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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 000-21517
XOMED SURGICAL PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 06-1393528
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6743 SOUTHPOINT DRIVE N.
JACKSONVILLE, FL 32216-0980
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(Address of principal executive offices)
(904) 296-9600
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock, $.01 par value - 12,260,904 shares as of April 22, 1999
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<PAGE>
<TABLE>
<CAPTION>
XOMED SURGICAL PRODUCTS, INC. AND SUBSIDIARIES
INDEX
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
April 3, 1999 and December 31, 1998......................... 2
Condensed Consolidated Statements of Income
Three Months Ended April 3, 1999 and March 28, 1998......... 3
Condensed Consolidated Statements of Cash Flows
Three Months Ended April 3, 1999 and March 28, 1998...... 4
Notes To Condensed Consolidated Financial Statements
April 3, 1999............................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 8
Item 3 Qualitative and Quantitative Disclosures about Market Risk...... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 12
Item 6. Exhibits and Reports on Form 8-K................................ 12
SIGNATURES 12
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
XOMED SURGICAL PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
APRIL 3, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and cash equivalents ......................................... $ 6,435 $ 4,256
Accounts receivable, less allowance ............................... 20,241 18,516
Other receivables ................................................. 301 287
Inventories ....................................................... 21,264 22,368
Prepaid expenses and other assets ................................. 1,387 1,299
--------- ---------
Total current assets ................................................... 49,628 46,726
Investment securities .................................................. 9,204 16,584
Notes receivable from officers ......................................... 826 826
Property, plant and equipment, net ..................................... 23,543 21,769
Cost in excess of net assets acquired, net ............................. 48,176 49,488
Other assets ........................................................... 4,432 4,293
Deferred income taxes .................................................. 2,310 2,310
--------- ---------
Total assets ........................................................... $ 138,119 $ 141,996
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts payable .................................................. $ 5,578 $ 5,325
Accrued expenses .................................................. 7,118 4,923
Accrued payroll and commissions ................................... 2,347 2,989
Accrued restructuring costs ....................................... 874 955
--------- ---------
Total current liabilities .............................................. 15,917 14,192
Deferred credits ....................................................... 299 500
Long-term debt ......................................................... 5,739 13,062
Shareholders' equity :
Preferred stock, $1.00 par value, 1,000,000 shares authorized,
-0- shares issued and outstanding ............................... -- --
Common stock, voting, $.01 par value; 30,000,000 shares authorized,
12,257,792 shares issued and outstanding ........................ 82 81
Retained earnings ................................................. 6,178 3,621
Additional paid-in capital ........................................ 111,499 110,831
Cumulative translation adjustments ................................ (1,581) (122)
Unearned compensation ............................................. (141) (169)
Unrealized gain on securities ..................................... 127 --
--------- ---------
Total shareholders' equity ............................................. 116,164 114,242
--------- ---------
Total liabilities and shareholders' equity ............................. $ 138,119 $ 141,996
========= =========
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
2
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<TABLE>
<CAPTION>
XOMED SURGICAL PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
------------------------
APRIL 3, MARCH 28,
1999 1998
------- --------
<S> <C> <C>
Sales, net ............................................. $27,608 $20,682
Cost of sales .......................................... 10,780 8,063
------- -------
Gross margin ........................................... 16,828 12,619
Operating expenses:
Selling, general and administrative ............... 10,788 8,085
Research and development .......................... 1,393 1,170
Amortization of intangibles ....................... 685 584
------- -------
Total operating expense ................................ 12,866 9,839
------- -------
Operating income ....................................... 3,962 2,780
Interest and dividend income, net ..................... 34 30
Other income, net ...................................... 89 40
------- -------
Income before income tax expense ....................... 4,085 2,850
Income tax expense ..................................... 1,528 1,125
------- -------
Net income ............................................. $ 2,557 $ 1,725
======= =======
Per share:
Net income - basic ..................................... $ 0.21 $ 0.16
======= =======
Net income - diluted ................................... $ 0.20 $ 0.15
======= =======
Weighted average common shares outstanding - basic .... 12,159 11,012
======= =======
Weighted average common shares outstanding - diluted.... 12,981 11,448
======= =======
</TABLE>
See notes to condensed consolidated financial statements
3
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<TABLE>
<CAPTION>
XOMED SURGICAL PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
-------------------
APRIL 3, MARCH 28,
1999 1998
------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities .......... $ 4,080 $ 2,769
INVESTING ACTIVITIES
Purchases of property and equipment ................ (2,415) (659)
Sale of investment securities ...................... 7,523 --
------- -------
Net cash provided by (used in) investing activities 5,108 (659)
FINANCING ACTIVITIES
Payments on revolving line of credit ............... (7,323) --
Exercise of stock options .......................... 669 67
------- -------
Net cash provided by (used in) financing activities (6,654) 67
Effect of exchange rate on cash and cash equivalents (355) --
------- -------
Net increase in cash and cash equivalents .......... 2,179 2,177
Cash and cash equivalents at beginning of period ... 4,256 1,712
------- -------
Cash and cash equivalents at end of period ......... $ 6,435 $ 3,889
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest ....................................... $ 213 $ 11
======= =======
Income taxes ................................... $ 193 $ 437
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
XOMED SURGICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X and should be read in conjunction with the audited
financial statements for the years ended December 31, 1998, 1997, and 1996 of
Xomed Surgical Products, Inc. (the Company) in the Company's 1998 Annual Report
on Form 10-K. Accordingly, they do not include all of the information and
footnotes 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. Operating results for the three-month period ended April 3, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
NOTE B - INVENTORIES
The components of inventory consist of the following:
APRIL 3, DECEMBER 31,
1999 1998
------- -----------
Finished goods ................ $12,876 $12,693
Work in process ............... 2,064 2,525
Raw materials and packaging ... 6,324 7,150
------- -------
$21,264 $22,368
======= =======
NOTE C - INVESTMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
Investments consist substantially of marketable preferred stocks that are
designated as available for sale. Accordingly, the securities are marked to
market and the unrealized gains and losses are included, net of taxes, as a
separate component of shareholders' equity. The investments consist of the
following:
AVAILABLE FOR SALE COST MARKET
------------------ ------- -------
Preferred Stock.............. $ 9,000 $ 8,446
Other........................ 758 758
------- -------
$ 9,758 $ 9,204
======= =======
In order to manage the interest rate risk on the preferred stock, the
Company has entered into derivative financial instruments with off-balance sheet
risk. The Company enters into short sales of futures contracts on US Treasury
Bonds in order to hedge the effect of interest rate risk on its preferred stock
portfolio. The futures contracts are designated at inception as a hedge of the
interest rate risk on the preferred stock and are monitored to determine if it
remains an effective hedge. The effectiveness of the futures contract as a hedge
is based on changes in its market value being highly inversely correlated with
changes in the market value of the underlying hedged item. The Company defers
any realized or unrealized gains or losses on the futures contract as a separate
component of shareholders equity until the hedged items (preferred stock) are
sold at which time the gain or loss is recorded in the statement of income. In
the event that it is determined that a hedge is ineffective, including if and
when the hedged transactions no longer exist, the Company recognizes in income
the change in market value of the instrument beginning on the date it was no
longer an effective hedge. As of April 3, 1999, the Company has deferred
realized and unrealized gains on its hedged investment portfolio of $194 before
income taxes. Realized gains included in the Condensed Consolidated Statement of
Income for the three months ended April 3,1999 were $94.
5
<PAGE>
NOTE D - EARNINGS PER SHARE
The following table sets forth the computation of shares for purposes of
the earnings per share calculation:
APRIL 3, MARCH 28,
1999 1998
------- --------
Weighted average shares outstanding ............... 12,159 11,012
Net effect of dilutive stock options - based on the
treasury stock method .......................... 822 436
------ ------
Totals ............................................ 12,981 11,448
====== ======
NOTE E - COMPREHENSIVE INCOME
Comprehensive income (loss) is comprised of two components: net income and
other comprehensive income. Other comprehensive income refers to revenues,
expenses, gains and losses that under generally accepted accounting principles
are recorded as an element of shareholders' equity and are excluded from net
income. The Company's other comprehensive income is comprised of foreign
currency translation adjustments from certain subsidiaries and unrealized gains
on investment securities. Comprehensive income for the three months ended April
3, 1999 and March 28, 1998, respectively, is insignificant and therefore is not
disclosed in the balance sheet as a separate component of shareholders' equity.
The components of comprehensive income (loss) are listed below:
THREE MONTHS ENDED
--------------------
APRIL 3, MARCH 28,
1999 1998
------- --------
Net income ................................ $ 2,557 $ 1,725
Foreign currency translation adjustment.... (1,475) (54)
Unrealized gain on investment securities... 143 --
------- -------
Comprehensive income ...................... $ 1,225 $ 1,671
======= =======
The foreign currency translation adjustment for the three months ended April 3,
1999 is related primarily to the weakening of the French Franc subsequent to the
purchase of Micro-France.
NOTE F - ACCRUED RESTRUCTURING COSTS
At December 31, 1998, the Company had accrued restructuring costs of $955
related to: (1) $580 for the transfer of certain production operations from its
Merocel facility in Mystic, Connecticut to its main facility in Jacksonville,
Florida, (2) $261 for the closure of its direct selling site in Paris, France in
conjunction with the acquisition of Micro-France and (3) $114 for the
termination of two supplier agreements. The accrual was for severance pay, lease
termination fees, asset disposals and other costs related to these activities.
For the three months ended April 3, 1999, the Company paid $81 toward the
accrued restructuring costs as shown in the following table:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 3,
ACCRUED RESTRUCTURING COSTS 1998 PAYMENTS 1999
--------------------------- ----- -------- -----
<S> <C> <C> <C>
Severance Pay............................... $ 569 $ (28) $ 541
Lease Termination........................... 104 -- 104
Asset Disposals............................. 146 -- 146
Other Costs................................. 136 (53) 83
----- ------- -----
Totals...................................... $ 955 $ (81) $ 874
===== ====== =====
</TABLE>
NOTE G - SEGMENT INFORMATION
The Company manufactures and distributes medical devices and supplies
for use by ENT physicians. The Company has a dedicated Vice President of Sales
and Vice President of Marketing devoted solely to its U.S. core ENT market. The
Company also offers a line of products for ophthalmic surgeons, which segment is
the sole focus of another Vice President. These two markets represent segments
identified for evaluating profitability and asset
6
<PAGE>
NOTE G - SEGMENT INFORMATION (CONTINUED)
allocation. The "other" category is comprised principally of orthopaedic sales.
Sales of ophthalmic products internationally are not as material proportionately
as they are in the U.S. Also, the President of Xomed International, Inc. is
directly responsible for all sales outside the U.S. International is the third
segment identified and measured.
No other segments or operations are material to consolidated sales or assets.
DISCLOSURES FOR PURPOSES OF SEGMENTAL REPORTING. Sales are recorded in the
geographical segment when and where products are delivered to the end user.
Related cost of sales reflects only economic costs (i.e., no intersegment
profit). Segment assets are reported based on specific identification where
possible, or if not, based on an allocation as a percentage of sales. Goodwill
is not allocated among the different segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 3, 1999
------------------------------------------------------
DEPRECIATION SEGMENT SEGMENT CAPITAL
SEGMENT SALES EXPENSE PROFIT ASSETS EXPENDITURES
------- ------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Domestic:
Core ENT ......... $15,814 $524 $6,101 $ 96,742 $2,114
Ophthalmic ....... 2,364 28 266 10,125 120
Other ............ 307 6 113 921 55
------- ---- ------ -------- ------
Total ............... 18,485 558 6,480 107,788 2,289
International ....... 9,123 81 2,012 30,331 126
------- ---- ------ -------- ------
Consolidated ........ $27,608 $639 $8,492 $138,119 $2,415
======= ==== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 28, 1998
------------------------------------------------------
DEPRECIATION SEGMENT SEGMENT CAPITAL
SEGMENT SALES EXPENSE PROFIT ASSETS EXPENDITURES
------- ------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Domestic:
Core ENT ......... $12,190 $461 $4,261 $ 74,956 $ 587
Ophthalmic ....... 2,156 20 670 9,935 31
Other ............ 309 19 120 1,215 3
------- ---- ------ -------- ------
Total ............... 14,655 500 5,051 86,106 621
International........ 6,027 93 1,400 12,667 19
------- ---- ------ -------- ------
Consolidated ........ $20,682 $593 $6,451 $ 98,773 $ 640
======= ==== ====== ======== ======
</TABLE>
Reconciliation of segment profit to income before tax:
THREE MONTHS ENDED
-----------------------
APRIL 3, MARCH 28,
1999 1998
-------- ---------
Indirect operating expenses:
General and administrative.............. $ 2,452 $ 1,917
Amortization of intangibles............. 685 584
Research and development................ 1,393 1,170
------- -------
Total indirect expenses................... 4,530 3,671
------- -------
Income from operations.................... 3,962 2,780
Interest and dividend income, net......... 34 30
Other income, net......................... 89 40
------- -------
Income before income taxes................ $ 4,085 $ 2,850
======== =======
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK
ONLY AS OF THE DATE HEREOF. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO
PUBLICLY RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
RESULTS OF OPERATIONS
SALES BY MARKET. The Company derives sales from various markets within
the ENT industry. Sinus and rhinology, head and neck and otology are the three
core markets in which the Company operates. In addition to products for these
markets, the Company has other product offerings, including lines of ophthalmic,
orthopaedic and other products. The following table summarizes the Company's
worldwide product line sales and sales by geographic area during the periods
indicated.
PRODUCT LINE THREE MONTHS ENDED
-------------------------------
APRIL 3, 1999 MARCH 28, 1998
------------- --------------
Sinus & Rhinology................... $12,425 $ 8,481
Head & Neck......................... 5,755 4,552
Otology............................. 4,604 4,132
------- -------
Total Core ENT Business.......... 22,784 17,165
Ophthalmic & Other.................. 4,824 3,517
------- -------
Total Company.................... $27,608 $20,682
======= =======
GEOGRAPHIC THREE MONTHS ENDED
-------------------------------
APRIL 3, 1999 MARCH 28, 1998
------------- --------------
Domestic............................ $18,485 $14,655
International....................... 9,123 6,027
--------- ---------
Total Company.................... $27,608 $20,682
======= =======
NET SALES. Net sales increased 33.5% to $27.6 million in the first
three months of 1999 from $20.7 million in the comparable period of 1998. The
first quarter of 1999 included $2.2 million in net sales related to
Micro-France, which was acquired on December 30, 1998. Also, due to a change in
the Company's quarterly fiscal calendar, there were 64 selling days in the first
three months of 1999 as compared to 60 selling days for the comparable period of
1998. In the core business of sinus and rhinology, head and neck and otology,
sales increased 32.7% over the prior comparable period. Domestic core ENT sales
increased by 29.7% to $15.8 million for the three-months ended April 3, 1999
over the comparable period in 1998. During the quarter, the Company completed
its full domestic launch of the new LandmarX(TM) image guided surgery system,
which is used primarily in conjunction with endoscopic sinus surgery. This new
product launch, combined with continued strength in the Company's flagship XPS
2000 StraightShot(R) power resection system and its NIM-2(R) XL nerve integrity
monitoring system helped drive the Company's domestic performance. In addition,
sales in the relatively mature domestic otology market increased 18.1% to $3.2
million for the first three months of 1999 as compared to $2.7 million for the
comparable period in 1998, and domestic ophthalmic sales increased 9.6% to $2.4
million from $2.2 million. International core ENT sales increased by 40.1% to
$7.0 million for the three-month period as compared to the same period in 1998.
In addition to the sales of Micro-France, the Company realized strong growth in
most major markets, especially the Asia/Pacific region (excluding Japan) where
sales increased by more than 50% for the first three months of 1999 as compared
to the comparable period in 1998. The increase in core business sales was
primarily the result of strong growth in the Company's XPS product line, where
sales grew more than 85% versus the prior year's first quarter.
COST OF SALES AND GROSS MARGIN. Cost of sales increased 33.7% to $10.8
million in the first three months of 1999 from $8.1 million in the first three
months of 1998. Cost of sales as percent of sales was 39.0% for both periods.
8
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 33.4% or $2.7 million in the first three
months of 1999 from the comparable period in 1998. The increase in expenses from
1998 to 1999 was partially caused by marketing expenses related to the new
LandmarX(TM) image guided surgery system, transition of some ophthalmic sales
from distributors to an internal sales force, integration expenses related to
the acquisition of Micro-France, and variable expenses related to sales. As a
percent of sales, selling, general and administrative expenses were 39.1% for
the first three months of 1999 and 1998.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
19.1% to $1.4 million in the first three months of 1999 from $1.2 million in the
comparable period of 1998, and decreased as a percent of sales to 5.0% from 5.7%
during the same respective periods. This decrease, as a percent of sales, is
primarily due to increased sales related to Micro-France and the LandmarX(TM)
image guided surgery system without associated research and development
expenses.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased
17.3% to $685,000 for the first three months of 1999 from $584,000 in the
comparable period of 1998. The increase in amortization is primarily related to
goodwill of $9.0 million recognized from the purchase of Micro-France at
December 30, 1998, which is being amortized over a 25-year period.
INTEREST AND OTHER. Net interest and dividend income in the first
quarter of 1999 was $34,000 as compared to $30,000 in the comparable quarter of
1998. Interest and dividend income has decreased from the level seen in the
third and fourth quarter of 1998 due to the purchase of Micro-France. Net other
income was $89,000 for the first three months of 1999 compared to $40,000 for
the comparable period of 1998. The difference is primarily related to a $94,000
increase in the market value of the Company's investment portfolio, offset
somewhat by foreign currency exchange costs.
INCOME TAXES. The Company's effective tax rate was 37.4% for the first
three months of 1999 and 39.5% for the prior comparable period. The decrease in
the effective tax rate is primarily due to the dividend-received exclusion on
dividend income.
LIQUIDITY AND CAPITAL RESOURCES
The Company entered into an Amended and Restated Credit Agreement with
its bank in May 1997 under which it may borrow through a revolving credit
facility (the "line of credit") up to $25 million to be used for working capital
needs and potential acquisitions. At April 3, 1999, $22.5 million was available
under the line of credit.
During the three months ended April 3, 1999, operating activities
provided cash of $4.1 million as compared to $2.8 million in the comparable
period of 1998. In the first three months of 1999, cash provided by inventory,
accounts receivable, other assets and accounts payable was approximately
$622,000 compared to $100,000 in the comparable period of 1998. Increases in
accounts receivable due to growth in sales and other assets were offset by
increases in accounts payable and accrued expenses.
Cash provided by investing activities was $5.1 million in the first
three months of 1999 as compared to cash used in investing activities of $0.7
million in the prior comparable period. Cash of $7.5 million was provided by the
sale of investment securities in 1999, which was used to pay-down debt. Capital
expenditures were $2.4 million and $0.7 million in the first three months of
1999 and 1998, respectively. Cash used to purchase capital assets is expected to
increase as the Company expects to spend approximately $5.6 million in 1999 on
its headquarters expansion in Jacksonville, Florida in addition to its capital
equipment requirements.
Cash used in financing activities was $6.7 million in the first three
months of 1999 as compared to $67,000 provided in the comparable period of 1998.
In 1999, the Company used the proceeds from the sale of investment securities to
pay $7.3 million outstanding under the line of credit. $669,000 was provided by
the exercise of stock options in the first three months of 1999 as compared to
$67,000 in the comparable period of 1998.
Based on the Company's ability to generate cash flow from operations
and with the availability of borrowing under its line of credit, the Company
believes it will be able to finance its working capital and expansion needs for
at least the next 24 months.
9
<PAGE>
FINANCIAL INSTRUMENTS AND MARKET RISK MANAGEMENT
The Company is exposed to interest rate risk stemming from its
preferred stock portfolio. The Company has entered into short sales of US
Treasury Bond futures in order to hedge the effect of the interest rate risk on
its preferred stock portfolio. See Item 3. Qualitative and Quantitative
Disclosures about Market Risk.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
No. 133), which is required to be adopted for fiscal years beginning after June
15, 1999, although earlier application is permitted as of the beginning of any
fiscal quarter. This statement will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
Company is in the process of determining what effect the adoption of SFAS No.
133 will have on the Company's results of operations, cash flows or financial
position.
YEAR 2000
The Company has undertaken an internal assessment of its operations,
including its information systems, financial systems and its manufacturing
processes, in order to determine the extent to which the Company may be
adversely affected by Year 2000 issues. The Company's focus on this issue is to
avoid any adverse effect on business operations and ensure that transactions
with customers, suppliers, and financial institutions are fully supported. This
internal assessment is approximately 90% complete, and the Company expects to
finish the assessment process by June 1999. The Company plans to devote the
necessary resources to resolve any significant Year 2000 issues in a timely
manner. To date, the Company has performed limited testing of systems, and may
conduct further testing and/or an external audit following the conclusion of its
assessment. Only internal time and costs have been incurred related to
investigating and testing related to the Year 2000 issue. These costs are
immaterial to date. Present estimates for further expenditures of both employee
time and expenses to address Year 2000 issues are between $50,000 and $100,000,
respectively.
The Company has surveyed its significant suppliers, customers and other
third parties to determine their Year 2000 readiness and, to date, has received
responses from approximately 60% of those surveyed, a majority of whom have
certified they are compliant. The Company has conferred with significant
customers to assure that various systems used for data and information exchanges
between them will be compatible following December 31, 1999. The Company has
also initiated a formal program to advise customers, distributors and suppliers
of the Year 2000 issue; however, the Company believes it has no material
exposure to contingencies related to the Year 2000 issue for the products it has
sold.
Based on its assessments to date, the Company believes it will not
experience any material disruption as a result of Year 2000 issues in internal
manufacturing processes, information processing or interface with key customers,
or with processing orders and billing. Possible Year 2000 worst case scenarios
include the interruption of significant parts of the Company's business as a
result of critical information systems failure or the failure of suppliers,
distributors or customers. Any such interruption may have a material adverse
impact on future results. Since their possibility cannot be eliminated, the
Company is incorporating Year 2000 concerns into its contingency plans for
dealing with catastrophic events. Although the Company expects its remediation
efforts will be completed on a timely basis, failure to do so could have a
material adverse effect on the Company's systems and results of operations which
could lead to an inability to process customer orders, ship products, bill
customers and collect payments. While the Company has taken the steps outlined
above, there can be no certainty that the systems and products of other
companies on which the Company relies will not have a material adverse effect on
the Company's operations.
In addition, if certain third party service providers, such as those
supplying electricity, water or telephone service, experience difficulties
resulting in disruption of service to the Company, a shutdown of the Company's
facilities could occur for the duration of the disruption. At present, the
Company has not developed contingency plans
10
<PAGE>
but intends to develop such plans in fiscal year 1999. Based on existing
information, the Company believes the anticipated spending to become Year 2000
compliant will not have a material adverse effect on the Company's financial
condition, cash flows or results of operations. Nevertheless, there can be no
assurance that Year 2000 issues will not have a material adverse effect on the
Company's business, results of operation and financial condition.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY
A portion of the Company's operations consists of sales and
manufacturing activities in foreign markets. The Company manufactures its
products in the United States and sells them outside the U.S. through a
combination of international distributors and five wholly-owned subsidiaries.
The Company also manufactures hand held instruments at its subsidiary,
Micro-France. Sales from the U.S. operations to the third party distributors are
in U.S. dollars and sales to the wholly-owned subsidiaries are in their local
currencies.
The Company uses short-term forward exchange contracts on its foreign
currency receivables due from its subsidiaries. Hypothetically, if exchange
rates were to change by 10% as compared to the U.S. Dollar, the effect on the
Company's receivables from its foreign subsidiaries would be materially offset
by the Company's hedge.
The Company also translates the earnings and balance sheets of its
foreign subsidiaries from their functional-local currency into U.S. dollars at
the end of each month. As of the beginning of 1999, the result of a uniform 10%
strengthening in the value of the U.S. Dollar relative to the currencies in
which the Company's foreign subsidiaries operate would have affected income from
operations by approximately $60,000 for the quarter ending April 3, 1999. This
calculation assumes that each exchange rate would change in the same direction
relative to the U.S. Dollar. In addition, the Company's sensitivity analysis of
the effects of changes in foreign currency exchange rates does not consider a
potential change in sales levels or local currency prices. The effect of
translation of the balance sheets of the foreign subsidiaries does not affect
income, but is recorded as a component of shareholders' equity. The cumulative
translation adjustment recorded in shareholders equity increased from $122,000
at December 31, 1998 to $1,581,000 at April 3, 1999 due to the weakening of the
Euro and the increased significance in assets held in France due to the
Company's acquisition of MicroFrance on December 31, 1998.
INTEREST RATE EXPOSURE
The Company is exposed to interest rate risk stemming from its
preferred stock portfolio. The Company has entered into short sales of U.S.
Treasury Bond futures ("derivatives") in order to hedge the effects of interest
rates on these investments. The Company believes that the value of the U.S.
Treasury Bond futures correlates inversely to the value of the preferred stocks
upon changes in interest rates. Accordingly, the Company's objective is to
offset any gain or loss on the exposed investments with gains or losses from the
derivatives. The Company does not use the derivatives for trading or speculative
purposes. Additionally, by adopting this strategy the Company is exposed to the
possibility that the gains and losses realized on the derivatives will not
correlate inversely with the gains and losses on the investments.
As of April 3, 1999, the Company holds positions in short sales of U.S.
Treasury Bonds ("Bonds") with a notional amount of $6.5 million based on a price
of $120.97. Upon closing out the short sale contracts, the Company could
experience gains and losses depending on the price of the Bonds. Assuming a
hypothetical increase or decrease of 10%, the price range of $108.88 to $133.07
would result in a potential gain of $650,000 or a potential loss of $650,000.
However, these ranges reflect the effect of interest rates on the hedge strategy
and not the exposed risk. Over the past ten years, investments in preferred
stocks at the Company's level would typically react inversely to the amounts
noted above and materially offset the gains or losses noted above.
Based on the Company's current program of liquidating these investments
over the next several months, the Company's belief that market conditions for
these investments are improving, and the valuation reserves established in prior
periods, the Company does not anticipate incurring material future losses on its
investment portfolio. Based on the uncertainty of market conditions, however,
there can be no assurance that material future losses will be avoided.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is currently involved in certain legal proceedings
incidental to the normal conduct of its business. The Company does not
believe that any liabilities relating to the legal proceedings to
which it is a party are likely to be, individually or in the
aggregate, material to its consolidated financial position or results
of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
EXHIBIT NO. DESCRIPTION
10.1 Employment Agreement dated as of March 22, 1999 between
the Company and Thomas E. Timbie
10.2 Employment Agreement dated as of March 22, 1999 between
the Company and R. Glen Coleman
10.3 Employment Agreement dated as of March 22, 1999 between
the Company and Fred B. Dinger, III
27 Financial Data Schedule
(b) The Company filed a report on Form 8-K dated January 13, 1999,
containing the Company's news release related to the acquisition of
Micro-France on December 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the dates indicated.
XOMED SURGICAL PRODUCTS, INC.
(Registrant)
Date MAY 14, 1999 /s/ JAMES T. TREACE
---------------------------------------------
James T. Treace, Chairman, President
and Chief Executive Officer
(duly authorized officer)
Date MAY 14, 1999 /s/ THOMAS E. TIMBIE
---------------------------------------------
Thomas E. Timbie, Vice President and
Chief Financial Officer
(principal financial officer)
12
EXHIBIT 10.1
EMPLOYMENT AGREEMENT (THOMAS E. TIMBIE)
THIS AGREEMENT, dated as of March 22, 1999, is made between Xomed
Surgical Products, Inc., a Delaware corporation (the "Company"), and Mr. Thomas
E. Timbie (the "Employee").
1. EMPLOYMENT. The Company hereby employs the Employee and the Employee
hereby accepts employment all upon the terms and conditions herein set forth.
2. DUTIES. The Employee is engaged as Vice President, Finance and Chief
Financial Officer of the Company and hereby promises to perform and discharge
well and faithfully the duties which may be assigned to him from time to time by
the Company in connection with the conduct of the Company's businesses.
3. EXTENT OF SERVICES. The Employee shall devote his entire time,
attention and energies to the business of the Company and shall not, during the
term of this Agreement, be engaged in any other business activity, regardless of
whether such business activity is pursued for gain, profit or other pecuniary
advantage; but this shall not be construed as preventing the Employee from
investing his personal assets in businesses which do not compete with the
Company in such form or manner as will not require any services on the part of
the Employee in the operation of the affairs of the companies in which such
investments are made and in which his participation is solely that of an
investor, and except that the Employee may purchase securities in any
corporation whose securities are regularly traded provided that such purchase
shall not result in his collectively owning beneficially at any time one percent
(1%) or more of the equity securities of any corporation engaged in a business
competitive to that of the Company.
4. COMPENSATION.
(a) For services rendered under this Agreement, the Company
shall pay the Employee an aggregate salary of $175,000 per
annum (the "Base Salary"), payable (after deduction of
applicable payroll taxes) in equal installments on every
other Friday of each month or on the preceding business day
if such day is a holiday.
(b) In addition to salary payments under paragraph 4(a) above,
the Employee shall be eligible for and participate in the
Key Executive Bonus Program adopted by the Company, which
program provides for a bonus in an amount up to 40% of the
Employee's salary upon attainment of the bonus criteria. The
Employee shall also be eligible for and participate in such
fringe benefits as shall be generally provided to executives
of the Company, including medical insurance and retirement
programs which may be adopted from time to time during the
term hereof by the Company. The Employee shall be
responsible for making any generally applicable employee
contributions required under such fringe benefit programs.
<PAGE>
(c) During the term of this Agreement, the Employee shall be
eligible for participation in the Company's 1996 Stock
Option Plan, which plan is administered by the Company's
Compensation Committee.
(d) The Compensation Committee of the Company shall review the
Employee's compensation at least once per year and award
such bonuses or make such increases to the Base Salary as
the Compensation Committee, in its sole discretion,
determines are merited, based upon the Employee's
performance and consistent with compensation policies of the
Company.
5. SICK LEAVE AND VACATION. During the term of this Agreement, the
Employee shall be entitled to annual vacation of at least three (3) weeks in
length each year, or such greater time period if permitted by Company policy.
The Employee shall also be entitled to sick leave consistent with Company
policy.
6. EXPENSES. During the term of this Agreement, the Company shall
reimburse the Employee for all reasonable out-of-pocket expenses incurred by the
Employee in connection with the business of the Company and in performance of
his duties under this Agreement upon the Employee's presentation to the Company
of an itemized accounting of such expenses with reasonable supporting data.
7. TERM.
(a) The Employee's employment under this Agreement shall
commence on the date first set forth above and shall expire
on the first anniversary of such date. Notwithstanding the
foregoing, the parties hereto may, subject to paragraph 7(b)
below, terminate the Employee's employment under this
Agreement as follows:
(i) by the Company upon 30 days' notice if the Employee
becomes physically or mentally incapacitated or is
injured so that he is unable to perform the services
required of him hereunder and such inability to
perform continues for a period in excess of six months
and is continuing at the time of such notice; or
(ii) by the Company for "Cause" upon notice of such
termination to the Employee. For purposes of this
Agreement, the Company shall have "Cause" to terminate
its obligations hereunder upon (A) the determination
by the Board of Directors of the Company (the "Board")
that the Employee has ceased to perform his duties
hereunder (other than as a result of his incapacity
due to physical or mental illness or injury), which
failure amounts to an intentional and extended neglect
of his duties hereunder, (B) the Employee's death, (C)
the Board's determination that the Employee has
engaged or is about to engage in conduct materially
injurious to the
<PAGE>
Company, (D) the Employee's having been convicted of a
felony, or (E) the Employee's participation in
activities proscribed by the provisions of paragraphs
9 or 10 hereof or material breach of any of the other
covenants herein; or
(iii) (A) by the Company without Cause upon 30 days' notice
of such termination to the Employee or (B) by the
Employee for "Good Reason" (as defined below) within
twelve (12) months following a Change of Control (as
defined below) upon 30 days' notice of such
termination to the Company. For purposes of this
Agreement, "Good Reason" shall mean (a) the assignment
to the Employee by the Company of duties inconsistent
with the Employee's position, authority, duties,
responsibilities or status with the Company as in
effect immediately after the date of execution of this
Agreement, including, but not limited to, any
reduction whatsoever in such position, authority,
duties, responsibilities or status, or a change in the
Employee's titles or offices, as then in effect, or
any removal of the Employee from, or any failure to
reelect the Employee to, any of such positions, except
in connection with the termination of his employment
on account of his death, disability, or for Cause, (b)
the failure by the Company to pay to the Employee the
Base Salary and bonus, if any, in accordance with
paragraphs 4(a) and 4(b) hereof, (c) the failure by
the Company to allow the Employee to participate in
the Company's employee benefit plans generally
available from time to time to senior executives of
the Company or (d) the failure of the Company to have
any successor to the Company assume this Agreement.
For purposes of this Agreement, "Change of Control"
shall mean the occurrence of any of the following
events:
(i) The approval by the stockholders of the
Company of a merger or consolidation of the
Company with any other corporation, other than a
merger or consolidation which would result in the
voting securities of the Company outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being
converted into voting securities of the surviving
entity) more than fifty percent (50%) of the total
voting power represented by the voting securities
of the Company or such surviving entity
outstanding immediately after such merger or
consolidation;
(ii) Any approval by the stockholders of the
Company of a plan of complete liquidation of the
Company or an agreement for the sale or
disposition by the Company of all or substantially
all of the Company's assets; or
<PAGE>
(iii) Any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934), other than Warburg, Pincus
Investors, L.P., becoming the "beneficial owner"
(as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the
Company representing 50% or more of the total
voting power represented by the Company's then
outstanding voting securities.
(b)
(i) If this Agreement is terminated pursuant to paragraph
7(a)(i) above, the Employee shall receive salary
continuation pay from the date of such termination
until the first anniversary of the date hereof at the
rate of 75% of the Base Salary, reduced by applicable
payroll taxes and further reduced by the amount
received by the Employee during such period under any
Company-maintained disability insurance policy or plan
or under Social Security or similar laws. Such salary
continuation payments shall be paid periodically to
the Employee as provided in paragraph 4(a) for the
payment of the Base Salary.
(ii) If this Agreement is terminated pursuant to paragraph
7(a)(ii) above, the Employee shall receive no salary
continuation pay or severance pay.
(iii) If this Agreement is terminated pursuant to paragraph
7(a)(iii) above, the Employee shall (A) receive salary
continuation pay for a period equal to the greater of
(1) six (6) months or (2) the applicable period under
the Company's then-current severance policy from and
after the date of such termination (the "Salary
Continuation Period") at a rate equal to the Base
Salary and (B) during the Salary Continuation Period
remain eligible for other benefits normally available
to executives of the Company, including, but not
limited to, health insurance and the monthly car
allowance payable to the Employee hereunder. Such
payments (less applicable payroll taxes) shall be paid
periodically to the Employee as provided in paragraph
4(a) for the payment of the Base Salary.
(c) During the Salary Continuation Period, the Employee shall be
under no obligation to mitigate the costs to the Company of
the payments under paragraph 7(b)(iii) above.
(d) Not later than ninety (90) days prior to the expiration of
the stated term of the Agreement, the parties shall begin to
negotiate in good faith the terms of any extension of this
Agreement, provided that no party shall be under any
obligation to enter into such an extension.
<PAGE>
8. REPRESENTATIONS. The Employee hereby represents to the Company that
(a) he is legally entitled to enter into this Agreement and to perform the
services contemplated herein, and (b) he has the full right, power and
authority, subject to no rights of third parties, to grant to the Company the
rights contemplated by paragraph 10 hereof.
9. DISCLOSURE OF INFORMATION. The Employee recognizes and acknowledges
that the Company's and its predecessors' trade secrets, know-how and proprietary
processes as they may exist from time to time are valuable, special and unique
assets of the Company's businesses, access to and knowledge of which are
essential to the performance of the Employee's duties hereunder. The Employee
will not, during or after the term of his employment by any of the Company, in
whole or in part, disclose such secrets, know-how or processes to any person,
firm, corporation, association or other entity for any reason or purpose
whatsoever, nor shall the Employee make use of any such property for his own
purposes or for the benefit of any person, firm, corporation or other entity
(except the Company) under any circumstances during or after the term of his
employment, provided that after the term of his employment these restrictions
shall not apply to such secrets, know-how and processes which are then in the
public domain (provided further that the Employee was not responsible, directly
or indirectly, for such secrets, know-how or processes entering the public
domain without the Company's consent).
10. INVENTIONS. The Employee hereby sells, transfers and assigns to the
Company or to any person, or entity designated by the Company all of the entire
right, title and interest of the Employee in and to all inventions, ideas,
disclosures and improvements, whether patented or unpatented, and copyrightable
material, made or conceived by the Employee, solely or jointly, during the term
hereof which relate to methods, apparatus, designs, products, processes or
devices, sold, leased, used or under consideration or development by the Company
or any of its predecessors, or which otherwise relate to or pertain to the
business, functions or operations of the Company or any of its predecessors or
which arise from the efforts of the Employee during the course of his employment
for the Company or any of its predecessors. The Employee shall communicate
promptly and disclose to the Company, in such form as the Company requests, all
information, details and data pertaining to the aforementioned inventions,
ideas, disclosures and improvements; and the Employee shall execute and deliver
to the Company such formal transfers and assignments and such other papers and
documents as may be necessary or required of the Employee to permit the Company
or any person or entity designated by the Company to file and prosecute the
patent applications and, as to copyrightable material, to obtain copyright
thereof. Any invention relating to the business of the Company and disclosed by
the Employee within one year following the termination of this Agreement shall
be deemed to fall within the provisions of this paragraph unless proved to have
been first conceived and made following such termination.
11. COVENANTS NOT TO COMPETE OR INTERFERE. For a period ending six (6)
months from and after the termination of the Employee's employment hereunder,
the Employee shall not (whether as an officer, director, owner, employee,
partner or other direct or indirect participant) engage in any Competitive
Business. "Competitive Business" shall mean the manufacturing, supplying,
producing, selling, distributing or providing for sale of (A) any product,
device or instrument manufactured from or using polyvinal acetal (PVAc) material
or technology or (B) any
<PAGE>
eye, ear, nose or throat product, device or instrument (x) of a type
manufactured or sold by the Company or its subsidiaries or (y) in clinical
development sponsored by the Company or its subsidiaries, in each case, as of
the date of termination of the Employee's employment. For such period, the
Employee shall also not interfere with, disrupt or attempt to disrupt the
relationship, contractual or otherwise, between the Company or its subsidiaries
and any customer, supplier, lessor, lessee or employee of the Company or its
subsidiaries. It is the intent of the parties that the agreement set forth in
this paragraph 11 apply in all parts of the world.
Employee agrees that a monetary remedy for a breach of the
agreement set forth in this paragraph 11 will be inadequate and impracticable
and further agrees that such a breach would cause the Company irreparable harm,
and that the Company shall be entitled to temporary and permanent injunctive
relief without the necessity of proving actual damages. In the event of such a
breach, Employee agrees that the Company shall be entitled to such injunctive
relief, including temporary restraining orders, preliminary injunctions and
permanent injunctions as a court of competent jurisdiction shall determine.
It is the desire and intent of the parties that the provisions of
this paragraph 11 shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular portion of this paragraph 11 shall be
adjudicated to be invalid or unenforceable, this paragraph 11 shall be deemed
curtailed, whether as to time or location, to the minimum extent required for
its validity under the applicable law and shall be binding and enforceable with
respect to the Employee as so curtailed, such curtailment to apply only with
respect to the operation of this paragraph in the particular jurisdiction in
which such adjudication is made. If a court in any jurisdiction, in adjudicating
the validity of this paragraph 11, imposes any additional terms or restrictions
with respect to the agreement set forth in this paragraph 11, this paragraph 11
shall be deemed amended to incorporate such additional terms or restrictions.
12. INJUNCTIVE RELIEF. If there is a breach or threatened breach of the
provisions of paragraphs 9, 10 or 11 of this Agreement, the Company shall be
entitled to an injunction restraining the Employee from such breach. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedies for such breach or threatened breach.
13. CAR ALLOWANCE. The Employee shall be entitled to a monthly
allowance of $650.00, which the Employee may utilize to cover expenses relating
to the use of his personal automobile. The Employee shall be responsible for all
expenses related to the ownership and operation of such automobile, including,
but not limited to, insurance, repairs, registration fees and maintenance costs.
The Company shall not be responsible for any costs, expenses or other
obligations related to such automobile other than the monthly allowance payable
hereunder.
14. INSURANCE. The Company may, at its election and for its benefit,
insure the Employee against accidental loss or death, and the Employee shall
submit to such physical examination and supply such information as may be
required in connection therewith.
15. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail to
Thomas E. Timbie, 4334 Blue Heron
<PAGE>
Drive, Ponte Vedra Beach, Florida 32082, in the case of the Employee, or to
Xomed Surgical Products, Inc., 6743 Southpoint Drive North, Jacksonville,
Florida 32216, in the case of the Company, or to such other officer or address
as the Company shall notify the Employee.
16. WAIVER OF BREACH. A waiver by the Company or Employee of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
17. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Florida.
18. ASSIGNMENT. This Agreement may be assigned, without the consent of
the Employee, by the Company to any person, partnership, corporation, or other
entity which has purchased substantially all the assets of such Company,
provided such assignee assumes all the liabilities of such Company hereunder.
19. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes any and all agreements, letters of intent or
understandings between the Employee and the Company, its subsidiaries or any of
the Company's principal shareholders. It may be changed only by an agreement in
writing signed by a party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day first hereinabove written.
XOMED SURGICAL PRODUCTS, INC.
By: /s/ JAMES T. TREACE
-------------------------
Name: James T. Treace
Title: President, CEO
EMPLOYEE
/s/ THOMAS E. TIMBIE
--------------------
Thomas E. Timbie
EXHIBIT 10.2
EMPLOYMENT AGREEMENT (R. GLEN COLEMAN)
THIS AGREEMENT, dated as of March 22, 1999, is made between Xomed
Surgical Products, Inc., a Delaware corporation (the "Company"), and Mr. R. Glen
Coleman (the "Employee").
1. EMPLOYMENT. The Company hereby employs the Employee and the Employee
hereby accepts employment all upon the terms and conditions herein set forth.
2. DUTIES. The Employee is engaged as Vice President, Marketing of the
Company and hereby promises to perform and discharge well and faithfully the
duties which may be assigned to him from time to time by the Company in
connection with the conduct of the Company's businesses.
3. EXTENT OF SERVICES. The Employee shall devote his entire time,
attention and energies to the business of the Company and shall not, during the
term of this Agreement, be engaged in any other business activity, regardless of
whether such business activity is pursued for gain, profit or other pecuniary
advantage; but this shall not be construed as preventing the Employee from
investing his personal assets in businesses which do not compete with the
Company in such form or manner as will not require any services on the part of
the Employee in the operation of the affairs of the companies in which such
investments are made and in which his participation is solely that of an
investor, and except that the Employee may purchase securities in any
corporation whose securities are regularly traded provided that such purchase
shall not result in his collectively owning beneficially at any time one percent
(1%) or more of the equity securities of any corporation engaged in a business
competitive to that of the Company.
4. COMPENSATION.
(a) For services rendered under this Agreement, the Company
shall pay the Employee an aggregate salary of $173,500 per
annum (the "Base Salary"), payable (after deduction of
applicable payroll taxes) in equal installments on every
other Friday of each month or on the preceding business day
if such day is a holiday.
(b) In addition to salary payments under paragraph 4(a) above,
the Employee shall be eligible for and participate in the
Key Executive Bonus Program adopted by the Company, which
program provides for a bonus in an amount up to 40% of the
Employee's salary upon attainment of the bonus criteria. The
Employee shall also be eligible for and participate in such
fringe benefits as shall be generally provided to executives
of the Company, including medical insurance and retirement
programs which may be adopted from time to time during the
term hereof by the Company. The Employee shall be
responsible for making any generally applicable employee
contributions required under such fringe benefit programs.
<PAGE>
(c) During the term of this Agreement, the Employee shall be
eligible for participation in the Company's 1996 Stock
Option Plan, which plan is administered by the Company's
Compensation Committee.
(d) The Compensation Committee of the Company shall review the
Employee's compensation at least once per year and award
such bonuses or make such increases to the Base Salary as
the Compensation Committee, in its sole discretion,
determines are merited, based upon the Employee's
performance and consistent with compensation policies of the
Company.
5. SICK LEAVE AND VACATION. During the term of this Agreement, the
Employee shall be entitled to annual vacation of at least three (3) weeks in
length each year, or such greater time period if permitted by Company policy.
The Employee shall also be entitled to sick leave consistent with Company
policy.
6. EXPENSES. During the term of this Agreement, the Company shall
reimburse the Employee for all reasonable out-of-pocket expenses incurred by the
Employee in connection with the business of the Company and in performance of
his duties under this Agreement upon the Employee's presentation to the Company
of an itemized accounting of such expenses with reasonable supporting data.
7. TERM.
(a) The Employee's employment under this Agreement shall
commence on the date first set forth above and shall expire
on the first anniversary of such date. Notwithstanding the
foregoing, the parties hereto may, subject to paragraph 7(b)
below, terminate the Employee's employment under this
Agreement as follows:
(i) by the Company upon 30 days' notice if the Employee
becomes physically or mentally incapacitated or is
injured so that he is unable to perform the services
required of him hereunder and such inability to
perform continues for a period in excess of six months
and is continuing at the time of such notice; or
(ii) by the Company for "Cause" upon notice of such
termination to the Employee. For purposes of this
Agreement, the Company shall have "Cause" to terminate
its obligations hereunder upon (A) the determination
by the Board of Directors of the Company (the "Board")
that the Employee has ceased to perform his duties
hereunder (other than as a result of his incapacity
due to physical or mental illness or injury), which
failure amounts to an intentional and extended neglect
of his duties hereunder, (B) the Employee's death, (C)
the Board's determination that the Employee has
engaged or is about to engage in conduct materially
injurious to the
<PAGE>
Company, (D) the Employee's having been convicted of a
felony, or (E) the Employee's participation in
activities proscribed by the provisions of paragraphs
9 or 10 hereof or material breach of any of the other
covenants herein; or
(iii) (A) by the Company without Cause upon 30 days' notice
of such termination to the Employee or (B) by the
Employee for "Good Reason" (as defined below) within
twelve (12) months following a Change of Control (as
defined below) upon 30 days' notice of such
termination to the Company. For purposes of this
Agreement, "Good Reason" shall mean (a) the assignment
to the Employee by the Company of duties inconsistent
with the Employee's position, authority, duties,
responsibilities or status with the Company as in
effect immediately after the date of execution of this
Agreement, including, but not limited to, any
reduction whatsoever in such position, authority,
duties, responsibilities or status, or a change in the
Employee's titles or offices, as then in effect, or
any removal of the Employee from, or any failure to
reelect the Employee to, any of such positions, except
in connection with the termination of his employment
on account of his death, disability, or for Cause, (b)
the failure by the Company to pay to the Employee the
Base Salary and bonus, if any, in accordance with
paragraphs 4(a) and 4(b) hereof, (c) the failure by
the Company to allow the Employee to participate in
the Company's employee benefit plans generally
available from time to time to senior executives of
the Company or (d) the failure of the Company to have
any successor to the Company assume this Agreement.
For purposes of this Agreement, "Change of Control"
shall mean the occurrence of any of the following
events:
(i) The approval by the stockholders of the
Company of a merger or consolidation of the
Company with any other corporation, other
than a merger or consolidation which would
result in the voting securities of the
Company outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity) more than
fifty percent (50%) of the total voting power
represented by the voting securities of the
Company or such surviving entity outstanding
immediately after such merger or
consolidation;
(ii) Any approval by the stockholders of the
Company of a plan of complete liquidation of
the Company or an agreement for the sale or
disposition by the Company of all or
substantially all of the Company's assets; or
<PAGE>
(iii) Any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934), other than Warburg,
Pincus Investors, L.P., becoming the
"beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of
securities of the Company representing 50% or
more of the total voting power represented by
the Company's then outstanding voting
securities.
(b)
(i) If this Agreement is terminated pursuant to paragraph
7(a)(i) above, the Employee shall receive salary
continuation pay from the date of such termination
until the first anniversary of the date hereof at the
rate of 75% of the Base Salary, reduced by applicable
payroll taxes and further reduced by the amount
received by the Employee during such period under any
Company-maintained disability insurance policy or plan
or under Social Security or similar laws. Such salary
continuation payments shall be paid periodically to
the Employee as provided in paragraph 4(a) for the
payment of the Base Salary.
(ii) If this Agreement is terminated pursuant to paragraph
7(a)(ii) above, the Employee shall receive no salary
continuation pay or severance pay.
(iii) If this Agreement is terminated pursuant to paragraph
7(a)(iii) above, the Employee shall (A) receive salary
continuation pay for a period equal to the greater of
(1) six (6) months or (2) the applicable period under
the Company's then-current severance policy from and
after the date of such termination (the "Salary
Continuation Period") at a rate equal to the Base
Salary and (B) during the Salary Continuation Period
remain eligible for other benefits normally available
to executives of the Company, including, but not
limited to, health insurance and the monthly car
allowance payable to the Employee hereunder. Such
payments (less applicable payroll taxes) shall be paid
periodically to the Employee as provided in paragraph
4(a) for the payment of the Base Salary.
(c) During the Salary Continuation Period, the Employee shall be
under no obligation to mitigate the costs to the Company of
the payments under paragraph 7(b)(iii) above.
(d) Not later than ninety (90) days prior to the expiration of
the stated term of the Agreement, the parties shall begin to
negotiate in good faith the terms of any extension of this
Agreement, provided that no party shall be under any
obligation to enter into such an extension.
<PAGE>
8. REPRESENTATIONS. The Employee hereby represents to the Company that
(a) he is legally entitled to enter into this Agreement and to perform the
services contemplated herein, and (b) he has the full right, power and
authority, subject to no rights of third parties, to grant to the Company the
rights contemplated by paragraph 10 hereof.
9. DISCLOSURE OF INFORMATION. The Employee recognizes and acknowledges
that the Company's and its predecessors' trade secrets, know-how and proprietary
processes as they may exist from time to time are valuable, special and unique
assets of the Company's businesses, access to and knowledge of which are
essential to the performance of the Employee's duties hereunder. The Employee
will not, during or after the term of his employment by any of the Company, in
whole or in part, disclose such secrets, know-how or processes to any person,
firm, corporation, association or other entity for any reason or purpose
whatsoever, nor shall the Employee make use of any such property for his own
purposes or for the benefit of any person, firm, corporation or other entity
(except the Company) under any circumstances during or after the term of his
employment, provided that after the term of his employment these restrictions
shall not apply to such secrets, know-how and processes which are then in the
public domain (provided further that the Employee was not responsible, directly
or indirectly, for such secrets, know-how or processes entering the public
domain without the Company's consent).
10. INVENTIONS. The Employee hereby sells, transfers and assigns to the
Company or to any person, or entity designated by the Company all of the entire
right, title and interest of the Employee in and to all inventions, ideas,
disclosures and improvements, whether patented or unpatented, and copyrightable
material, made or conceived by the Employee, solely or jointly, during the term
hereof which relate to methods, apparatus, designs, products, processes or
devices, sold, leased, used or under consideration or development by the Company
or any of its predecessors, or which otherwise relate to or pertain to the
business, functions or operations of the Company or any of its predecessors or
which arise from the efforts of the Employee during the course of his employment
for the Company or any of its predecessors. The Employee shall communicate
promptly and disclose to the Company, in such form as the Company requests, all
information, details and data pertaining to the aforementioned inventions,
ideas, disclosures and improvements; and the Employee shall execute and deliver
to the Company such formal transfers and assignments and such other papers and
documents as may be necessary or required of the Employee to permit the Company
or any person or entity designated by the Company to file and prosecute the
patent applications and, as to copyrightable material, to obtain copyright
thereof. Any invention relating to the business of the Company and disclosed by
the Employee within one year following the termination of this Agreement shall
be deemed to fall within the provisions of this paragraph unless proved to have
been first conceived and made following such termination.
11. COVENANTS NOT TO COMPETE OR INTERFERE. For a period ending six (6)
months from and after the termination of the Employee's employment hereunder,
the Employee shall not (whether as an officer, director, owner, employee,
partner or other direct or indirect participant) engage in any Competitive
Business. "Competitive Business" shall mean the manufacturing, supplying,
producing, selling, distributing or providing for sale of (A) any product,
device or instrument manufactured from or using polyvinal acetal (PVAc) material
or technology or (B) any
<PAGE>
eye, ear, nose or throat product, device or instrument (x) of a type
manufactured or sold by the Company or its subsidiaries or (y) in clinical
development sponsored by the Company or its subsidiaries, in each case, as of
the date of termination of the Employee's employment. For such period, the
Employee shall also not interfere with, disrupt or attempt to disrupt the
relationship, contractual or otherwise, between the Company or its subsidiaries
and any customer, supplier, lessor, lessee or employee of the Company or its
subsidiaries. It is the intent of the parties that the agreement set forth in
this paragraph 11 apply in all parts of the world.
Employee agrees that a monetary remedy for a breach of the
agreement set forth in this paragraph 11 will be inadequate and impracticable
and further agrees that such a breach would cause the Company irreparable harm,
and that the Company shall be entitled to temporary and permanent injunctive
relief without the necessity of proving actual damages. In the event of such a
breach, Employee agrees that the Company shall be entitled to such injunctive
relief, including temporary restraining orders, preliminary injunctions and
permanent injunctions as a court of competent jurisdiction shall determine.
It is the desire and intent of the parties that the provisions of
this paragraph 11 shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular portion of this paragraph 11 shall be
adjudicated to be invalid or unenforceable, this paragraph 11 shall be deemed
curtailed, whether as to time or location, to the minimum extent required for
its validity under the applicable law and shall be binding and enforceable with
respect to the Employee as so curtailed, such curtailment to apply only with
respect to the operation of this paragraph in the particular jurisdiction in
which such adjudication is made. If a court in any jurisdiction, in adjudicating
the validity of this paragraph 11, imposes any additional terms or restrictions
with respect to the agreement set forth in this paragraph 11, this paragraph 11
shall be deemed amended to incorporate such additional terms or restrictions.
12. INJUNCTIVE RELIEF. If there is a breach or threatened breach of the
provisions of paragraphs 9, 10 or 11 of this Agreement, the Company shall be
entitled to an injunction restraining the Employee from such breach. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedies for such breach or threatened breach.
13. CAR ALLOWANCE. The Employee shall be entitled to a monthly
allowance of $650.00, which the Employee may utilize to cover expenses relating
to the use of his personal automobile. The Employee shall be responsible for all
expenses related to the ownership and operation of such automobile, including,
but not limited to, insurance, repairs, registration fees and maintenance costs.
The Company shall not be responsible for any costs, expenses or other
obligations related to such automobile other than the monthly allowance payable
hereunder.
14. INSURANCE. The Company may, at its election and for its benefit,
insure the Employee against accidental loss or death, and the Employee shall
submit to such physical examination and supply such information as may be
required in connection therewith.
15. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail to R.
Glen Coleman, 1358 March Harbor
<PAGE>
Drive, Jacksonville, Florida 32225, in the case of the Employee, or to Xomed
Surgical Products, Inc., 6743 Southpoint Drive North, Jacksonville, Florida
32216, in the case of the Company, or to such other officer or address as the
Company shall notify the Employee.
16. WAIVER OF BREACH. A waiver by the Company or Employee of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
17. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Florida.
18. ASSIGNMENT. This Agreement may be assigned, without the consent of
the Employee, by the Company to any person, partnership, corporation, or other
entity which has purchased substantially all the assets of such Company,
provided such assignee assumes all the liabilities of such Company hereunder.
19. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes any and all agreements, letters of intent or
understandings between the Employee and the Company, its subsidiaries or any of
the Company's principal shareholders. It may be changed only by an agreement in
writing signed by a party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day first hereinabove written.
XOMED SURGICAL PRODUCTS, INC.
By: /s/ JAMES T. TREACE
-------------------------
Name: James T. Treace
Title: President, CEO
EMPLOYEE
/s/ R. GLEN COLEMAN
---------------------
R. Glen Coleman
EXHIBIT 10.3
EMPLOYMENT AGREEMENT (FRED B. DINGER, III)
THIS AGREEMENT, dated as of March 22, 1999, is made between Xomed
Surgical Products, Inc., a Delaware corporation (the "Company"), and Mr. Fred B.
Dinger, III (the "Employee").
1. EMPLOYMENT. The Company hereby employs the Employee and the Employee
hereby accepts employment all upon the terms and conditions herein set forth.
2. DUTIES. The Employee is engaged as Vice President, Research and
Development of the Company and hereby promises to perform and discharge well and
faithfully the duties which may be assigned to him from time to time by the
Company in connection with the conduct of the Company's businesses.
3. EXTENT OF SERVICES. The Employee shall devote his entire time,
attention and energies to the business of the Company and shall not, during the
term of this Agreement, be engaged in any other business activity, regardless of
whether such business activity is pursued for gain, profit or other pecuniary
advantage; but this shall not be construed as preventing the Employee from
investing his personal assets in businesses which do not compete with the
Company in such form or manner as will not require any services on the part of
the Employee in the operation of the affairs of the companies in which such
investments are made and in which his participation is solely that of an
investor, and except that the Employee may purchase securities in any
corporation whose securities are regularly traded provided that such purchase
shall not result in his collectively owning beneficially at any time one percent
(1%) or more of the equity securities of any corporation engaged in a business
competitive to that of the Company.
4. COMPENSATION.
(a) For services rendered under this Agreement, the Company
shall pay the Employee an aggregate salary of $151,000 per
annum (the "Base Salary"), payable (after deduction of
applicable payroll taxes) in equal installments on every
other Friday of each month or on the preceding business day
if such day is a holiday.
(b) In addition to salary payments under paragraph 4(a) above,
the Employee shall be eligible for and participate in the
Key Executive Bonus Program adopted by the Company, which
program provides for a bonus in an amount up to 30% of the
Employee's salary upon attainment of the bonus criteria. The
Employee shall also be eligible for and participate in such
fringe benefits as shall be generally provided to executives
of the Company, including medical insurance and retirement
programs which may be adopted from time to time during the
term hereof by the Company. The Employee shall be
responsible for making any generally applicable employee
contributions required under such fringe benefit programs.
<PAGE>
(c) During the term of this Agreement, the Employee shall be
eligible for participation in the Company's 1996 Stock
Option Plan, which plan is administered by the Company's
Compensation Committee.
(d) The Compensation Committee of the Company shall review the
Employee's compensation at least once per year and award
such bonuses or make such increases to the Base Salary as
the Compensation Committee, in its sole discretion,
determines are merited, based upon the Employee's
performance and consistent with compensation policies of the
Company.
5. SICK LEAVE AND VACATION. During the term of this Agreement, the
Employee shall be entitled to annual vacation of at least three (3) weeks in
length each year, or such greater time period if permitted by Company policy.
The Employee shall also be entitled to sick leave consistent with Company
policy.
6. EXPENSES. During the term of this Agreement, the Company shall
reimburse the Employee for all reasonable out-of-pocket expenses incurred by the
Employee in connection with the business of the Company and in performance of
his duties under this Agreement upon the Employee's presentation to the Company
of an itemized accounting of such expenses with reasonable supporting data.
7. TERM.
(a) The Employee's employment under this Agreement shall
commence on the date first set forth above and shall expire
on the first anniversary of such date. Notwithstanding the
foregoing, the parties hereto may, subject to paragraph 7(b)
below, terminate the Employee's employment under this
Agreement as follows:
(i) by the Company upon 30 days' notice if the Employee
becomes physically or mentally incapacitated or is
injured so that he is unable to perform the services
required of him hereunder and such inability to
perform continues for a period in excess of six months
and is continuing at the time of such notice; or
(ii) by the Company for "Cause" upon notice of such
termination to the Employee. For purposes of this
Agreement, the Company shall have "Cause" to terminate
its obligations hereunder upon (A) the determination
by the Board of Directors of the Company (the "Board")
that the Employee has ceased to perform his duties
hereunder (other than as a result of his incapacity
due to physical or mental illness or injury), which
failure amounts to an intentional and extended neglect
of his duties hereunder, (B) the Employee's death, (C)
the Board's determination that the Employee has
engaged or is about to engage in conduct materially
injurious to the
<PAGE>
Company, (D) the Employee's having been convicted of a
felony, or (E) the Employee's participation in
activities proscribed by the provisions of paragraphs
9 or 10 hereof or material breach of any of the other
covenants herein; or
(iii) (A) by the Company without Cause upon 30 days' notice
of such termination to the Employee or (B) by the
Employee for "Good Reason" (as defined below) within
twelve (12) months following a Change of Control (as
defined below) upon 30 days' notice of such
termination to the Company. For purposes of this
Agreement, "Good Reason" shall mean (a) the assignment
to the Employee by the Company of duties inconsistent
with the Employee's position, authority, duties,
responsibilities or status with the Company as in
effect immediately after the date of execution of this
Agreement, including, but not limited to, any
reduction whatsoever in such position, authority,
duties, responsibilities or status, or a change in the
Employee's titles or offices, as then in effect, or
any removal of the Employee from, or any failure to
reelect the Employee to, any of such positions, except
in connection with the termination of his employment
on account of his death, disability, or for Cause, (b)
the failure by the Company to pay to the Employee the
Base Salary and bonus, if any, in accordance with
paragraphs 4(a) and 4(b) hereof, (c) the failure by
the Company to allow the Employee to participate in
the Company's employee benefit plans generally
available from time to time to senior executives of
the Company or (d) the failure of the Company to have
any successor to the Company assume this Agreement.
For purposes of this Agreement, "Change of Control"
shall mean the occurrence of any of the following
events:
(i) The approval by the stockholders of the
Company of a merger or consolidation of the
Company with any other corporation, other than a
merger or consolidation which would result in the
voting securities of the Company outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being
converted into voting securities of the surviving
entity) more than fifty percent (50%) of the total
voting power represented by the voting securities
of the Company or such surviving entity
outstanding immediately after such merger or
consolidation;
(ii) Any approval by the stockholders of the
Company of a plan of complete liquidation of the
Company or an agreement for the sale or
disposition by the Company of all or substantially
all of the Company's assets; or
<PAGE>
(iii) Any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934), other than Warburg, Pincus
Investors, L.P., becoming the "beneficial owner"
(as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the
Company representing 50% or more of the total
voting power represented by the Company's then
outstanding voting securities.
(b)
(i) If this Agreement is terminated pursuant to paragraph
7(a)(i) above, the Employee shall receive salary
continuation pay from the date of such termination
until the first anniversary of the date hereof at the
rate of 75% of the Base Salary, reduced by applicable
payroll taxes and further reduced by the amount
received by the Employee during such period under any
Company-maintained disability insurance policy or plan
or under Social Security or similar laws. Such salary
continuation payments shall be paid periodically to
the Employee as provided in paragraph 4(a) for the
payment of the Base Salary.
(ii) If this Agreement is terminated pursuant to paragraph
7(a)(ii) above, the Employee shall receive no salary
continuation pay or severance pay.
(iii) If this Agreement is terminated pursuant to paragraph
7(a)(iii) above, the Employee shall (A) receive salary
continuation pay for a period equal to the greater of
(1) six (6) months or (2) the applicable period under
the Company's then-current severance policy from and
after the date of such termination (the "Salary
Continuation Period") at a rate equal to the Base
Salary and (B) during the Salary Continuation Period
remain eligible for other benefits normally available
to executives of the Company, including, but not
limited to, health insurance and the monthly car
allowance payable to the Employee hereunder. Such
payments (less applicable payroll taxes) shall be paid
periodically to the Employee as provided in paragraph
4(a) for the payment of the Base Salary.
(c) During the Salary Continuation Period, the Employee shall be
under no obligation to mitigate the costs to the Company of
the payments under paragraph 7(b)(iii) above.
(d) Not later than ninety (90) days prior to the expiration of
the stated term of the Agreement, the parties shall begin to
negotiate in good faith the terms of any extension of this
Agreement, provided that no party shall be under any
obligation to enter into such an extension.
<PAGE>
8. REPRESENTATIONS. The Employee hereby represents to the Company that
(a) he is legally entitled to enter into this Agreement and to perform the
services contemplated herein, and (b) he has the full right, power and
authority, subject to no rights of third parties, to grant to the Company the
rights contemplated by paragraph 10 hereof.
9. DISCLOSURE OF INFORMATION. The Employee recognizes and acknowledges
that the Company's and its predecessors' trade secrets, know-how and proprietary
processes as they may exist from time to time are valuable, special and unique
assets of the Company's businesses, access to and knowledge of which are
essential to the performance of the Employee's duties hereunder. The Employee
will not, during or after the term of his employment by any of the Company, in
whole or in part, disclose such secrets, know-how or processes to any person,
firm, corporation, association or other entity for any reason or purpose
whatsoever, nor shall the Employee make use of any such property for his own
purposes or for the benefit of any person, firm, corporation or other entity
(except the Company) under any circumstances during or after the term of his
employment, provided that after the term of his employment these restrictions
shall not apply to such secrets, know-how and processes which are then in the
public domain (provided further that the Employee was not responsible, directly
or indirectly, for such secrets, know-how or processes entering the public
domain without the Company's consent).
10. INVENTIONS. The Employee hereby sells, transfers and assigns to the
Company or to any person, or entity designated by the Company all of the entire
right, title and interest of the Employee in and to all inventions, ideas,
disclosures and improvements, whether patented or unpatented, and copyrightable
material, made or conceived by the Employee, solely or jointly, during the term
hereof which relate to methods, apparatus, designs, products, processes or
devices, sold, leased, used or under consideration or development by the Company
or any of its predecessors, or which otherwise relate to or pertain to the
business, functions or operations of the Company or any of its predecessors or
which arise from the efforts of the Employee during the course of his employment
for the Company or any of its predecessors. The Employee shall communicate
promptly and disclose to the Company, in such form as the Company requests, all
information, details and data pertaining to the aforementioned inventions,
ideas, disclosures and improvements; and the Employee shall execute and deliver
to the Company such formal transfers and assignments and such other papers and
documents as may be necessary or required of the Employee to permit the Company
or any person or entity designated by the Company to file and prosecute the
patent applications and, as to copyrightable material, to obtain copyright
thereof. Any invention relating to the business of the Company and disclosed by
the Employee within one year following the termination of this Agreement shall
be deemed to fall within the provisions of this paragraph unless proved to have
been first conceived and made following such termination.
11. COVENANTS NOT TO COMPETE OR INTERFERE. For a period ending six (6)
months from and after the termination of the Employee's employment hereunder,
the Employee shall not (whether as an officer, director, owner, employee,
partner or other direct or indirect participant) engage in any Competitive
Business. "Competitive Business" shall mean the manufacturing, supplying,
producing, selling, distributing or providing for sale of (A) any product,
device or instrument manufactured from or using polyvinal acetal (PVAc) material
or technology or (B) any eye, ear, nose or throat product, device or instrument
(x) of a type manufactured or sold by the
<PAGE>
Company or its subsidiaries or (y) in clinical development sponsored by the
Company or its subsidiaries, in each case, as of the date of termination of the
Employee's employment. For such period, the Employee shall also not interfere
with, disrupt or attempt to disrupt the relationship, contractual or otherwise,
between the Company or its subsidiaries and any customer, supplier, lessor,
lessee or employee of the Company or its subsidiaries. It is the intent of the
parties that the agreement set forth in this paragraph 11 apply in all parts of
the world.
Employee agrees that a monetary remedy for a breach of the
agreement set forth in this paragraph 11 will be inadequate and impracticable
and further agrees that such a breach would cause the Company irreparable harm,
and that the Company shall be entitled to temporary and permanent injunctive
relief without the necessity of proving actual damages. In the event of such a
breach, Employee agrees that the Company shall be entitled to such injunctive
relief, including temporary restraining orders, preliminary injunctions and
permanent injunctions as a court of competent jurisdiction shall determine.
It is the desire and intent of the parties that the provisions
of this paragraph 11 shall be enforced to the fullest extent permissible under
the laws and public policies applied in each jurisdiction in which enforcement
is sought. Accordingly, if any particular portion of this paragraph 11 shall be
adjudicated to be invalid or unenforceable, this paragraph 11 shall be deemed
curtailed, whether as to time or location, to the minimum extent required for
its validity under the applicable law and shall be binding and enforceable with
respect to the Employee as so curtailed, such curtailment to apply only with
respect to the operation of this paragraph in the particular jurisdiction in
which such adjudication is made. If a court in any jurisdiction, in adjudicating
the validity of this paragraph 11, imposes any additional terms or restrictions
with respect to the agreement set forth in this paragraph 11, this paragraph 11
shall be deemed amended to incorporate such additional terms or restrictions.
12. INJUNCTIVE RELIEF. If there is a breach or threatened breach of the
provisions of paragraphs 9, 10 or 11 of this Agreement, the Company shall be
entitled to an injunction restraining the Employee from such breach. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedies for such breach or threatened breach.
13. CAR ALLOWANCE. The Employee shall be entitled to a monthly
allowance of $650.00, which the Employee may utilize to cover expenses relating
to the use of his personal automobile. The Employee shall be responsible for all
expenses related to the ownership and operation of such automobile, including,
but not limited to, insurance, repairs, registration fees and maintenance costs.
The Company shall not be responsible for any costs, expenses or other
obligations related to such automobile other than the monthly allowance payable
hereunder.
14. INSURANCE. The Company may, at its election and for its benefit,
insure the Employee against accidental loss or death, and the Employee shall
submit to such physical examination and supply such information as may be
required in connection therewith.
15. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail to
Fred B. Dinger, III, 8740 Hampshire Glen Drive S., Jacksonville, Florida 32256,
in the case of the Employee, or to Xomed Surgical Products,
<PAGE>
Inc., 6743 Southpoint Drive North, Jacksonville, Florida 32216, in the case of
the Company, or to such other officer or address as the Company shall notify the
Employee.
16. WAIVER OF BREACH. A waiver by the Company or Employee of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
17. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Florida.
18. ASSIGNMENT. This Agreement may be assigned, without the consent of
the Employee, by the Company to any person, partnership, corporation, or other
entity which has purchased substantially all the assets of such Company,
provided such assignee assumes all the liabilities of such Company hereunder.
19. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes any and all agreements, letters of intent or
understandings between the Employee and the Company, its subsidiaries or any of
the Company's principal shareholders. It may be changed only by an agreement in
writing signed by a party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day first hereinabove written.
XOMED SURGICAL PRODUCTS, INC.
By: /s/ JAMES T. TREACE
-------------------
Name: James T. Treace
Title: President, CEO
EMPLOYEE
/s/ FRED B. DINGER, III
-----------------------
Fred B. Dinger, III
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> APR-03-1999
<CASH> 6,435
<SECURITIES> 0
<RECEIVABLES> 21,187
<ALLOWANCES> 946
<INVENTORY> 21,264
<CURRENT-ASSETS> 49,628
<PP&E> 36,517
<DEPRECIATION> 12,974
<TOTAL-ASSETS> 138,119
<CURRENT-LIABILITIES> 15,917
<BONDS> 0
<COMMON> 82
0
0
<OTHER-SE> 116,082
<TOTAL-LIABILITY-AND-EQUITY> 138,119
<SALES> 27,608
<TOTAL-REVENUES> 27,608
<CGS> 10,780
<TOTAL-COSTS> 10,780
<OTHER-EXPENSES> 5
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 213
<INCOME-PRETAX> 4,085
<INCOME-TAX> 1,528
<INCOME-CONTINUING> 2,557
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,557
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
</TABLE>
