<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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: 001-12229
DEPUY, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 35-1989795
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
700 ORTHOPAEDIC DRIVE, WARSAW, INDIANA 46581-0988
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (219) 267-8143
Indicate by check [X] 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
----- ------
The number of shares of Common Stock, par value $.01 per share,
outstanding as of May 13, 1998 was 98,811,445.
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
DEPUY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997*
---------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 198,934 $ 215,567
Short-term investments 10,343 4,925
Accounts receivable, net of allowances of $15,208 (1998) and $17,722 (1997) 151,973 132,204
Inventories at lower of cost or market 177,826 169,735
Deferred income taxes 54,897 52,839
Prepaid expenses and other current assets 30,051 30,136
---------- ----------
Total current assets 624,024 605,406
---------- ----------
NONCURRENT ASSETS
Goodwill, net of accumulated amortization of $78,484 (1998) and $74,570 (1997) 337,012 341,710
Other intangible assets, net of accumulated amortization of $3,186 (1998) and $3,820 (1997) 3,511 3,528
Deferred income taxes 15,359 15,584
Investment in affiliate 2,088 1,610
Other assets 9,680 8,865
---------- ----------
367,650 371,297
Property, plant and equipment, net 104,876 103,954
---------- ----------
Total assets $1,096,550 $1,080,657
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt payable to affiliates $ -- $ 1,497
Short-term debt 18,205 23,696
Accounts payable 33,506 36,296
Dividends payable to shareholders -- 11,836
Amounts payable to affiliates, net 1,130 493
Income taxes payable 40,232 33,696
Accrued royalties 25,498 23,115
Accrued employee compensation 20,345 23,005
Other accrued expenses 53,536 48,532
---------- ----------
Total current liabilities 192,452 202,166
---------- ----------
NONCURRENT LIABILITIES
Long-term debt 63,751 68,189
Long-term employee benefits 20,289 20,097
Noncurrent deferred income taxes 8,154 8,243
Other noncurrent liabilities 13,349 14,458
---------- ----------
Total noncurrent liabilities 105,543 110,987
---------- ----------
CONTINGENCIES (NOTE 6)
MINORITY INTEREST 4,244 5,386
---------- ----------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 130,000,000 shares authorized; shares outstanding
of 98,789,393 (1998) and 98,679,874 (1997) 988 987
Additional paid-in capital 694,669 676,649
Retained earnings 146,906 128,058
Accumulated other comprehensive income (48,252) (43,576)
---------- ----------
Total shareholders' equity 794,311 762,118
---------- ----------
Total liabilities and shareholders' equity $1,096,550 $1,080,657
========== ==========
*The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date.
See accompanying notes to these Consolidated Financial Statements.
</TABLE>
1
<PAGE>
DEPUY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net sales $207,331 $187,842
Cost of sales 60,568 56,001
-------- --------
Gross profit 146,763 131,841
-------- --------
Selling, general and administrative expenses 77,619 69,531
Research and development expenses 7,209 5,832
Goodwill amortization 3,642 3,179
Special items, net (Note 3) 23,996 908
-------- --------
Operating income 34,297 52,391
-------- --------
Interest expense, affiliate 54 448
Interest expense, other 1,733 744
Other income, net (2,791) (2,322)
-------- --------
Income before taxes, minority interest
expense and equity in earnings of
unconsolidated affiliate 35,301 53,521
-------- --------
Provision for income taxes 16,122 22,311
Minority interest expense 663 373
Equity in earnings of unconsolidated affiliate 332 428
-------- --------
Net income $ 18,848 $ 31,265
======== ========
Basic and diluted earnings per share $ 0.19 $ 0.32
======== ========
Weighted-average number of common shares outstanding 98,711 98,580
======== ========
</TABLE>
See accompanying notes to these Consolidated Financial Statements.
2
<PAGE>
DEPUY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 18,848 $ 31,265
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,012 7,493
Gain on sale of assets -- (5,222)
Deferred income taxes (2,398) (3,043)
Capital contribution for Corange Service Awards 15,865 --
Other, net (1,140) (827)
Changes in operating assets and liabilities,
net of effects of acquisitions and divestitures:
Accounts receivable (20,662) (3,279)
Inventories (8,669) (7,401)
Amounts payable to/or receivable from
affiliates, net (782) (2,573)
Prepaid expenses and other current assets (74) (2,456)
Other noncurrent assets (2,066) (2,180)
Accounts payable (2,474) (3,357)
Accrued employee compensation and other (7,117) (1,462)
Other noncurrent liabilities (555) 2,871
Income taxes payable 7,021 26,892
-------- --------
Net cash provided by operating activities 4,809 36,721
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (6,388) (5,001)
Purchases of short-term investments, net (5,217) (14,495)
Proceeds from sale of assets -- 12,191
-------- --------
Net cash used for investing activities (11,605) (7,305)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of short-term debt (7,593) (21,601)
Proceeds from issuance of short-term debt 755 1,648
Payments of long-term debt (4,423) (6,067)
Proceeds from issuance of long-term debt -- 3,312
Net proceeds from issuance of stock 2,156 --
-------- --------
Net cash used for financing activities (9,105) (22,708)
-------- --------
Effect of exchange rate changes on cash (732) (1,816)
-------- --------
Increase (decrease) in cash and cash equivalents (16,633) 4,892
Cash and cash equivalents at beginning of period 215,567 209,387
-------- --------
Cash and cash equivalents at end of period $198,934 $214,279
======== ========
</TABLE>
See accompanying notes to these Consolidated Financial Statements.
3
<PAGE>
DEPUY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Shareholder's Common Common Paid-in Retained Comprehensive Shareholders'
Net investment Shares Stock Capital Earnings Income Equity
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 $ 378,099 -- $ -- $ -- $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------------
Net income for the period 89,640
Dividends to affiliate (8,553)
Change in net transfers to affiliate 44,063
Foreign currency translation adjustments 4,727
Unrealized gain on securities 44
Capital contributions from affiliates 4,564
Capitalization resulting from reorganiza-
tion and Initial Pubic Offering (512,584) 98,580 986 675,144 -- (24,983) 651,147
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT OCTOBER 30, 1996,
EFFECTIVE DATE OF INITIAL
PUBLIC OFFERING -- 98,580 986 675,144 -- (24,983) 651,147
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income for the period 17,108 17,108
Other comprehensive income 2,373 2,373
------------------------------------------
Total comprehensive income 17,108 2,373 19,481
------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 -- 98,580 986 675,144 17,108 (22,610) 670,628
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income for the year 122,786 122,786
Other comprehensive income (20,966) (20,966)
-----------------------------------------
Total comprehensive income 122,786 (20,966) 101,820
-----------------------------------------
Cash dividends declared (11,836) (11,836)
Exercise of stock options and issuance of
other stock awards 13 525 525
Common stock issued for purchase under the
Employee Stock Purchase Plan 87 1 1,553 1,554
Other (573) (573)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 -- 98,680 987 676,649 128,058 (43,576) 762,118
- -------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income for the period 18,848 18,848
Other comprehensive income (4,676) (4,676)
-------------------------------------
Total comprehensive income 18,848 (4,676) 14,172
-------------------------------------
Exercise of stock options and issuance
of other stock awards 109 1 2,155 2,156
Capital contribution for Corange Service Awards 15,865 15,865
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1998 $ -- 98,789 $ 988 $694,669 $146,906 $(48,252) $794,311
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to these Consolidated Financial Statements.
4
</TABLE>
<PAGE>
DEPUY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except share data)
MARCH 31, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of DePuy,
Inc. (the "Company") have been prepared in accordance with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of operations for the periods reported have
been included. The results of operations for any interim period are not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's 1997 Annual Report on Form 10-K.
NOTE 2 - ORGANIZATION/ACQUISITIONS
DePuy, Inc. was formed as the result of a worldwide reorganization completed by
its parent, Corange Limited ("Corange"), to realign its worldwide orthopaedic
operations into a stand-alone entity in order to sell shares of the realigned
entity to the public through an Initial Public Offering ("IPO"). Prior to the
public offering, various actions were taken to form the Company including (i)
the consolidation of the worldwide operations of DePuy under Corange U.S.
Holdings, Inc., an Indiana corporation ("CUSHI"), (ii) the transfer of
Boehringer Mannheim Corporation ("BMC") out of the CUSHI consolidated group and
(iii) the merging of CUSHI into DePuy, Inc., which was created on July 26, 1996
for purposes of becoming the holding company for the DePuy worldwide operations,
the effect of which was to reincorporate CUSHI in Delaware under the name
"DePuy, Inc." None of these actions involved outside minority shareholders.
Accordingly, the consolidation of the entities was accounted for on a
predecessor basis.
Pursuant to a registration statement filed with the Securities and Exchange
Commission that became effective on October 30, 1996, the Company issued,
through an Initial Public Offering, 7,780,000 shares of its common stock at
$17.50 per share which generated net proceeds after expenses, discounts and
commissions of approximately $126,000. In November 1996, an additional 800,000
shares were sold pursuant to an underwriter's over allotment provision
generating net proceeds of approximately $13,000. The Company used a portion of
the net proceeds from the sale of shares of its common stock to fund part of the
cost of the Landanger-Camus ("Landanger") acquisition in April 1997 and plans to
use the remaining proceeds to finance additional expansion of the Company's
business.
On April 2, 1997, the Company purchased 89.6% of the shares of Landanger, or
1,939,452 shares, which were held by members of the Landanger family and certain
minority shareholders. The purchase was followed by a tender offer whereby the
Company acquired the remaining 10.4% of the shares, which were owned by the
public. The total purchase price, including acquisition costs, approximated
$150,000. Goodwill totaling $123,489 was recorded as a result of this
acquisition under the purchase method of accounting. The acquisition was funded
partly through external financing and partly with cash received from the IPO.
Landanger, headquartered in France, is a manufacturer of hip implants and a
distributor of orthopaedic devices and supplies. For its fiscal year ended
August 31, 1996, Landanger reported net sales of $99,500 and net income of
$8,000 (unaudited and translated at the average exchange rate for the fiscal
year).
The operating results of Landanger have been included in the consolidated
statements of income from the date of acquisition. On the basis of a pro forma
consolidation of the results of operations (unaudited), as if the acquisition
had taken place at the beginning of 1996, consolidated net sales of the Company
would have been $792,938 for the year ended December 31, 1997 and $788,064 for
the same period in 1996 (translated at the average exchange rate for 1997 and
1996, respectively). Consolidated pro forma income and earnings per share would
not have been materially different from the reported amounts for the years 1997
and 1996.
5
<PAGE>
DEPUY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
These unaudited pro forma consolidated results of operations have been prepared
for comparative purposes only and include certain adjustments, such as
additional amortization expense as a result of goodwill, an adjustment for
discontinued businesses and increased interest expense on acquisition debt. In
management's opinion, the pro forma consolidated results of operations are not
necessarily indicative of the actual results that would have occurred had the
acquisition been consummated on January 1, 1996 or of future operations of the
combined companies under the ownership and operation of the Company.
On May 24, 1997, the shareholders of Corange entered into an agreement to sell
100% of its shares to an indirect subsidiary of Roche Holding Ltd ("Roche"), a
multinational company and world leader in research-based healthcare. This
transaction was finalized on March 5, 1998, upon approval from various
regulatory agencies. The purchase price, after contractually agreed price
adjustments, totaled approximately $10.2 billion. As a result of this
transaction, Roche, through its ownership of Corange, holds an approximate 84%
interest in DePuy, Inc. The Company continues to operate as an independent
organization and represents an additional segment for Roche. Headquartered in
Basel, Switzerland, Roche is an international company with principal businesses
in pharmaceuticals, diagnostics, vitamins and fine chemicals, and fragrances and
flavors.
On March 20, 1998, the Company entered into an agreement to purchase the equity
of AcroMed Corporation ("AcroMed") in a transaction valued at approximately
$325,000. The purchase agreement is subject to certain conditions, including
receipt of necessary regulatory approvals. The Company has obtained a
commitment letter for a $300,000 revolving line of credit to fund this
acquisition. AcroMed, headquartered in Cleveland, Ohio, manufactures and
distributes spinal implant medical devices to treat a range of conditions
including degenerative diseases, deformities, traumas/tumors and cervical
applications. For its fiscal year ended June 30, 1997, AcroMed reported net
sales of approximately $90,000.
The Company's primary business is the development, manufacture and sale of
orthopaedic joint implants (primarily hips, knees and shoulders), spinal
implants, related surgical instruments, trauma products and sports medicine soft
goods.
NOTE 3 - SPECIAL ITEMS
Effective March 28, 1997, the Company completed the sale of the pharmaceutical
business of DePuy International Limited. The pharmaceutical and related
businesses achieved 1996 sales of approximately $14,000, principally from
infection control and skin treatment products sold to hospitals in the United
Kingdom. The transaction was completed through a management buy-out and
resulted in a one-time, pretax gain of $8,000. In addition, the Company
recognized special charges totaling $8,900 during the first quarter of 1997,
primarily related to the cost of instrumentation sets acquired and written off
in connection with reorganizing various distribution channels to increase
implant sales.
During March 1998, certain employees of DePuy, Inc. and its subsidiaries
received, in connection with the sale of the Corange group to Roche, special
monetary awards in recognition of their services to the Corange group of
companies. DePuy recorded an approximate $24,000 pretax operating expense
related to the awards during the first quarter of 1998. The payment of these
awards had no cash impact on the Company since they were funded through a
$15,900 capital contribution received from Corange representing the estimated
after-tax cash flow effect to the Company. The expense recorded during the
first quarter of 1998 for these special awards, as well as the related tax
benefits, represent the estimated cost to the Company since all payments have
not yet been completed.
6
<PAGE>
DEPUY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- -----------
<S> <C> <C>
Finished products $140,935 $136,170
Work in process 14,450 13,387
Raw materials 22,441 20,178
-------- --------
$177,826 $169,735
======== ========
</TABLE>
NOTE 5 - INCOME TAXES
The difference between the Company's effective and statutory tax rates is
primarily attributable to the tax effects of the special service awards recorded
in the first quarter of 1998, and to the gain realized on the sale of the
Company's pharmaceutical business during the first quarter of 1997 which was
subject to tax at a rate lower than the statutory tax rate, as described in Note
3. In addition, the effective tax rate is impacted by state income taxes,
nondeductible goodwill, and the effect of international operations.
NOTE 6 - CONTINGENCIES
The Company is subject to a number of investigations, lawsuits and claims during
the normal course of business. Management does not expect that resulting
liabilities beyond provisions already recorded will have a materially adverse
effect on the Company's consolidated financial position, results of operations
or cash flows. The loss provisions recorded have not been reduced for any
material amounts of anticipated insurance recoveries.
NOTE 7 - ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130") and No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131"). These Statements establish standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements and establish standards for the way that
public business enterprises report information about operating segments in
annual financial statements, respectively. Both of these pronouncements became
effective for financial statements for fiscal years beginning after December 15,
1997 and are also required for interim financial reporting. FAS 131 is not
required for interim financial reporting in the initial year of adoption. The
Company has provided the required disclosures as prescribed in FAS 130 in its
financial statements for the first quarter of 1998 and intends to provide the
required disclosure for FAS 131 in the Company's 1998 annual financial
statements.
NOTE 8 - COMPREHENSIVE INCOME
The changes in the components of accumulated other comprehensive income for the
first three months of 1998 and 1997 were $4,676 and $14,855, respectively.
Comprehensive income consisted of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
--------- ---------
<S> <C> <C>
Cumulative translation adjustment $(4,866) $(14,860)
Net unrealized appreciation on securities 190 5
------- --------
$(4,676) $(14,855)
======= ========
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
- --------
DePuy, Inc. (the "Company") is one of the world's leading designers,
manufacturers and distributors of orthopaedic devices and supplies. The
Company's products include joint reconstructive devices such as hip, knee and
shoulder implants; spinal implants; trauma devices; sports medicine products,
including knee braces and other soft good supplies; and various other
orthopaedic and operating room products. The Company sells and distributes its
products in all major markets throughout the world. During both the first
quarter of 1998 and the year 1997, 51% of worldwide sales were to customers
within the United States, with the remaining 49% of total sales being to
customers located primarily in European and Asia/Pacific countries.
On October 30, 1996, the Company issued 8.6 million new shares of common stock,
and Corange Limited ("Corange"), its primary shareholder, sold 7.0 million
previously outstanding shares to the public through an Initial Public Offering
("IPO") at an offering price of $17.50 per share. The issuance of stock
generated net proceeds to the Company after expenses, discounts and commissions
of approximately $139 million.
Prior to the public offering, the Company was operated as the orthopaedic
division of Corange. This division comprised various legal entities that were
engaged, or partly engaged, in the orthopaedic business and were owned by a
number of different entities within the Corange group. As a result of a pre-
offering reorganization, (i) the non-U.S. entities (or in certain cases, the
assets thereof) that were involved in the orthopaedic business were transferred
into the Company's U.S. consolidated group, (ii) Boehringer Mannheim
Corporation, the U.S. operating subsidiary of the Boehringer Mannheim companies,
which were under common control with the DePuy companies, was transferred
outside the Company's U.S. consolidated group and (iii) the Company was
reincorporated in Delaware.
Certain transactions occurring during 1997 affect the comparison of financial
results for the first quarter of 1998 as compared to the same period in the
prior year. In April 1997, the Company acquired Landanger-Camus ("Landanger"),
a leading manufacturer of hip implants located in France, for approximately $150
million. This acquisition contributed approximately 8% additional sales growth
for the quarter ended March 31, 1998. In addition, the Company sold its
international healthcare and pharmaceutical businesses during 1997. These
divestitures caused sales to decline by approximately 4% during the first
quarter of 1998.
8
<PAGE>
The following table summarizes the selected financial information expressed as a
percentage of net sales for each reporting period:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Net Sales 100.0 % 100.0 %
Cost of sales 29.2 29.8
----- -----
Gross profit 70.8 70.2
----- -----
Selling, general & administrative expenses 37.4 37.0
Research and development expenses 3.5 3.1
Goodwill amortization 1.8 1.7
Special items, net 11.6 .5
----- -----
Operating income 16.5 27.9
----- -----
Interest expense .8 .6
Other income, net (1.3) (1.2)
----- -----
Income before taxes, minority interest
expense and equity in earnings of
unconsolidated affiliate 17.0 28.5
----- -----
Provisions for income taxes 7.8 11.9
Minority interest expense .3 .2
Equity in earnings of unconsolidated affiliate .2 .2
----- -----
Net income 9.1 % 16.6 %
===== =====
</TABLE>
The following table summarizes sales by product line and geographic location:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Reconstructive products $145.5 $127.2
Spinal implants 19.1 13.9
Trauma products 17.3 15.2
Sports medicine 13.0 12.2
Other products 12.4 19.3
------ ------
Total sales $207.3 $187.8
====== ======
U.S. sourced sales $113.5 $109.2
International sourced sales 93.8 78.6
------ ------
Total sales $207.3 $187.8
====== ======
Sales to customers located in the United States $105.6 $100.8
Sales to customers located outside the United States 101.7 87.0
------ ------
Total sales $207.3 $187.8
====== ======
</TABLE>
9
<PAGE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Net sales were $207.3 million for the three months ended March 31, 1998,
representing an increase of $19.5 million, or 10% over the same period in the
prior year. Continued penetration of the spinal implant market caused total
sales to increase by 3%. The acquisition of Landanger in April 1997 resulted in
additional sales growth of 8%. The effects of foreign exchange rates in 1998
compared with 1997 and the sale of the pharmaceutical and healthcare businesses
resulted in an unfavorable impact on sales of 3% and 4%, respectively. The
remaining 6% increase primarily related to the growth in sales of hip and knee
replacements in the joint reconstructive product line.
The components of the worldwide sales improvement were as follows:
<TABLE>
<S> <C>
Acquisitions 8%
Volume and product mix 6%
Net pricing changes 3%
Effect of foreign exchange rates -3%
Divestitures -4%
</TABLE>
U.S. sourced sales to unaffiliated customers rose $4.3 million, or approximately
4%, during the three months ended March 31, 1998. This growth was primarily
attributable to increased sales of spinal products, including
the new Peak polyaxial anterior cervical plate and continued penetration of this
fast-growing segment of the U.S. orthopaedics market. Increased sales of joint
reconstructive implants and sports medicine products also contributed to the
sales growth for the quarter.
International sourced sales to unaffiliated customers rose $15.2 million, or
20%, during the three months ended March 31, 1998. This increase in sales was
primarily attributable to the acquisition of Landanger in April 1997 resulting
in international sales growth of 21%. The continued expansion in the European
and Asia/Pacific regions also caused sales to grow by 10% and 6%, respectively,
exclusive of the effects of foreign exchange and divestitures. The negative
effect of foreign exchange rates partially offset the overall increase in
international sales by 7% and divestitures caused sales to decline by 10%.
The Company's gross profit for the three months ended March 31, 1998 was $146.8
million, or 70.8% of sales, as compared to 70.2% of sales for the comparable
three-month period. This improvement in margins was partly the result of the
sale of the pharmaceutical and healthcare businesses during 1997 which
historically had realized significantly lower gross margins than the core
orthopaedic products sold by the Company. In addition, product mix and price
increases occurring during the first quarter of the year contributed to the
increase in gross margins.
Selling, general and administrative expenses totaled $77.6 million for the first
three months of 1998, or 37.4% of sales, as compared to 37.0% reported in the
same period of the prior year. Increased expenses resulted primarily from
higher marketing and consulting fees and increased investments in international
information systems. These higher expenses were partially offset by decreased
legal fees.
Research and development expenses increased to $7.2 million, or 3.5% of sales
during the first three months of 1998 as compared to 3.1% reported in the first
quarter of 1997. This increase was largely due to the acquisition of Landanger.
The Company continues to make investments in technological advancements in order
to remain competitive in the orthopaedic market and to provide its customers
with the latest technology available.
Goodwill amortization totaled $3.6 million for the first three months of the
year, representing a $.5 million increase compared to the same period in the
prior year. This increase was primarily attributable to the recording of
additional goodwill related to the acquisition of Landanger in April 1997,
partially offset by lower amortization resulting from the sale of the healthcare
and pharmaceutical businesses during the first six months of 1997.
10
<PAGE>
Special items, net reported during the first quarter of 1998 of $24.0 million
represent monetary awards received, in connection with the sale of Corange to
Roche Holding Ltd ("Roche"), by certain employees of the Company in recognition
of their services to the Corange group of companies. This one-time charge was
reported as an estimate for the first quarter of 1998 since all payments have
not yet been completed. During the first quarter of 1997, the special item of
$.9 million was comprised of one-time charges totaling $8.9 million related to
instrumentation costs in connection with the reorganization of distribution
channels, partially offset by an $8 million pretax gain realized on the sale of
the pharmaceutical business of DePuy International. Both of these items are
described in more detail in Note 3 to the financial statements.
Interest expense was $1.8 million through March 31, 1998, representing a $.6
million increase compared to the same period in the prior year. This higher
interest expense was due to additional debt acquired during 1997 related to the
purchase of Landanger, partially offset by a reduction in outstanding debt
balances as a result of increased internal funding of short-term financial
requirements.
Other income, net, totaled $2.8 million for the first three months of the year
as compared to $2.3 million reported in the prior year, representing an increase
of $.5 million. This increase mainly resulted from higher interest income
related to larger invested cash balances.
The effective income tax rate for the first quarter of 1998 was 45.7% as
compared to 41.7% reported in the same period of the prior year. Excluding the
tax effects of the special employee recognition awards, the effective rate would
have been 41.0% for the first three months of the current year. The .7%
reduction in the rate resulted primarily from the tax effects of the financing
structure related to the Landanger acquisition and other effects of
international operations.
Net income for the three months ended March 31, 1998 was $18.8 million.
Excluding special items, net income would have been $34.7 million, or 16.7% of
sales, representing 11% growth over the prior year. This increase was
attributable to a 9% increase in operating profit, excluding special items, and
to a lower effective income tax rate. Earnings per share for the first quarter
of 1998, excluding special items, would have been $.35, representing a 9%
increase over the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operations is the principal source of funding available to
the Company and provides adequate liquidity to meet its operational needs. Cash
and cash equivalents totaled $198.9 million at March 31, 1998, compared with
$215.6 million at December 31, 1997.
Net proceeds received from the IPO in October 1996 totaled approximately $139
million. A portion of this cash was used to fund part of the cost of the
Landanger acquisition. The remaining cash is currently invested primarily in
cash equivalents and will be used to finance the expansion of the Company's
business through strategic acquisitions.
Working capital at March 31, 1998 was $431.6 million, representing a $28.3
million increase from December 31, 1997. The annualized inventory turnover
ratio for the three months ended March 31, 1998 was 1.4, down slightly from the
1.5 level reported during the three months ended March 31, 1997. The annualized
accounts receivable turnover rate was 5.8 for the first three months of 1998,
constant with the rate reported in the same period in 1997.
Operating activities generated $4.8 million of cash in the first three months of
1998 as compared to $36.7 million in the same period in the prior year. Cash
flows during the first quarter of the year resulted from the timing of tax
payments, payment of the $11.8 million dividend declared at the end of 1997 and
changes in working capital.
Cash flows used for investing activities totaled $11.6 million including capital
expenditures of $6.4 million and purchases of short-term investments of $5.2
million. In the first three months of 1997, cash flows used for investing
activities of $7.3 million included purchases of short-term investments of $14.5
million and capital expenditures of $5.0 million, partially offset by proceeds
received from the sale of the pharmaceutical business of DePuy International of
$12.2 million, described in Note 3 to the financial statements.
11
<PAGE>
Cash flows used for financing activities were $9.1 million in 1998 and included
a net decrease in debt of $11.3 million, partially offset by $2.2 million of
proceeds received from the issuance of stock related to the exercise of stock
options and other stock activity. The reduction in debt was due to a payment
made on the debt related to the Landanger acquisition and to more internal
financing. During the first three months of 1997, cash flows used for financing
activities totaled $22.7 million resulting in a decrease in debt of $22.7
million.
The Company declared an annual cash dividend of $.12 per share in October 1997
which was paid in January 1998. The Board of Directors will determine each year
the amount of dividends to be paid, if any, based upon cash funds available.
Capital expenditures are expected to be approximately $37 million in 1998,
primarily consisting of purchases of machinery and equipment and accounting
software. In addition to these funding requirements, the Company expects to
continue to evaluate future acquisitions to expand its business.
The Company has historically been able to fund its capital and operating needs
through its cash flows from operations and expects to be able to continue to do
so in the future. The Company believes that with its current cash position and
its ability to obtain additional cash, either through the issuance of additional
shares of common stock or utilization of credit lines, it has the ability to
fund future acquisitions. As described in Note 3 to the financial statements,
the Company recently obtained a $300 million revolving line of credit to fund
the AcroMed acquisition.
FACTORS AFFECTING FUTURE PERFORMANCE
Although management believes that the Company will continue to be a world leader
in the orthopaedic industry with strong financial performance, there are many
risks and uncertainties which may change this outlook and affect the Company's
performance over the next several years. The following discussion points out
certain items which may affect DePuy and summarizes management's expectations
regarding these issues. The Company cannot guarantee that these expectations
will be realized, nor can it predict what future affect these items will have on
its performance. Other risk factors may also exist which have not been
identified either in this discussion or in the Company's Form 10-K.
The orthopaedic industry within the United States has been greatly influenced by
the effects of healthcare reform and the advent of managed care. The enforcement
of strict cost controls and the market trends toward discounted prices have
affected all competitors in the orthopaedic industry. The Company experienced a
gradual leveling of prices during 1997 and believes that in 1998 prices may
increase very slightly. Although the Company does not anticipate that these
pricing issues will emerge again in the near future, there can be no guarantee
of such market trends.
The advent of managed care and the related pressures on cost containment have
also resulted in increased involvement in the purchasing decisions by hospital
buying groups and higher numbers of national purchasing contracts. These
contracts require manufacturers to provide significant price discounts on their
products in return for preferred supplier arrangements. The Company believes
that the high levels of product sales to such groups and the opportunity for
increased market share can offset the financial impact of discounting products.
However, the extent to which buying groups are able to obtain compliance from
the various institutions within their organizations, as anticipated under such
preferred supplier agreements, varies considerably depending on the particular
buying group. The Company has recently experienced a lower rate of compliance in
the U.S. under certain contracts, such as the agreement with Columbia/HCA. If
these contracts do not produce higher levels of compliance in the future, the
sales growth and the financial results of the Company may be adversely impacted.
A significant portion of the Company's business is performed outside the United
States, primarily in Europe and Asia/Pacific countries, where sales and other
transactions are denominated in foreign currencies. Based upon the recent
volatility in the foreign currency markets, currency rate fluctuations could
have a negative impact on future sales and earnings growth. The Company
occasionally hedges certain foreign currency transactions where it is deemed
prudent, in an effort to protect its profit levels. However, there is no
guarantee that such hedges can be obtained or that they will protect the Company
from future losses resulting from foreign currency fluctuations.
12
<PAGE>
The orthopaedic industry is highly competitive and is characterized by
innovation, technological change and advancement. The Company currently competes
with a number of companies and can provide no assurance that its competitors
will not succeed in developing technologies and products that are more effective
than the Company's or that would render the Company's technology or products
obsolete or uncompetitive.
The Company's sales growth and continued success in the U.S. depends largely
upon marketing arrangements with independent sales associates, who are managed
by a Company employee or by an independent agent. The sales associates' sales
and service expertise and relationships with the customers in the marketplace
are critical to the continued success of the Company and its ability to maintain
market share. Due to the extreme competitiveness in the orthopaedic market,
there can be no guarantee that the Company will be able to retain the associates
currently marketing its products or will be able to attract new associates to
grow the business. If the Company is unable to maintain the relationships
currently existing with its sales representatives and associates, this could
have a material adverse effect on the Company's business and results of
operations.
The Company holds U.S. and foreign patents and regularly applies for new patents
related to certain systems, components and instrumentation for its products.
Recently the medical device industry has experienced extensive litigation
regarding patents and other intellectual property rights. There can be no
assurance as to the protection provided by these patents nor that the Company
will not become subject to patent infringement claims or litigation in the
future to determine the priority of inventions. If such claims result in
lawsuits, the Company may incur substantial legal expenses which may affect its
financial performance. In addition, the Company holds licenses from third
parties to utilize certain patents and technology applied to the design of some
of its devices. The loss of such licenses would prevent the Company from
manufacturing and selling certain products, which could have a material adverse
effect on the Company's business.
The Company's products are subject to extensive regulation in the United States
by the federal Food and Drug Administration (the "FDA") and, in some
jurisdictions, by state authorities. There can be no assurance that the FDA will
act favorably or quickly in its review of the Company's regulatory filings or
that significant difficulties and costs will not be encountered by the Company
in its efforts to obtain necessary FDA clearance on its products. In addition,
the FDA may require the Company to conduct additional product testing or perform
more clinical studies. The FDA may also place significant limitations upon the
intended use of the Company's products as a condition to clearance. These
additional requirements or restrictions may have an impact on the Company's
ability to manufacture and sell certain products which could have a material
adverse effect on the Company's financial results.
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software issues. Major areas of potential business impact
have been identified and remedial actions are being considered. Based upon
current assessments, the Company believes that future financial results will not
be materially affected by Year 2000 issues. Most of these issues will be
resolved through the purchase of new software systems which will be capitalized
and depreciated over the life of such systems. There will be certain costs
incurred related to the modification of existing software, but these costs are
estimated to be immaterial to the financial results of the Company. However,
there can be no guarantee that the Company's current assessment will be
achieved. Actual results could differ materially from such assessments.
The recent acquisition of DePuy's parent company by Roche, as described in Note
2 to the financial statements, may have an impact on future growth strategies
and operations of the Company dependent upon the guidance provided by the new
majority owner. Roche has indicated that it intends to operate the Company
independently as a separate division under the current DePuy management team,
and is in fact currently operating in this manner. At this time, the Company
believes that it will be permitted to continue to pursue its growth strategy
under the guidance of another world leader in healthcare.
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
Not Applicable
13
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Not Applicable
Item 2 - Changes in Securities and Use of Proceeds
Pursuant to the Company's Registration Statement on Form S-1
(Registration Statement No. 333-09345) which became effective on
October 30, 1996, the Company issued 8,580,000 shares of common stock,
including shares issued pursuant to the exercise of an underwriters'
over allotment option. The offering generated net proceeds to the
Company after expenses, discounts and commission of approximately $139
million. The Company used $75 million of such net proceeds to partially
fund the acquisition of Landanger-Camus in April 1997. The Company
plans to use the remaining proceeds from the offering to finance
additional expansion of the Company's business, provided suitable
acquisitions can be identified and negotiated. Pending such use, the
remaining proceeds of the offering are being invested primarily in cash
equivalents.
Item 3 - Defaults Upon Senior Securities
Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5 - Other Information
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger dated as of March 19, 1998
among AcroMed Corporation, DePuy, Inc. and DP Merger Sub,
Inc.* **
27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the three-month period ended March 31, 1998, the Company
filed two current reports on Form 8-K, one filed on March 19, 1998
reporting under Item 1 the acquisition of Corange by Roche and one
filed on March 31, 1998 reporting under Item 5 the Company's
agreement to purchase AcroMed.
- -------
* Does not include certain exhibits to the Agreement. A list briefly
identifying the contents of all omitted exhibits has been provided in
Exhibit 2.1. The Company will furnish supplementally to the Securities and
Exchange Commission upon request a copy of any omitted exhibit.
** Confidential material omitted and filed separately with the Securities and
Exchange Commission pursuant to the Company's Application for Confidential
Treatment under Rule 24b-2 of the Securities Exchange Act of 1934.
14
<PAGE>
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.
Date: May 14, 1998 DEPUY, INC.
By: /s/ Steven L. Artusi
-------------------------
Steven L. Artusi
Senior Vice President,
General Counsel and Secretary
Date: May 14, 1998 By: /s/ Thomas J. Oberhausen
--------------------------
Thomas J. Oberhausen
Senior Vice President and
Chief Financial and Accounting
Officer
15
<PAGE>
EXHIBIT INDEX
Exhibit No. DESCRIPTION PAGE NO.
- ----------- ----------- --------
2.1 Agreement and Plan of Merger dated as of March 19,
1998 among AcroMed Corporation, DePuy, Inc. and DP
Merger Sub, Inc.* **
27.1 Financial Data Schedule
- -------
* Does not include certain exhibits to the Agreement. A list briefly
identifying the contents of all omitted exhibits has been provided in
Exhibit 2.1. The Company will furnish supplementally to the Securities and
Exchange Commission upon request a copy of any omitted exhibit.
** Confidential material omitted and filed separately with the Securities and
Exchange Commission pursuant to the Company's Application for Confidential
Treatment under Rule 24b-2 of the Securities Exchange Act of 1934.
<PAGE>
Pages where confidential treatment has been requested are stamped "Confidential
material omitted and filed separately with the Securities and Exchange
Commission." The appropriate section has been marked at the appropriate place
with an "*."
Exhibit 2.1
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF
MARCH 19, 1998
AMONG
ACROMED CORPORATION,
DEPUY, INC.
AND
DP MERGER SUB, INC.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS...........................................................1
2. MERGER; CLOSING; EFFECTIVE TIME.......................................9
2.1 THE MERGER..........................................9
2.2 CLOSING............................................10
2.3 ARTICLES OF INCORPORATION..........................10
2.4 THE REGULATIONS....................................10
2.5 DIRECTORS AND OFFICERS.............................10
2.6 MERGER CONSIDERATION...............................10
2.7 CONVERSION.........................................10
2.8 CONVERSION OF MERGER SUB SHARES....................11
2.9 CONVERSION OF OPTIONS..............................11
2.10 PAYMENT FOR SHARES AND OPTIONS.....................12
2.11 DISSENTERS' RIGHTS.................................12
2.12 TRANSFER OF SHARES AFTER THE EFFECTIVE TIME........13
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................13
3.1 ORGANIZATION.......................................13
3.2 CAPITALIZATION.....................................13
3.3 AUTHORITY; NO CONFLICT.............................14
3.4 FINANCIAL STATEMENTS...............................15
3.5 TITLE TO PROPERTIES; ENCUMBRANCES..................15
3.6 NO UNDISCLOSED LIABILITIES.........................16
3.7 TAXES..............................................16
3.8 NO MATERIAL ADVERSE CHANGE.........................17
3.9 EMPLOYEE BENEFITS..................................18
3.10 TERMINATION, SEVERANCE AND EMPLOYMENT AGREEMENTS...19
3.11 COMPLIANCE WITH LEGAL REQUIREMENTS;
GOVERNMENTAL AUTHORIZATIONS........................19
3.12 LEGAL PROCEEDINGS; ORDERS..........................21
3.13 ABSENCE OF CERTAIN CHANGES AND EVENTS..............21
3.14 CONTRACTS; NO DEFAULTS.............................22
3.15 ENVIRONMENTAL MATTERS..............................24
3.16 LABOR RELATIONS; COMPLIANCE........................25
3.17 INTELLECTUAL PROPERTY..............................26
3.18 BROKERS............................................27
3.19 TRANSACTIONS WITH RELATED PERSONS..................27
3.20 SETTLEMENT AGREEMENT...............................28
3.21 PRODUCTS; MANUFACTURING............................28
i
<PAGE>
Page
----
3.22 DISCLOSURE.........................................28
3.23 NO OTHER REPRESENTATIONS OR WARRANTIES.............28
4. REPRESENTATIONS AND WARRANTIES OF DEPUY AND
MERGER SUB...........................................................28
4.1 ORGANIZATION AND GOOD STANDING.....................28
4.2 AUTHORITY; NO CONFLICT.............................29
4.3 CERTAIN PROCEEDINGS................................29
4.4 AVAILABLE FUNDS....................................30
4.5 BROKERS............................................30
4.6 NO OTHER REPRESENTATIONS OR WARRANTIES.............30
5. COVENANTS OF THE COMPANY.............................................30
5.1 ACCESS AND INVESTIGATION...........................30
5.2 OPERATION OF THE BUSINESSES OF THE
ACQUIRED COMPANIES.................................30
5.3 NEGATIVE COVENANT..................................31
5.4 REQUIRED APPROVALS.................................31
5.5 SUPPLEMENTATION AND REVISION OF DISCLOSURE LETTER..31
5.6 PAYMENT OF INDEBTEDNESS BY SHAREHOLDERS............32
5.7 BEST EFFORTS.......................................32
5.8 NO NEGOTIATION.....................................32
6. COVENANTS OF DEPUY AND MERGER SUB....................................33
6.1 APPROVALS OF GOVERNMENTAL BODIES...................33
6.2 BEST EFFORTS.......................................33
6.3 OFFICERS' AND DIRECTORS' INDEMNIFICATION...........33
7. CONDITIONS PRECEDENT TO DEPUY'S AND THE MERGER SUB'S OBLIGATION
TO CLOSE.............................................................34
7.1 ACCURACY OF REPRESENTATIONS........................34
7.2 THE COMPANY'S PERFORMANCE..........................34
7.3 NO PROCEEDINGS.....................................34
7.4 NO INJUNCTION......................................35
7.5 NO PROHIBITION.....................................35
7.6 HSR APPROVAL.......................................35
7.7 SHAREHOLDER VOTE...................................35
7.8 OPINION............................................35
ii
<PAGE>
Page
----
8. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION
TO CLOSE.............................................................35
8.1 ACCURACY OF REPRESENTATIONS........................35
8.2 DEPUY'S AND MERGER SUB'S PERFORMANCE...............36
8.3 NO PROCEEDINGS.....................................36
8.4 NO INJUNCTION......................................36
8.5 NO PROHIBITION.....................................36
8.6 HSR APPROVAL.......................................36
8.7 SHAREHOLDER VOTE...................................36
8.8 OPINION............................................36
9. TERMINATION..........................................................37
9.1 TERMINATION EVENTS.................................37
9.2 RIGHTS AND OBLIGATIONS UPON TERMINATION............38
10. GENERAL PROVISIONS...................................................38
10.1 EXPENSES...........................................38
10.2 PUBLIC ANNOUNCEMENTS...............................38
10.3 CONFIDENTIALITY....................................38
10.4 NOTICES............................................39
10.5 FURTHER ASSURANCES.................................39
10.6 WAIVER.............................................40
10.7 ENTIRE AGREEMENT AND MODIFICATION..................40
10.8 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS.40
10.9 SEVERABILITY.......................................40
10.10 SECTION HEADINGS, CONSTRUCTION.....................40
10.11 GOVERNING LAW......................................41
10.12 COUNTERPARTS.......................................41
10.13 PERFORMANCE BY MERGER SUB..........................41
Exhibit A Form of Opinion of Company counsel
Exhibit B Form of Opinion of DePuy's counsel
Disclosure Letter
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("AGREEMENT") is dated as of March 19,
1998 among AcroMed Corporation, an Ohio corporation (the "COMPANY"), DePuy,
Inc., a Delaware corporation ("DEPUY"), and DP Merger-Sub, Inc., an Ohio
corporation and a wholly-owned subsidiary of DePuy ("MERGER SUB").
RECITALS
The Boards of Directors of DePuy, Merger Sub and the Company have each
approved the merger of Merger Sub with and into the Company in accordance with
the provisions of the Ohio General Corporation Law (the "OGCL"), on the terms
and subject to the conditions set forth in this Agreement.
The Board of Directors of the Company has determined that the Merger
Consideration (as the term is hereinafter defined) is fair to the shareholders
of the Company and the Merger (as such term is hereinafter defined) is otherwise
in the best interests of the Company and its shareholders and has resolved to
approve and adopt this Agreement and the transactions contemplated hereby and to
recommend approval and adoption by the shareholders of the Company of this
Agreement and the Merger.
Simultaneously with the execution of this Agreement, (i) shareholders of
the Company holding more than 60% of the issued and outstanding common shares of
the Company (including the shareholders who are also Directors of the Company)
are executing letters promising to vote their Shares in favor of the
consummation of the Merger and (ii) Arthur D. Steffee has entered into a
non-competition agreement with DePuy and the Company to become effective on the
Closing Date.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"ACQUIRED COMPANIES"-- the Company, AcroMed Export Inc., AcroMed, Inc.
d/b/a Bremer Medical Inc., AcroMed Holding B.V., AcroMed B.V., AcroMed UK Ltd.,
and the Inactive Subsidiaries, collectively.
<PAGE>
"ACTUAL KNOWLEDGE"--an individual will be deemed to have "Actual Knowledge"
of a particular fact or other matter if such individual is actually aware of
such fact or other matter. The Company will be deemed to have "Actual Knowledge"
of a particular fact or other matter if the Company's office of the CEO, the
Company's chief financial officer or the Company's general counsel has Actual
Knowledge of such fact or other matter.
"AFFILIATE"--with respect to a specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, such person.
"AGGREGATE OPTION EXERCISE AMOUNT"--the aggregate exercise price of all
outstanding Options that are not exercised prior to the Effective Time.
"ANTITRUST DIVISION"--as defined in Section 5.7.
"ARTICLES"--as defined in Section 2.3.
"BALANCE SHEET"--as defined in Section 3.4.
"BEST EFFORTS"--the efforts that a prudent Person desirous of achieving a
result would use in similar circumstances to ensure that such result is achieved
as expeditiously as possible. An obligation to use Best Efforts under this
Agreement does not require the Person subject to that obligation to take actions
that would result in a materially adverse change in the benefits to such Person
of this Agreement and the Contemplated Transactions nor does it require the
payment of money in any manner that is inconsistent with past practice.
"CERTAIN TRANSACTION COSTS"--the sum of (i) fees (and expenses) to be paid
to Morgan Stanley & Co., (ii) fees (and expenses) to be paid by the Company to
its outside counsel in connection with this Agreement and the Contemplated
Transactions, (iii) fees (and expenses) to be paid by the Company to its
accountants in connection with this Agreement and the Contemplated Transactions,
plus (iv) amounts to be paid by the Company under severance agreements with
- ----
employees that entitle the employee to terminate his or her employment with the
Company as a result of the Merger, on the assumption that such amounts will be
so paid.
"CLOSING"--as defined in Section 2.2.
"CLOSING DATE"--the date and time as of which the Closing actually takes
place.
"COMPANY"--as defined in the Preamble of this Agreement.
"CONSENT"--any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
2
<PAGE>
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by this
Agreement, including, but not limited to:
(a) the Merger; and
(b) the performance by DePuy, Merger Sub and the Company of their
respective obligations under this Agreement.
"CONTRACT"--any written agreement, contract, obligation, promise, or
undertaking that is legally binding.
"COPYRIGHTS"--as defined in Section 3.17(a).
"DISCLOSURE LETTER"--the disclosure letter delivered by the Company to
DePuy concurrently with the execution and delivery of this Agreement.
"DISSENTING SHAREHOLDERS"--shareholders of the Company properly exercising
appraisal rights with respect to Shares pursuant to Section 1701.84 et seq. of
the OGCL.
"EFFECTIVE TIME"--as defined in Section 2.2.
"ENCUMBRANCE"--any charge, claim, equitable interest, lien, option, pledge,
security interest, or right of first refusal, restriction, covenant, easement,
license, lease, mortgage, obligation, title defect or imperfection or other
encumbrance or right of others.
"ENVIRONMENT"--soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions (including
on-site or off-site contamination, occupational safety and health, and
regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
3
<PAGE>
(c) financial responsibility under Environmental Law or Occupational Safety
and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or response
actions ("Cleanup") required by applicable Environmental Law or Occupational
Safety and Health Law (whether or not such Cleanup has been required or
requested by any Governmental Body or any other Person) and for any natural
resource damages; or
(d) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the types
of activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq., as amended
("CERCLA").
"ENVIRONMENTAL LAW"--any Legal Requirement of any Governmental Body in the
United States that requires or relates to:
(a) advising appropriate authorities, employees, and the public of intended
or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencements
of activities, such as resource extraction or construction, that could have
significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of pollutants
or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used so
that they do not present unreasonable risks to human health or the Environment
when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation
of hazardous substances, pollutants, oil, or other potentially harmful
substances;
(g) cleaning up pollutants that have been released, preventing the threat
of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting self-appointed
representatives of the public interest to recover for injuries done to public
assets.
4
<PAGE>
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"ERISA AFFILIATE"--with respect to an Acquired Company, any other person
that, together with the Company or Acquired Company, would be treated as a
single employer under IRC (S)414.
"EXCESS AMOUNT"--the amount, if any, that the sum of Certain Transaction
Costs exceeds $9 million.
"FACILITIES"--any real property, leaseholds, or other interests currently
or formerly owned or operated by any Acquired Company and any buildings, plants
or structures currently or formerly owned or operated by any Acquired Company
"FDA"--the Food and Drug Administration.
"FTC"--as defined in Section 5.7.
"GAAP"--generally accepted United States accounting principles, applied on
a basis consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.4. were prepared.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY"--any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government; or
(c) governmental or quasi-governmental body of any nature (including any
governmental agency, branch, department, official, or entity and any court or
other tribunal and the European Union).
"HAZARDOUS ACTIVITY"--the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment.
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"HAZARDOUS MATERIALS"--any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"HSR ACT"--the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, or any successor law, and regulations and rules issued pursuant to that
Act or any successor law.
"INACTIVE SUBSIDIARIES"--AcroBase Corporation, AcroMed Holding Corporation,
AcroMed Inc., AcroMed Incorporated and AcroMed Asia Limited.
"INQUIRY KNOWLEDGE"--an individual will be deemed to have Inquiry Knowledge
of a particular fact or other matter if the individual has Actual Knowledge, or
if a prudent individual could be expected to discover or otherwise become aware
of such fact or other matter either (i) in the course of conducting a reasonably
comprehensive investigation concerning the existence of such fact or other
matter or (ii) because of the nature of his position with, or responsibilities
on behalf of, a Person. The Company will be deemed to have "Inquiry Knowledge"
of a particular fact or other matter if the Company's office of the CEO, the
Company's chief financial officer or the Company's general counsel has Inquiry
Knowledge of such fact or other matter.
"INTELLECTUAL PROPERTY ASSETS"--as defined in Section 3.17(a).
"INTERIM BALANCE SHEET"--as defined in Section 3.4.
"IRC"--the Internal Revenue Code of 1986, as amended, or any successor law,
and regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS"--the United States Internal Revenue Service or any successor agency,
and, to the extent relevant, the United States Department of the Treasury.
"LEGAL REQUIREMENt"--any administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty of any
Governmental Body.
"MARKS"--as defined in Section 3.17(a).
"MATERIAL ADVERSE EFFECT"--a material adverse effect on the business,
assets, properties, condition (financial or otherwise), operations or results of
operations of the Acquired Companies taken as a whole.
"MDRs"--as defined in Section 3.11(d).
"MERGER--as defined in Section 2.1.
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"MERGER CONSIDERATION"--as defined in Section 2.6.
"OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement of any
Governmental Body in the United States designed to provide safe and healthful
working conditions and to reduce occupational safety and health hazards.
"OGCL"--as defined in the recitals.
"OHIO CERTIFICATE OF MERGER"--as defined in Section 2.2.
"OPTIONS"--as defined in Section 2.6.
"ORDER"--any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict (other than any Legal Requirement) entered, issued, made,
or rendered by any Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be deemed
to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person;
(b) such action is not required to be authorized by the board of directors
of such Person; and
(c) with respect to an Acquired Company, such action is similar in nature
and magnitude to actions customarily taken, without authorization by the board
of directors in the ordinary course of the normal day to day operations of the
Acquired Company.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of
incorporation and the bylaws or regulations of a corporation; (b) the
partnership agreement and any statement of partnership of a general partnership;
(c) the limited partnership agreement and the certificate of limited partnership
of a limited partnership; (d) the articles of organization and the operating
agreement of a limited liability company; (e) any charter or similar document
adopted or filed in connection with the creation, formation, or organization of
a Person; and (f) any amendment to any of the foregoing.
"PATENTS"--as defined in Section 3.17(a).
"PBGC"--the Pension Benefit Guaranty Corporation.
"PER SHARE MERGER CONSIDERATION"--as defined in Section 2.7(a).
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"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PLANS"--as defined in Section 3.9.
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"REAL PROPERTY LEASES"--as defined in Section 3.5(b).
"REGULATIONS"--as defined in Section 2.4.
"REGULATIONS AMENDMENT"--as defined in Section 7.7
"RELATED PERSON"--with respect to any specified Person:
(i) any Affiliate of such specified Person; and
(ii) each Person that serves as a director or officer, of such
Person.
"RELEASE"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"REPRESENTATIVE"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SECURITIES ACT"--the Securities Act of 1933, as amended, or any successor
law, and regulations and rules issued pursuant to that Act or any successor law.
"SETTLEMENT AGREEMENT AND ORDER"--as defined in Section 3.20.
"SHARES"--as defined in Section 2.6.
"SUBMISSIONS"--as defined in Section 3.11(b).
"SUBSIDIARY"--with respect to any Person (the "Owner"), any corporation or
other Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
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interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"SURVIVING CORPORATION"--as defined in Section 2.1.
"TAX"--any tax (including any income tax, capital gains tax, value-added
tax, sales tax, property tax, gift tax, estate tax or payroll, employment or
social security tax) levy, assessment, tariff, duty (including any customs
duty), deficiency, or other fee commonly referred to as a tax, and any related
charge or amount (including any fine, penalty, interest, or addition to tax),
imposed, assessed, or collected by or under the authority of any Governmental
Body or payable pursuant to any tax-sharing agreement or any other Contract
relating to the sharing or payment of any such tax, levy, assessment, tariff,
duty, deficiency, or fee.
"TAX RETURN"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to any Governmental Body in connection with the determination,
assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any Legal
Requirement relating to any Tax.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter is
"Threatened" if any demand has been made in writing or if any oral demand that
has been made is reflected in any writing created by or in the possession of the
Company.
"TRADE SECRETS"--as defined in Section 3.17(a).
2. MERGER; CLOSING; EFFECTIVE TIME
2.1 THE MERGER
Subject to the terms and conditions of this Agreement, at the Effective
Time, Merger Sub will be merged with and into the Company and the separate
corporate existence of Merger Sub will cease (the "MERGER"). The Company will be
the surviving corporation in the Merger (sometimes referred to as the "SURVIVING
CORPORATION") and will continue to be governed by the laws of the State of Ohio.
The Merger will have the effects set forth in the OGCL. Without limiting the
generality of the foregoing, upon the Merger, the rights, privileges,
immunities, powers, franchises and authority of the Company and the Merger Sub
will vest in the Surviving Corporation and all obligations of the Company and
the Merger Sub will be the obligations of the Surviving Corporation.
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2.2 CLOSING
The Closing of the Merger (the "CLOSING") will take place at the offices of
Jones, Day, Reavis & Pogue, 901 Lakeside Avenue, Cleveland, Ohio 44114 at 10:00
a.m., Eastern Time, on the day which is no later than the fifth business day
after the last to be fulfilled or waived of the conditions set forth in Sections
7 and 8 of this Agreement, unless another date or place is agreed to in writing
by the parties hereto. At the Closing, the Company and DePuy will cause a
Certificate of Merger (the "OHIO CERTIFICATE OF MERGER") to be executed and
filed with the Secretary of State of the State of Ohio as provided in Section
1701.81 of the OGCL and DePuy will make the payments required by Section 2.10.
The Merger will become effective when the Ohio Certificate of Merger has been
duly filed with the Secretary of State of the State of Ohio (the "EFFECTIVE
TIME").
2.3 ARTICLES OF INCORPORATION
The articles of incorporation of Merger Sub (the "ARTICLES") in effect
immediately prior to the Effective Time will be the articles of incorporation of
the Surviving Corporation, until amended in accordance with the terms of the
Articles and the OGCL.
2.4 THE REGULATIONS
The Regulations of Merger Sub in effect immediately prior to the Effective
Time will be the Regulations of the Surviving Corporation (the "REGULATIONS")
until amended in accordance with the Articles, such Regulations and the OGCL.
2.5 DIRECTORS AND OFFICERS
The directors and officers of Merger Sub at the Effective Time will, from
and after the Effective Time, be the directors and officers of the Surviving
Corporation until their successors have been duly elected or appointed or until
their earlier death, resignation or removal in accordance with the Articles and
the Regulations.
2.6 MERGER CONSIDERATION
The aggregate consideration to be delivered by DePuy to the holders of (i)
issued and outstanding common shares, without par value, of the Company (the
"SHARES") and (ii) options to purchase shares of the capital stock of the
Company (the "OPTIONS") in consideration of the Merger will be $325 million less
any Excess Amount (the "MERGER CONSIDERATION").
2.7 CONVERSION
At the Effective Time, by virtue of the Merger and without any action on
the part of the Company, DePuy or the Merger Sub:
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(a) Each Share issued and outstanding at the Effective Time (other than
Shares canceled in accordance with Section 2.7(c) and other than Shares that are
held by Dissenting Shareholders) will be converted into the right to receive,
without interest, the quotient of: (i) the sum of the Merger Consideration plus
the Aggregate Option Exercise Amount divided by (ii) the number of fully-diluted
Shares issued and outstanding (assuming all Options are exercised) immediately
prior to the Merger (the "PER SHARE MERGER CONSIDERATION").
(b) All the Shares, by virtue of the Merger and without any action on the
part of the holders, will no longer be issued and outstanding and will be
canceled and retired and will cease to exist, and each holder of a certificate
representing Shares will thereafter cease to have any rights with respect to the
Shares, except the right to receive the Per Share Merger Consideration upon the
surrender of the respective certificate(s) in accordance with Section 2.10 or
the right, if any, to receive payment as a Dissenting Shareholder from the
Surviving Corporation as determined in accordance with Sections 1701.84 et seq.
-- ---
of the OGCL.
(c) At the Effective Time, each Share issued and held in the Company's
treasury immediately prior to the Effective Time and each Share owned by DePuy,
Merger Sub, or any other subsidiary of DePuy, will, by virtue of the Merger and
without any other action, be canceled and retired without payment of any
consideration and will cease to exist.
2.8 CONVERSION OF MERGER SUB SHARES
At the Effective Time, each share of common stock, without par value, of
Merger Sub issued and outstanding immediately prior to the Effective Time will,
by virtue of the Merger and without any action on the part of Merger Sub or the
holders of such Shares, be converted into one common share, without par value,
of the Surviving Corporation.
2.9 CONVERSION OF OPTIONS
(a) At the Effective Time, each Option will be converted into the right to
receive, without interest, a portion of the Merger Consideration equal to the
amount by which the Per Share Merger Consideration exceeds the exercise price
per Share payable under the Option, subject to applicable withholding Taxes that
have not otherwise been paid by the holder of the Options.
(b) All Options, by virtue of the Merger and without any action on the part
of the holders, will be canceled and will cease to exist, and each holder of
Options will thereafter cease to have any rights with respect to the Options,
except the right to receive the amount set forth in Section 2.9(a) above in
accordance the procedures set forth in Section 2.10.
(c) At least five business days prior to the Closing (and again if there
are any changes before the Closing), the Company will provide DePuy an update to
Part 3.2 of the Disclosure
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Letter listing the Options held by each optionee (including the date of grant,
the number of Shares issuable upon exercise of each Option, and the Merger
Consideration to which each optionee is entitled for their respective Options).
(d) The Company will obtain the written acknowledgment of each Person
holding an Option that payment of the amount of cash referred to above will
satisfy in full the Company's obligation to such person pursuant to such Option.
2.10 PAYMENT FOR SHARES AND OPTIONS
(a) Prior to the Closing, the Company will deliver (i) letters of
transmittal (in a form mutually agreed to by the Company and DePuy) to the
holders of Shares and (ii) instructions for payment (in a form mutually agreed
to by the Company and DePuy), which will include appropriate provision for the
payment of applicable withholding Taxes to holders of Options so that such
Shares and payment instructions may be delivered to the Company to be delivered
to DePuy for payment at the Effective Time. At the Closing, upon delivery to
DePuy of (i) certificates for Shares, together with the letter of transmittal,
duly executed and completed, and (ii) the payment instructions with respect to
Options, duly executed and delivered, DePuy will pay the Merger Consideration in
immediately available funds pursuant to Sections 2.7(a) and 2.9(a) to holders of
issued and outstanding Shares and granted Options, respectively, in each case
subject to any required Tax withholding or, as set forth in the letter of
transmittal, stock transfer taxes payable by the holder. Not more than three
business days after delivery to DePuy of (i) certificates for Shares, together
with the letter of transmittal, duly executed and completed, or (ii) the payment
instructions with respect to Options, duly executed and delivered, that were not
delivered at the Closing, DePuy will pay the Merger Consideration in immediately
available funds pursuant to Sections 2.7(a) and 2.9(a), in each case subject to
any required Tax withholding. No interest will be paid or will accrue on the
amounts payable pursuant to Sections 2.7(a) and 2.9(a).
(b) If payment is to be made to a person other than the registered holder
of the certificate surrendered, it will be a condition of payment that the
certificate so surrendered will be properly endorsed or otherwise in proper form
for transfer and that the person requesting payment will pay any transfer or
other taxes required by reason of the payment to a person other than the
registered holder of the certificate surrendered or establish to the
satisfaction of the Surviving Corporation that the tax has been paid or is not
applicable.
2.11 DISSENTERS' RIGHTS
No Dissenting Shareholder will be entitled to any portion of the Merger
Consideration under this Section 2 unless and until the holder has failed to
perfect or has effectively withdrawn or lost their right to dissent from the
Merger under the OGCL. Any Dissenting Shareholder will be entitled to receive
only the payment provided by Sections 1701.84 et seq. of the OGCL with respect
-- ---
to Shares owned by such Dissenting Shareholder. If any Person who otherwise
would be deemed a Dissenting Shareholder has failed to properly perfect or has
effectively withdrawn or
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has lost the right to dissent with respect to any Shares, those Shares will be
converted into the right to receive the Merger Consideration as provided by
Section 2.7(a), without interest or dividends thereon.
2.12 TRANSFER OF SHARES AFTER THE EFFECTIVE TIME
No transfers of Shares will be made on the share transfer books of the
Surviving Corporation and no Options may be exercised at or after the Effective
Time.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to DePuy as follows:
3.1 ORGANIZATION
Part 3.1 of the Disclosure Letter contains a complete and accurate list for
each Acquired Company of its name, its jurisdiction of incorporation and any
other jurisdictions in which it is authorized to do business. Each Acquired
Company (other than the Inactive Subsidiaries) is a corporation duly organized,
validly existing, and in good standing under the laws of its jurisdiction of
incorporation, with the corporate power and authority to conduct its business as
it is now being conducted, to own or use the properties and assets that it owns
or uses, and to perform all its obligations under Contracts. Except as set forth
in Part 3.1 of the Disclosure Letter, each Acquired Company is a corporation
duly qualified to do business as a foreign corporation and is in good standing
under the laws of each state or other jurisdiction in which either the ownership
or use of the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification. The failure of any Inactive
Subsidiary to be duly organized, validly existing or in good standing would not
have a Material Adverse Effect.
3.2 CAPITALIZATION
The authorized equity securities of the Company consist of 250,000 Shares,
of which 29,225 shares are issued and outstanding. On the date of this
Agreement, each shareholder is the record owner of the number of Shares set
opposite his, her or its name in Part 3.2 of the Disclosure Letter. All of the
issued and outstanding equity securities and other securities of each Acquired
Company other than the Company are owned of record and beneficially by one or
more of the Acquired Companies, free and clear of all Encumbrances. Any issued
and outstanding equity securities of the Acquired Companies have been duly
authorized and validly issued and are fully paid and nonassessable. Not more
than 12,475 Shares are issuable upon the exercise of Options. Except as set
forth in Part 3.2 of the Disclosure Letter, there are no Contracts to which the
Company is a party or Organizational Documents obligating any Acquired Company
to issue or sell any equity securities or other securities or restricting the
transfer of any equity securities or other securities of the Company. No
Acquired Company has any Contract to acquire any equity securities or other
securities of any Person (other than Acquired Companies) or any direct or
indirect equity or ownership interest in any other business. Except as set forth
in Part 3.2 of the
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Disclosure Letter, none of the outstanding equity securities or
other securities of any Acquired Company was issued in violation of the
Securities Act or other Legal Requirement. The only Subsidiaries of the Company
are the Acquired Companies (other than the Company).
3.3 AUTHORITY; NO CONFLICT
(a) This Agreement is a legal, valid, and binding obligation of the
Company, enforceable against the Company in accordance with its terms. The
Company has all requisite right, power and authority to execute and deliver this
Agreement and, subject to approval of its shareholders, to perform its
obligations under this Agreement. The execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the
Contemplated Transactions have been duly authorized by the Directors of the
Company and, other than approval and adoption of this Agreement by the holders
of at least a majority of the voting power of the Company, no other corporate
proceedings on the part of the Company are necessary to authorize the execution,
delivery and performance of this Agreement by the Company and the consummation
of the Contemplated Transactions. The Board of Directors of the Company has
determined that the Merger Consideration is fair to the shareholders of the
Company and has recommended approval and adoption by the shareholders of the
Company of this Agreement and the Merger.
(b) Except as set forth in Part 3.3(b) of the Disclosure Letter, neither
the execution and delivery of this Agreement nor the consummation or performance
by the Company of any of the Contemplated Transactions will, directly or
indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of any
provision of the Organizational Documents of any Acquired Company, or any
resolution adopted by the directors or the shareholders of any Acquired
Company;
(ii) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which any Acquired Company, or
any of the assets owned or used by any Acquired Company, may be subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by any Acquired Company or that otherwise
relates to the business of, or any of the assets owned or used by, any
Acquired Company;
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(iv) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Contract; or
(v) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by any Acquired Company.
(c) Except for the filing under the HSR Act and the expiration or earlier
termination of the applicable waiting period thereunder and the required vote of
the Company shareholders, the Company is not and will not be required to obtain
any Consent from any Person in connection with the execution and delivery of
this Agreement or the consummation or performance of any of the Contemplated
Transactions.
3.4 FINANCIAL STATEMENTS
The Company has delivered to DePuy: (a) consolidated balance sheets of the
Acquired Companies as at June 30 in each of the years 1993 through 1996, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flow for each of the fiscal years then ended, together with the report
thereon of Deloitte & Touche LLP, independent certified public accountants, (b)
a consolidated balance sheet of the Acquired Companies as at June 30, 1997
(including the notes thereto, the "BALANCE SHEET"), and the related consolidated
statements of income, changes in shareholders' equity, and cash flow for the
fiscal year then ended, together with the report thereon of Deloitte & Touche
LLP, independent certified public accountants, and (c) an unaudited consolidated
balance sheet of the Acquired Companies as at December 31, 1997 (the "INTERIM
BALANCE SHEET") and the related unaudited consolidated statements of income,
changes in shareholders' equity, and cash flow for the 6 months then ended,
including in each case the notes thereto. Such financial statements and notes
fairly present in all material respects the financial condition and the results
of operations, changes in shareholders' equity, and cash flow of the Acquired
Companies as at the respective dates of and for the periods referred to in such
financial statements, all in accordance with GAAP, subject, in the case of
interim financial statements, to normal recurring year-end adjustments (the
effect of which will not individually or in the aggregate have a Material
Adverse Effect) and the absence of notes. The financial statements referred to
in this Section 3.4 reflect the consistent application of such accounting
principles throughout the periods involved, except as disclosed in the notes to
such financial statements.
3.5 TITLE TO PROPERTIES; ENCUMBRANCES
(a) Except for Intellectual Property Assets (covered in Section 3.17), the
Acquired Companies own all the assets that they purport to own (whether real,
personal or mixed and whether tangible or intangible), including, but not
limited to, all assets reflected in the Balance Sheet and the Interim Balance
Sheet, except for personal property sold since the date of the Balance Sheet and
Interim Balance Sheet in the Ordinary Course of Business. All assets reflected
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<PAGE>
in the Balance Sheet and the Interim Balance Sheet are free and clear of all
Encumbrances other than (i) security interests incurred in connection with the
purchase of property or assets after the date of the Interim Balance Sheet (such
security interests being limited to the property or assets so required), with
respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (ii) liens for current taxes not yet
due, (iii) security interests listed in Part 3.5(a) of the Disclosure Letter and
(iv) liens of carriers, warehousemen, mechanics and materialmen, liens in
connection with workers compensation, unemployment insurance or other forms of
governmental insurance or benefits (other than Tax Encumbrances).
(b) The Acquired Companies do not own any real property. Part 3.5(b) of the
Disclosure Letter contains a complete list of all real property leases
(collectively, the "REAL PROPERTY LEASES") to which any of the Acquired
Companies is a party. The Acquired Companies have a valid leasehold interest in
all of the Real Property Leases, free and clear of Encumbrances other than (i)
current taxes not yet due and payable, (ii) zoning laws and other land use
restrictions that do not impair the present or anticipated use of the Real
Property Leases by the Acquired Companies, (iii) rights of way, building use
restrictions, exceptions, variances, reservations, or limitations of any nature
other than restrictions, covenants, conditions and easements of record, (iv)
minor imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value or impairs the use of the Real Property
Leases subject thereto, or impairs the operations of any Acquired Company, and
(v) any landlord/owner financing permitted under the terms of such Real Property
Leases. The Acquired Companies are not now in default under any of the Real
Property Leases and, to the Inquiry Knowledge of the Company, there is no
default by any other party thereto which, after the passage of time or
otherwise, could lead to a default thereunder.
3.6 NO UNDISCLOSED LIABILITIES
Except as set forth in Part 3.6 of the Disclosure Letter, the Acquired
Companies have no liabilities or obligations of any nature (whether known or
unknown and whether absolute, actual, contingent or otherwise) that are required
to be reflected on a balance sheet prepared in accordance with GAAP except for
liabilities reflected or reserved against in the Balance Sheet or the Interim
Balance Sheet and current liabilities incurred in the Ordinary Course of
Business since the respective dates thereof that will not have a Material
Adverse Effect.
3.7 TAXES
(a) The Acquired Companies have filed or caused to be filed on a timely
basis all United States federal Tax Returns and foreign income Tax Returns that
are or were required to be filed by or with respect to any of them, either
separately or as a member of a group of corporations. The Acquired Companies
have paid, or made provision for the payment of, all Taxes that have become due
pursuant to those Tax Returns, or pursuant to any assessment received by any
Acquired Company, except such Taxes, if any, as are listed in Part 3.7(a) of the
Disclosure Letter and are being contested in good faith and as to which adequate
reserves (determined in accordance with GAAP) have been provided in the Balance
Sheet and the Interim
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Balance Sheet. The United States federal Tax Returns of each Acquired Company
subject to such Taxes have been audited or are closed by the applicable statute
of limitations through June 30, 1995.
(b) The Acquired Companies are not delinquent in the payment of any United
States federal Tax, there is no United States federal Tax deficiency or
delinquency asserted against any Acquired Company and there is no unpaid
assessment, proposal for additional United States federal Taxes asserted by any
Governmental Body. No United States federal audit is pending or Threatened and
the results of any completed audits are properly reflected in the financial
statements referred to in Section 3.4.
(c) Part 3.7(c) of the Disclosure Letter sets forth the state Tax Returns
that have been filed by the Acquired Companies and all such Returns have been
timely filed. There is no unpaid assessment, proposal for additional state
Taxes, deficiency or delinquency in the payment of any state Taxes asserted by
any Governmental Body.
(d) Except as described in Part 3.7(d) of the Disclosure Letter, no
Acquired Company has given or been requested to give waivers or extensions (or
is or would be subject to a waiver or extension given by any other Person) of
any statute of limitations relating to the payment of Taxes of any Acquired
Company or for which any Acquired Company may be liable. There exists no
proposed tax assessment against any Acquired Company except as disclosed in the
Balance Sheet or in Part 3.7(d) of the Disclosure Letter. No consent to the
application of Section 341(f)(2) of the IRC has been filed with respect to any
property or assets held, acquired, or to be acquired by any Acquired Company.
All Taxes that any Acquired Company is or was required by Legal Requirements to
withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Body or other Person.
(e) Except as set forth in Part 3.7(e) of the Disclosure Letter, to the
Inquiry Knowledge of the Company, the Acquired Companies have filed all foreign
Tax Returns (other than foreign income Tax Returns which are covered in Section
3.7(a)) that are or were required to be filed by or with respect to any of them
and paid (or made provision to pay) all Taxes that have become due pursuant to
such Returns.
3.8 NO MATERIAL ADVERSE CHANGE
Except as set forth in Part 3.8 of Disclosure Letter, there has not been
since the date of the Balance Sheet any change in the business, operations,
assets, or condition of any Acquired Company that has resulted, or could
reasonably be expected to result in a Material Adverse Effect.
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3.9 EMPLOYEE BENEFITS
(a) Except as disclosed in Part 3.9 of the Disclosure Letter, (i) each
"employee benefit plan" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), and all other employee
benefit, bonus, incentive, stock option (or other equity-based), severance,
change in control, welfare (including post-retirement medical and life
insurance) and fringe benefit plans (whether or not subject to ERISA) maintained
or sponsored by the Company or any other United States trade or business,
whether or not incorporated, that would be deemed a "single employer" within the
meaning of Section 4001 of ERISA (an "ERISA Affiliate"), for the benefit of any
employee or former employee of any Acquired Company or any of its ERISA
Affiliates (individually, a "Plan", and collectively, the "Plans") is, and has
been operated in accordance with its terms and in material compliance (including
the making of governmental filings) with all applicable laws, including ERISA
and the applicable provisions of the IRC, (ii) each of the Plans intended to be
"qualified" within the meaning of Section 401(a) of the IRC has been determined
by the IRS to be so qualified, (iii) no "reportable event," as such term is
defined in Section 4043(c) of ERISA (for which the 30-day notice requirement to
the Pension Benefit Guaranty Corporation ("PBGC") has not been waived), has
occurred with respect to any Plan that is subject to Title IV of ERISA which
presents a risk of liability to any Governmental Body or other person, and (iv)
there are no pending, or to the Actual Knowledge of the Company Threatened,
claims (other than routine claims for benefits) by, on behalf of or against, any
of the Plans or any trusts related thereto. No Plan is a "multiemployer plan"
(within the meaning of ERISA) nor has any Acquired Company or any ERISA
Affiliate ever contributed or been required to contribute to any multiemployer
plan. Parts 3.9 and 3.10 of the Disclosure Letter contain a complete and
accurate list of all Plans. To the Inquiry Knowledge of the Company, the
Acquired Companies that are organized and operate outside the United States do
not maintain or contribute to any employee benefit plans that represent material
liabilities of such Acquired Companies.
(b) (i) No Plan has incurred an "accumulated funding deficiency" (as
defined in Section 302 of ERISA or Section 412 of the IRC), whether or not
waived and (ii) no Acquired Company nor any ERISA Affiliate has incurred any
liability under Title IV of ERISA except for required premium payments to the
PBGC, which payments have been made when due, and no events have occurred which
are reasonably likely to give rise to any liability of an Acquired Company or an
ERISA Affiliate under Title IV of ERISA or which could reasonably be anticipated
to result in any claims being made against any Acquired Company by the PBGC.
(c) No Acquired Company or any ERISA Affiliate has failed to make any
contribution or payment to any Plan which has resulted or could result in the
imposition of a lien or the posting of a bond or other security under ERISA or
the IRC.
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3.10 TERMINATION, SEVERANCE AND EMPLOYMENT AGREEMENTS
Part 3.10 of the Disclosure Letter includes a complete and accurate list of
each (a) employment or severance agreement not terminable without liability or
obligation (either individually or collectively); (b) agreement with any
director, executive officer or other employee of any Acquired Company (i) the
benefits of which are contingent, or the terms of which are materially altered,
on the occurrence of a transaction involving the Acquired Company of the nature
of any of the Contemplated Transactions or relating to an actual or potential
change in control of the Acquired Company or (ii) providing any term of
employment or other compensation guarantee or extending severance benefits or
other benefits after termination not comparable to benefits available to
employees of the Acquired Companies generally; (c) agreement, plan or
arrangement under which any person may receive payments as a result of the
Contemplated Transactions that may be subject to tax imposed by (S)4999 of the
IRC or included in the determination of such person's "parachute payment" under
(S)280G of the IRC; and (d) agreement or plan, including any stock option plan,
stock appreciation right plan, restricted stock plan or stock purchase plan, any
of the benefits of which will be triggered, increased, or the vesting of the
benefits of which will be triggered or accelerated, by the occurrence of any of
the Contemplated Transactions or the value of any of the benefits of which will
be calculated on the basis of any of the Contemplated Transactions. Except as
provided for by the terms of any agreement, plan or arrangement, the existence
of which is disclosed in Part 3.10 of the Disclosure Schedule, the consummation
of the Contemplated Transactions, without regard to any other event following
the Effective Time, will not (i) entitle any current or former employee or
officer of any Acquired Company or any ERISA Affiliate to severance pay,
unemployment compensation or any other payment, or (ii) accelerate the time of
payment or vesting or increase the amount of compensation due any such employee
or officer. All of the Employee Stock Option Agreements (other than the one for
W. Dekle Rountree, Jr.) listed under Part 3.2 of the Disclosure Letter under the
headings Executives and Key Employees include a covenant in the form of Sections
---------- -------------
7 and 8 of the Employee Stock Option Agreement between the Company and David R.
Grant dated as of July 23, 1997, a true and accurate copy of which has
previously been delivered to DePuy. A true and accurate copy of both the
Employment Agreement and the Stock Option Agreement between the Company and W.
Dekle Rountree, Jr. have been delivered to DePuy. After the Closing, no payments
will be due to Mr. Rountree from the Company.
3.11 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) To the Inquiry Knowledge of the Company, except as set forth in Part
3.11(a) of the Disclosure Letter:
(i) each Acquired Company is, and at all times since January 1, 1994
has been, in compliance with each Legal Requirement that is or was
applicable to it or to the conduct or operation of its business or the
ownership or use of any of its assets;
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(ii) the Acquired Companies have not received, at any time since
January 1, 1994, any written notice or other written communication from any
Governmental Body or any other Person regarding any violation of, or
failure to comply with, any Legal Requirement, or any obligation on the
part of the Acquired Companies to undertake, or to bear all or any portion
of the cost of, remedial action under any Environmental Law.
(b) Part 3.11(b) of the Disclosure Letter contains a complete and accurate
list of each Governmental Authorization that is held by any Acquired Company or
that otherwise relates to the business of, or to any of the assets owned or used
by, any Acquired Company, including but not limited to product approvals and
clearances issued by the Food and Drug Administration ("FDA") and similar
foreign Governmental Bodies and product submissions to the FDA and similar
foreign Governmental Bodies which are currently in process (the "SUBMISSIONS").
Except for the Submissions, each Governmental Authorization issued by a United
States Governmental Body, and, to the Inquiry Knowledge of the Company, each
Governmental Authorization issued by a foreign Governmental Body, listed or
required to be listed in Part 3.11(b) of the Disclosure Letter is valid and in
full force and effect.
(c) Except as set forth in Part 3.11(c) of the Disclosure Letter, to the
Inquiry Knowledge of the Company, the Governmental Authorizations listed in Part
3.11(b) of the Disclosure Letter collectively constitute all of the Governmental
Authorizations necessary to permit the Acquired Companies to lawfully conduct
and operate their businesses in the manner they currently conduct and operate
such businesses and to permit the Acquired Companies to own and use their assets
in the manner in which they currently own and use such assets.
(d) In calendar year 1997, the Company recorded * "complaints" (as such
term is defined in 21 C.F.R. (S)820.198) and reported 21 Medical Device Reports
("MDRs"). From January 1, 1998 through February 28, 1998, the Company recorded *
"complaints" and reported 5 MDRs. Except as set forth in Part 3.11(d) of the
Disclosure Letter, to the Inquiry Knowledge of the Company, these "complaints"
and MDRs would not reasonably lead to the conclusion that there is a trend or
failure mode with respect to a particular product.
(e) To the Inquiry Knowledge of the Company, all products manufactured by
any Acquired Company are manufactured, distributed and marketed in compliance
with currently applicable FDA laws and regulations. The Acquired Companies are
authorized by their "notified body" to apply the "CE" mark to the products
listed on Part 3.11(e) of the Disclosure Letter.
(f) Since January 1, 1992, none of the Acquired Companies has received any
FDA "warning letters." No devices currently sold by any of the Acquired
Companies are subject to a voluntary or FDA-mandated recall.
- -------------
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
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3.12 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 3.12(a) of the Disclosure Letter, there is
no pending Proceeding and, to the Inquiry Knowledge of the Company, no such
Proceeding has been Threatened (i) by or against any Acquired Company or (ii)
that challenges any of the Contemplated Transactions..
(b) Except as set forth in Part 3.12(b) of the Disclosure Letter:
(i) there is no Order to which any Acquired Company is a party;
(ii) to the Actual Knowledge of the Company, no officer, director or
employee of any Acquired Company is subject to any Order that prohibits
such officer, director or employee from engaging in or continuing any
conduct, activity, or practice relating to the business of any Acquired
Company.
(c) Except as set forth in Part 3.12(c) of the Disclosure Letter, each
Acquired Company is, and at all times since January 1, 1994 has been, in full
compliance with all of the terms and requirements of each Order to which it, or
any of the assets owned or used by it, is or has been subject.
3.13 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 3.13 of the Disclosure Letter, since the date
of the Balance Sheet, the Acquired Companies have conducted their businesses
only in the Ordinary Course of Business and there has not been any:
(a) change in the Company's authorized or issued capital stock; grant of
any Options or right to purchase shares of capital stock of the Company;
issuance of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition by
the Company of any shares of any such capital stock; or declaration or payment
of any dividend or other distribution or payment in respect of shares of capital
stock;
(b) amendment to the Organizational Documents of the Company;
(c) payment or increase by any Acquired Company of any bonuses, salaries,
or other compensation to any shareholder, director, officer, or (except in the
Ordinary Course of Business) employee or entry into any employment, severance,
or similar Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of any
Acquired Company;
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(e) damage to or destruction or loss of any asset or property of any
Acquired Company not covered by insurance;
(f) entry into, termination of, or material modification of any license,
distributorship, dealer, sales representative, or joint venture credit or
similar agreement;
(g) entry into, termination of, or receipt of notice of termination of any
Contract or transaction, including incurrence of obligations for borrowed money,
involving a total remaining commitment by or to any Acquired Company of at least
$50,000 other than in the Ordinary Course of Business;
(h) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of any Acquired
Company or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of any Acquired Company;
(i) material change in the accounting methods used by any Acquired Company;
or
(j) agreement, whether oral or written, by any Acquired Company to do any
of the foregoing.
3.14 CONTRACTS; NO DEFAULTS
(a) Part 3.14(a) of the Disclosure Letter identifies:
(i) each Contract that involves performance of services or delivery of
goods or materials by one or more Acquired Companies of an amount or value
in excess of $50,000 other than sales orders for the sale by an Acquired
Company of goods or services in the Ordinary Course of Business;
(ii) each Contract that involves performance of services or delivery
of goods or materials to one or more Acquired Companies of an amount or
value in excess of $50,000 other than purchase orders for the purchase by
an Acquired Company of goods or services in the Ordinary Course of
Business;
(iii) each Contract that was not entered into in the Ordinary Course
of Business and that involves expenditures or receipts of one or more
Acquired Companies in excess of $25,000;
(iv) each Contract for borrowed money;
(v) each lease, rental or occupancy agreement, license, installment
and conditional sales agreement, and other Contracts affecting the
ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property to which
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an Acquired Company is a party (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $25,000 or with terms of less than one year);
(vi) each licensing agreement or other Contract with respect to
patents, trademarks or copyrights to which an Acquired Company is a party;
(vii) each collective bargaining agreement and other Contract to which
an Acquired Company is a party to or with any labor union or other employee
representative of a group of employees;
(viii) each joint venture, partnership, and other Contract (however
named) involving a sharing of profits, losses, costs, or liabilities by any
Acquired Company with any other Person;
(ix) each Contract to which an Acquired Company is a party containing
covenants that in any way purport to restrict the business activity of any
Acquired Company;
(x) each Contract to which an Acquired Company is a party for capital
expenditures in excess of $50,000;
(xi) to the extent not listed elsewhere in Part 3.14(a) of the
Disclosure Letter, each Contract providing for payments by or to any Person
based on sales, purchases or profits, other than direct payment for goods;
(xii) each written warranty, guaranty or similar undertaking with
respect to contractual performance extended by any Acquired Company other
than in the Ordinary Course of Business; and
(xiii) each written amendment, supplement and modification in respect
of any of the foregoing.
(b) Except as set forth in Part 3.14(b) of the Disclosure Letter, to the
Inquiry Knowledge of the Company, each Contract identified or required to be
identified in Part 3.14(a) of the Disclosure Letter is in full force and effect
and is valid and enforceable in accordance with its terms.
(c) Except as set forth in Part 3.14(c) of the Disclosure Letter, to the
Inquiry Knowledge of the Company:
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(i) each Acquired Company is in substantial compliance with each
Contract listed in Part 3.14(a) of the Disclosure Letter under which such
Acquired Company has or had any obligation or liability or by which such
Acquired Company or any of the assets owned or used by such Acquired
Company is or was bound;
(ii) each other Person that has or had any obligation or liability
under any Contract listed in Part 3.14(a) of the Disclosure Letter under
which an Acquired Company has any rights is in substantial compliance with
such Contract; and
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or result
in a violation or breach of, or give any Acquired Company or other Person
the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or
modify, any Contract.
3.15 ENVIRONMENTAL MATTERS
Except as set forth in Part 3.15 of the Disclosure Letter:
(a) Each Acquired Company is, and at all times has been, in full compliance
with, and has not been and is not in violation of or liable under, any
Environmental Law. No Acquired Company has any basis to expect, nor has any of
them or any other Person for whose conduct they are or may be held to be
responsible received, any actual or Threatened order, notice, or other
communication from (i) any Governmental Body or private citizen acting in the
public interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation to undertake or
bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which any Acquired Company has had an interest, or with
respect to any property or Facility at or to which Hazardous Materials were
transported, generated, manufactured, refined, transferred, imported, used, or
processed by, any Acquired Company, or any other Person for whose conduct they
are or may be held responsible.
(b) There are no pending or, to the Actual Knowledge of the Company,
Threatened claims, Encumbrances, or other restrictions of any nature, resulting
from any Environmental, Health, and Safety Liabilities or arising under or
pursuant to any Environmental Law, with respect to or affecting any of the
Facilities or any other properties and assets (whether real, personal, or mixed)
in which any Acquired Company has or had an interest.
(c) No Acquired Company has any basis to expect, nor has any of them or any
other Person for whose conduct they are or may be held responsible, received,
any citation, directive, inquiry, notice, Order, summons, warning, or other
communication that relates to Hazardous Activity, Hazardous Materials, or any
alleged, actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or
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bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which any Acquired Company had an interest, or with
respect to any property or facility to which Hazardous Materials generated,
manufactured, refined, transferred, imported, used, or processed by, any
Acquired Company, or any other Person for whose conduct they are or may be held
responsible, have been transported, treated, stored, handled, transferred,
disposed, recycled, or received.
(d) No Acquired Company or any other Person for whose conduct they are or
may be held responsible, has any Environmental, Health, and Safety Liabilities
with respect to the Facilities or with respect to any other properties and
assets (whether real, personal, or mixed) in which any Acquired Company (or any
predecessor), has or had an interest.
(e) Except for the Hazardous Materials that are reasonably necessary to
operate the business of the Company in the ordinary course and that are managed
in compliance with all applicable Environmental Laws, there are no Hazardous
Materials present on or in the Environment at the Facilities, including any
Hazardous Materials contained in barrels, above or underground storage tanks,
landfills, land deposits, dumps, equipment (whether moveable or fixed) or other
containers, either temporary or permanent, and deposited or located in land,
water, sumps, or any other part of the Facilities or such adjoining property, or
incorporated into any structure therein or thereon. No Acquired Company, any
other Person for whose conduct they are or may be held responsible, or any other
Person, has permitted or conducted, or is aware of, any Hazardous Activity
conducted with respect to the Facilities or any other properties or assets
(whether real, personal, or mixed) in which any Acquired Company has or had an
interest.
(f) There has been no Release or, to the Actual Knowledge of the Company,
Threatened Release, of any Hazardous Materials at or from the Facilities or at
or from any other locations where any Hazardous Materials generated by any
Acquired Company were treated or disposed, or from or by any other properties
and assets (whether real, personal, or mixed) in which any Acquired Company has
or had an interest, whether by any Acquired Company or any other Person.
(g) The Acquired Companies have delivered to DePuy true and complete copies
and results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by any Acquired Company pertaining to Hazardous Materials or Hazardous
Activities in, on, or under the Facilities, or concerning compliance by any
Acquired Company or any other Person for whose conduct they are or may be held
responsible, with Environmental Laws.
3.16 LABOR RELATIONS; COMPLIANCE
Since January 1, 1992, no Acquired Company has been or is a party to any
collective bargaining or other labor Contract. There is not presently pending or
existing, and to the Inquiry Knowledge of the Company there is not Threatened,
any strike, slowdown, picketing, work stoppage, or employee grievance process,
any Proceeding against or affecting any Acquired Company relating to the alleged
violation of any Legal Requirement pertaining to labor relations
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or employment matters, including any charge or complaint filed by an employee or
union with the National Labor Relations Board, the Equal Employment Opportunity
Commission, or any comparable Governmental Body, organizational activity, or
other labor or employment dispute against or affecting any Acquired Company or
their premises, or any application for certification of a collective bargaining
agent. To the Inquiry Knowledge of the Company, each Acquired Company has
complied in all respects with all Legal Requirements relating to employment,
equal employment opportunity, nondiscrimination, immigration, wages, hours,
benefits, collective bargaining, the payment of social security and employment
taxes, occupational safety and health, and plant closing.
3.17 INTELLECTUAL PROPERTY
(a) INTELLECTUAL PROPERTY ASSETS--The term "INTELLECTUAL PROPERTY ASSETS"
includes all intellectual property Assets of the Acquired Companies including,
but not limited to:
(i) the name "AcroMed Corporation," all fictional business names,
trade names, registered trademarks, service marks, and applications
(collectively, "MARKS");
(ii) all patents and patent applications (collectively, "PATENTS");
(iii) all copyrights in both published works and unpublished works
(collectively, "COPYRIGHTS"); and
(iv) all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, "TRADE SECRETS"); owned, used, or
licensed by any Acquired Company as licensee or licensor.
(b) Part 3.17(b) of the Disclosure Letter contains a complete and accurate
list of:
(i) all Patents, registered Marks and registered Copyrights, owned or
used (pursuant to license agreements or otherwise) by any Acquired Company
and, in the case of Intellectual Property Assets which are so owned, the
jurisdictions in or by which such assets have been registered, filed or
issued; and
(ii) to the extent not listed in Part 3.14(a) of the Disclosure
Letter, all Contracts pursuant to which the Company has authorized any
Person to use any of the Intellectual Property Assets which are so owned.
Except as set forth in Part 3.17(b) of the Disclosure Letter, to the
Inquiry Knowledge of the Company, the Acquired Companies own, possess or
license all right, title and interest in and to the Intellectual Property
Assets without, to the Inquiry Knowledge of the Company, conflict with the
rights of others and free and clear of all Encumbrances and other adverse
claims. The Intellectual
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Property Assets constitute all of the intellectual property assets
necessary to permit the Acquired Companies to conduct and operate their
businesses in the manner in which they currently conduct and operate such
businesses.
(c) Except as set forth in Part 3.17(c) of the Disclosure Letter, (i) the
Contemplated Transactions will not alter or impair any of the rights presently
enjoyed by any Acquired Company under the Intellectual Property Assets, and (ii)
no Acquired Company has received any notice or claim of infringement or any
claim challenging or questioning the validity or effectiveness of any
Intellectual Property Assets and (iii) no Acquired Company is liable, nor has it
made any Contract whereby it may become liable, to any Person for any royalty or
other compensation for use of any of the Intellectual Property Assets.
(d) Except as set forth in Part 3.17(d) of the Disclosure Letter, to the
Inquiry Knowledge of the Company, none of the products manufactured, sold or
being developed by or on behalf of any Acquired Company, nor any process or
know-how used by any Acquired Company infringes or is alleged to infringe any
patent or proprietary right of any other Person. Except as set forth in Part
3.17(d) of the Disclosure Letter, to the Inquiry Knowledge of the Company, none
of the Marks infringes or is alleged to infringe any trade name, trademark or
service mark of any third party.
3.18 BROKERS
Other than payments to Morgan Stanley & Co. contemplated in the letter
agreement dated as of June 7, 1996, by and among the Company and Morgan Stanley
& Co., a true and correct copy of which has been made available to DePuy, no
Acquired Company has incurred and no Acquired Company will incur any obligation
for any finder's or broker's fee or commission in connection with the
Contemplated Transactions.
3.19 TRANSACTIONS WITH RELATED PERSONS
Except as set forth in Part 3.19 of the Disclosure Letter, to the Inquiry
Knowledge of the Company:
(a) no Related Person of any Acquired Company has any interest in any
property used in or pertaining to any Acquired Company's business; and
(b) no Related Person of any Acquired Company owns any equity interest or
other financial interest in a Person that has had business dealings or a
material financial interest in any transaction with any Acquired Company other
than business dealings or transactions conducted in the Ordinary Course of
Business with any Acquired Company at substantially prevailing market terms.
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3.20 SETTLEMENT AGREEMENT
At the time of the Closing, the AcroMed Corporation Settlement Agreement
dated January 8, 1997, as amended and as approved in the Final Order and
Judgment (Pretrial Order No. 1117) entered on October 17, 1997, in the United
States District Court for the Eastern District of Pennsylvania in the
Multidistrict Proceeding entitled In re: Orthopedic Bone Screw Products
Liability Litigation, MDL Docket No. 1014, and the Final Order and Judgment
itself (collectively the "SETTLEMENT AGREEMENT AND ORDER"), will be final and
are binding upon the Company and the members of the "Settlement Class" as
defined therein.
3.21 PRODUCTS; MANUFACTURING
(a) No material used or ever used in the AcroFlex(R) artificial lumbar disc
under development by the Company is an additive listed in 21 C.F.R. Part 81.
(b) No Acquired Company manufactures products outside the United States.
(c) As of the date of this Agreement, the Company has raw material
inventory of * pounds of PEKEKK.
3.22 DISCLOSURE
The representations and warranties made by the Company in this Agreement
including the matters set forth in the Disclosure Letter (including Part 3.22 of
the Disclosure Letter), taken as a whole, do not omit to state a material fact
necessary to make the statements herein, in light of the circumstances in which
they were made, not misleading.
3.23 NO OTHER REPRESENTATIONS OR WARRANTIES
Except for the representations and warranties contained in this Agreement,
the Company makes no representation or warranty, and hereby disclaims any such
representations by the Company with respect to the execution and delivery of
this Agreement, the Contemplated Transactions or the Acquired Companies.
4. REPRESENTATIONS AND WARRANTIES OF DEPUY AND MERGER SUB
Each of DePuy and Merger Sub represents and warrants to the Company as
follows:
4.1 ORGANIZATION AND GOOD STANDING
DePuy is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware. Merger Sub is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Ohio.
* Confidential material omitted and filed separately with the Securities and
Exchange Commission.
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4.2 AUTHORITY; NO CONFLICT
(a) This Agreement is a legal, valid, and binding obligation of DePuy and
Merger Sub, enforceable against each in accordance with its terms. Each of DePuy
and Merger Sub has the right, power, and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement. The execution,
delivery and performance by DePuy and Merger Sub of this Agreement and the
consummation by DePuy and Merger Sub of the Contemplated Transactions have been
duly authorized by the respective boards of directors of DePuy, Merger Sub and
any other Person that directly or indirectly controls DePuy and no other
corporate proceedings on the part of DePuy, Merger Sub or any other Person that
directly or indirectly controls DePuy are necessary to authorize the execution,
delivery and performance of this Agreement by DePuy and Merger Sub and the
consummation of the Contemplated Transactions.
(b) Neither the execution and delivery of this Agreement by DePuy or Merger
Sub nor the consummation or performance of any of the Contemplated Transactions
by DePuy or Merger Sub will give any Person the right to prevent, delay, or
otherwise interfere with any of the Contemplated Transactions pursuant to:
(i) any provision of DePuy's or Merger Sub's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
shareholders of DePuy or Merger Sub;
(iii) any Legal Requirement or Order to which DePuy or Merger Sub may
be subject; or
(iv) any Contract to which DePuy or Merger Sub is a party or by which
DePuy or Merger Sub may be bound.
(c) Except for Consents necessary under the HSR Act, neither DePuy nor
Merger Sub is or will be required to obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
4.3 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against either DePuy
or Merger Sub that challenges, or may have the effect of preventing, delaying,
making illegal, or otherwise interfering with, any of the Contemplated
Transactions. To DePuy's Actual Knowledge, no such Proceeding has been
Threatened.
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4.4 AVAILABLE FUNDS
DePuy has available to it all funds necessary to pay the aggregate Merger
Consideration payable pursuant to the terms of this Agreement and to satisfy
DePuy's and Merger Sub's other obligations under this Agreement.
4.5 BROKERS
Other than payments to Cowen & Company, DePuy and Merger Sub have not
incurred and will not incur any obligation for any finder's or broker's fee or
commission in connection with the Contemplated Transactions.
4.6 NO OTHER REPRESENTATIONS OR WARRANTIES
Except for the representations and warranties contained in this Agreement,
neither DePuy nor Merger Sub makes any representation or warranty, and hereby
disclaims any such representations by DePuy or Merger Sub with respect to the
execution and delivery of the Agreement or the Contemplated Transactions.
5. COVENANTS OF THE COMPANY
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, the Company will,
and will cause each Acquired Company (other than the Company) and the
Representatives of each Acquired Company (other than the Company) to (a) afford
DePuy its lenders and their Representatives access during normal business hours
to each Acquired Company's personnel, contracts, books and records, and other
documents and data, as they may reasonably request to accomplish the
Contemplated Transactions, (b) furnish DePuy and its Representatives with copies
of all such contracts, books and records, and other existing documents and data
as DePuy or its Representatives may reasonably request to accomplish the
Contemplated Transactions, (c) furnish DePuy, its lender and their respective
Representatives with such additional financial, operating, and other data and
information as DePuy, its lender or their respective Representatives may
reasonably request to accomplish the Contemplated Transactions; and (d)
otherwise cooperate with and facilitate the due diligence review of the Acquired
Companies by DePuy, its lender and their respective Representatives as they may
reasonably request to accomplish the Contemplated Transactions.
5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES
Between the date of this Agreement and the Closing Date, except as
specifically contemplated by this Agreement and the Disclosure Letter, the
Company will, and will cause each Acquired Company other than the Company to (a)
conduct the business of such Acquired Company only in the Ordinary Course of
Business and (b) use their Best Efforts to preserve
30
<PAGE>
intact the current business organization of such Acquired Company, keep
available the services of the current officers and employees of such Acquired
Company, and maintain the relations and good will with suppliers, customers,
landlords, creditors, employees, agents, and others having business
relationships with such Acquired Company.
5.3 NEGATIVE COVENANT
Between the date of this Agreement and the Closing Date, except as
specifically permitted by this Agreement and the Disclosure Letter, the Company
will not, and will cause each Acquired Company not to, without the prior consent
of DePuy, take any affirmative action, or fail to take any reasonable action
within their or its control that would result in any of the changes or events
listed in Section 3.13.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, (a) the
Company will, and will cause each Acquired Company to, make all filings required
to be made by them under the HSR Act, and (b) the Company will cause a meeting
of its shareholders to be called to approve the Merger and the Regulations
Amendment. The Company will give DePuy a reasonable opportunity to review and
comment on such filings. Between the date of this Agreement and the Closing
Date, the Company will, and will cause each Acquired Company to, (a) cooperate
with DePuy with respect to all filings that DePuy is required by Legal
Requirements to make in connection with the Contemplated Transactions, and (b)
cooperate with DePuy to cause early termination of any applicable waiting period
under the HSR Act or comply as promptly as practicable with any second request
for information received from a Governmental Body under the HSR Act.
5.5 SUPPLEMENTATION AND REVISION OF DISCLOSURE LETTER
(a) Between the date of this Agreement and the Closing Date, the Company
will, by delivery of a revised or updated Disclosure Letter, supplement the
information set forth in the Disclosure Letter previously delivered by the
Company pursuant to this Agreement if the Company becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition.
(b) Not less than 5 business days before the Closing, the Company will
provide to DePuy a statement of the Company's calculation of Certain Transaction
Costs, together with reasonable supporting information.
31
<PAGE>
5.6 PAYMENT OF INDEBTEDNESS BY SHAREHOLDERS
The Company either will cause all indebtedness owed to any Acquired Company
by any shareholder of the Company to be paid in full prior to Closing or will
obtain from each such individual written authorization for DePuy to set off
against the amount of any Merger Consideration payable to him or her pursuant to
this Agreement an amount equal to any indebtedness that such individual owes to
any Acquired Company. Such written authorization will contain a specific
acknowledgment by the shareholder that DePuy will set off such indebtedness
against the Merger Consideration at the Closing.
5.7 BEST EFFORTS
(a) Between the date of this Agreement and the Closing Date, the Company
will use its Best Efforts to cause the conditions in Sections 7 and 8 to be
satisfied. Without limiting the foregoing, the Company will, as soon as
practicable, file Notification and Report Forms under the HSR Act with the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "ANTITRUST DIVISION") and will use Best Efforts to
respond as promptly as practicable to all inquiries received from the FTC or the
Antitrust Division for additional information or documentation.
(b) Between the date of this Agreement and the Closing Date, the Company
will use its Best Efforts, and cooperate with DePuy, to cause Robert Reid, Inc.
to consent to the assignment caused by the Merger.
5.8 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to
Section 9, the Company will not, and will cause each Acquired Company and each
of their Representatives not to, directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, discuss, negotiate or enter into any
agreement with, provide any non-public information to, or consider the merits of
any inquiries or proposals from, any Person (other than DePuy) relating to any
transaction involving the sale of the business or assets (other than in the
Ordinary Course of Business) of any Acquired Company, or any of the capital
stock of any Acquired Company, or any merger, consolidation, business
combination, or similar transaction involving any Acquired Company.
32
<PAGE>
6. COVENANTS OF DEPUY AND MERGER SUB
6.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, DePuy will,
and will cause each of its Related Persons to, make all filings required to be
made by them under the HSR Act. DePuy will give the Company a reasonable
opportunity to review and comment on such filings. Between the date of this
Agreement and the Closing Date, DePuy will, and will cause each of its Related
Persons to, (a) cooperate with the Company with respect to all filings that the
Company is required by Legal Requirements to make in connection with the
Contemplated Transactions, and (b) cooperate with the Company to cause early
termination of any applicable waiting period under the HSR Act or comply as
promptly as practicable with any second request for information received from a
Governmental Body under the HSR Act.
6.2 BEST EFFORTS
(a) Between the date of this Agreement and the Closing Date, DePuy will use
its Best Efforts to cause the conditions in Sections 7 and 8 to be satisfied.
Without limiting the foregoing, DePuy will, as soon as practicable, file (or
cause its "ultimate parent entity" within the meaning of the HSR Act to file)
Notification and Report Forms under the HSR Act with the FTC and Antitrust
Division and shall use Best Efforts to respond as promptly as practicable to all
inquiries received from the FTC or the Antitrust Division for additional
information or documentation.
(b) Between the date of this Agreement and the Closing Date, DePuy will use
its Best Efforts, and cooperate with the Company, to cause Robert Reid, Inc. to
consent to the assignment caused by the Merger.
6.3 OFFICERS' AND DIRECTORS' INDEMNIFICATION
(a) For four years from and after the Effective Time, DePuy agrees to
indemnify and hold harmless the officers and directors of the Company to the
same extent such persons are indemnified as of the date of this Agreement
pursuant to the Articles and Regulations as in effect on the date hereof for
acts or omissions occurring at or prior to the Effective Time.
(b) In the event DePuy or any of its successors or assigns (i) consolidates
with or merges into any other person and will not be the continuing or surviving
corporation or entity of such consolidation or merger, or (ii) transfers or
conveys all or substantially all of its properties and assets to any person,
then, and in each such case, to the extent necessary to effectuate the purposes
of this Section 6.3, proper provision will be made so that the successors and
assigns of DePuy assume the obligations set forth in this Section 6.3 and none
of the actions described in clauses (i) or (ii) will be taken until such
provision is made.
33
<PAGE>
(c) Any person seeking indemnification under this Section 6.3 shall be
entitled to such indemnification only if such person notifies DePuy promptly
after such person becomes aware of any claim, action, suit or proceeding in
respect of which such person is making a claim hereunder and cooperates in the
defense thereof. Absent a conflict of interest under standards of professional
conduct, DePuy is entitled to select counsel to represent the indemnitee, which
selection must be approved by the indemnitee, such approval not to be
unreasonably withheld. So long as the proceeding (or settlement) involves only
the payment of money by DePuy, DePuy is entitled to control the conduct of the
proceeding.
(d) Present and former officers and directors of the Company are intended
third-party beneficiaries of the provisions set forth in this Section 6.3 and
will be entitled to enforce such provisions against DePuy and their successors
and assigns.
7. CONDITIONS PRECEDENT TO DEPUY'S AND THE MERGER SUB'S OBLIGATION TO CLOSE
DePuy's and the Merger Sub's obligation to effect the Merger and to take
the other actions required to be taken by DePuy and the Merger Sub at the
Closing is subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by DePuy, in whole or in
part):
7.1 ACCURACY OF REPRESENTATIONS
The Company's representations and warranties in this Agreement must be
accurate as of the Closing Date, except to the extent that any inaccuracies,
individually or in the aggregate do not result in a Material Adverse Effect.
7.2 THE COMPANY'S PERFORMANCE
The covenants the Company is required to perform pursuant to this Agreement
at or prior to the Closing, must have been duly performed and complied with,
except to the extent that any non-performance or non-compliance, individually or
in the aggregate, does not result in a Material Adverse Effect.
7.3 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against DePuy, or against any Person affiliated with DePuy, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions.
34
<PAGE>
7.4 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or
other Order that prohibits the consummation of the Merger.
7.5 NO PROHIBITION
No statute, rule, order, decree or regulation shall have been enacted or
promulgated by any Governmental Body of competent jurisdiction (whether
temporary, preliminary or permanent) which is in effect and has the effect of
prohibiting the consummation of the Merger or making the Merger illegal.
7.6 HSR APPROVAL
The applicable waiting period under the HSR Act with respect to the actions
contemplated by this Agreement must have expired or been terminated.
7.7 SHAREHOLDER VOTE
This Agreement and an amendment to Article V of the Company's Regulations
to permit the Merger (the "REGULATIONS AMENDMENT") must have been approved and
adopted by the affirmative vote of the holders of Shares entitling them to
exercise at least a majority of the voting power of the Company and the holders
of no more than twenty percent of the Shares are Dissenting Shareholders.
7.8 OPINION
Parent shall have received a favorable opinion of Jones, Day, Reavis &
Pogue, dated the Effective Time, as set forth in Exhibit A.
8. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION TO CLOSE
The Company's obligation to effect the Merger and to take the other actions
required to be taken by the Company at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Company, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
All representations and warranties of the DePuy and Merger Sub in this
Agreement, must be accurate in all material respects as of the Closing Date as
if made on the Closing Date.
35
<PAGE>
8.2 DEPUY'S AND MERGER SUB'S PERFORMANCE
The covenants and obligations that DePuy and Merger Sub are required to
perform pursuant to this Agreement at or prior to the Closing, must have been
performed in all material respects.
8.3 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against the Company, or against any Person affiliated with the
Company, any Proceeding (a) involving any challenge to, or seeking damages or
other relief in connection with, any of the Contemplated Transactions, or (b)
that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.
8.4 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or
other Order that prohibits the consummation of the Merger.
8.5 NO PROHIBITION
No statute, rule, order, decree or regulation shall have been enacted or
promulgated by any Governmental Body of competent jurisdiction (whether
temporary, preliminary or permanent) which is in effect and has the effect of
prohibiting the consummation of the Merger or making the Merger illegal.
8.6 HSR APPROVAL
The applicable waiting period under the HSR Act with respect to the actions
contemplated by this Agreement must have expired or been terminated.
8.7 SHAREHOLDER VOTE
This Agreement and the Regulations Amendment must have been approved and
adopted by the affirmative vote of the holders of Shares entitling them to
exercise at least a majority of the voting power of the Company.
8.8 OPINION
The Company shall have received a favorable opinion of Barnes & Thornburg,
dated the Effective Time, as set forth in Exhibit B.
36
<PAGE>
9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by written notice given prior to or at the Closing, be
terminated:
(a) by the Company, if any representation or warranty of DePuy or Merger
Sub is untrue in any material respect when made, except that, if any such breach
is curable by DePuy or Merger Sub through the exercise of its reasonable Best
Efforts, then, for 30 days, the Company may not terminate this Agreement;
(b) by DePuy, if any representation or warranty of the Company is
inaccurate in any material respect when made, except (i) to the extent that any
inaccuracies, individually or in the aggregate, will not result in a Material
Adverse Effect or (ii) that, if any such breach is curable by the Company
through the exercise of its reasonable Best Efforts, then, for 30 days, DePuy
may not terminate this Agreement;
(c) by DePuy if any of the conditions in Section 7 has not been satisfied
as of the Closing Date or if satisfaction of such a condition is or becomes
impossible (other than through the failure of DePuy to comply with its
obligations under this Agreement) and DePuy has given Company written notice of
DePuy's intent to terminate at least 30 days before the effective date of the
proposed termination, and the Company has not satisfied the condition nor
provided reasonable assurances that the condition will, in due course, be
satisfied on or before the Closing Date;
(d) by the Company if any of the conditions in Section 8 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of the Company to comply with
its obligations under this Agreement) and the Company has given DePuy written
notice of the Company's intent to terminate at least 30 days before the
effective date of the proposed termination, and DePuy has not satisfied the
condition nor provided reasonable assurances that the condition will, in due
course, be satisfied on or before the Closing Date;
(e) by mutual consent of DePuy and the Company; or
(f) by either DePuy or the Company if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before the 120th
day following the date hereof, or, if a second request for information is made
by the FTC or the Antitrust Division under the HSR Act, December 31, 1998.
37
<PAGE>
9.2 RIGHTS AND OBLIGATIONS UPON TERMINATION
Each party's right of termination under Section 9.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise of
a right of termination will not be an election of remedies. If this Agreement is
terminated by a party because of the breach of this Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired. If
this Agreement is terminated pursuant to Section 9.1, all further obligations of
the parties under this Agreement will terminate, except that the obligations in
Sections 10.1 and 10.3 will survive.
10. GENERAL PROVISIONS
10.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its own expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. DePuy will pay one-half and the Company will pay
one-half of the HSR filing fee.
10.2 PUBLIC ANNOUNCEMENTS
DePuy will not issue or cause the publication of any press release or other
public announcement with respect to the Merger, this Agreement or the other
Contemplated Transactions without the prior consultation of the Company, except
as may be required by law or by any listing agreement with a national securities
exchange if all reasonable efforts have been made to consult with the Company.
Promptly following execution and delivery of this Agreement, the Company plans
to make an announcement to its employees with respect to the Merger, this
Agreement and the Contemplated Transactions, but will only make that
announcement after consultation with DePuy.
10.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, DePuy and the
Company will maintain in confidence, and will cause the respective directors,
officers, employees, agents, and advisors of DePuy and the Acquired Companies to
maintain in confidence, any information furnished by another party or an
Acquired Company in connection with this Agreement or the Contemplated
Transactions, unless (a) such information is already known to such party or to
others not bound by a duty of confidentiality or such information becomes
publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is required by or
38
<PAGE>
necessary or appropriate in connection with legal proceedings. Except as
modified by the foregoing sentence, the letter agreement, between DePuy and
Company, dated as of January 7, 1998, continues in full force and effect, and
will survive any termination of this Agreement.
10.4 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand, (b) sent by telecopier (with confirmation of receipt), or (c)
received by the addressee, if sent by a nationally recognized overnight delivery
service, in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties):
Company: AcroMed Corporation
3303 Carnegie Avenue
Cleveland, Ohio 44115
Attention: Caroline M. Lutz
Facsimile No.: (216) 432-6998
with a copy to: Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Richard I. Werder, Jr.
Facsimile No.: (216) 579-0212
DePuy or Merger Sub: DePuy, Inc.
700 Orthopaedic Drive
Warsaw, Indiana 46581-0988
Attention: President
Facsimile No.: (219) 269-5675
with a copy to: Barnes & Thornburg
11 South Meridian Street
Indianapolis, Indiana 46204
Attention: Catherine L. Bridge
Facsimile No.: (317) 231-7452
10.5 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out this Agreement.
39
<PAGE>
10.6 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and
not alternative. The failure or any delay by any party in exercising any right,
power, or privilege under this Agreement is not a waiver of such right, power,
or privilege, and no single or partial exercise of any right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege.
10.7 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter and constitutes (along with the letter agreement
identified in and as modified by Section 10.3) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
10.8 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties, except that DePuy may assign its rights
under this Agreement to DePuy Motech, Inc. or any wholly-owned Subsidiary of
DePuy provided that either of such assignee agrees in writing to be bound by
this Agreement. Any such assignment by DePuy to DePuy Motech, Inc. or a
wholly-owned Subsidiary of DePuy shall not relieve DePuy of any of its
obligations hereunder. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties.
10.9 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
10.10 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
40
<PAGE>
10.11 GOVERNING LAW
This Agreement is governed by the laws of the State of Ohio without giving
effect to its principles of conflicts of laws.
10.12 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, are one and the same Agreement.
10.13 PERFORMANCE BY MERGER SUB
DePuy will cause Merger Sub to comply with its obligations hereunder and
cause Merger Sub to consummate the Merger as contemplated by this Agreement.
41
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
AcroMed Corporation DePuy, Inc.
By: /s/ W. Dekle Rountree, Jr. By: /s/ Steven L. Artusi
----------------------------------- ----------------------------
W. Dekle Rountree, Jr. Steven L. Artusi
President and CEO Senior Vice President
DP Merger Sub, Inc.
By: /s/ Steven L. Artusi
----------------------------
Steven L. Artusi
President
42
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND AS OF MARCH 31,
1998 AND FOR THE THREE MONTHS IN THE PERIOD ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 198,934
<SECURITIES> 10,343
<RECEIVABLES> 167,181
<ALLOWANCES> 15,208
<INVENTORY> 177,826
<CURRENT-ASSETS> 624,024
<PP&E> 227,639
<DEPRECIATION> 122,763
<TOTAL-ASSETS> 1,096,550
<CURRENT-LIABILITIES> 192,452
<BONDS> 63,751
0
0
<COMMON> 988
<OTHER-SE> 793,323
<TOTAL-LIABILITY-AND-EQUITY> 1,096,550
<SALES> 207,331
<TOTAL-REVENUES> 207,331
<CGS> 60,568
<TOTAL-COSTS> 173,034
<OTHER-EXPENSES> (2,791)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,787
<INCOME-PRETAX> 35,301
<INCOME-TAX> 16,122
<INCOME-CONTINUING> 18,848
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,848
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
