 3,077,099 - Provision for doubtful accounts 587,920 150,000 Changes in assets and liabilities: Accounts receivable (10,041,542) (1,387,301) Inventory (1,430,962) 1,918,758 Prepaid expenses (617,386) (942,613) Accounts payable (448,460) 1,729,740 Accrued expenses 2,812,628 (438,568) Unearned revenue 2,960,842 300,482 Other (793,328) (379,808) ------------- ------------- Net cash used by operations (8,980,230) (20,269,774) ------------- ------------- Cash flow from investing activities: Maturity of short-term investments 8,521,294 12,602,063 Purchase of property and equipment (3,339,284) (2,793,026) Purchase of radiation and transfer devices (9,696,590) (3,487,086) ------------- ------------- Net cash (used) provided by investing activities (4,514,580) 6,321,951 ------------- ------------- Cash flows from financing activities: Proceeds from issuance of common stock 1,517,267 55,948,389 Repayment of capital lease obligations (177,103) -- ------------- ------------- Net cash provided by financing activities 1,340,164 55,948,389 ------------- ------------- Effect of exchange rates on cash and cash equivalents 19,507 105,166 Net (decrease) increase in cash and cash equivalents (12,135,139) 42,105,732 Cash and equivalents at beginning of period 26,512,398 7,091,025 ------------- ------------- Cash and cash equivalents at end of period $ 14,377,259 $ 49,196,757 ============= ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW Information: Cash paid for interest on capital lease obligation $ (45,027) $ -- Non-cash investing and financing activities: Assets acquired under capital lease $ 105,000 $ --
See accompanying notes. 5 NOVOSTE CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2001 NOTE 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with instructions to Article 10 of Regulation S-X. Accordingly, such consolidated financial statements do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The operating results of the interim periods presented are not necessarily indicative of the results to be achieved for the year ending December 31, 2001. The accompanying consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2000 included in the Company's 2000 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC"). The consolidated financial statements include the accounts of Novoste Corporation and its wholly owned subsidiaries incorporated in August 1998 in The Netherlands, in December 1998 in Belgium, in February 1999 in Germany and in January 2000 in France. Significant intercompany transactions and accounts have been eliminated. NOTE 2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company maintains cash equivalents and investments in several large well-capitalized financial institutions. The Company's investment policy does not allow investment in any debt securities rated less than "investment-grade" by national racings services. Cash equivalents are comprised of certain highly liquid investments with maturities of less than three months. In addition to cash equivalents, the Company has investments in commercial paper and certificates of deposit that are classified as short-term (mature in more than 90 days but less than one year). Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. These investments are accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS 115"). The Company has classified all short and long-term investments as available for sale. Available for sale securities are carried at fair value, with the unrealized gains and losses reported in a separate component of stockholder's equity if significant. Realized gains and losses are included in investment income and are determined on a specific identification basis. NOTE 3. ACCOUNTS RECEIVABLE Accounts receivable at September 30, 2001 and December 31, 2000 include receivables due from product sales and amounts due under lease arrangements relating to radiation and transfer devices (see Note 5. Radiation and Transfer Devices). The carrying amounts reported in the consolidated balance sheets for accounts receivable approximate their fair value. The Company performs periodic credit evaluations of its customer's financial condition and generally does not require collateral. Management records estimates of expected credit losses and returns of product sold. Bad debt expense for the nine month period ended September 30, 2001 amounted to approximately $12,000. There was no bad debt expense recorded for the nine month period ended September 30, 2000. 6 NOTE 4. INVENTORIES Inventories are stated at the lower of cost or market on a first-in, first -out (FIFO) basis and are comprised of the following: September 30, 2001 December 31, 2000 ------------------ ------------------ Raw Materials $1,576,722 $ 777,819 Work in Process 320,398 218,958 Finished Goods 785,529 254,910 ---------- ---------- Total $2,682,649 $1,251,687 ========== ========== NOTE 5. RADIATION AND TRANSFER DEVICES The Company retains ownership of the radiation source trains (RSTs) and transfer devices (TDs). During 1999, the Company was the lessor of RSTs and TDs under annual sales-type lease agreements expiring through December 2000. During the second quarter of 2000, the Company determined that based upon experience, testing and discussions with the FDA the estimated useful life of RSTs and TDs would exceed one year. Accordingly, the Company has reclassified these assets from inventory to a long-term asset named, radiation and transfer devices. Depreciation of the costs of these assets, which is included in cost of sales, will be over their estimated useful lives (currently estimated at 18 months) using the straight-line method and will begin once the Beta-Cath(TM) System is placed into service. Concurrent with the change in estimated life, the RST and TD annual agreements to license the use of the radiation and transfer devices are classified by the Company as operating leases. At September 30, 2001, equipment with a cost of approximately $10,509,000 before accumulated depreciation of approximately $3,077,000 was under operating leases. Approximately $4,669,000 of radiation and transfer devices were available for lease at September 30, 2001. At September 30, 2001, amounts receivable under these operating leases approximated $1,705,000 and are recorded in accounts receivable. Radiation and transfer devices are stated at cost and are comprised of the following:
September 30, 2001 December 31, 2000 ------------------ ----------------- Radiation and Transfer Devices $ 15,177,538 $ 5,612,763 Less: Accumulated Depreciation 3,077,099 131,815 ------------ ----------- Total $ 12,100,439 $ 5,480,948 ============ ===========
NOTE 6. LINE OF CREDIT In August 2001, the Company entered into a $10 million accounts receivable revolving line of credit with a financial institution that matures in one year. At September 30, 2001, there were no outstanding borrowings. The Company may borrow an amount not to exceed the borrowing base of 80% of eligible accounts receivable as defined in the loan agreement. Interest is payable on the first of each month calculated on the outstanding balance and accrues at a rate of the bank's prime rate plus 1%. At such time that the Company sustains three consecutive months of profitability, the rate decreases to the prime rate. The Company granted a first priority security interest in substantially all assets of the Company. The Company must meet certain financial covenants related to maintaining a minimum tangible net worth and quick ratio. The Company was not in violation of any of its loan covenants at September 30, 2001. NOTE 7. SEGMENT INFORMATION SFAS No. 131, Disclosures about segments of an Enterprise and Related Information ("SFAS 131") requires the reporting of segment information based on the information provided to the company's chief operating decision maker for purposes of 7 making decisions about allocating resources and accessing performance. The Company's business activities are represented by a single industry segment, the manufacture and distribution of medical devices. For management purposes, the Company is segmented into three geographic areas: North America, Europe and the Rest of World (Asia and South America) The Company's net sales by geographic area are as follows: United States Europe Rest of World Consolidated ------------- ---------- ------------- ------------ 2001 $43,466,425 $3,527,056 $504,493 $47,497,974 2000 462,772 2,778,233 342,570 3,583,575 At September 30, 2001 and 2000, the Company's net assets outside of the United States, consisting principally of cash and cash equivalents, accounts receivable, inventory and office equipment, were approximately $6,529,000 and $3,061,000, respectively. NOTE 8. EARNINGS PER SHARE The computation, presentation and disclosure requirements for earnings per share are presented in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted earnings per common share assumes exercise of outstanding stock options and vesting of restricted stock when the effects of such assumptions are dilutive. The following table sets forth the computation of basic and diluted earnings per share for the three-month period ended September 30, 2001: Weighted average number of common shares outstanding-Basic 16,188,275 Dilutive effect of: Restricted stock 18,908 Stock options 211,208 ---------- Weighted average number of common and common equivalent shares outstanding-Diluted 16,418,391 ========== Common equivalent shares are antidilutive for the nine-month period ended September 30, 2001 and for 2000. NOTE 9. SHAREHOLDERS' EQUITY For the three and nine month period ended September 30, 2001 changes in shareholders' equity consisted of the following:
Shareholders' Equity at beginning of period $ 57,639,304 $ 67,042,119 ------------ ------------ Exercise of 21,562 and 92,238 stock options ranging from $3.20 to $27.00 per share 210,079 1,095,445 Proceeds from issuance of stock under employee stock purchase plan, 18,873 shares on 4/2/01 at $14.93 pre share and 17,903 shares on 7/2/01 at $14.93 per share 267,258 548,996 Other equity transactions 18,000 18,000 Amortization of unearned compensation 238,002 479,071 Comprehensive loss: Translation adjustment 1,025,135 (217,901) Net income/(loss) 2,086,241 (7,838,934) ------------ ------------ Total comprehensive income (loss) 3,111,376 (8,056,835) ------------ ------------ Shareholders' Equity at September 30, 2001 $ 61,484,019 $ 61,484,019 ============ ============
During April 2001, the Company granted 101,000 stock options to certain officers of the Company. Based quoted market value per share at the grant date, the value of the shares has been recorded as unearned compensation in the amount of $839,000. Such unearned compensation is being amortized to compensation expense over the vesting period of the awards. NOTE 10. SUBSEQUENT EVENT Subsequent to September 30, 2001 the Company announced a restructuring of its operations outside the United States. The restructuring is intended to reduce operating expenses in the future by consolidating certain functions and offices in Europe. The Company expects restructuring charges of approximately $1 million to be incurred in the fourth quarter 2001. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FORWARD LOOKING INFORMATION The statements contained in this Form 10-Q that are not historical are forward- looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the expectations, beliefs, intentions or strategies regarding the future. The Company intends that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the Company's views as of the date they are made with respect to future events and financial performance, but are subject to many uncertainties and risks which could cause the actual results of the Company to differ materially from any future results expressed or implied by such forward-looking statements. Some of these risks are discussed below in the section "Certain Factors That May Impact Future Operations." Additional risk factors are discussed in other reports filed by the Company from time to time on Forms 10-K, 10-Q and 8-K including the Company's annual report on Form 10-K for the year ended December 31, 2000. The Company does not undertake any obligations to update or revise any forward- looking statement, made by it or on its behalf, whether as a result of new information, future events, or otherwise. 8 OVERVIEW Novoste commenced operations as a medical device company in May 1992. Since 1994, we have devoted substantially all of our efforts to developing the Beta- Cath(TM) System. The Company commenced the active marketing of the Beta-Cath(TM) System in Europe in January 1999. On November 3, 2000, Novoste received U.S. marketing approval for the 30-millimeter Beta-Cath(TM) System from the FDA for use in patients suffering from "in-stent restenosis", a condition in which coronary stents become clogged with new tissue growth. On September 18, 2001 Novoste received US marketing approval for the 40-millimeter Beta-Cath(TM) System from the FDA. While the Beta-Cath(TM) System has been approved by the FDA for use in patients suffering from in-stent restenosis, future clinical trials may not demonstrate the safety and effectiveness of other or different applications or utilizations of the product. Since our inception through June 30, 2001 we experienced significant losses in each period. For the quarter ended September 30, 2001, the Company experienced its first net operating profit. At September 30, 2001, we had an accumulated deficit of approximately $124.1 million. We expect to maintain an operating profit in the fourth quarter of 2001 as we continue to allocate resources to leverage our existing manufacturing operations, both internally and with outside vendors, expect our sales and marketing efforts in support of United States market development to level off or even decline as a percent of net sales and anticipate that our administrative activities to support our growth will remain at a constant level. At the same time we will continue to conduct clinical trials and research and development projects in order to expand the opportunities for our technology. The Company also faces intense competition in the field of vascular brachytherapy with companies that have significantly greater capital resources than Novoste including Johnson & Johnson and Guidant. New technologies under development by companies that have significantly greater resources than Novoste, including coated stents being developed by Johnson & Johnson, Guidant, Cook and Boston Scientific, pose additional competitive threats in treating restenosis. We may not successfully sustain an acceptable level of market demand for Beta- Cath(TM) System or any other product we develop. We may be unable to sustain significant revenues from sales of our Beta-Cath(TM) System and we may not be ------ able to sustain profitability. - ------- RESULTS OF OPERATIONS Net income for the three months ended September 30, 2001 was $2,086,241 or $.13 per share, as compared to net loss of $8,704,782 or ($.54) per share, for the three months ended September 30, 2000. Net loss for the nine months ended September 30, 2001 was $7,838,934, or ($.49) per share, as compared to $23,032,857 or ($1.50) per share, for the nine months ended September 30, 2000. The increase/decrease in net income/(loss) for the three and nine months ended September 30, 2001 compared to the year earlier period was primarily due to an increase in revenue from sales in the U.S. market from its commercial launch of the Beta-Cath(TM) System. Net Sales. Net sales of $20,916,638 and $47,497,974 were recognized in the - ---------- three and nine months ended September 30, 2001 as compared to net sales of $1,445,527 and $3,583,575 for the three and nine months ended September 30, 2000. Net sales increased due to the FDA approval of the Beta-Cath(TM) System in the U.S. and the initial, first three full quarters of sales in the U.S. Net sales in the United States for the three and nine months ended September 30, 2001 were $19,437,626 and $43,466,425. The Company added over 70 sites in the U.S. for the three months ended September 30, 2001 for a total of over 290 new sites for the year. All sales in the 2000 three and nine month periods were due to sales made in Europe. Comparatively, internationally the Company recognized net sales of $1,500,261 and $4,031,549 in the three and nine months ended September 30, 2001. Sales remained relatively flat in Europe due to lack of acceptance of vascular brachytherapy in Europe and lack of approval for insurance reimbursement for vascular brachytherapy. However, international sales increased from the prior year due to adding sites in other parts of the world. Cost of Sales. Cost of sales for the three months ended September 30, 2001 were - ------------- $5,118,949 resulting in a gross margin of 75.5%, compared to cost of sales of $977,146 and gross margin of 32.4% for the same period of 2000. Cost of sales were $14,589,293 for the nine months ended September 30, 2001 resulting in a gross margin of 69.3% as compared to cost of sales of $2,594,894 and a gross margin of 27.6% for the nine months ended September 30, 2000. Cost of sales includes raw material, labor and overhead to manufacture catheters as well as the amortized costs of transfer devices and radiation source trains used in the Beta-Cath(TM) System. Cost of sales is expected to continue to grow at a slower pace than sales as the manufacturing facility continues to utilize capacity of the current plant and therefore increase gross margin. 9 Research and Development Expenses. Research and Development expenses decreased - ---------------------------------- 44% to $2,941,372 for the three months ended September 30, 2001 from $5,248,267 for the three months ended September 30, 2000. For the nine months ended September 30, 2001 research and development expenses decreased 27% to $10,261,939 from $13,974,188 for the same period a year earlier. These decreases were primarily the result of decreased clinical trial activity related to the completion of pivotal trials and the elimination of costs associated with enrollments such as the costs of supplying product to clinical sites. However, the Company expects research and development expenses to increase from third quarter 2001 in anticipation of new clinical trial activity. Sales and Marketing Expenses. Sales and marketing expenses increased 183% to - ----------------------------- $8,990,636 for the three months ended June 30, 2001 from $3,171,584 for the three months ended September 30, 2000. For the nine months ended September 30, 2001 sales and marketing expenses were $25,425,965 as compared to $8,528,790 for the nine months ended September 30, 2000, an increase of 198%. These increases were primarily the result of additional sales and customer support personnel, training, trade show, consulting and promotional literature costs associated with marketing the Company's product on a direct basis in the U.S. as the Company launched the new Beta-Cath(TM) System in the U.S. Significant resources were expended in launching the Beta-Cath(TM) System in the U.S. The Company expects that future sales and marketing expenses may grow at a slower pace than net sales, or may even decline. General and Administrative Expenses. General and administrative expenses for - ------------------------------------ the three and nine months ended September 30, 2001 were $2,252,761 and $6,739,757 as compared to the three and nine months ended September 30, 2000 of $1,855,862 and $4,271,017, an increase of 21% and 58%, respectively. The increase for the three and nine-month period was primarily the result of additional management personnel at higher salaries and information systems costs in support of building the infrastructure of the Company. The Company expects general and administrative expenses to remain constant in the future. - - Interest Income. Net interest income decreased 57% to $473,320 for the three - ---------------- months ended September 30, 2001 from $1,102,550 for the three months ended September 30, 2000. Net interest income decreased 39% to $1,680,046 for the nine months ended September 30, 2001 from $2,752,457 for the nine months ended September 30, 2000. The decrease in interest income for the three and nine months was primarily due to the decrease in average cash equivalent and short- term investment balances used in operations combined with falling interest rates. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended September 30, 2001 and 2000, the Company used cash to fund operations of $9.0 million and $20.2 million, respectively. The decrease in cash used by operating activities of $11.2 million for 2001 over 2000 was primarily attributable to (i) $15.2 million decrease in net loss, (ii) $4.5 million increase in earnings related to non-cash items, (iii) $.3 million increase in prepaid expenses, (iv) $3.3 million provided by accrued expenses, and (v) $2.7 million increase in unearned revenue related to revenue recognized on radiation and transfer devices offset by (i) $8.7 million funding of accounts receivable due to the growth in sales of the Beta-Cath(TM) System related to the initial market launch in the US, (ii) $3.3 million used to fund the purchase of increased levels of inventory, (iii) $2.2 million used for payment of accounts payable, and (iv) $.5 million increase in other assets. Net cash used by investing activities for the nine months ended September 30, 2001 was $4.5 million and net cash provided by investing activities for the nine months ended September 30, 2000 was $6.3 million. The $10.8 million increase in cash used in 2001 compared to 2000 was due $4.1 million in short-term investments that matured, $.5 million increase in the purchase of property and equipment, and $6.2 million used to buy radiation and transfer devices related to the increase in demand for our Beta-Cath(TM) System. Our financing activities include equity offerings and borrowings and repayments of capital leases. Financing activities for the nine months ended September 30, 2001 and 2000 provided net cash of $1.3 million and $55.9 million, respectively. The change of $54.6 million resulted primarily from receiving net proceeds of $49.0 million in April 2000 for a private placement offering plus $6.9 million from the exercise of stock options during the nine months ended September 30, 2000 and $1.7 million from the exercise of stock options during the same period in 2001. In addition, the company repaid $.2 million for capital leases of computer equipment. On April 7, 2000 we completed a private placement offering, in which we sold 1,463,500 shares of our common stock at $35.00 per share. The placement raised net proceeds of approximately $49 million, of which $5 million was received during the second quarter. After the offering, we had 15.85 million shares of common stock outstanding. The Company also received approximately $1.6 million for the quarter and $6.9 million for the nine months ended September 30, 2000 from the exercise of stock options. In 2001, the Company received $.8 million from the exercise of stock options for the quarter and $1.7 million for the nine months ended September 30, 3001. 10 At September 30, 2001, the Company had commitments to purchase $7.1 million in inventory components of the Beta-Cath(TM) System over the next year. In addition, on October 14, 1999 the Company signed a development and manufacturing supply agreement with AEA Technologies QSA GmbH for a second source of radioisotope supply and for the development of a smaller diameter source. This agreement provides for the construction of a production line over the period October 1, 1999 to January 2002. The cost of this production line is estimated at $4.0 million and is being paid by the Company as construction progresses. Through September 30, 2001, the Company has paid $3.1 million towards this commitment. Significant proportions of key components and processes relating to the Company's products are purchased from single sources due to technology, availability, price, quality, and other considerations. Key components and processes currently obtained from single sources include isotopes, protective tubing for catheters, proprietary connectors, and certain plastics used in the design and manufacture of the transfer device. In the event a supply of a key single-sourced material or component was delayed or curtailed, the Company's ability to produce the related product in a timely manner could be adversely affected. The Company attempts to mitigate these risks by working closely with key suppliers regarding the Company's product needs and the maintenance of strategic inventory levels. The Company has entered into a license agreement with a physician pursuant to which he is entitled to receive a royalty on the net sales of the Beta-Cath(TM) System (excluding consideration paid for the radioactive isotope), subject to a maximum payment of $5,000,000. Royalty fees to the physician aggregated $429,257 and $29,472 for the nine months ended September 30, 2001 and 2000, respectively, and have been expensed in Cost of Sales. On January 30, 1996, the Company entered into a license agreement whereby Emory University assigned its claim to certain technology to the Company for royalties based on net sales (as defined in the agreement) of products derived from such technology, subject to certain minimum royalties. The royalty agreement term is consistent with the life of the related patent and applies to assignments of the patent technology to a third party. Royalty fees to Emory University aggregated $998,278 and $69,190 for the nine months ended September 30, 2001 and 2000, respectively, and have been expensed in Cost of Sales. The Company's principal source of liquidity at September 30, 2001 consisted of cash, cash equivalents and short-term investments of $36.5 million. In August 2001, the Company entered into a $10 million accounts receivable revolving line of credit with a financial institution that matures in one year. At September 30, 2001, there were no outstanding borrowings. The Company may borrow an amount not to exceed the borrowing base of 80% of eligible accounts receivable as defined in the loan agreement. Interest is payable on the first of each month calculated on the outstanding balance and accrues at a rate of the bank's prime rate plus 1%. At such time that the Company sustains three consecutive months of profitability, the rate decreases to the prime rate. The company granted a first priority security interest in substantially all assets of the Company. The Company must meet certain financial covenants related to maintaining a minimum tangible net worth and quick ratio. The Company was not in violation of any of its loan covenants at September 30, 2001. The Company had significant operating losses through the second quarter of 2001 and had its first profitable quarter in the third quarter 2001. We believe that our existing capital resources will be sufficient to fund the Company until it reaches a positive operating cash flow. The Company expects that given its current rate of revenue growth, it will continue to have sufficient cash flow to support growth of the business in the US and the Company also feels it will have sufficient cash reserves until it is able to sustain a positive cash flow in early 2002. The Company's future liquidity and capital requirements will depend upon numerous factors, including, among others: market acceptance and demand for its products; the resources required to maintain a direct sales force in the United States and in the larger markets of Europe, develop distributors internationally, and to continue to expand manufacturing capacity; the resources the Company devotes to the development, manufacture and marketing of its products; the receipt of and the time required to obtain additional regulatory clearances and approvals; the resources required to gain such approvals; and the progress of the Company's clinical research and product development programs. Novoste may in the future seek to raise additional funds through bank facilities, debt or equity offerings or other sources of capital. Additional financing, if required, may not be available on satisfactory terms, or at all. Subsequent to September 30, 2001 the Company announced a restructuring of its operations outside the United States. The restructuring is intended to reduce operating expenses in the future by consolidating certain functions and offices in Europe. The Company expects restructuring charges of approximately $1 million to be incurred in the fourth quarter 2001. The Company is evaluating both internally and externally developed strategic opportunities. These opportunities could result in additional clinical trials or development activities that would require a significant investment by the Company. Although Novoste has sufficient cash resources to fund its current commercial business, the development or acquisition of new technologies could require the Company to raise additional funds through bank facilities, debt or equity offerings or other sources of financing. Additional funding, if required, may not be available on satisfactory terms, or at all. CERTAIN FACTORS THAT MAY IMPACT FUTURE OPERATIONS WE DEPEND ON THE SUCCESSFUL DEVELOPMENT AND COMMERCIALIZATION OF THE BETA-CATH(TM) SYSTEM. We began to commercialize the Beta-Cath(TM) System in the United States in November 2000 and our distribution system in Europe and certain Asian countries are still being developed. Substantially all of our revenue in the first nine months of 2001 has been from sales in the United States. We anticipate that for the foreseeable future we will be solely dependent on the continued successful development and commercialization of the Beta-Cath(TM) System. Our failure to continue commercialization of the Beta-Cath(TM) System would have a material adverse effect on our business, financial condition and results of operations. 11 The Beta-Cath(TM) System received FDA approval for the 30-millimeter system on November 3, 2000 and on June 15, 2001, the Company received FDA approval for the 40-millimeter system; however, we may be unable to: - broaden the Beta-Cath(TM) system marketability by obtaining approval for additional applications of our product; or - demonstrate that the Beta-Cath(TM) System is an attractive and cost- effective alternative or complement to other procedures, including coronary stents, competing vascular brachytherapy devices, or other competitive technologies, including coated stents, if and when approved for commercialization. Commercialization of the Beta-Cath (TM) System in Europe is subject to certain additional risks. Physicians in Europe are generally less receptive to and slower to adopt new medical devices and technologies than physicians in the United States due to various factors, including the influence of national health care policies and reimbursement strategies of health care payers. We may never achieve significant revenue from sales in Europe or ever achieve or sustain profitability in our European operations. Our sales in selected European countries and several other countries aggregated approximately $1.8 million in 1999, approximately $4.2 million in 2000 and approximately $2.1 million for the first nine months of 2001. WE HAVE LIMITED OPERATING HISTORY; WE HAVE A HISTORY OF LOSSES AND MAY NOT BE ABLE TO SUSTAIN THE PROFITABILITY WE ACHIEVED IN THE THIRD QUARTER OF 2001. We have a limited history of operations. Since our inception in May 1992, we have been primarily engaged in developing and testing our Beta-Cath(TM) System. We have generated only limited revenue and do not have significant experience in manufacturing, marketing or selling our products in quantities necessary for sustaining profitability. At September 30, 2001, we had accumulated a deficit of approximately $124.1 million since our inception in 1992. The commercialization of the Beta-Cath(TM) System and other new products, if any, will require substantial additional development, clinical, regulatory, manufacturing, sales and marketing and other expenditures. We had our first quarter of profitability in the third quarter of 2001. Nevertheless, We may never: - sustain commercial success in the sale of the Beta-Cath(TM) System or achieve success in the sale of any other product in any countries in which we have received the necessary governmental approvals to market these products; or - sustain profitability. WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL REGULATORY APPROVALS TO EXPAND BETA-CATH (TM) SYSTEM PRODUCT OFFERINGS OR TO BE ABLE TO MARKET THE BETA-CASH(TM) SYSTEM TO TREAT A BROADER RANGE OF INDICATIONS FOR THE UNITED STATES. United States Market Approvals - ------------------------------ On November 3, 2000, we received marketing approval from the FDA for the 30mm Beta-Cath(TM) System. On September 18, 2001, we received marketing approval from the FDA for the 40mm Beta-Cath (TM) System. These approvals limit our ability to promote the Beta-Cath(TM) System for use with patients who are being treated for "in-stent" restenosis in a single coronary artery with a 30-millimeter radiation source train or a 40-millimeter radiation source train. In order to market the Beth-Cath(TM) System with radiation source trains longer than 40- millimeters, we will likely be required to demonstrate to the FDA that a longer source train is safe and effective. In order to market the Beta-Cath(TM) System for a broader range of patients, we may seek to expand the indications for which the Beta-Cath(TM) System can be marketed, for example, to patients undergoing balloon angioplasty of previously untreated (de novo) lesions. In order to market the Beta-Cath(TM) System for use with (1) further product design enhancements, such as a 60-millimeter radiation source train or modifications to the catheter or (2) a broader range of indications, including stand alone balloon angioplasty or previously untreated (de novo) lesions, we will likely be required to demonstrate to the FDA through additional clinical trials that the Beta-Cath(TM) System is safe and effective with such product design enhancement(s) or in treating a broader range of indications and the FDA must approve a pre-market approval application or application supplement covering the product design enhancement(s) or the broader range of indications for the device. In August 2001, we filed an application with the FDA for a pre-market approval supplement to use a 3.5 French catheter, or a smaller diameter, in the treatment of in-stent restenosis. The failure to obtain regulatory approval of this supplement in a timely manner could adversely affect Novoste's business. 12 The process of obtaining a pre-market approval and other required regulatory approvals can be expensive, uncertain and lengthy, and we may be unsuccessful in obtaining additional approvals to market the Beta-Cath (TM) System. We may encounter significant difficulties and costs in our efforts to obtain additional FDA approvals that could delay or preclude us from selling new products in the United States. Furthermore, the FDA may request additional data or require that we conduct further clinical studies, causing us to incur substantial cost and delay. In addition, the FDA may impose strict labeling requirements, onerous operator training requirements or other requirements as a condition of our pre- market approval, any of which could limit our ability to market our systems. Labeling and marketing activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. FDA enforcement policy strictly prohibits the marketing of FDA cleared or approved medical devices for unapproved uses. Further, if a company wishes to modify a product after FDA approval of a pre-market approval, including any changes that could affect safety or effectiveness, additional approvals will be required by the FDA. Such changes include, but are not limited to: new indications for use, the use of a different facility to manufacture, changes to process or package the device, changes in vendors to supply components, changes in manufacturing methods, changes in design specifications and certain labeling changes. Failure to receive or delays in receipt of FDA approvals, including the need for additional clinical trails or data as a prerequisite to approval, or any FDA conditions that limit our ability to market our systems, could have a material adverse effect on our business, financial condition and results of operations. Foreign Pre-Market Approvals - ----------------------------- Sales of the Beta-Cath(TM) System outside the United States are subject to regulatory requirements that vary widely from country to country but generally include pre-marketing governmental approval. The time required to obtain approval for sale in foreign countries may be longer or shorter than required for FDA approval, and the requirements for the conduct of clinical trials, marketing authorization, pricing and reimbursement differ from those in the United States. Moreover, the export of medical devices from the United States must be in compliance with FDA regulations. In August 1998 we qualified to apply CE marking to the Beta-Cath(TM) System, a requirement necessary to sell our device in most of Western Europe. In August of 2001 we qualified to apply CE marking to the Beta-Cath(TM) 3.5F System. We are subject to continuing audit and reporting requirements related to this marking. We may be delayed or precluded from marketing the Beta-Cath(TM) System in other foreign countries. Foreign pre-market and other regulatory approvals of the Beta-Cath(TM) System, if granted, may include significant limitations on the indicated uses for which the device may be marketed. Approvals to Use, Handle and Transfer Radioactive Materials - ----------------------------------------------------------- Our business involves the import, export, manufacture, distribution, use and storage of Strontium-90 (Strontium/Yttrium), the beta-emitting radioisotope utilized in the Beta-Cath(TM) System 's radiation source train. Accordingly, manufacture, distribution, use and disposal of the radioactive material used in the Beta-Cath(TM) System in the United States will be subject to federal, state and/or local rules relating to radioactive material. On August 4, 2000, the State of Georgia Department of Natural Resources (DNR) issued a sealed source and device registration certificate for the Company's Beta-Cath(TM) System, allowing it to be listed on the Nuclear Regulatory Commission's Sealed Source and Device Registry. The Company, in addition, must comply with NRC, Georgia and United States Department of Transportation regulations on the labeling and packaging requirements for shipment of radiation sources to hospitals or other users of the Beta-Cath(TM) System. Further, hospitals and/or physicians in the United States may be required to amend their radiation licenses to hold, handle and use Strontium-90 prior to receiving and using our Beta-Cath(TM) System. COATED STENTS COULD RENDER VASCULAR BRACHYTHERAPY GENERALLY OR THE BETA-CATH (TM) SYSTEM IN PARTICULAR NONCOMPETITIVE OR OBSOLETE. Competition in the medical device industry, and specifically the markets for cardiovascular devices, is intense and characterized by extensive research and development efforts and rapidly advancing technology. Vascular brachytherapy may compete with other treatment methods designed to improve outcomes from coronary artery procedures that are well established in the medical community, such as coronary stents. Stents are the predominant treatment currently utilized to reduce the incidence of coronary restenosis following PTCA and were used in approximately 75% of all PTCA procedures performed worldwide in 2000. Manufacturers of stents include Johnson & Johnson, Medtronic, Inc., Guidant Corporation and Boston Scientific Corporation. Stent manufacturers often sell many products used in the cardiac catheterization labs, commonly referred to as cath labs, and as discussed below, certain of the companies are developing vascular brachytherapy devices. 13 Also on November 3, 2000, the FDA approved Johnson & Johnson's CHECKMATE (TM) System, a gamma radiation vascular brachytherapy device and on November 5, 2001 Guidant received FDA pre-marketing approval of its beta radiation device. Johnson & Johnson, and if it receives FDA approval, Guidant, compete directly with Novoste for market acceptance of vascular brachytherapy and has substantially greater capital resources and greater resources and experience at introducing new products that does Novoste. We may not be able to compete effectively against Johnson & Johnson or Guidant. Many of these same companies and others are researching coatings and treatments to coronary stents that could reduce restonsis and possibly be more acceptable to a medical community already experienced at using stents. Results from recent double blinded non-US clinical trials were reported as eliminating restenosis. Additional Clinical trials will need to be completed in order to confirm these results. If those trials are successful and completed in the time frames contemplated by the companies developing coated stents, coated stents, if approved for sale, could have a material adverse affect on Novoste's business as early as 2003 and could render vascular brachytherapy generall or the Beta-Cath (TM) System in particular noncompetitive. At least one competitor, Johnson & Johnson could receive FDA approval as early as late 2002 or early 2003. Many of our competitors and potential competitors have substantially greater capital resources that we do and also have greater resources and expertise in the area of research and development, obtaining regulatory approvals, manufacturing and marketing. Our competitors and potential competitors may succeed in developing, marketing and distributing technologies and products that are more effective than those we will develop and market or that would render our technology and products obsolete or noncompetitive. Additionally, many of the competitors have the capability to bundle a wide variety of products in sales to cath labs. We may be unable to compete effectively against such marketing, distribution, sales and servicing. DEPENDENCE ON KEY PERSONNEL Our business and future operating results depend in significant part upon the continued contributions of our key technical personnel and senior management, many of whom would be difficult to replace. Our business and future operating results also depend in significant part upon our ability to attract and retain qualified management, manufacturing, technical, marketing, sales and support personnel for our operations. Competition for such personnel is intense and we may not succeed in attracting or retaining such personnel. The loss of key employees, the failure of any key employee to perform adequately or our inability to attract and retain skilled employees, as needed, could materially adversely affect our business, financial condition and results of operations. PRICE VOLATILITY AND FLUCTUATIONS IN OPERATING RESULTS The market price of our common stock could decline below the public offering price. Specific factors relating to our business or broad market fluctuations may materially adversely affect the market price of our common stock. The trading price of our common stock could be subject to wide fluctuations in response to quarter-to-quarter variations in operating results, announcements of technological innovations, new products or clinical data announced by us or our competitors, governmental regulatory action, developments with respect to patents or proprietary rights, general conditions in the medical device or cardiovascular device industries, changes in earnings estimates by securities analysts, or other events or factors, many of which are beyond our control. In addition, the stock market has experienced extreme price and volume fluctuations, which have particularly affected the market prices of many medical device companies and which have often been unrelated to the operating performance of such companies. Our revenue or operating results in future quarters may be below the expectations of securities analysts and investors. In such an event, the price of our common stock would likely decline, perhaps substantially. During the nine month period ended September 30, 2001, the closing price of our common stock ranged from a high of $39.50 per share to a low of $5.47 per share and ended that period at $5.93 per share. PATENTS AND PROPRIETARY TECHNOLOGY Our policy is to protect our proprietary position by, among other methods, filing United States and foreign patent applications. On November 4, 1997 we were issued United States Patent No. 5,683,345, on May 4, 1999 we received United States Patent No. 5,899,882 (which is jointly owned by us and Emory University) and on January 11, 2000 we received United States Patent No. 6,013,020, all related to the Beta Cath(TM) System. We also have several additional United States applications pending covering aspects of our Beta- Cath(TM) System. The United States Patent and Trademark Office has indicated that certain claims pending in another United States application are allowable. With respect to the above identified United States Patents and our other pending United States patent applications, we have filed, or will file in due course, counterpart applications in the European Patent Office and certain other countries. 14 Like other firms that engage in the development of medical devices, we must address issues and risks relating to patents and trade secrets. United States Patent No. 5,683,345 may not offer any protection to us because competitors may be able to design functionally equivalent devices that do not infringe this patent. It may also be reexamined, invalidated or circumvented. In addition, claims under our other pending applications may not be allowed, or if allowed, may not offer any protection or may be reexamined, invalidated or circumvented. In addition, competitors may have or may obtain patents that will prevent, limit or interfere with our ability to make, use or sell our products in either the United States or international markets. We have two versions of our delivery catheter: a "rapid exchange" catheter and an "over the wire" catheter. As a result of certain United States patents held by other device manufacturers covering "rapid exchange" catheters, we currently intend to sell the "over the wire" version of our delivery catheter in the United States. If further investigation reveals that we may sell a "rapid exchange" version in the United States without infringing the valid patent rights of others, we might decide to do so in the future. However, we cannot assure that we will be able to sell a "rapid exchange" version in the United States without a license of third party patent rights or that such a license would be available to us on favorable terms or at all. Item 3. Quantitative And Qualitative Disclosures About Market Risk Interest Rate Risk The Company's cash equivalents and short-term investments are subject to market risk, primarily interest-rate and credit risk. The Company's investments are managed by outside professional managers within investment guidelines set by the Company. Such guidelines include security type, credit quality and maturity and are intended to limit market risk by restricting the Company's investments to high credit quality securities with relatively short-term maturities. At September 30, 2001, the Company had $14.3 million in cash equivalents with a weighted average interest rate of 3.30% and $22.1 million in available for sale investments with a weighted average interest rate of 3.40%. At September 30, 2000 the Company had $49.2 million in cash equivalents with a weighted average interest rate of 6.47% and $21.7 million in available for sale investments with a weighted average interest rate of 6.72%. All investments mature, by policy, in one year or less. PART II. OTHER INFORMATION 15 Item 5. Other Information The registrant's Chief Executive Officer is the only executive officer who has an employment agreement with the registrant. In September 2001, the registrant entered into change of control agreements with nine of the other executive officers. Each agreement provides that, following a Change in Control of the registrant, if the executive officer is terminated by registrant without Cause or leaves for Good Reason, then he or she will be entitled to a lump sum cash payment of two times his or her average annual compensation and any non-competition arrangement between the executive officer and registrant will terminate effective on the date of the Change in Control. The form of agreement is attached hereto as Exhibit 10.31 and incorporated herein by reference thereto. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.30 Loan and Security Agreement dated August 1, 2001 between Silicon Valley Bank and Novoste Corporation. 10.31 Negative Pledge Agreement dated August 1, 2001 between Silicon Valley Bank and Novoste Corporation. 10.32 Form of change of control agreement executed between Novoste Corporation and executive officers. (b) Report on Form 8-K The Company filed a Form 8-K on October 3, 2001 stating that a letter, dated September 25, 2001 had been mailed from the Registrant to the shareholders of the registrant. The purpose of the letter was to update the shareholders on second quarter, 2001 financial results and to address issues raised by the release of coated stent clinical trial results, a competitive technology. 16 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 hereunto duly authorized. NOVOSTE CORPORATION November 13, 2001 /s/ Edwin B. Cordell, Jr. - ------------------ ------------------------------------------ Date Edwin B. Cordell, Jr. Vice President - Finance, Chief Financial Officer (Principal Financial & Accounting Officer) 17 EX-10.30 3 dex1030.txt LOAN AND SECURITY AGREEMENT EXHIBIT 10.30 - -------------------------------------------------------------------------------- LOAN AND SECURITY AGREEMENT NOVOSTE CORPORATION - --------------------------------------------------------------------------------
TABLE OF CONTENTS Page ---- 1 ACCOUNTING AND OTHER TERMS.............................................. 4 -- -------------------------- 2 LOAN AND TERMS OF PAYMENT............................................... 4 -- ------------------------- 2.1 Promise to Pay.......................................................... 4 2.2 Overadvances............................................................ 5 2.3 Interest Rate, Payments................................................. 5 2.4 Fees.................................................................... 6 3 CONDITIONS OF LOANS..................................................... 6 -- ------------------- 3.1 Conditions Precedent to Initial Credit Extension........................ 6 3.2 Conditions Precedent to all Credit Extensions........................... 6 4 CREATION OF SECURITY INTEREST........................................... 6 -- ----------------------------- 4.1 Grant of Security Interest.............................................. 6 5 REPRESENTATIONS AND WARRANTIES.......................................... 6 -- ------------------------------ 5.1 Due Organization and Authorization...................................... 6 5.2 Collateral.............................................................. 7 5.3 Litigation.............................................................. 7 5.4 No Material Adverse Change in Financial Statements...................... 7 5.5 Solvency................................................................ 7 5.6 Regulatory Compliance................................................... 7 5.7 Subsidiaries............................................................ 8 5.8 Full Disclosure......................................................... 8 6 AFFIRMATIVE COVENANTS................................................... 8 -- --------------------- 6.1 Government Compliance................................................... 8 6.2 Financial Statements, Reports, Certificates............................. 8 6.3 Inventory; Returns...................................................... 9 6.4 Taxes................................................................... 9 6.5 Insurance............................................................... 9 6.6 Primary Accounts........................................................ 9 6.7 Financial Covenants..................................................... 9 6.8 Further Assurances...................................................... 10 7 NEGATIVE COVENANTS...................................................... 10 -- ------------------ 7.1 Dispositions............................................................ 10 7.2 Changes in Business, Ownership, Management or Locations of Collateral... 10 7.3 Mergers or Acquisitions................................................. 10 7.4 Indebtedness............................................................ 10 7.5 Encumbrance............................................................. 10 7.6 Distributions; Investments.............................................. 11 7.7 Transactions with Affiliates............................................ 11 7.8 Subordinated Debt....................................................... 11 7.9 Compliance.............................................................. 11 8 EVENTS OF DEFAULT....................................................... 11 -- ----------------- 8.1 Payment Default......................................................... 11 8.2 Covenant Default........................................................ 11 8.3 Material Adverse Change................................................. 12 8.4 Attachment.............................................................. 12
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8.5 Insolvency.............................................................. 12 8.6 Other Agreements........................................................ 12 8.7 Judgments............................................................... 12 8.8 Misrepresentations...................................................... 12 9 BANK'S RIGHTS AND REMEDIES.............................................. 12 -- -------------------------- 9.1 Rights and Remedies..................................................... 12 9.2 Power of Attorney....................................................... 13 9.3 Accounts Collection..................................................... 13 9.4 Bank Expenses........................................................... 13 9.5 Bank's Liability for Collateral......................................... 13 9.6 Remedies Cumulative..................................................... 14 9.7 Demand Waiver........................................................... 14 10 NOTICES................................................................. 14 -- ------- 11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER.............................. 14 -- ------------------------------------------ 12 GENERAL PROVISIONS...................................................... 14 -- ------------------ 12.1 Successors and Assigns.................................................. 14 12.2 Indemnification......................................................... 14 12.3 Time of Essence......................................................... 15 12.4 Severability of Provision............................................... 15 12.5 Amendments in Writing, Integration...................................... 15 12.6 Counterparts............................................................ 15 12.7 Survival................................................................ 15 12.8 Confidentiality......................................................... 15 12.9 Attorneys' Fees, Costs and Expenses..................................... 15 13 DEFINITIONS............................................................. 15 -- ----------- 13.1 Definitions............................................................. 16
This LOAN AND SECURITY AGREEMENT dated August 1, 2001, between SILICON VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara, California 95054 with a loan production office located at 3343 Peachtree Road, N.E., Atlanta, Georgia 30326 and NOVOSTE CORPORATION ("Borrower"), whose address is 3890 Steve Reynolds Blvd., Norcross, Georgia 30093 provides the terms on which Bank will lend to Borrower and Borrower will repay Bank. The parties agree as follows: 1 ACCOUNTING AND OTHER TERMS -------------------------- Accounting terms not defined in this Agreement will be construed following GAAP. Calculations and determinations must be made following GAAP. The term "financial statements" includes the notes and schedules. The terms "including" and "includes" always mean "including (or includes) without limitation," in this or any Loan Document. 2 LOAN AND TERMS OF PAYMENT ------------------------- 2.1 Promise to Pay. Borrower promises to pay Bank the unpaid principal amount of all Credit Extensions and interest on the unpaid principal amount of the Credit Extensions on such dates, and at such rates, as set forth in this Agreement. 2.1.1 Revolving Advances. (a) Bank will make Advances not exceeding (i) the lesser of (A) the Committed Revolving Line or (B) the Borrowing Base, minus (ii) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) and minus (iii) the Cash Management Services Sublimit. Amounts borrowed under this Section may be repaid and reborrowed during the term of this Agreement. (b) To obtain an Advance, Borrower must notify Bank by facsimile or telephone by 12:00 p.m. Eastern time on the Business Day the Advance is to be made. Borrower must promptly confirm the notification by faxing to Bank the Payment/Advance Form attached as Exhibit B. Bank will credit Advances to Borrower's deposit account. Bank may make Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Advances are necessary to meet Obligations which have become due. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Borrower will indemnify Bank for any loss Bank suffers due to such reliance. (c) The Committed Revolving Line terminates on the Revolving Maturity Date, when all Advances are immediately payable. 2.1.2 Letters of Credit Sublimit. Bank will issue or have issued Letters of Credit for Borrower's account not exceeding (i) the lesser of the Committed Revolving Line or the Borrowing Base minus (ii) the outstanding principal balance of the Advances and minus (iii) the Cash Management Sublimit; however, the face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) may not exceed $500,000. Each Letter of Credit will have an expiry date of no later than 180 days after the Revolving Maturity Date, but Borrower's reimbursement obligation will be secured by cash on terms acceptable to Bank at any time after the Revolving Maturity Date if the term of this Agreement is not extended by Bank. Borrower agrees to execute any further documentation in connection with the Letters of Credit as Bank may reasonably request. 4 2.1.3 Cash Management Services Sublimit. Borrower may use up to $500,000 for Bank's Cash Management Services, which may include merchant services, direct deposit of payroll, business credit card, and check cashing services identified in various cash management services agreements related to such services (the "Cash Management Services"). All amounts Bank pays for any Cash Management Services will be treated as Advances under the Committed Revolving Line. 2.2 Overadvances. If the aggregated Borrower's Obligations under Section 2.1.1, 2.1.2 and 2.1.3 exceed the lesser of either (i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower must immediately pay Bank the excess. At no time shall the Borrower's Obligations under Section 2.1.2 and 2.1.3 exceed $500,000 in the aggregate. 2.3 Interest Rate, Payments. (a) Interest Rate. Advances accrue interest on the outstanding principal balance at a per annum rate of 1 percentage point above the Prime Rate. At such time as Borrower achieves 3 consecutive months of Profitability, the interest rate shall be decreased to a rate equal to the Prime Rate. The effective date of such interest rate change, will be the first day of the month following Bank's receipt of Borrower's financial statements showing that Borrower has met the above described criteria for such interest rate change. After an Event of Default, Obligations accrue interest at 5 percent above the rate effective immediately before the Event of Default. The interest rate increases or decreases when the Prime Rate changes. Interest is computed on a 360 day year for the actual number of days elapsed. (b) Payments. Interest due on the Committed Revolving Line is payable on the 1st of each month. Bank may debit any of Borrower's deposit accounts including Account Number _____________________________ for principal and interest payments owing or any amounts Borrower owes Bank. Bank will promptly notify Borrower when it debits Borrower's accounts. These debits are not a set- off. Payments received after 12:00 noon Eastern time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional fees or interest accrue. (c) Agreements Regarding Interest and Other Charges. Borrower and the Bank agree that the only changes imposed or to be imposed by Bank upon Borrower for the use of money in connection with the Obligations is and will be the interest required to be paid under the provisions of this Agreement as well as the related provisions of the Loan Documents. The amount of interest due and payable under this Agreement or the Loan Documents will not exceed the maximum rate of interest allowed by applicable law and, if any payment is made by Borrower or received by Bank in excess of such payment, such sum shall be credited as a payment of principal. It is the express intent that Borrower not pay and the Bank not receive, directly or indirectly or in any manner, interest in excess of that which may be lawfully paid under applicable law. All interest and other charges, fees or other amounts deemed to be interest which are paid or agreed to be paid to Bank under this Agreement or the Loan Documents shall, to the maximum extent permitted by applicable law, be amortized, allocated and spread on a pro-rata basis throughout the entire actual term of the Obligations. -------- Any and all fees payable under this Agreement are not intended, and will not be deemed to be interest or a charge for use of money, but rather will constitute an "other charge" within the meaning of O.C.G.A. 7-4-2(a)(1). 5 2.4 Fees. Borrower will pay: (a) Facility Fee. A fully earned, non-refundable Facility Fee of $30,000 due on the Closing Date; and (b) Bank Expenses. All Bank Expenses (including reasonable attorneys' fees and reasonable expenses) incurred through and after the date of this Agreement, are payable when due. 3 CONDITIONS OF LOANS ------------------- 3.1 Conditions Precedent to Initial Credit Extension. Bank's obligation to make the initial Credit Extension is subject to the condition precedent that: (a) Bank receives the agreements, documents and fees it requires, and (b) Bank completes a Collateral audit with results satisfactory to Bank. 3.2 Conditions Precedent to all Credit Extensions. Bank's obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following: (a) timely receipt of any Payment/Advance Form; and (b) the representations and warranties in Section 5 must be materially true on the date of the Payment/Advance Form and on the effective date of each Credit Extension and no Event of Default may have occurred and be continuing, or result from the Credit Extension. Each Credit Extension is Borrower's representation and warranty on that date that the representations and warranties of Section 5 remain true. 4 CREATION OF SECURITY INTEREST ----------------------------- 4.1 Grant of Security Interest. Borrower grants Bank a continuing security interest in all presently existing and later acquired Collateral to secure all Obligations and performance of each of Borrower's duties under the Loan Documents. Except for Permitted Liens, any security interest will be a first priority security interest in the Collateral. Bank may place a "hold" on any deposit account pledged as Collateral. If this Agreement is terminated, Bank's lien and security interest in the Collateral will continue until Borrower fully satisfies its Obligations. 5 REPRESENTATIONS AND WARRANTIES ------------------------------ Borrower represents and warrants as follows: 5.1 Due Organization and Authorization. Borrower and each Subsidiary is duly existing and in good standing in its state of formation and qualified and licensed to do business in, and in good standing in, any state or country in which the conduct of its business or its ownership of property requires that it be 6 qualified, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change. Borrower has not changed its state of formation or its organizational structure or type or any organizational number (if any) assigned by its jurisdiction of formation. The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower's formation documents, nor constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which or by which it is bound in which the default could reasonably be expected to cause a Material Adverse Change. 5.2 Collateral. Borrower has good title to the Collateral, free of Liens except Permitted Liens. Borrower has no other deposit account, other than the deposit accounts described in Schedule 1. The Accounts are bona fide, existing obligations, and the service or property has been performed or delivered to the account debtor or its agent for immediate shipment to and unconditional acceptance by the account debtor. The Collateral is not in the possession of any third party bailee (such as at a warehouse). In the event that Borrower, after the date hereof, intends to store or otherwise deliver the Collateral to such a bailee, then Borrower will receive the prior written consent of Bank and such bailee must acknowledge in writing that the bailee is holding such Collateral for the benefit of Bank. Borrower has no notice of any actual or imminent Insolvency Proceeding of any account debtor whose accounts are an Eligible Account in any Borrowing Base Certificate. All Inventory is in all material respects of good and marketable quality, free from material defects. 5.3 Litigation. Except as shown in Schedule 2, there are no actions or proceedings pending or, to the knowledge of Borrower's Responsible Officers and legal counsel, threatened by or against Borrower or any Subsidiary in which a likely adverse decision could reasonably be expected to cause a Material Adverse Change. 5.4 No Material Adverse Change in Financial Statements. All consolidated financial statements for Borrower, and any Subsidiary, delivered to Bank fairly present in all material respects Borrower's consolidated financial condition and Borrower's consolidated results of operations. There has not been any material deterioration in Borrower's consolidated financial condition since the date of the most recent financial statements submitted to Bank. 5.5 Solvency. The fair salable value of Borrower's assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; the Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature. 5.6 Regulatory Compliance. Borrower is not an "investment company" or a company "controlled" by an "investment company" under the Investment Company Act. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to cause a Material Adverse Change. None of Borrower's or any Subsidiary's properties or assets has been used by Borrower or any Subsidiary or, to the best of 7 Borrower's knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each Subsidiary has timely filed all required tax returns and paid, or made adequate provision to pay, all material taxes, except those being contested in good faith with adequate reserves under GAAP. Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change. 5.7 Subsidiaries. Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments. 5.8 Full Disclosure. No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank (taken together with all such written certificates and written statements to Bank) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading. It being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected and forecasted results. 6 AFFIRMATIVE COVENANTS --------------------- Borrower will do all of the following for so long as Bank has an obligations to lend, or there are outstanding Obligations: 6.1 Government Compliance. Borrower will maintain its and all Subsidiaries' legal existence and good standing in its jurisdiction of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to cause a Material Adverse Change. Borrower will comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could reasonably be expected to cause a Material Adverse Change. 6.2 Financial Statements, Reports, Certificates. (a) Borrower will deliver to Bank: (i) as soon as available, but no later than 30 days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Borrower's consolidated operations during the period certified by a Responsible Officer and in a form acceptable to Bank; (ii) as soon as available, but no later than 90 days after the last day of Borrower's fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank; (iii) within 5 days of filing, copies of all statements, reports and notices made available to Borrower's security holders or to any holders of Subordinated Debt and reports on Form 10-K and 10-Q filed with the Securities and Exchange Commission; (iv) a prompt report of any legal actions pending or threatened against Borrower or any Subsidiary that could reasonably be expected to result in damages or costs to Borrower or any Subsidiary of $100,000 or more; (v) budgets, sales projections, operating plans or other financial information Bank reasonably requests. 8 (b) Within 30 days after the last day of each month, when Advances are outstanding or prior to an Advance when no Advances are outstanding, Borrower will deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in the form of Exhibit C, with aged listings of accounts receivable. (c) Within 30 days after the last day of each month and within 45 days after the last day of each quarter, Borrower will deliver to Bank a Compliance Certificate signed by a Responsible Officer in the form of Exhibit D. (d) Allow Bank to audit Borrower's Collateral at Borrower's expense. The initial audit will be conducted within 60 days of the Closing Date or prior to the initial Advance and all subsequent audits will be conducted no more often than every year unless an Event of Default has occurred and is continuing. 6.3 Inventory; Returns. Borrower will keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its account debtors will follow Borrower's customary practices as they exist at execution of this Agreement. Borrower must promptly notify Bank of all returns, recoveries, disputes and claims, that involve more than $100,000. 6.4 Taxes. Borrower will make, and cause each Subsidiary to make, timely payment of all material federal, state, and local taxes or assessments and will deliver to Bank, on demand, appropriate certificates attesting to the payment. 6.5 Insurance. Borrower will keep its business and the Collateral insured for risks and in amounts, as Bank may reasonably request. Insurance policies will be in a form, with companies, and in amounts that are satisfactory to Bank in Bank's reasonable discretion. All property policies will have a lender's loss payable endorsement showing Bank as an additional loss payee and all liability policies will show the Bank as an additional insured and provide that the insurer must give Bank at least 20 days notice before canceling its policy. At Bank's request, Borrower will deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy will, at Bank's option, be payable to Bank on account of the Obligations. 6.6 Primary Accounts. Borrower will maintain its primary banking relationship with Bank, which relationship shall include Borrower maintaining account balances in any accounts at or through Bank representing at least 50% of all account balances of Borrower at any financial institution. 6.7 Financial Covenants. Borrower will maintain as of the last day of each month: (i) Quick Ratio (Adjusted). A ratio of Quick Assets to Current Liabilities minus Deferred Maintenance Revenue of at least 1.75 to 1.00. (ii) Tangible Net Worth. A Tangible Net Worth of at least $42,500,000 plus 25% of proceeds from any stock offering through the month ending December 31, 2001, increasing to $55,000,000 plus 25% of proceeds from any stock offering beginning with the month ending January 31, 2002 and thereafter. 9 For calculation purposes, "Tangible Net Worth" is stockholder's equity plus Subordinated Debt less intangible assets. 6.8 Further Assurances. Borrower will execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank's security interest in the Collateral or to effect the purposes of this Agreement. 7 NEGATIVE COVENANTS ------------------ Borrower will not do any of the following without Bank's prior written consent, which will not be unreasonably withheld, for so long as Bank has an obligation to lend and there are any outstanding Obligations: 7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (i) of Inventory in the ordinary ------ --- course of business; (ii) of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; or (iii) of worn-out or obsolete Equipment. 7.2 Changes in Business, Ownership, Management or Locations of Collateral. Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower or reasonably related thereto or have a material change in its ownership or management of greater than 40% (other than by the sale of Borrower's equity securities in a public offering or to venture capital investors so long as Borrower identifies the venture capital investors prior to the closing of the investment). Borrower will not, without at least 30 days prior written notice, relocate its chief executive office, change its state of formation (including reincorporation), change its organizational number or name or add any new offices or business locations (such as warehouses) in which Borrower maintains or stores over $5,000 in Collateral. 7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, except where (i) no Event of Default has occurred and is continuing or would result from such action during the term of this Agreement; (ii) such transaction would not result in a decrease of more than 25% of Tangible Net Worth and (iii) such transaction would not result in a change of --- ownership of greater than 35% of Borrower outstanding shares. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower. 7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness. 7.5 Encumbrance. Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, 10 except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted here, subject to Permitted Liens. 7.6 Distributions; Investments. Directly or indirectly acquire or own any Person, or make any Investment in any Person, other than Permitted Investments, or permit any of its Subsidiaries to do so. Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock. 7.7 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower's business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm's length transaction with a nonaffiliated Person. 7.8 Subordinated Debt. Make or permit any payment on any Subordinated Debt, except under the terms of the Subordinated Debt, or amend any provision in any document relating to the Subordinated Debt without Bank's prior written consent. 7.9 Compliance. Become an "investment company" or a company controlled by an "investment company," under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock, or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower's business or operations or would reasonably be expected to cause a Material Adverse Change, or permit any of its Subsidiaries to do so. 8 EVENTS OF DEFAULT ----------------- Any one of the following is an Event of Default: 8.1 Payment Default. If Borrower fails to pay any of the Obligations within 3 Business Days after their due date. During the additional period the failure to cure the default is not an Event of Default (but no Credit Extension will be made during the cure period); 8.2 Covenant Default. If Borrower does not perform any obligation in Section 6 or violates any covenant in Section 7 or does not perform or observe any other material term, condition or covenant in this Agreement, any Loan Documents, or in any agreement between Borrower and Bank and as to any default under a term, condition or covenant that can be cured, has not cured the default within 10 days after it occurs, or if the default cannot be cured within 10 days or cannot be cured after Borrower's attempts within 10 day period, and the default may be cured within a reasonable time, then Borrower has an additional period (of not more than 30 days) to attempt to cure the default. During the additional time, the failure to cure the default is not an Event of Default (but no Credit Extensions will be made during the cure period); 11 8.3 Material Adverse Change. If there (i) occurs a material adverse change in the business, operations, or condition (financial or otherwise) of the Borrower, or (ii) is a material impairment of the prospect of repayment of any portion of the Obligations; or (iii) is a material impairment of the value or priority of Bank's security interests in the Collateral. 8.4 Attachment. If any material portion of Borrower's assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in 10 days, or if Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business or if a judgment or other claim becomes a Lien on a material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed against any of Borrower's assets by any government agency and not paid within 10 days after Borrower receives notice. These are not Events of Default if stayed or if a bond is posted pending contest by Borrower (but no Credit Extensions will be made during the cure period); 8.5 Insolvency. If Borrower becomes insolvent or if Borrower begins an Insolvency Proceeding or an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within 30 days (but no Credit Extensions will be made before any Insolvency Proceeding is dismissed); 8.6 Other Agreements. If there is a default in any agreement between Borrower and a third party that gives the third party the right to accelerate any Indebtedness exceeding $150,000 or that could cause a Material Adverse Change; 8.7 Judgments. If a money judgment(s) in the aggregate of at least $100,000 is rendered against Borrower and is unsatisfied and unstayed for 10 days (but no Credit Extensions will be made before the judgment is stayed or satisfied); or 8.8 Misrepresentations. If Borrower or any Person acting for Borrower makes any material misrepresentation or material misstatement now or later in any warranty or representation in this Agreement or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document. 9 BANK'S RIGHTS AND REMEDIES -------------------------- 9.1 Rights and Remedies. When an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following: (a) Declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank); (b) Stop advancing money or extending credit for Borrower's benefit under this Agreement or under any other agreement between Borrower and Bank; 12 (c) Settle or adjust disputes and claims directly with account debtors for amounts, on terms and in any order that Bank considers advisable; (d) Make any payments and do any acts it considers necessary or reasonable to protect its security interest in the Collateral. Borrower will assemble the Collateral if Bank requires and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank's rights or remedies; (e) Apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower; (f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral; and (g) Dispose of the Collateral according to the Code. 9.2 Power of Attorney. Effective only when an Event of Default occurs and continues, Borrower irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name on any checks or other forms of payment or security; (ii) sign Borrower's name on any invoice or bill of lading for any Account or drafts against account debtors, (iii) make, settle, and adjust all claims under Borrower's insurance policies; (iv) settle and adjust disputes and claims about the Accounts directly with account debtors, for amounts and on terms Bank determines reasonable; and (v) transfer the Collateral into the name of Bank or a third party as the Code permits. Bank may exercise the power of attorney to sign Borrower's name on any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred. Bank's appointment as Borrower's attorney in fact, and all of Bank's rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank's obligation to provide Credit Extensions terminates. 9.3 Accounts Collection. When an Event of Default occurs and continues, Bank may notify any Person owing Borrower money of Bank's security interest in the funds and verify the amount of the Account. Borrower must collect all payments in trust for Bank and, if requested by Bank, immediately deliver the payments to Bank in the form received from the account debtor, with proper endorsements for deposit. 9.4 Bank Expenses. If Borrower fails to pay any amount or furnish any required proof of payment to third persons, Bank may make all or part of the payment or obtain insurance policies required in Section 6.5, and take any action under the policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then applicable rate and secured by the Collateral. No payments by Bank are deemed an agreement to make similar payments in the future or Bank's waiver of any Event of Default. 9.5 Bank's Liability for Collateral. If Bank complies with reasonable banking practices and Section 9-207 of the Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, 13 warehouseman, bailee, or other person. Borrower bears all risk of loss, damage or destruction of the Collateral. 9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement, the Loan Documents, and all other agreements are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank's exercise of one right or remedy is not an election, and Bank's waiver of any Event of Default is not a continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is effective unless signed by Bank and then is only effective for the specific instance and purpose for which it was given. 9.7 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable. 10 NOTICES ------- All notices or demands by any party about this Agreement or any other related agreement must be in writing and be personally delivered or sent by an overnight delivery service, by certified mail, postage prepaid, return receipt requested, or by telefacsimile to the addresses set forth at the beginning of this Agreement. A party may change its notice address by giving the other party written notice. 11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER ------------------------------------------ Georgia law governs the Loan Documents. AS PERMITTED BY LAW, BORROWER AND BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTIONS. EACH PARTY RECOGNIZES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS. ANY LEGAL ACTION OR PROCEEDING ABOUT ANY OF THE LOAN DOCUMENTS OR TO ENFORCE ANY JUDGMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN DE KALB OR FULTON COUNTY, GEORGIA, OR ANY COURT THE JURISDICTION OF WHICH BORROWER OR ANY OF ITS PROPERTY MAY BE SUBJECT. 12 GENERAL PROVISIONS ------------------ 12.1 Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights under it without Bank's prior written consent which may be granted or withheld in Bank's discretion. Bank has the right, without the consent of or notice to Borrower, to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank's obligations, rights and benefits under this Agreement. 12.2 Indemnification. Borrower will indemnify, defend and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Bank 14 Expenses incurred, or paid by Bank from, following, or consequential to transactions between Bank and Borrower (including reasonable attorneys fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct. 12.3 Time of Essence. Time is of the essence for the performance of all obligations in this Agreement. 12.4 Severability of Provision. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision. 12.5 Amendments in Writing, Integration. All amendments to this Agreement must be in writing and signed by Borrower and Bank. This Agreement represents the entire agreement about this subject matter, and supersedes prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement merge into this Agreement and the Loan Documents. 12.6 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, constitute one Agreement. 12.7 Survival. All covenants, representations and warranties made in this Agreement continue in full force while any Obligations remain outstanding. The obligations of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of limitations for actions that may be brought against Bank have run. 12.8 Confidentiality. In handling any confidential information, Bank will exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made (i) to Bank's subsidiaries or affiliates in connection with their business with Borrower, (ii) to prospective transferees or purchasers of any interest in the loans (provided, however, Bank shall use commercially reasonable efforts in obtaining such prospective transferee or purchasers agreement of the terms of this provision), (iii) as required by law, regulation, subpoena, or other order, (iv) as required in connection with Bank's examination or audit and (v) as Bank considers appropriate exercising remedies under this Agreement. Confidential information does not include information that either: (a) is in the public domain or in Bank's possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information. 12.9 Attorneys' Fees, Costs and Expenses. In any action or proceeding between Borrower and Bank arising out of the Loan Documents, the prevailing party will be entitled to recover its reasonable attorneys' fees and other reasonable costs and expenses incurred, in addition to any other relief to which it may be entitled. 13 DEFINITIONS ----------- 15 13.1 Definitions. In this Agreement: "Accounts" are all existing and later arising accounts, contract rights, and other obligations owed Borrower in connection with its sale or lease of goods (including licensing software and other technology) or provision of services, all credit insurance, guaranties, other security and all merchandise returned or reclaimed by Borrower and Borrower's Books relating to any of the foregoing, as such definition may be amended from time to time according to the Code. "Advance" or "Advances" is a loan advance (or advances) under the Committed Revolving Line. "Affiliate" of a Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person's senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person's managers and members. "Bank Expenses" are all audit fees and expenses and reasonable costs and expenses (including reasonable attorneys' fees and expenses) for preparing, negotiating, administering, defending and enforcing the Loan Documents (including appeals or Insolvency Proceedings). "Borrower's Books" are all Borrower's books and records including ledgers, records regarding Borrower's assets or liabilities, the Collateral, business operations or financial condition and all computer programs or discs or any equipment containing the information. "Borrowing Base" is 80% of Eligible Accounts as determined by Bank from Borrower's most recent Borrowing Base Certificate; provided, however, that Bank -------- ------- may lower the percentage of the Borrowing Base after performing an audit of Borrower's Collateral. "Business Day" is any day that is not a Saturday, Sunday or a day on which the Bank is closed. "Cash Management Services" are defined in Section 2.1.3. "Closing Date" is the date of this Agreement. "Code" is the Uniform Commercial Code, as applicable. "Collateral" is the property described on Exhibit A. --------- "Committed Revolving Line" is an Advance of up to $10,000,000. "Contingent Obligation" is, for any Person, any direct or indirect liability, contingent or not, of that Person for (i) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (ii) any obligations for undrawn letters of credit for the account of that Person; and (iii) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but "Contingent Obligation" does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by 16 the Person in good faith; but the amount may not exceed the maximum of the obligations under the guarantee or other support arrangement. "Credit Extension" is each Advance, Letter of Credit, or any other extension of credit by Bank for Borrower's benefit. "Current Liabilities" are the aggregate amount of Borrower's Total Liabilities which mature within one (1) year. "Deferred Maintenance Revenue" is all amounts received in advance of performance under maintenance contract and not yet recognized as revenue. "Eligible Accounts" are Accounts in the ordinary course of Borrower's business that meet all Borrower's representations and warranties in Section 5; but Bank may change eligibility standards by giving Borrower notice. Unless - --- Bank agrees otherwise in writing, Eligible Accounts will not include: (a) Accounts that the account debtor has not paid within 90 days of invoice date; (b) Accounts for an account debtor, 50% or more of whose Accounts have not been paid within 90 days of invoice date; (c) Credit balances over 90 days from invoice date; (d) Accounts for an account debtor, including Affiliates, whose total obligations to Borrower exceed 25% of all Accounts, for the amounts that exceed that percentage, unless the Bank approves in writing; (e) Accounts for which the account debtor does not have its principal place of business in the United States; (f) Accounts for which the account debtor is a federal, state or local government entity or any department, agency, or instrumentality; (g) Accounts for which Borrower owes the account debtor, but only up to the amount owed (sometimes called "contra" accounts, accounts payable, customer deposits or credit accounts); (h) Accounts for demonstration or promotional equipment, or in which goods are consigned, sales guaranteed, sale or return, sale on approval, bill and hold, or other terms if account debtor's payment may be conditional; (i) Accounts for which the account debtor is Borrower's Affiliate, officer, employee, or agent; (j) Accounts in which the account debtor disputes liability or makes any claim and Bank believes there may be a basis for dispute (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business; (k) Accounts for which Bank reasonably determines collection to be doubtful. "Equipment" is all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest. "ERISA" is the Employment Retirement Income Security Act of 1974, and its regulations. 17 "GAAP" is generally accepted accounting principles. "Indebtedness" is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations and (d) Contingent Obligations. "Insolvency Proceeding" are proceedings by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief. "Inventory" is present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or later owned by or in the custody or possession, actual or constructive, of Borrower, including inventory temporarily out of its custody or possession or in transit and including returns on any accounts or other proceeds (including insurance proceeds) from the sale or disposition of any of the foregoing and any documents of title. "Investment" is any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person. "Letter of Credit" is defined in Section 2.1.2. "Lien" is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance. "Loan Documents" are, collectively, this Agreement, any note, or notes or guaranties executed by Borrower or Guarantor, and any other present or future agreement between Borrower and/or for the benefit of Bank in connection with this Agreement, all as amended, extended or restated. "Material Adverse Change" is defined in Section 8.3. "Obligations" are debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later, including cash management services, letters of credit and foreign exchange contracts, if any and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank. "Permitted Indebtedness" is: (a) Borrower's indebtedness to Bank under this Agreement or any other Loan Document; (b) Indebtedness existing on the Closing Date and shown on the Schedule; (c) Subordinated Debt; (d) Indebtedness to trade creditors incurred in the ordinary course of business; and (e) Indebtedness secured by Permitted Liens. "Permitted Investments" are: (a) Investments shown on the Schedule and existing on the Closing Date; and 18 (b) (i) marketable direct obligations issued or unconditionally guaranteed by the United States or its agency or any State maturing within 1 year from its acquisition, (ii) commercial paper maturing no more than 1 year after its creation and having the highest rating from either Standard & Poor's Corporation or Moody's Investors Service, Inc., (iii) Bank's certificates of deposit issued maturing no more than 1 year after issue, and (iv) any Investments permitted by Borrower's investment policy, as amended from time to time, provided that such investment policy (and any such amendment thereto) has been approved by Bank. "Permitted Liens" are: (a) Liens existing on the Closing Date and shown on the Schedule or arising under this Agreement or other Loan Documents; (b) Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, if they have no priority over -- any of Bank's security interests; (c) Purchase money Liens (i) on Equipment acquired or held by Borrower or its Subsidiaries incurred for financing the acquisition of the Equipment, or (ii) existing on equipment when acquired, if the Lien is confined to the -- property and improvements and the proceeds of the equipment; (d) Licenses or sublicenses granted in the ordinary course of Borrower's business and any interest or title of a licensor or under any license or sublicense, if the licenses and sublicenses permit granting Bank a security -- interest; (e) Leases or subleases granted in the ordinary course of Borrower's business, including in connection with Borrower's leased premises or leased property; (f) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, --- renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase. "Person" is any individual, sole proprietorship, partnership, limited liability company, joint venture, company association, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency. "Prime Rate" is Bank's most recently announced "prime rate," even if it is not Bank's lowest rate. "Profitability" is defined as net profit after tax. "Quick Assets" is, on any date, the Borrower's consolidated, unrestricted cash, cash equivalents and net billed accounts receivable. "Responsible Officer" is each of the Chief Executive Officer, the President, the Chief Financial Officer and the Controller of Borrower. "Revolving Maturity Date" is August 1, 2002. "Schedule" is any attached schedule of exceptions. 19 "Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's indebtedness owed to Bank and which is reflected in a written agreement in a manner and form acceptable to Bank and approved by Bank in writing. "Subsidiary" is for any Person, or any other business entity of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by the Person or one or more Affiliates of the Person. "Tangible Net Worth" is, on any date, the consolidated total assets of Borrower and its Subsidiaries minus, (i) any amounts attributable to (a) ----- goodwill, (b) intangible items such as unamortized debt discount and expense, Patents, trade and service marks and names, Copyrights and research and development expenses except prepaid expenses, and (c) reserves not already deducted from assets, and (ii) Total Liabilities. --- "Total Liabilities" is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower's consolidated balance sheet, including all Indebtedness, and current portion Subordinated Debt allowed to be paid, but excluding all other Subordinated Debt. BORROWER: NOVOSTE CORPORATION By: /s/ Edwin B. Cordell, Jr. ---------------------------- Title: Vice President - Finance ------------------------- BANK: SILICON VALLEY BANK By: /s/ Alan R. Spurgin ---------------------------- Title: Senior Vice President ------------------------- APRIL HARRIS NOTARY PUBLIC, COBB COUNTY, GEORGIA MY COMMISSION EXPIRES JANUARY 28, 2002 20 EXHIBIT A --------- The Collateral consists of all of Borrower's right, title and interest in and to the following: All goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; All inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrower's custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above; All contract rights and general intangibles (as such definitions may be amended from time to time according to the Code), now owned or hereafter acquired, including, without limitation, goodwill, trademarks, servicemarks, trade styles, trade names, patents, patent applications, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind,; All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower (as such definitions may be amended from time to time according to the Code) whether or not earned by performance, and any and all credit insurance, insurance (including refund) claims and proceeds, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower; All documents, cash, deposit accounts, securities, securities entitlements, securities accounts, investment property, financial assets, letters of credit, letter of credit rights, certificates of deposit, instruments and chattel paper and electronic chattel paper now owned or hereafter acquired and Borrower's Books relating to the foregoing; All copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; all trade secret rights, including all rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired; all claims for damages by way of any past, present and future infringement of any of the foregoing; and All Borrower's Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof. Notwithstanding the foregoing, the Collateral shall not be deemed to include any copyrights, copyright applications, copyright registration and like protection in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; any patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in- part of the same, trademarks, servicemarks and applications therefor, whether registered or not, and the goodwill of the business of Borrower connected with and symbolized by such trademarks, any trade secret rights, including any rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; or any claims for damage by way of any past, present and future infringement of any of the foregoing (collectively, the "Intellectual Property"), except that the Collateral shall include the proceeds of all the Intellectual Property that are accounts, (i.e. accounts receivable) of Borrower, or general intangibles consisting of rights to payment. Borrower and Bank are parties to that certain Negative Pledge Agreement, whereby Borrower, in connection with Bank's loan or loans to Borrower, has agreed, among other things, not to sell, transfer, assign, mortgage, pledge, lease grant a security interest in, or encumber any of its Intellectual Property, without Bank's prior written consent. 3. Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Documents. BORROWER: NOVOSTE CORPORATION By: /s/ Edwin B. Cordell, Jr. -------------------------------- Name: Edwin B. Cordell, Jr. ------------------------------ Title: Vice President--Finance ----------------------------- BANK: SILICON VALLEY BANK By: /s/ Alan R. Spurgin -------------------------------- Name: Alan R. Spurgin ------------------------------ Title: Senior Vice President ----------------------------- APRIL HARRIS ------------------------------------- NOTARY PUBLIC, COBB COUNTY, GEORGIA MY COMMISSION EXPIRES JANUARY 28, 2003 EX-10.31 4 dex1031.txt NEGATIVE PLEDGE AGREEMENT EXHIBIT 10.31 NEGATIVE PLEDGE AGREEMENT This Negative Pledge Agreement is made as of August 1, 2001 by and between NOVOSTE CORPORATION ("Borrower") and Silicon Valley Bank ("Bank"). In connection with, among other documents, the Loan and Security Agreement (the "Loan Documents") being concurrently executed herewith between Borrower and Bank, Borrower agrees as follows: 1. Except for non-exclusive licenses granted in the ordinary course of business, Borrower shall not sell, transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber any of Borrower's intellectual property, including, without limitation, the following: a. Any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held; b. All mask works or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired; c. Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held; d. Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held; e. All patents, patent applications and like protections including, without limitation, improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same, including without limitation the patents and patent applications; f. Any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks, including without limitation; g. Any and all claims for damages by way of past, present and future infringements of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above; h. All licenses or other rights to use any of the Copyrights, Patents, Trademarks or Mask Works, and all license fees and royalties arising from such use to the extent permitted by such license or rights; and i. All amendments, extensions, renewals and extensions of any of the Copyrights, Trademarks, Patents, or Mask Works; and j. All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing; 2. It shall be an event of default under the Loan Documents between Borrower and Bank if there is a breach of any term of this Negative Pledge Agreement. EX-10.32 5 dex1032.txt TERMINATION AGREEMENT EXHIBIT 10.32 NOVOSTE CORPORATION TERMINATION AGREEMENT This Agreement is made as of the ____ day of ______________, 2001 between Novoste Corporation, a Florida corporation, with its principal offices at 3890 Steve Reynolds Boulevard, Norcross, Georgia 30093 (the "Company") and ____________________________________ (the "Executive"), residing at ____________ _____________________________________________. WHEREAS, this Agreement is intended to specify the financial arrangements that the Company will provide to the Executive upon the Executive's separation from employment with the Company under any of the circumstances described in this Agreement; WHEREAS, this Agreement is entered into by the Company in the belief that it is in the best interests of the Company and its shareholders to provide stable conditions of employment for the Executive notwithstanding the possibility, threat or occurrence of certain types of change in control, of the Company thereby enhancing the Company's ability to attract and retain highly qualified people; and NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive agree as follows: 1. Term of Agreement. The term of this Agreement shall commence on the ----------------- date first written above and shall continue through December 31, 2001; provided that commencing on January 1, 2002 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than 12 months prior to such January 1, the Company shall have given notice that it does not wish to extend this Agreement (which notice may not, in any event, be given sooner than January 1, 2002); and provided, further, that notwithstanding any such notice by the Company not to extend, this Agreement shall continue in effect for a period of 24 months beyond the term provided in this Section if a Change in Control (as defined in Section 3(a) below) shall have occurred during such term. 2. Termination of Employment. ------------------------- (a) Prior to a Change in Control. Prior to a Change in Control, the ---------------------------- Company may terminate the Executive from employment with the Company at will, with or without Cause (as defined in Section 3(c) below), at any time. Severance payments and benefits, if any, to which the Executive may be entitled upon such a termination of employment shall be governed by the terms of the general severance policy of the Company or, if the termination is without Cause, occurs within 180 days of a Change in Control, and is in contemplation of such Change in Control, then the Executive shall be entitled to the benefits set forth in Section 4 hereof as if this termination had occurred under Section 2(b)(iii) hereof. 1 (b) After a Change in Control. ------------------------- (i) From and after the date of a Change in Control during the term of this Agreement, the Company shall not terminate the Executive from employment with the Company except as provided in Sections 2(b)(ii) or (iii) below or as a result of the Executive's Disability (as defined in Section 3(d) below) or his death. (ii) From and after the date of a Change in Control, during the term of this Agreement, the Company shall have the right to terminate the Executive from employment with the Company at any time during the term of this Agreement for Cause, by written notice to the Executive, specifying the particulars of the conduct of the Executive forming the basis for such termination. (iii) From and after the date of a Change in Control during the term of this Agreement: (A) the Company shall have the right to terminate the Executive's employment without Cause at any time; and (B) the Executive shall, upon the occurrence of such a termination by the Company without Cause, or upon the voluntary termination of the Executive's employment by the Executive for Good Reason be entitled to receive the benefits provided in Section 4 below. The Executive shall evidence a voluntary termination for Good Reason by written notice to the Company given within 60 days after the date of the occurrence of any event that the Executive knows or should reasonably have known constitutes Good Reason for voluntary termination. Such notice need only identify the Executive and set forth in reasonable detail the facts and circumstances claimed by the Executive to constitute Good Reason. Any notice given by the Executive pursuant to this Section 2 shall be effective five business days after the date it is given by the Executive. 3. Definitions. ----------- (a) A "Change in Control" shall mean: (i) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or successor provision thereto, whether or not the Company is then subject to such reporting requirements; (ii) the sale or other disposition to a person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act, entity or group (as such term is defined in Rule 13d-5 under the Exchange Act) of 50% or more of the Company's assets; (iii) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) or group (as defined in Rule 13(d)-5 of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13(d)-3 of the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; 2 (iv) the Continuing Directors (as defined in Section 3(e) below) cease to constitute a majority of the Company's Board of Directors; or (v) the majority of the Continuing Directors determine in their sole and absolute discretion that there has been a change in control of the Company. (b) "Good Reason" shall mean the occurrence of any of the following events, except for the occurrence of such an event in connection with the termination or reassignment of the Executive's employment by the Company for Cause (as defined in Section 3(c) hereof), for Disability (as defined in Section 3(d) hereof) or for death: (i) the assignment to the Executive of employment responsibilities which are not of comparable responsibility and status as the employment responsibilities held by the Executive immediately prior to a Change in Control; (ii) a relocation of the Company's principal executive offices or the Executive's office to a location that is a distance of more than 50 miles from its location immediately prior to a Change in Control; (iii) a reduction by the Company in the Executive's annual salary as in effect immediately prior to a Change in Control; (iv) an amendment or modification of the Company's incentive compensation program (except as may be required by applicable law) which affects the terms or administration of the program in a manner adverse to the interest of the Executive as compared to the terms and administration of such program immediately prior to a Change in Control; (v) except to the extent otherwise required by applicable law, the failure by the Company to continue in effect any benefit or compensation plan, stock ownership plan, stock purchase plan, bonus plan, life insurance plan, health-and-accident plan or disability plan in which the Executive is participating immediately prior to a Change in Control (or plans providing the Executive with substantially similar benefits), the taking of any action by the Company which would adversely affect the Executive's participation in, or materially reduce the Executive's benefits under, any of such plans or deprive the Executive of any material fringe benefit enjoyed by the Executive immediately prior to such Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled immediately prior to such Change in Control in accordance with the Company's vacation policy as then in effect; or (vi) the failure by the Company to obtain, as specified in Section 5(a) below, an assumption of the obligations of the Company to perform this Agreement by any successor to the Company. (c) "Cause" shall mean termination by the Company of the Executive's employment based upon: 3 (i) the willful and continued failure by the Executive substantially to perform his duties and obligations (other than any such failure resulting from his incapacity due to physical or mental illness or any such actual or anticipated failure resulting from the Executive's termination for Good Reason); or (ii) the willful engaging by the Executive in misconduct which is materially injurious to the Company, monetarily or otherwise. For purposes of this Section 3(c), no action or failure to act on the Executive's part shall be considered "willful" unless done, or omitted to be done, by the Executive in bad faith and without reasonable belief that his action or omission was in the best interests of the Company. (d) "Disability" shall mean any physical or mental condition which would qualify the Executive for a disability benefit under the Company's long-term disability plan. (e) "Continuing Director" shall mean any person who is a member of the Board of Directors of the Company, while such person is a member of the Board of Directors, who is not an Acquiring Person (as defined below) or an Affiliate or Associate (as defined below) of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who (1) was a member of the Board of Directors on the date of this Agreement as first written above or (2) subsequently becomes a member of the Board of Directors, if such person's initial nomination for election or initial election to the Board of Directors is recommended or approved by a majority of the Continuing Directors. For purposes of this Section 3(e): "Acquiring Person" shall mean any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) who or which, together with all Affiliates and Associates of such person, is the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act) of 20% or more of the shares of common stock of the Company then outstanding, but shall not include the Company, any subsidiary of the Company or any executive benefit plan of the Company or of any subsidiary of the Company or any entity holding shares of common stock organized, appointed or established for, or pursuant to the terms of, any such plan; and "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the Exchange Act. (f) "Annualized Includable Compensation" shall mean the average annual compensation which was payable by the Company and which was includable in the gross income of the Executive. 4. Benefits upon Termination under Section 2(b)(iii). ------------------------------------------------- (a) Upon (i) the termination (voluntary or involuntary) of the employment of the Executive under circumstances described in Section 2(b)(iii) above, or (ii) the termination of the employment of the Executive without Cause within 180 days of a Change in Control and in contemplation of such Change in Control, the Executive shall be entitled to receive the benefits specified in this Section 4. The amounts due to the Executive under subparagraphs (i), (ii) and (iii) of this Section 4(a) shall be paid to the Executive not later than one business day prior to the date that the termination of the Executive's 4 employment becomes effective. All benefits to the Executive pursuant to this Section 4 shall be subject to any applicable payroll or other taxes required by law to be withheld. (i) The Company shall pay to the Executive any and all amounts earned by the Executive through the date of termination; (ii) The Company shall pay to the Executive any and all amounts payable to the Executive pursuant to any standard or general severance policy of the Company; (iii) in lieu of any further base salary payments to the Executive for periods subsequent to the date that the termination of the Executive's employment becomes effective, the Company shall pay as severance pay to the Executive a lump-sum cash amount equal to two (2) times the Executive's Annualized Includable Compensation for the Base Period. For the purpose of this paragraph 4(a)(iii), the Base Period shall mean the five most recent taxable years ending before the date on which the Change in Control occurs or such portion of which the Executive was employed by the Company; (iv) the Company shall also reimburse the Executive for all legal fees and expenses incurred by the Executive as a result of such termination of employment (including all fees and expenses, if any, incurred by the Executive in seeking to obtain or enforce any right or benefit provided to the Executive by this Agreement whether by arbitration or otherwise); (v) the Company shall, at the Executive's request, also pay the costs of health care benefits for Executive and Executive's dependents under the plan in which Executive was enrolled prior to the date of termination or under a plan which provides equal benefits thereto for a period of eighteen (18) months from the date of termination; and (vi) any and all contracts, agreements or arrangements between the Company and the Executive prohibiting or restricting the Executive from owning, operating, participating in, or providing employment or consulting services to, any business or company competitive with the Company at any time or during any period after the date the termination of the Executive's employment becomes effective, shall be deemed terminated and of no further force or effect as of the date the termination of the Executive's employment becomes effective, to the extent, but only to the extent, such contracts, agreements or arrangements so prohibit or restrict the Executive; provided that the foregoing provisions shall not constitute a license or right to use any proprietary information of the Company and shall in no way affect any such contracts, agreements or arrangements insofar as they relate to nondisclosure and nonuse of proprietary information of the Company notwithstanding the fact that such nondisclosure and nonuse may prohibit or restrict the Executive in certain competitive activities. 5 (b) The Executive shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise. The amount of any payment or benefit provided in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of any employment by another employer or from any other source. (c) In the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control of the Company or termination of the Executive's employment (whether payable pursuant to the terms of this Agreement or any other plan, contract, agreement or arrangement with the Company, with any person whose actions result in a Change in Control of the Company or with any person constituting a member of an "affiliated group" as defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended (the "Code"), with the Company or with any person whose actions result in a Change in Control of the Company) (collectively, the "Total Payments") would not be deductible (in whole or in part) by the Company or such other person making such payment or providing such benefit solely as a result of Section 280G of the Code, the amount payable to the Executive pursuant to Section 4(a) hereof shall be reduced until no portion of the Total Payments is not deductible solely as a result of Section 280G of the Code or such amount payable to the Executive pursuant to Section 4(a) is reduced to zero. For purposes of this limitation, (a) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by the Company and acceptable to the Executive does not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code (such as payments payable pursuant to the Company's standard or general severance policies); (b) the payment pursuant to Section 4(a) shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in the immediately preceding clause (a)) in their entirety constitute reasonable compensation within the meaning of Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to in the immediately preceding clause (a); and (c) the value of any other non- cash benefit or of any deferred cash payment included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty as to whether all or some portion of a payment is or is not payable to the Executive under this Agreement, the Company shall initially make the payment to the Executive, and the Executive agrees to refund to the Company any amounts ultimately determined not to have been payable under the terms hereof. 5. Successors and Binding Agreement. -------------------------------- (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company), by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive terminated the 6 Executive's employment after a Change in Control for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date that the termination of the Executive's employment becomes effective. As used in this Agreement, "Company" shall mean the Company and any successor to its business and/or assets which executes and delivers the agreement provided for in this Section 5 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement is personal to the Executive, and the Executive may not assign or transfer any part of the Executive's rights or duties hereunder, or any compensation due to the Executive hereunder, to any other person. Notwithstanding the foregoing, this Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees. 6. Arbitration. Any dispute or controversy arising under or in connection ----------- with this Agreement shall be settled exclusively by arbitration in the City of Atlanta, State of Georgia, in accordance with the applicable rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 7. Modification; Waiver. No provisions of this Agreement may be modified, -------------------- waived or discharged unless such waiver, modification or discharge is agreed to in a writing signed by the Executive and such officer as may be specifically designated by the Board of Directors of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 8. Notice. All notices, requests, demands and all other communications ------ required or permitted by either party to the other party by this Agreement (including, without limitation, any notice of termination of employment and any notice of intention to arbitrate) shall be in writing and shall be deemed to have been duly given when delivered personally or received by certified or registered mail, return receipt requested, postage prepaid, at the address of the other party, as first written above (directed to the attention of the Board of Directors and Corporate Secretary in the case of the Company). Either party hereto may change its address for purposes of this Section 8 by giving 15 days' prior notice to the other party hereto. 9. Severability. If any term or provision of this Agreement or the ------------ application hereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 10. Counterparts. This Agreement may be executed by facsimile and in ------------ several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7 11. Governing Law. This Agreement has been executed and delivered in the ------------- State of Georgia and shall in all respects be governed by, and construed and enforced in accordance with, the laws of the State of Georgia, including all matters of construction, validity and performance, and without taking into consideration the conflict of law provisions of such state. 12. Effect of Agreement; Entire Agreement. The Company and the Executive ------------------------------------- understand and agree that this Agreement is intended to reflect their agreement only with respect to payments and benefits upon termination in certain cases and is not intended to create any obligation on the part of either party to continue employment. To the extent not stated otherwise in this Agreement, this Agreement supersedes any and all other oral or written agreements or policies made relating to the subject matter hereof and constitutes the entire agreement of the parties relating to the subject matter hereof; provided that this Agreement shall not supersede or limit in any way the Executive's rights under any stock option agreements or restricted stock awards or under any benefit plan, program or arrangements in accordance with their terms. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed, all as of the date first written above. NOVOSTE CORPORATION By: -------------------------------- Its: ------------------------------- EXECUTIVE ----------------------------------- Name: 8 -----END PRIVACY-ENHANCED MESSAGE-----