<PAGE>
As filed with the Securities and Exchange Commission on April 4, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10/A-5
(Post-Effective
Amendment No. 1)
GENERAL FORM FOR REGISTRATION OF
SECURITIES
Pursuant to Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
----------------
Edwards Lifesciences Corporation
formerly known as CVG Controlled Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-4316614
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17221 Red Hill Avenue
Irvine, California 92614
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (949) 250-2500
----------------
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which each class is
to be registered to be registered
------------------- ----------------------
<S> <C>
Common Stock, par value $1.00 New York Stock Exchange
Series A Junior Participating Preferred New York Stock Exchange
Stock Purchase Rights (currently traded with
Common Stock)
</TABLE>
----------------
Securities to be registered pursuant to Section 12(g) of the Act: None.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[BAXTER LOGO]
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
847.948.2000
March 22, 2000
To all Baxter International Inc. Stockholders:
I am pleased to inform you that on March 17, 2000, a special committee of
Baxter's board of directors declared a stock dividend to achieve a
distribution of all of the outstanding shares of common stock of Edwards
Lifesciences Corporation to all Baxter stockholders of record on March 29,
2000.
Edwards Lifesciences is a new company, formed initially as a wholly owned
subsidiary of Baxter, and is comprised of Baxter's CardioVascular business.
Edwards Lifesciences is a leader in providing a comprehensive line of products
and services to treat late-stage cardiovascular disease. The distribution is
expected to make both Baxter and Edwards Lifesciences more competitive, giving
each company more financial flexibility to invest and grow. We believe the
combined value of two separate, but stronger companies will be greater than
the value of Baxter as a whole today.
Following the distribution, Baxter will continue to focus on providing
critical medical therapies that improve the lives of millions of people
worldwide. We intend to invest more resources in our Blood Therapies, I.V.
Systems/Medical Products and Renal businesses. These investments will further
enhance our ability to bring new products to market and to expand globally. If
you are a Baxter stockholder of record at the close of business on March 29,
2000, the record date for the distribution, you will receive one share of
Edwards Lifesciences common stock for every five shares of Baxter common stock
you own on that date. Edwards Lifesciences stock certificates will be
distributed on or about March 31, 2000. No action is required on your part to
receive your Edwards Lifesciences stock.
The attached information statement, which is being mailed to all Baxter
stockholders, describes the distribution in detail and contains important
information about Edwards Lifesciences, including financial statements.
Sincerely,
[SIGNATURE OF HARRY M. JANSEN
KRAEMER, JR.]
Harry M. Jansen Kraemer, Jr.
Chairman and Chief Executive Officer
<PAGE>
[LOGO OF EDWARDS LIFESCIENCES]
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, California 92614
949.250.2500
March 22, 2000
Dear Edwards Lifesciences Corporation Stockholder:
It is my pleasure to welcome you as a stockholder of Edwards Lifesciences
Corporation. We are a leader in providing a comprehensive line of therapies
and services to treat late-stage cardiovascular disease, and a significant
portion of our current products and services occupy market-leading positions.
Edwards Lifesciences operates in four main product lines: cardiac surgery,
critical care, vascular and perfusion products and services.
I invite you to learn more about Edwards Lifesciences in the attached
information statement. We expect that operating as an independent company
focused on late-stage cardiovascular disease therapy will accelerate the speed
of innovation of our business. We also expect that it will allow us to
significantly expand our product development pipeline, and pursue attractive
opportunities to expand our offerings and operations through acquisitions and
strategic alliances. Ultimately, we anticipate that this will lead to
innovative, diversified and improved treatment options for patients suffering
from late-stage cardiovascular disease. As a more aggressive competitor, we
believe that we can accelerate our future growth rate.
In 1999, we achieved pro forma net revenues of $809 million, an amount that
will make us the largest company focused exclusively on the late-stage
cardiovascular disease market. Edwards Lifesciences' common stock will be
listed and traded on the New York Stock Exchange and its stock symbol will be
"EW. "
Our management team is eager to distinguish Edwards Lifesciences through
continued strong leadership and solid financial performance. We are pleased
that you, as a stockholder of Edwards Lifesciences, will participate in our
mission.
Sincerely,
Michael A. Mussallem
Chairman and Chief Executive Officer
<PAGE>
INFORMATION STATEMENT
Edwards Lifesciences Corporation
Common Stock
We are providing this information statement
to you as a stockholder of Baxter
International Inc. in connection with the
distribution by Baxter to its stockholders of
all of the outstanding shares of Edwards
Lifesciences common stock.
Consider carefully the
risk factors beginning
on page 7 of this
information statement.
Stockholder approval It is expected that the distribution will be
of the distribution of made on March 31, 2000, to holders of record
Edwards Lifesciences of Baxter common stock on March 29, 2000. If
common stock is not you are a Baxter stockholder at the close of
required. We are not business on the record date, you will receive
asking you for a proxy one share of Edwards Lifesciences common
and we request that stock for every five shares of Baxter common
you do not send us a stock you hold on that date. Certificates for
proxy. Also, you are the shares will be mailed to you, or your
not required to make brokerage account will be credited for the
any payment for the shares, on or about March 31, 2000.
shares of Edwards Fractional shares will not be issued and you
Lifesciences common will receive a check or a credit to your
stock that you will brokerage account for the cash equivalent of
receive. any fractional shares you otherwise would
have received in the distribution. You will
not be required to pay anything for the
shares of Edwards Lifesciences common stock
to be distributed to you, nor will you be
required to surrender or exchange your shares
of Baxter common stock or take any other
action in order to receive Edwards
Lifesciences common stock.
This information
statement is not an
offer to sell, or a
solicitation of any
offer to buy, any
securities of Edwards
Lifesciences
Corporation or Baxter
International Inc.
Edwards Lifesciences common stock has been
approved for listing on the New York Stock
Exchange, subject to official notice of
issuance, under the symbol "EW."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the Edwards Lifesciences common stock,
or determined that this information statement is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this information statement is March 22, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
SUMMARY.................................................................... 1
Edwards Lifesciences' Business........................................... 1
Questions and Answers about Edwards Lifesciences and the Distribution.... 2
Summary Historical Financial Data........................................ 5
Summary Unaudited Pro Forma Financial Data............................... 6
RISK FACTORS............................................................... 7
Risks Related to Edwards Lifesciences' Business.......................... 7
Risks Related to the Health Care Industry................................ 12
Risks Related to Edwards Lifesciences' Separation from Baxter............ 13
Risks Related to Ownership of Edwards Lifesciences' Common Stock......... 14
FORWARD-LOOKING STATEMENTS................................................. 16
EDWARDS LIFESCIENCES' BUSINESS............................................. 17
Overview................................................................. 17
Business Strategy........................................................ 17
Edwards Lifesciences' Product and Service Offerings...................... 18
Cardiac Surgery.......................................................... 19
Critical Care............................................................ 20
Vascular................................................................. 21
Perfusion Products and Services.......................................... 21
Competition.............................................................. 22
Sales and Marketing...................................................... 23
Raw Materials and Manufacturing.......................................... 23
Quality Assurance........................................................ 24
Research and Development................................................. 24
Proprietary Technology................................................... 25
Government Regulation and Other Matters.................................. 26
Properties............................................................... 28
Employees................................................................ 28
EDWARDS LIFESCIENCES' RELATIONSHIP WITH BAXTER AFTER THE DISTRIBUTION...... 28
General.................................................................. 28
Reorganization Agreement................................................. 29
Tax Sharing Agreement.................................................... 31
Distribution Agreements.................................................. 31
Contractual Joint Venture in Japan....................................... 32
Services Agreements...................................................... 32
THE DISTRIBUTION........................................................... 33
Background and Reasons for the Distribution.............................. 33
Manner of Effecting the Distribution..................................... 33
Accounting Treatment of Plan of Reorganization........................... 34
Important Federal Income Tax Consequences................................ 34
Market for Edwards Lifesciences Common Stock............................. 35
Dividend Policy.......................................................... 36
Distribution Conditions and Termination.................................. 36
Opinions of Financial Advisors........................................... 37
SELECTED HISTORICAL FINANCIAL DATA......................................... 38
EDWARDS LIFESCIENCES' UNAUDITED PRO FORMA FINANCIAL DATA................... 39
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 42
Overview................................................................ 42
Results of Operations................................................... 43
Liquidity and Capital Resources......................................... 47
Euro Conversion......................................................... 47
New Accounting and Disclosure Standard.................................. 48
Currency Risk........................................................... 48
FINANCING................................................................. 48
EDWARDS LIFESCIENCES MANAGEMENT........................................... 49
Board of Directors...................................................... 49
Committees of the Board of Directors.................................... 50
Compensation of Directors............................................... 51
Executive Officers...................................................... 51
EDWARDS LIFESCIENCES EXECUTIVE COMPENSATION............................... 54
1999 Compensation of Executive Officers................................. 54
Stock Option Grants..................................................... 55
Stock Option Exercises.................................................. 56
Pension Plan and Excess Pension Plan.................................... 56
Baxter Common Stock Held By Edwards Lifesciences Employees.............. 57
Future Compensation of Executive Officers............................... 57
Long-Term Stock Program................................................. 58
Edwards Lifesciences Change of Control Plan and Employment Agreement.... 60
Edwards Lifesciences Retirement Plan for United States Employees........ 61
Employee Stock Purchase Plan for United States Employees................ 63
Transition Options for Salaried Exempt Employees........................ 63
Initial Stock Option Grant for Salaried Employees Worldwide............. 64
Employee Stock Purchase Plan for Employees Outside the United States.... 64
Initial Stock Grant for Hourly Employees Outside the United States...... 64
Other Retirement Plans for Employees Outside the United States.......... 64
SECURITY OWNERSHIP OF EDWARDS LIFESCIENCES................................ 65
DESCRIPTION OF EDWARDS LIFESCIENCES CAPITAL STOCK......................... 66
Authorized Capital Stock................................................ 66
Edwards Lifesciences Common Stock....................................... 66
Edwards Lifesciences Preferred Stock.................................... 66
Edwards Lifesciences Rights Agreement................................... 66
CERTAIN ANTI-TAKEOVER EFFECTS OF PROVISIONS OF EDWARDS LIFESCIENCES'
CERTIFICATE OF INCORPORATION AND BYLAWS AND OF DELAWARE LAW.............. 68
Certificate of Incorporation and Bylaws................................. 68
Delaware Law............................................................ 71
LIMITATION OF LIABILITY AND INDEMNIFICATION OF EDWARDS LIFESCIENCES
DIRECTORS AND OFFICERS................................................... 71
Limitation of Liability of Directors.................................... 71
Indemnification of Directors and Officers............................... 72
EDWARDS LIFESCIENCES' 2001 ANNUAL MEETING OF STOCKHOLDERS................. 72
ADDITIONAL INFORMATION.................................................... 72
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE....................... F-1
</TABLE>
ii
<PAGE>
SUMMARY
This summary highlights selected information from this information
statement, but does not contain all details concerning the distribution of the
Edwards Lifesciences common stock to Baxter stockholders, including information
that may be important to you. To better understand the distribution, and the
business and financial position of Edwards Lifesciences, you should carefully
review this entire document. References in this information statement to
"Edwards Lifesciences" mean Edwards Lifesciences Corporation, a Delaware
corporation, and its subsidiaries and affiliates following the distribution.
References in this information statement to the CardioVascular business mean
the CardioVascular business as conducted by Baxter for periods prior to the
distribution date. References in this information statement to "Baxter" mean
Baxter International Inc., a Delaware corporation, and its subsidiaries and
affiliates.
Edwards Lifesciences' Business
Edwards Lifesciences designs, develops, manufactures and markets a
comprehensive line of products and services to treat late-stage cardiovascular
disease. Edwards Lifesciences is the worldwide leader in the development,
marketing and sale of both tissue replacement heart valves and heart valve
repair products. Edwards Lifesciences' product lines are grouped into four
general areas: cardiac surgery, critical care, vascular and perfusion products
and services. Edwards Lifesciences also offers a diverse grouping of other
product lines comprised mostly of pharmaceuticals and select distributed
products. Edwards Lifesciences supplies its products and services to customers
in more than 80 countries, both through direct sales and distribution
relationships, and reported pro forma annual sales in 1999 of $809 million.
Edwards Lifesciences' cardiac surgery product lines include products
relating to heart valve therapy, a left ventricular assist device, as well as
cannulae and cardioplegia products used during open heart surgery. Edwards
Lifesciences' critical care product offerings include hemodynamic monitoring
devices for measuring heart pressure and output during surgical procedures and
in post-surgical intensive care settings. Edwards Lifesciences has been a world
leader in this area since the development of its Swan-Ganz catheter more than
30 years ago. Edwards Lifesciences' vascular products include a line of
balloon-tipped, catheter-based products, surgical clips and inserts, angioscopy
equipment and artificial implantable grafts. The perfusion products offered by
Edwards Lifesciences include a diverse line of disposable and hardware products
used during cardiopulmonary bypass procedures, including oxygenators, blood
containers, filters and related devices and heart-lung machines. Edwards
Lifesciences also is the world's leading provider of contract perfusion
services with a staff of more than 400 clinical perfusionists who perform an
aggregate of more than 50,000 perfusion cases for open heart surgery per year.
Edwards Lifesciences employs over 5,000 people and its products are
manufactured throughout the world, including Brazil, the Dominican Republic,
Japan (through a contractual joint venture with Baxter), The Netherlands,
Puerto Rico, Switzerland and the United States. Edwards Lifesciences'
headquarters are located at 17221 Red Hill Avenue, Irvine, California 92614 and
its telephone number is 949.250.2500. Edwards Lifesciences was incorporated in
Delaware in 1999.
As of the distribution date, Baxter will have transferred its CardioVascular
business to Edwards Lifesciences, a newly formed Delaware corporation.
The distribution of the shares of Edwards Lifesciences common stock will be
effective on the distribution date. No vote of Baxter's stockholders is
required to approve the distribution of the Edwards Lifesciences common stock.
1
<PAGE>
Questions and Answers about Edwards Lifesciences and the Distribution
Why is Baxter separating Baxter is creating an independent, publicly traded
Edwards Lifesciences? company for its CardioVascular business because its
management believes that the combined value of two
separate companies will be greater than the value
of Baxter as a whole today. Edwards Lifesciences
expects that the distribution will allow it to
compete more effectively in the intensely
competitive and rapidly consolidating
cardiovascular device industry. Edwards
Lifesciences believes that as an independent
company, it will increase the level of funding of,
and commitment to, intense research and development
with a focus on enhancing its number and diversity
of new products. Edwards Lifesciences also expects
that it will be more aggressive in pursuing
acquisition and strategic alliance opportunities as
an independent company with the ability to use its
stock as currency. Having a publicly traded equity
security will also enable Edwards Lifesciences to
better attract and retain key employees by more
directly linking its employees' compensation with
Edwards Lifesciences' performance.
Following the distribution, Baxter intends to
invest more resources in its remaining core
businesses, which it expects will further enhance
its ability to successfully commercialize new
products and to expand its global markets.
What will the After the distribution, Baxter and Edwards
relationship be between Lifesciences will be separate, publicly owned
Edwards Lifesciences and companies. Baxter and Edwards Lifesciences will
Baxter after the enter into certain agreements to define their
distribution? ongoing relationship after the distribution. These
agreements also will allocate responsibility for
obligations both before and after the distribution
date. See "Edwards Lifesciences' Relationship With
Baxter After The Distribution" beginning on page
28.
How will Edwards Edwards Lifesciences' operating management team
Lifesciences be managed? will be essentially the same as Baxter's
CardioVascular business had during the period prior
to the distribution. Michael A. Mussallem will be
the Chairman of the Board and Chief Executive
Officer of Edwards Lifesciences. Mr. Mussallem has
extensive experience in the medical products and
services industry, having been with Baxter for over
twenty years. Mr. Mussallem will be supported by an
experienced management team that will include
Stuart L. Foster and Anita B. Bessler, who together
have spent in excess of 45 collective years in the
industry. In addition, Edwards Lifesciences has
added Bruce Bentcover as Chief Financial Officer
and Bruce Garren as General Counsel, both of whom
have previous public-company experience. See
"Edwards Lifesciences Management--Executive
Officers" beginning on page 51.
The Edwards Lifesciences board of directors will
initially consist of six persons, including Mr.
Mussallem and five independent directors. See
"Edwards Lifesciences Management--Board of
Directors" beginning on page 49.
2
<PAGE>
When will the March 31, 2000. Baxter will distribute the shares
distribution happen? of Edwards Lifesciences common stock on the
distribution date, which will be on March 31, 2000,
to holders of Baxter common stock on the record
date.
What is the record date March 29, 2000
for the distribution?
What do I have to do to Nothing. You are not required to take any action to
participate in the receive Edwards Lifesciences common stock in the
distribution? distribution. No proxy or vote is necessary for the
distribution. If you own Baxter common stock as of
the close of business on the record date, shares of
Edwards Lifesciences common stock will be mailed to
you or credited to your brokerage account on or
about March 31, 2000. You do not need to mail in
Baxter common stock certificates to receive Edwards
Lifesciences common stock certificates. The number
of shares of Baxter common stock you own will not
change as a result of the distribution.
How many shares of Baxter will distribute one share of Edwards
Edwards Lifesciences Lifesciences common stock, along with associated
common stock will I preferred stock purchase rights, for every five
receive? shares of Baxter common stock you own as of the
close of business on the record date. For example,
if you own 100 shares of Baxter common stock on the
record date, you will receive 20 shares of Edwards
Lifesciences common stock in the distribution.
Based on approximately 290,199,514 shares of Baxter
common stock that we expect to be outstanding on
the record date for the distribution, Baxter will
distribute a total of approximately 58,039,903
shares of Edwards Lifesciences common stock.
Will Baxter distribute No. Baxter will not distribute any fractional
fractional shares? shares of Edwards Lifesciences common stock. You
will receive a check or a credit to your brokerage
account for the cash equivalent of any fractional
shares you otherwise would have received in the
distribution, less applicable taxes. The amount of
the cash payment will depend upon the prices at
which the fractional shares are sold in the open
market on or about the distribution date.
Is the distribution Generally, no. Baxter has received a ruling from
taxable for United States the United States Internal Revenue Service
federal income tax substantially to the effect that the distribution
purposes? will be tax-free to Baxter and to Baxter's United
States stockholders, except with respect to cash
paid in lieu of fractional shares of Edwards
Lifesciences common stock. See "The Distribution--
Important Federal Income Tax Consequences"
beginning on page 34, for a more complete
discussion of the United States federal income tax
consequences of the distribution to holders of
Baxter common stock.
Will I be paid any Edwards Lifesciences has no current plans to pay
dividends on the Edwards dividends following the distribution. Edwards
Lifesciences common Lifesciences will pay dividends on Edwards
stock? Lifesciences common stock only if declared by the
Edwards
3
<PAGE>
Lifesciences board of directors in its sole
discretion following the distribution. The payment
and level of cash dividends, if any, will be based
upon a number of factors, including the operating
results, cash flow and financial requirements of
Edwards Lifesciences. See "The Distribution--
Dividend Policy" beginning on page 36.
Where will my shares of Edwards Lifesciences will be listed on the New York
Edwards Lifesciences Stock Exchange under the symbol "EW." See "The
common stock trade? Distribution--Market for Edwards Lifesciences
Common Stock" beginning on page 35.
What will happen to the Nothing. Baxter common stock will continue to be
listing of Baxter's listed on the NYSE under the symbol "BAX."
shares on the New York
Stock Exchange?
Will the distribution Yes. After the distribution, the trading price of
affect the trading price Baxter common stock is likely to be lower than the
of my Baxter common trading price immediately prior to the
stock? distribution. Moreover, the trading price of Baxter
common stock may fluctuate after the distribution
as the market evaluates the operations of Baxter
without the business of Edwards Lifesciences. Until
the market has fully analyzed Edwards Lifesciences'
business, the prices at which the Edwards
Lifesciences common stock trade may fluctuate
significantly. The combined market value of Baxter
common stock and Edwards Lifesciences common stock
may be less than, equal to or greater than the
market value of Baxter common stock prior to the
distribution. See "The Distribution--Market for
Edwards Lifesciences Common Stock" beginning on
page 35.
Who do I contact for Before the distribution, you should direct
information regarding the inquiries relating to the distribution to:
distribution and Edwards Baxter International Inc.
Lifesciences? One Baxter Parkway
Deerfield, IL 60015
Attention: Investor Relations
847.948.2000
After the distribution, you should direct inquiries
relating to an investment in Edwards Lifesciences
common stock to:
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, CA 92614
Attention: Investor Relations
949.250.2500
After the distribution, the transfer agent and
registrar for the Edwards Lifesciences common stock
will be:
First Chicago Trust Company,
a division of EquiServe
Shareholder Relations
P.O. Box 2500
Jersey City, NJ 07303-2500
4
<PAGE>
Summary Historical Financial Data
The following table sets forth summary historical combined financial data
for the CardioVascular business. These results present the CardioVascular
business as it has historically been operated as a division of Baxter.
Subsequent to the distribution, the Japan operations will be presented on an
equity basis as opposed to the consolidation method reflected in the
historical results. As such, the results reflected here will not be comparable
to the presentation subsequent to the distribution. See "Unaudited Pro Forma
Financial Data." The historical combined financial data of the CardioVascular
business are derived from the "Combined Financial Statements," which are
included elsewhere in this information statement. See Note 3 to "Combined
Financial Statements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for discussions of the effect of certain
acquisitions on revenues, expenses and financial position.
<TABLE>
<CAPTION>
For the years ended
December 31,
----------------------
1999 1998 1997
------ ------ ------
(in millions)
<S> <C> <C> <C>
Income Statement Data
Net sales........................................ $ 905 $ 865 $ 879
Gross profit..................................... $ 439 $ 399 $ 416
Net income (loss) (a)............................ $ 82 $ 62 $ (52)
Balance Sheet and Cash Flow Data
Cash flow provided from operations............... $ 176 $ 176 $ 163
Cash flow from investment transactions, net...... $ (49) $ (52) $ (58)
Cash flow from financing transactions, net....... $ (127) $ (124) $ (105)
Total assets..................................... $1,437 $1,483 $1,526
Other Data
EBITDA (a)(b).................................... $ 197 $ 175 $ 197
</TABLE>
- -------
(a) See Note 3 to "Combined Financial Statements" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for
additional information regarding the $132 million in-process research and
development charge in 1997 relating to the acquisition of Research
Medical, Inc.
(b) EBITDA, or earnings before interest, income taxes, depreciation,
amortization and other significant non-cash charges, is presented because
it is a widely accepted indicator used by certain investors and analysts
to compare and analyze companies on the basis of operating performance. We
believe a presentation of earnings before certain noncash charges may
enhance an investor's comparisons of competitor companies that have
historically used different methods of accounting for business
combinations. EBITDA in 1997 excludes the $132 million in-process research
and development charge relating to the acquisition of Research Medical,
Inc.
EBITDA is not intended to represent cash flows for the period, nor is it
presented as an alternative to operating income or as an indicator of
operating performance. It should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
accounting principles generally accepted in the United States (GAAP).
Disclosure regarding cash flows from operating, investing and financing
transactions is presented in "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Further, EBITDA is not
indicative of operating income or cash flow from operations as determined
under GAAP. Items excluded from EBITDA are significant components in
understanding and assessing financial performance. Our method of
computation may or may not be comparable to other similarly titled measures
of other companies.
5
<PAGE>
Summary Unaudited Pro Forma Financial Data
The following table sets forth summary unaudited pro forma financial data.
This data presents the combined results of Edwards Lifesciences assuming that
the transactions contemplated by the distribution had been completed as of
January 1, 1999. See page 39 for computation of pro forma amounts, including
descriptions of the pro forma adjustments.
We have prepared the summary unaudited pro forma information utilizing the
historical combined financial statements of the CardioVascular business. You
should read this information in conjunction with the historical combined
financial statements and notes to those statements, included elsewhere in this
information statement. The summary unaudited pro forma financial data does not
purport to be indicative of the results of Edwards Lifesciences in the future
or what the financial position and results of operations would have been had
Edwards Lifesciences been a separate, stand-alone entity during the periods
shown. Pro forma cash flows are not presented as such amounts would not be
factually supportable.
<TABLE>
<CAPTION>
For the year
ended
December 31,
1999
------------
(in millions)
<S> <C> <C> <C>
Net sales............................................ $809
Gross profit......................................... $377
Net income........................................... $ 41
EBITDA (a)........................................... $163
</TABLE>
- --------
(a) EBITDA, or earnings before interest, income taxes, depreciation and
amortization and other significant non-cash charges, is not a measure
defined by generally accepted accounting principles. Refer to footnote (b)
of "Summary Historical Financial Data" for a discussion of the EBITDA
measure.
6
<PAGE>
RISK FACTORS
Consider carefully all of the information contained in this information
statement and, in particular, the following factors:
Risks Related to Edwards Lifesciences' Business
If Edwards Lifesciences does not introduce new products in a timely manner,
its products may become obsolete, and its operating results may suffer.
The cardiovascular products industry is characterized by rapid
technological changes, frequent new product introductions and evolving
industry standards. Without the timely introduction of new products and
enhancements, Edwards Lifesciences' products will likely become
technologically obsolete over time, in which case Edwards Lifesciences'
revenue and operating results would suffer. The success of Edwards
Lifesciences' new product offerings will depend on several factors, including
its ability to:
. properly identify and anticipate customer needs;
. innovate and develop new technologies and applications;
. successfully commercialize new technologies in a timely manner;
. manufacture and deliver products in sufficient volumes on time;
. differentiate Edwards Lifesciences' offerings from competitors offerings;
and
. price products competitively.
In addition, new technologies that Edwards Lifesciences develops may not be
accepted quickly because of industry-specific factors, such as the need for
regulatory clearance, unanticipated restrictions imposed on approved
indications, entrenched patterns of clinical practice, uncertainty over third-
party reimbursement and clinicians' fears of malpractice suits.
Moreover, significant technical innovations generally will require a
substantial investment before Edwards Lifesciences can determine the
commercial viability of these innovations. Edwards Lifesciences may not have
the financial resources necessary to fund these technical innovations. In
addition, even if Edwards Lifesciences is able to successfully develop
enhancements or new generations of its products, these enhancements or new
generations of products may not produce revenue in excess of the costs of
development, and they may be quickly rendered obsolete by changing customer
preferences or the introduction by Edwards Lifesciences' competitors of
products embodying new technologies or features.
Edwards Lifesciences may incur product liability and professional liability
losses and insurance coverage may be inadequate or unavailable to cover these
losses.
Edwards Lifesciences' business exposes it to potential product liability
risks that are inherent in the design, manufacture and marketing of medical
devices. Edwards Lifesciences' products are often used in surgical and
intensive care settings with seriously ill patients. In addition, some of the
medical devices manufactured and sold by Edwards Lifesciences are designed to
be implanted in the human body for long periods of time. Edwards Lifesciences
could be the subject of product liability suits alleging that component
failures, manufacturing flaws, design defects or inadequate disclosure of
product-related risks or product-related information could result in an unsafe
condition or injury to patients. Product liability lawsuits and claims, safety
alerts or product recalls in the future, regardless of their ultimate outcome,
could have a material adverse effect on Edwards Lifesciences' business and
reputation and on its ability to attract and retain customers. In addition,
Edwards Lifesciences' perfusion services subsidiaries expose it to medical
malpractice risks. In recent years, physicians, hospitals and other medical-
service providers have become subject to an increasing number of lawsuits
alleging medical malpractice. Medical malpractice suits often involve large
claims and substantial defense costs.
Upon the distribution, Edwards Lifesciences will assume the defense of
litigation involving claims related to the CardioVascular business and will
indemnify Baxter for all related losses, costs and expenses. As part of its
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risk management policies, Edwards Lifesciences intends to seek third-party
product liability and professional liability insurance coverage. However,
Edwards Lifesciences is not certain that it will be able to obtain product
liability and professional liability insurance on commercially reasonable
terms, if at all. Furthermore, product liability claims against Edwards
Lifesciences may exceed the coverage limits of any insurance policies or cause
Edwards Lifesciences to record a self-insured loss. Edwards Lifesciences
maintains professional liability insurance coverage for individuals employed
by the subsidiary who perform perfusion services, although the amount of that
coverage may not be sufficient. Further, even if any product liability or
professional liability losses are covered by an Edwards Lifesciences insurance
policy, these policies may have substantial retentions or deductibles that
provide that Edwards Lifesciences will not receive insurance proceeds until
the losses incurred by Edwards Lifesciences exceed the amount of those
retentions or deductibles. To the extent that any losses are below these
retentions or deductibles, Edwards Lifesciences will be responsible for paying
these losses. A product liability or professional liability claim in an amount
in excess of applicable insurance could have a material adverse effect on
Edwards Lifesciences.
Edwards Lifesciences may experience supply interruptions that could harm its
ability to manufacture products.
Edwards Lifesciences uses a diverse and broad range of raw and organic
materials and other items in the design and manufacture of its products.
Edwards Lifesciences' non-implantable products are manufactured from man-made
raw materials including resins, chemicals, electronics and metals. Edwards
Lifesciences' heart valve therapy products are manufactured from natural
animal tissue and man-made materials. Edwards Lifesciences purchases certain
of the materials and components used in the manufacture of its products from
external suppliers. In addition, Edwards Lifesciences purchases certain
supplies from single sources for reasons of quality assurance, cost-
effectiveness or constraints resulting from regulatory requirements. Edwards
Lifesciences works closely with its suppliers to assure continuity of supply
while maintaining high quality and reliability. Alternative supplier options
are generally considered and identified, although Edwards Lifesciences does
not typically pursue regulatory qualification of alternative sources due to
the strength of its existing supplier relationships and the time and expense
associated with the regulatory process. Although a change in suppliers could
require significant effort or investment by Edwards Lifesciences in
circumstances where the items supplied are integral to the performance of
Edwards Lifesciences' products or incorporate unique technology, management
does not believe that the loss of any existing supply contract would have a
material adverse effect on the company.
In an effort to reduce potential product liability exposure, certain
suppliers have announced that they intend to limit or terminate sales of
certain materials and parts to companies that manufacture implantable medical
devices. In the past, Baxter has been required in specific instances to
indemnify certain suppliers for its CardioVascular business for product
liability expenses. There can be no assurance that an indemnity from Edwards
Lifesciences will be satisfactory to these suppliers. If Edwards Lifesciences
is unable to obtain these raw materials or there is a significant increase in
the price of materials or components, its business could be harmed.
Edwards Lifesciences may not successfully identify and complete acquisitions
or strategic alliances on favorable terms or achieve anticipated synergies
relating to any acquisitions or alliances; Edwards Lifesciences may be
required to incur additional indebtedness to fund any acquisitions.
As part of Edwards Lifesciences' growth strategy, Edwards Lifesciences
intends to aggressively seek to acquire complementary businesses,
technologies, services or products and to enter into strategic alliances.
Edwards Lifesciences may be unable to find suitable acquisition candidates.
Even if Edwards Lifesciences identifies appropriate acquisition or alliance
candidates, Edwards Lifesciences may be unable to complete such acquisitions
on favorable terms, if at all. In addition, the process of integrating an
acquired business, technology, service or product into Edwards Lifesciences'
existing business and operations may result in unforeseen
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operating difficulties and expenditures. Integration of an acquired company
also may require significant management resources that otherwise would be
available for ongoing development of Edwards Lifesciences' business. Moreover,
Edwards Lifesciences may not realize the anticipated benefits of any
acquisition. Future acquisitions could also require issuances of equity
securities, the incurrence of debt, contingent liabilities or amortization
expenses related to goodwill and other intangible assets, any of which could
harm Edwards Lifesciences' business. Edwards Lifesciences currently does not
have any understandings, commitments or agreements with respect to any
material acquisition.
Edwards Lifesciences also intends to pursue strategic alliances with third
parties. Edwards Lifesciences may not identify appropriate partners with which
to form partnerships or strategic alliances. Any alliances may not generate
anticipated financial results.
Edwards Lifesciences' business is subject to economic, political and other
risks associated with international sales and operations.
Because Edwards Lifesciences sells its products in a number of foreign
countries, its business is subject to risks associated with doing business
internationally. The CardioVascular business' net revenue originating outside
of the United States, as a percentage of the CardioVascular business' total
net revenue, was 41% in 1998 and 44% in 1999 (on a pro forma basis for Edwards
Lifesciences, it was 36% in 1998 and 38% in 1999). Edwards Lifesciences
anticipates that revenue from international operations will continue to
represent a substantial portion of its total revenue. In addition, many of
Edwards Lifesciences' manufacturing facilities and suppliers are located
outside of the United States. Edwards Lifesciences management expects to
increase its sales efforts internationally, which could expose it to greater
risks associated with international sales and operations. Accordingly, Edwards
Lifesciences' future results could be harmed by a variety of factors,
including:
. changes in foreign medical reimbursement policies and programs;
. unexpected changes in foreign regulatory requirements;
. changes in foreign currency exchange rates;
. changes in a specific country's or region's political or economic
conditions, particularly in emerging regions;
. trade protection measures and import or export licensing requirements;
. potentially negative consequences from changes in tax laws;
. difficulty in staffing and managing foreign operations;
. differing labor regulations; and
. differing protection of intellectual property.
Edwards Lifesciences will be subject to risks arising from currency exchange
rate fluctuations.
Approximately 44% of the CardioVascular business' revenues in 1999 were
generated from outside of the United States. Measured in local currency, a
substantial portion of the CardioVascular business' foreign-generated revenues
were generated in Europe (and primarily denominated in the Euro) and in Japan.
The United States dollar value of Edwards Lifesciences' foreign-generated
revenues varies with currency exchange rate fluctuations. Significant
increases in the value of the United States dollar relative to the Euro or the
Japanese Yen, as well as other currencies, could have a material adverse
effect on Edwards Lifesciences' results of operations. The CardioVascular
business has historically been considered in Baxter's overall risk management
strategy. As part of this strategy, Baxter has used financial instruments to
reduce its exposure to adverse movements in currency exchange rates. As an
independent company, Edwards Lifesciences plans to implement a hedging policy
which will attempt to manage currency exchange rate risks to an acceptable
level based on
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management's judgment of the appropriate trade-off between risk, opportunity
and cost; however this hedging policy may not successfully eliminate the
effects of currency exchange rate fluctuations.
The conversion to the Euro has required Edwards Lifesciences to modify its
business operations and if these modifications are not successful or if there
are any negative economic developments in the European Union, Edwards
Lifesciences' business may be negatively affected.
On January 1, 1999, eleven member countries of the European Union
established fixed conversion rates between their existing currencies and one
common currency, the Euro. Uncertainties exist as to the effects the Euro may
have on Edwards Lifesciences' European customers, as well as the impact of the
Euro conversion on the economies of the participating countries. Approximately
44% of the CardioVascular business' revenues in 1999 were derived from outside
the United States, a significant portion of which were generated in Europe and
primarily denominated in currencies linked to the Euro since January 1, 1999.
Any negative economic developments that occur in the combined European Union
economy and the possible devaluation of the Euro could have a material negative
impact on Edwards Lifesciences' business.
Potential effects on Edwards Lifesciences' operations include:
. the need to modify business systems to recognize the Euro as a functional
currency; and
. the competitive impact of cross-border price transparency, which may make
it more difficult for a business to charge different prices for the same
products on a country-by-country basis, particularly once the Euro
currency begins circulation in 2002.
Edwards Lifesciences will continue to evaluate the impact of the
introduction of the Euro as Edwards Lifesciences continues to expand its
operations throughout Europe.
Fluctuations in Edwards Lifesciences' quarterly operating results may cause
Edwards Lifesciences' stock price to decline.
Edwards Lifesciences' revenue and operating results may vary significantly
from quarter to quarter. A high proportion of Edwards Lifesciences' costs are
fixed, due in part to significant sales, research and development and
manufacturing costs. Thus, small declines in revenue could disproportionately
affect operating results in a quarter, and the price of Edwards Lifesciences
common stock may fall. Other factors that could affect quarterly operating
results include:
. demand for and clinical acceptance of products;
. the timing and execution of customer contracts, particularly large
contracts that would materially affect Edwards Lifesciences' operating
results in a given quarter;
. the timing of sales of products;
. changes in foreign currency exchange rates;
. unanticipated delays or problems in introducing new products;
. competitors' announcements of new products, services or technological
innovations;
. changes in Edwards Lifesciences' pricing policies or the pricing policies
of its competitors;
. increased expenses, whether related to sales and marketing, raw materials
or supplies, product development or administration;
. adverse changes in the level of economic activity in the United States
and other major regions in which Edwards Lifesciences does business;
. costs related to possible acquisitions of technologies or businesses;
. Edwards Lifesciences' ability to expand its operations; and
. the amount and timing of expenditures related to expansion of Edwards
Lifesciences' operations.
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Edwards Lifesciences' inability to protect its intellectual property could
have a material adverse effect on its business.
Edwards Lifesciences' success and competitive position are dependent, in
part, upon its proprietary intellectual property. Edwards Lifesciences relies
on a combination of patents, trade secrets and nondisclosure agreements to
protect its proprietary intellectual property, and will continue to do so.
Although Edwards Lifesciences seeks to protect its proprietary rights through
a variety of means, Edwards Lifesciences cannot guarantee that the protective
steps it has taken are adequate to protect these rights. Patents issued to or
licensed by Edwards Lifesciences in the past or in the future may be
challenged and held invalid or not infringed by third parties. Competitors may
also challenge Edwards Lifesciences' patents.
Edwards Lifesciences will also rely on confidentiality agreements with
certain employees, consultants and other parties to protect, in part, trade
secrets and other proprietary information. These agreements could be breached
and Edwards Lifesciences may not have adequate remedies for any breach. In
addition, others may independently develop substantially equivalent
proprietary information or gain access to Edwards Lifesciences' trade secrets
or proprietary information.
Edwards Lifesciences will be required to spend significant resources to
monitor and enforce its intellectual property rights. Edwards Lifesciences may
not be able to detect infringement and may lose its competitive position in
the industry. In addition, competitors may design around Edwards Lifesciences'
technology or develop competing technologies. Intellectual property rights may
also be unavailable or limited in some foreign countries, which could make it
easier for competitors to capture increased market position.
Third parties may claim Edwards Lifesciences is infringing their intellectual
property, and Edwards Lifesciences could suffer significant litigation or
licensing expenses or be prevented from selling products.
During recent years, Baxter's competitors have been involved in substantial
litigation regarding patent and other intellectual property rights in the
medical device industry generally. In the future, Edwards Lifesciences may be
forced to defend itself against claims and legal actions alleging infringement
of the intellectual property rights of others. Because intellectual property
litigation can be costly and time consuming, Edwards Lifesciences'
intellectual property litigation expenses could be significant in the future.
Adverse determinations in any such litigation could subject Edwards
Lifesciences to significant liabilities to third parties, could require
Edwards Lifesciences to seek licenses from third parties and could, if such
licenses are not available, prevent Edwards Lifesciences from manufacturing,
selling or using certain of its products, any one of which could have a
material adverse effect on Edwards Lifesciences.
Third parties could also obtain patents that may require Edwards
Lifesciences to either re-design its products or, if possible, negotiate
licenses to conduct its business. If Edwards Lifesciences is unable to re-
design its products or obtain a license, Edwards Lifesciences may have to exit
a particular product offering.
Edwards Lifesciences has not previously operated as an independent company.
Edwards Lifesciences does not have an operating history as an independent
public company and Edwards Lifesciences' management has no experience, as a
group, in operating Edwards Lifesciences as a stand-alone business. While the
CardioVascular business has been profitable as a part of Baxter, there is no
assurance that as a stand-alone company Edwards Lifesciences' revenues and
profits will continue at the same level. For more information, see "Combined
Financial Statements."
The agreements governing Edwards Lifesciences' indebtedness will contain
restrictive covenants that may limit Edwards Lifesciences' future financial
flexibility.
In connection with the distribution, Edwards Lifesciences will borrow
approximately $520 million. This indebtedness is reflected in the pro forma
financial information presented elsewhere in this information statement.
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The debt agreements relating to this indebtedness will contain restrictive
covenants which may limit or prohibit certain actions by Edwards Lifesciences.
For more information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,"
"Edwards Lifesciences' Unaudited Pro Forma Financial Data" and "Financing."
Risks Related to the Health Care Industry
Edwards Lifesciences faces intense competition and consolidation within its
industry, and if Edwards Lifesciences does not compete effectively, its
business will be harmed.
The cardiovascular medical products industry is highly competitive. Edwards
Lifesciences competes with many companies, some of which have longer operating
histories, better brand or name recognition and greater access to financial
and other resources than Edwards Lifesciences. Furthermore, the industry is
characterized by intensive development efforts and rapidly advancing
technology. Edwards Lifesciences' present and future products could be
rendered obsolete or uneconomical by technological advances by one or more of
Edwards Lifesciences' current or future competitors or by alternative
therapies, including drug therapies. The future success of Edwards
Lifesciences will depend, in large part, on its ability to anticipate
technology advances and keep pace with other developers of cardiovascular
therapies and services. In addition, the medical devices industry has been
consolidating and as a result, transactions with customers are larger, more
complex and tend to involve more long-term contracts. The enhanced purchasing
power of these larger Edwards Lifesciences customers may also increase
downward pressure on product pricing. Competitive market forces may also
adversely affect the prices at which Edwards Lifesciences sells its products.
Many existing and potential customers for Edwards Lifesciences' products
have combined to form group purchasing organizations (GPOs). GPOs negotiate
pricing arrangements with medical supply manufacturers and distributors and
these negotiated prices are made available to a GPO's affiliated hospitals. If
Edwards Lifesciences is not one of the providers selected by a GPO, Edwards
Lifesciences may be precluded from making sales to members of a GPO for
several years. Even if Edwards Lifesciences is one of the selected providers,
Edwards Lifesciences may be at a disadvantage relative to other selected
providers that are able to offer volume discounts based on purchases of a
broader range of medical equipment and supplies. Further, Edwards Lifesciences
may be required to commit to pricing that has a material adverse effect on
sales and profit margins, the business, financial condition, and results of
operations of Edwards Lifesciences.
Edwards Lifesciences and its customers are subject to various governmental
regulations, and Edwards Lifesciences may incur significant expenses to
comply with these regulations and develop its products to be compatible with
these regulations.
The medical devices manufactured and marketed by Edwards Lifesciences are
subject to rigorous regulation by the FDA and numerous other federal, state
and foreign governmental authorities. The process of obtaining regulatory
approvals to market a medical device, particularly from the FDA and certain
foreign governmental authorities, can be costly and time consuming, and
approvals might not be granted for future products on a timely basis, if at
all. Delays in receipt of, or failure to obtain, approvals for future products
could result in delayed realization of product revenues or in substantial
additional costs which could have material adverse effects on Edwards
Lifesciences' business or results of operations. In addition, there can be no
assurance that Edwards Lifesciences will be or will continue to be in
compliance with applicable FDA and other material regulatory requirements. If
the FDA were to conclude that Edwards Lifesciences was not in compliance with
applicable laws or regulations, it could institute proceedings to detain or
seize Edwards Lifesciences' products, issue a recall, impose operating
restrictions, enjoin future violations and assess civil penalties against
Edwards Lifesciences, its officers or its employees and could recommend
criminal prosecution to the Department of Justice. Moreover, the FDA could
proceed to ban, or request recall, repair, replacement or refund of the cost
of, any device or product manufactured or distributed by Edwards Lifesciences.
Furthermore, both the FDA and foreign government regulators have become
increasingly stringent, and Edwards Lifesciences may be subject to more
rigorous regulation by governmental authorities in the future.
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If third-party payors decline to reimburse Edwards Lifesciences customers for
Edwards Lifesciences products or reduce reimbursement levels, Edwards
Lifesciences' ability to profitably sell its products will be harmed.
Edwards Lifesciences sells its products and services to hospitals, doctors
and other health care providers, all of which receive reimbursement for the
health care services provided to their patients from third-party payors, such
as government programs (both domestic and international), private insurance
plans and managed care programs. These third-party payors may deny
reimbursement if they determine that a device used in a procedure was not used
in accordance with cost-effective treatment methods, as determined by such
third-party payor, or was used for an unapproved indication. Third-party
payors may also decline to reimburse for experimental procedures and devices.
Many of Edwards Lifesciences' existing and future products are cost-effective
because they are intended to reduce overall health care costs over a long
period of time. Edwards Lifesciences cannot be certain whether these third-
party payors will recognize these cost savings or will merely focus on the
lower initial costs associated with competing therapies. If Edwards
Lifesciences' products are not considered cost-effective by third-party
payors, Edwards Lifesciences' customers may not be reimbursed for Edwards
Lifesciences' products.
In addition, third-party payors are increasingly attempting to contain
health care costs by limiting both coverage and the level of reimbursement for
medical products and services. There can be no assurance that levels of
reimbursement, if any, will not be decreased in the future, or that future
legislation, regulation or reimbursement policies of third-party payors will
not otherwise adversely affect the demand for and price levels of Edwards
Lifesciences' products. In Japan, where Edwards Lifesciences' products are
distributed through a contractual joint venture with Baxter, customers are
reimbursed for Edwards Lifesciences products under a government-operated
insurance system. Under this system, the Japanese government annually reviews
the reimbursement levels for products. If the Japanese government decides to
reduce reimbursement levels for Edwards Lifesciences' products, Edwards
Lifesciences' product pricing may be adversely affected.
Risks Related to Edwards Lifesciences' Separation from Baxter
The distribution may become a taxable event as a result of subsequent actions
or events undertaken by Edwards Lifesciences.
Although the distribution is expected to be free from United States federal
income tax as of the distribution date, it could be rendered taxable as a
result of subsequent actions or events. Edwards Lifesciences has agreed not to
undertake specified actions and has agreed that under particular circumstances
it will indemnify Baxter for taxes, liabilities and associated expenses
incurred as a result of any such actions or events. For more information, see
"Edwards Lifesciences' Relationship With Baxter After The Distribution--
Reorganization Agreement."
After Edwards Lifesciences' separation from Baxter, Edwards Lifesciences may
experience increased costs resulting from decreased purchasing power, which
could decrease its profitability overall.
Prior to Edwards Lifesciences' separation from Baxter, the CardioVascular
business was able to take advantage of Baxter's size and purchasing power in
procuring goods, services and technology, such as computer software licenses.
As a separate, stand-alone entity, Edwards Lifesciences may be unable to
obtain goods, services and technology at prices and on terms as favorable as
those it obtained prior to the distribution.
Edwards Lifesciences' new name is not yet recognized as a brand in the
marketplace, and as a result its product sales could suffer.
The loss of the "Baxter" brand name may hinder Edwards Lifesciences'
ability to establish new relationships. In addition, Edwards Lifesciences'
current customers, suppliers and partners may react negatively to the
separation from Baxter. In connection with Edwards Lifesciences' separation
from Baxter, Edwards Lifesciences will change the brand name and some
associated trademarks and trade names under which Edwards Lifesciences
conducts its business. This transition to a new name will occur rapidly in
certain geographic regions and over specified periods of time in other
regions. Edwards Lifesciences believes that sales of its products have
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benefited from the use of the "Baxter" brand name. In addition, although
Edwards Lifesciences believes that it will have all necessary rights to use
its new brand name, Edwards Lifesciences' rights to use the name may be
challenged by others.
Edwards Lifesciences will need to fund its future capital requirements
internally or obtain third-party financing.
Edwards Lifesciences believes that its capital requirements will vary
greatly from quarter to quarter, depending on, among other things, capital
expenditures, fluctuations in Edwards Lifesciences' operating results,
financing activities and build-up of inventories. In the past, the
CardioVascular business' working capital requirements have been met from
internally-generated cash flow. Edwards Lifesciences believes that the planned
initial debt financing, along with its future cash flow from operations, will
be sufficient to satisfy its working capital, capital expenditure and research
and development requirements for the foreseeable future. However, Edwards
Lifesciences may be required or choose to obtain additional debt or equity
financing in the future, especially for significant acquisitions. Future
equity financings could be dilutive to the existing holders of Edwards
Lifesciences' common stock. Future debt financings could involve restrictive
covenants that limit Edwards Lifesciences' ability to take certain actions. To
the extent Edwards Lifesciences must obtain financing, Edwards Lifesciences
cannot guarantee that financing will be available on favorable terms and any
financing may not be at interest rates as favorable as those historically
enjoyed by Baxter. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The transitional services being provided to Edwards Lifesciences by Baxter
may be difficult to replace without operational problems.
Baxter has agreed to provide certain administrative services to Edwards
Lifesciences in various countries around the world. These services include
information systems and telecommunications, human resources, finance and
accounting and other administrative services. In most cases, either party will
have the right after 21 months to terminate these arrangements either in whole
or in part. If these arrangements are terminated, Edwards Lifesciences will
need to seek alternative providers of these services. Edwards Lifesciences may
experience operational problems if it is not able to immediately replace these
services or as Edwards Lifesciences transitions to another provider's systems.
In addition, since the prices charged to Edwards Lifesciences under these
arrangements are intended to approximate the costs of providing the services,
the costs of obtaining services from third parties upon any termination could
be in excess of the costs payable by Edwards Lifesciences to Baxter.
Risks Related to Ownership of Edwards Lifesciences' Common Stock
Edwards Lifesciences' common stock has no prior market, and Edwards
Lifesciences cannot guarantee that Edwards Lifesciences' stock price will not
decline after the distribution.
There has been no prior trading market for Edwards Lifesciences' stock and
there can be no assurance as to the prices at which Edwards Lifesciences'
stock will trade before or after the date of the distribution. Until the
Edwards Lifesciences common stock is fully distributed and an orderly market
develops, the prices at which the Edwards Lifesciences common stock trades may
fluctuate significantly. Prices for the Edwards Lifesciences common stock will
be determined in the trading markets and may be influenced by many factors,
including:
. the depth and liquidity of the market for Edwards Lifesciences' stock;
. developments generally affecting the cardiovascular products market;
. investor perceptions of Edwards Lifesciences and its business;
. the financial results of Edwards Lifesciences;
. Edwards Lifesciences' dividend policy; and
. general economic and industry conditions.
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For more information, see "The Distribution--Market for Edwards
Lifesciences Common Stock."
In addition, the stock market, in general, frequently experiences extreme
volatility that is often seemingly unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
trading price of Edwards Lifesciences common stock. In the past, securities
class action litigation often has been instituted against companies following
periods of volatility in the market price of their securities. Such litigation
could result in substantial costs and a diversion of management's attention
and resources.
Edwards Lifesciences' charter documents and Delaware law contain provisions
that may discourage takeover attempts which could preclude Edwards
Lifesciences' stockholders from receiving a change of control premium.
Edwards Lifesciences' certificate of incorporation and bylaws and Delaware
law contain anti-takeover provisions that could have the effect of delaying or
preventing changes in control that a stockholder may consider favorable. The
provisions in Edwards Lifesciences' charter documents include the following:
. a classified board of directors with three-year staggered terms;
. the ability of Edwards Lifesciences' board of directors to issue shares
of preferred stock and to determine the price and other terms, including
preferences and voting rights, of those shares without stockholder
approval;
. stockholder action to be taken only at a special or regular meeting;
. advance notice procedures for nominating candidates to Edwards
Lifesciences' board of directors or presenting matters at stockholder
meetings;
. removal of directors only for cause; and
. super-majority voting requirements to amend the charter.
The foregoing could have the effect of delaying, deferring or preventing a
change in control of Edwards Lifesciences, discouraging bids for Edwards
Lifesciences' common stock at a premium over the market price or harming the
market price of, and the voting and other rights of the holders of, Edwards
Lifesciences' common stock. Edwards Lifesciences also is subject to Delaware
laws that could have similar effects. One of these laws prohibits Edwards
Lifesciences from engaging in a business combination with any significant
stockholder for a period of three years from the date the person became a
significant stockholder unless specific conditions are met. In addition,
Edwards Lifesciences has adopted a stockholder rights plan. The preferred
stock purchase rights under this plan, if triggered, would cause substantial
dilution to any person or group who attempts to acquire a significant interest
in Edwards Lifesciences without advance approval of Edwards Lifesciences'
board of directors. For more information, see "Description of Edwards
Lifesciences Capital Stock" and "Certain Anti-Takeover Effects of Provisions
of Edwards Lifesciences' Certificate of Incorporation and Bylaws and of
Delaware Law."
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FORWARD-LOOKING STATEMENTS
This information statement and other materials filed or to be filed by
Edwards Lifesciences with the SEC (as well as information included in oral
statements or other written statements made, or to be made, by Edwards
Lifesciences) contain, or will contain, disclosures which are "forward-looking
statements." Forward-looking statements include all statements that do not
relate solely to historical or current facts, and can generally be identified
by the use of words such as "may," "believe," "will," "expect," "project,"
"estimate," "anticipate," "plan" or "continue." These forward-looking
statements address, among other things, strategic objectives and the
anticipated effects of the distribution. These forward-looking statements are
based on the current plans and expectations of the management of Edwards
Lifesciences and are subject to a number of uncertainties and risks that could
significantly affect current plans and expectations and the future financial
condition and results of Edwards Lifesciences. These factors include, but are
not limited to:
. the highly competitive nature of the health care industry;
. the efforts of insurers, health care providers and others to contain
health care costs;
. possible changes in United States or foreign programs that may further
limit reimbursements to health care providers and insurers;
. changes in federal, state or local regulation affecting the health care
industry;
. the possible enactment of federal or state health care reform;
. the departure of key executive officers from Edwards Lifesciences;
. claims and legal actions relating to product liability;
. fluctuations in the market value of Edwards Lifesciences common stock;
. changes in accounting practices;
. changes in general economic conditions and foreign currency
fluctuations;
. product demand and risks associated with industry acceptance;
. new product development and commercialization; and
. other risk factors described above.
As a consequence, current plans, anticipated actions and future financial
conditions and results may materially differ from those expressed in any
forward-looking statements made by or on behalf of Edwards Lifesciences. You
are cautioned not to unduly rely on such forward-looking statements when
evaluating the information presented in this information statement.
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EDWARDS LIFESCIENCES' BUSINESS
Overview
Edwards Lifesciences provides a comprehensive line of products and services
to treat late-stage cardiovascular disease. Edwards Lifesciences is the
worldwide leader in the design, development, manufacture and marketing of
tissue heart valves and heart valve repair products. Many products
manufactured by Edwards Lifesciences occupy leading positions around the
world. Edwards Lifesciences' engineers and scientists work closely with many
leading clinicians, which has allowed Edwards Lifesciences to develop and
commercialize new products and to pioneer new treatment techniques. Edwards
Lifesciences' sales are categorized in four main product areas: cardiac
surgery, critical care, vascular and perfusion products and services. Edwards
Lifesciences is headquartered in Irvine, California, and supplies its products
and services to customers in more than 80 countries, both through direct sales
and distributor relationships. In 1999, Edwards Lifesciences reported pro
forma sales of $809 million. Edwards Lifesciences' products are manufactured
in locations throughout the world, including Brazil, the Dominican Republic,
Japan (through a contractual joint venture with Baxter), The Netherlands,
Puerto Rico, Switzerland and the United States.
Cardiovascular disease is the number one cause of death in the world, and
is among the top three diseases in terms of health care spending in nearly
every country in the world. We believe that around the world, more than $200
billion is spent each year for the treatment of cardiovascular disease.
Cardiovascular disease is both progressive and pervasive; progressive, in that
it tends to worsen over time, and pervasive because it often affects an
individual's entire circulatory system. In its later stages, surgery
frequently becomes the preferred treatment option. In 1999, approximately one
million open heart surgeries were performed worldwide; of these, approximately
64% were coronary artery bypass graft (CABG) procedures, approximately 24%
were heart valve replacement or repair procedures, and approximately 12% were
related to the repair of congenital heart defects.
Edwards Lifesciences expects the following factors to contribute to the
growth in the number of patients being treated for advanced late-stage
cardiovascular disease:
. an increasing and aging population;
. the progressive nature of the disease; and
. continued economic development around the world, which permits more
resources to be dedicated to treating chronic health conditions.
Patients undergoing surgical treatment for cardiovascular disease are
likely to encounter a variety of Edwards Lifesciences' products and services.
For example, an individual with a heart valve disorder may have a faulty valve
re-shaped and repaired with an Edwards Lifesciences annuloplasty ring, or the
surgeon may elect to remove the valve altogether and replace it with one of
Edwards Lifesciences' handcrafted bioprosthetic heart valves, which can be
made of bovine or porcine tissue. If a patient undergoes other types of open
heart surgery, such as a CABG procedure, the functions of their heart and
lungs may be managed through the use of disposable products and equipment
offered in Edwards Lifesciences' perfusion products line. The perfusion
process may be performed by a clinical perfusionist employed by Edwards
Lifesciences' perfusion services, the largest organization of contract
perfusionists in the world. A patient with end-stage cardiovascular disease
who is awaiting a heart transplant may receive treatment from Edwards
Lifesciences' mechanical cardiac assist system. If the circulatory problems
are in the limbs rather than in the heart, the patients' procedure may involve
some of Edwards Lifesciences' vascular products, which include various types
of balloon-tipped catheters that are used to remove blood clots. Finally,
virtually all high-risk patients in the operating room or cardiac-care unit
are candidates for having their cardiac function monitored by Edwards
Lifesciences' critical care products.
Business Strategy
Treatment of cardiovascular disease represents a significant, growing
opportunity. Edwards Lifesciences' strategy is to develop, manufacture and
market products that result in improved therapeutic outcomes for patients with
late-stage cardiovascular disease. Edwards Lifesciences plans to aggressively
expand its leading product
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offerings and develop new products and therapies that improve the quality of
patient care and reduce overall treatment costs. The key aspects of Edwards
Lifesciences' strategy include:
Focus on Late-Stage Cardiovascular Disease Therapy. Cardiovascular
disease is the leading cause of death in the world. Edwards Lifesciences
has differentiated itself from other competitors by focusing primarily on
late-stage treatments, which tend to rely more heavily on the use of
devices and implantables and less on behavior-modification or drug therapy.
Edwards Lifesciences believes there will be significant opportunity for
growth as the aging global population increases and new technologies are
developed.
Invest in Technological Innovation. Clinical performance historically
has been the primary driver of commercial success for products used to
treat cardiovascular disease. Edwards Lifesciences' product portfolio
includes many leading technologies, and Edwards Lifesciences has been
credited with pioneering a variety of new treatment techniques. Edwards
Lifesciences plans to increase investment in research and development to
enhance existing technologies and to develop and commercialize new products
and therapies.
Expand Global Sales. Continuing economic development around the world
and expanded global adoption of established medical procedures will provide
attractive growth opportunities for Edwards Lifesciences. Edwards
Lifesciences expects to broaden its sales, service and distribution
channels globally to take advantage of these opportunities. Currently, an
estimated 38% of Edwards Lifesciences' pro forma sales are derived from
outside of the United States.
Evaluate Attractive Investment Opportunities. Edwards Lifesciences'
operations generate significant operating cash flow, some of which Edwards
Lifesciences plans to reinvest to accelerate growth and maximize long-term
return to its stockholders. Edwards Lifesciences plans to evaluate
investment opportunities based on the incremental return on invested
capital in excess of Edwards Lifesciences' weighted average cost of
capital. Edwards Lifesciences believes that its stockholders will recognize
the greatest appreciation in value through investments which generate the
highest incremental return.
Improve Existing Cost Structure. As an independent company, Edwards
Lifesciences will be required to anticipate and react to market changes and
eliminate inefficient processes and unnecessary costs. Edwards Lifesciences
is already pursuing a number of opportunities to improve its existing cost
structure and plans to continue identifying and implementing additional
cost-savings initiatives.
Pursue Strategic Opportunities. The cardiovascular medical products
industry is undergoing significant consolidation. Edwards Lifesciences
plans to continue pursuing attractive opportunities to expand its product
offerings and operations through acquisition. Possible acquisition
candidates will have innovative technology positions or well-established
product franchises. In addition, Edwards Lifesciences will continue to
critically assess all of its product lines and offerings to ensure that
each is contributing a return on invested capital that meets Edwards
Lifesciences' short-term and long-term objectives.
Edwards Lifesciences' Product and Service Offerings
Edwards Lifesciences' comprehensive line of cardiovascular products and
services are categorized into four main areas:
. Cardiac Surgery, encompassing heart valve therapy products, mechanical
cardiac assist systems, and cannulae and cardioplegia;
. Critical Care, featuring cardiac monitoring systems and disposables used
to evaluate cardiac output and measure blood pressure;
. Vascular, which includes products used in peripheral vascular surgery,
surgical accessories, implantable grafts, and endovascular graft systems
for treating aortic aneurysms; and
. Perfusion Products and Services, comprised of oxygenators and related
disposables used during cardiopulmonary bypass, cardiopulmonary bypass
hardware and perfusion services.
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Cardiac Surgery
Heart Valve Therapy
Edwards Lifesciences is the world's leading manufacturer of tissue heart
valves and valve repair products, which are used to replace or repair a
patient's diseased or defective heart valve. Edwards Lifesciences operates two
world-class manufacturing facilities in Irvine, California, and Horw,
Switzerland, producing pericardial and porcine valves from biologically inert
animal tissue sewn onto proprietary wireforms or stents.
An estimated 270,000 patients worldwide will have heart valve surgery in
2000. The procedure can extend lives and provide a higher quality of life than
many patients have experienced in years. Depending on a patient's valve
condition as well as other factors such as overall health, age and physical
activity level, a surgeon may elect to replace a malfunctioning valve with a
prosthetic heart valve made either of metal or tissue, or may perform a
surgical repair of the heart valve, a procedure known as an annuloplasty.
Edwards Lifesciences expects the number of valve procedures to continue to
grow due, in part, to an aging population; the high incidence in developing
nations of rheumatic fever, which often leads to valvular problems; and the
global growth of cardiovascular disease. Increased health care spending around
the world, and improved diagnostic techniques that allow physicians to detect
valve problems sooner, also are expected to contribute to an increasing number
of heart valve procedures. Edwards Lifesciences has been a pioneer in the
development and commercialization of tissue valves and repair products and is
the world's leader in these areas.
Although patients of any age may require valve surgery, younger patients
are more likely to receive a human-donated hemograft, mechanical valve or
repair product, while older patients are more frequently candidates for tissue
valves. Tissue valves can offer considerable lifestyle advantages over
mechanical valves, in that mechanical valve patients must maintain a life-long
regimen of blood-thinning medications. These medications increase the
likelihood of bleeding and related complications, potentially impairing their
physical activity levels or impacting other health conditions. Implantation
rates for tissue valves are exceeding overall valve procedure growth, as
surgeons continue to demonstrate their preference for tissue valves for
certain types of patients.
The core of Edwards Lifesciences' tissue product line is the Carpentier-
Edwards pericardial valve, made from the tissue that surrounds a cow's heart.
The most widely prescribed tissue heart valve due to its proven durability and
performance is the Carpentier-Edwards pericardial valve and is the only
pericardial valve available in the United States.
While stented tissue valves represent the vast majority of tissue implants
and the greatest opportunity for growth, some physicians may choose an
unstented porcine tissue valve for select patients. Edwards Lifesciences
introduced the Prima Plus, the first stentless valve, nearly a decade ago and
continues to offer this product outside of the United States. Edwards
Lifesciences also offers mechanical valves, including the Edwards MIRA bi-
leaflet mechanical valve, and the Starr-Edwards silastic ball valve which
Edwards Lifesciences launched in the 1960s as the first commercially available
artificial heart valve. The Prima Plus valve is currently in clinical trials
in the United States as part of the FDA approval process and Edwards
Lifesciences is awaiting approval to commence clinical trials of the Edwards
MIRA valve in the United States.
In addition to its replacement valves, Edwards Lifesciences is the
worldwide leader in heart valve repair products. Through extended product
development, training and promotion, Edwards Lifesciences has been a major
force in the rapid acceptance of heart valve repair procedures, also known as
annuloplasty, as an alternative to heart valve replacement. Through its
Carpentier-Edwards and Cosgrove-Edwards annuloplasty systems, Edwards
Lifesciences offers the broadest offering of heart valve repair products in
the industry.
Mechanical Cardiac Assist
While tens of thousands of patients worldwide need heart transplants each
year, only a fraction--about 4,000 individuals--actually receive a donor
organ. The others must rely on continuous medication therapy or mechanical
assist while they wait for an organ.
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Edwards Lifesciences' Novacor Left Ventricular Assist System (LVAS) is a
small, electromechanical pump that takes over the heart's pumping function for
end-stage heart disease patients requiring a heart transplant. The device,
which is implanted in the abdomen and surgically attached to the heart's left
ventricle, is regulated by an external controller and battery pack that
automatically responds to a patient's changing heartbeat and circulatory
demands. The LVAS has been shown to add months, and in some cases years, to
patients' lives while they await their donor hearts.
To date, more than 1,000 patients worldwide have received the Novacor LVAS.
Approved in Europe since 1994 as both a "bridge" for patients awaiting
transplant, as well as a permanent "alternative" to transplant, the Novacor
LVAS was approved in 1998 by the FDA for the "bridge" application only.
Although Edwards Lifesciences considers the achievement of the "bridge"
approval in the United States to be a critical milestone toward gaining
broader clinical acceptance of mechanical assist systems, it recognizes the
significantly greater patient need in the "alternative" indication and
continues to focus its resources on pursuing this opportunity.
Cannulae and Cardioplegia
Edwards Lifesciences, through the 1997 acquisition of Research Medical,
Inc., is a leading manufacturer of cannulae and cardioplegia products used
during cardiac surgery. Cannulae are various types of specialized tubing that
are used in the surgical field to transport blood from the heart to the
cardiopulmonary pump and oxygenator and to return the blood to the circulatory
system. While there are standard configurations of cannulae, many are custom-
designed to suit individual surgeons' requirements. Edwards Lifesciences
offers more than 1,200 types of cannulae and accessories to facilitate the
perfusion process.
Edwards Lifesciences also offers cardioplegia products that are used to
preserve the heart muscle tissue during open heart surgery. Preservation is
necessary because during traditional open heart surgery, the heart is
disconnected from the body's circulatory system and unless some form of
preservation or heart cooling is employed, the heart tissue will be damaged.
Through its close work with clinicians, Edwards Lifesciences helped pioneer a
new methodology for administering cardioplegia through a retrograde approach
that delivers cardioplegia solutions to the coronary sinus and venous side of
the heart, thereby bypassing the blocked coronary arteries.
Edwards Lifesciences' more recent developments include a line of cannulae
to facilitate vacuum-assisted venous drainage during perfusion, and dispersion
aortic cannulae, which are used to reduce the pressure of blood flow returning
to the body in the wall of the aorta. Edwards Lifesciences also has introduced
a number of products to facilitate coronary artery bypass surgery when it is
performed on a beating heart. Included among these products is the AnastaFlo
coronary shunt, which is used to redirect blood away from the suturing site,
and the VisuFlo humidifying blower, which keeps the surgical site dry and
optimizes the surgeon's visual field during a procedure.
Critical Care
Edwards Lifesciences is also a world leader in hemodynamic monitoring
systems that are used to measure a patient's heart function in surgical and
intensive care settings. Hemodynamic monitoring enables a clinician to balance
the oxygen supply and demand of a critically ill patient. Failure to
appropriately manage a patient's hemodynamic needs can cause organ injury,
organ failure, or death. Edwards Lifesciences' systems provide important added
clinical value by serving as a diagnostic tool that prompts clinicians to act
when a patient's hemodynamic balance becomes disrupted.
In addition, hemodynamic monitoring plays an important role in assuring
that the heart function of millions of patients who have pre-existing
cardiovascular conditions or other critical illnesses is optimized before they
undergo a surgical procedure. The vast majority of high-risk patients
undergoing open heart, major vascular, major abdominal, neurological, and
orthopedic procedures are candidates for Edwards Lifesciences' bedside
monitoring technologies, which are often deployed before, during, and after
surgery.
Edwards Lifesciences is credited with pioneering the practice of
hemodynamic monitoring with the launch of the original Swan-Ganz catheter in
the 1970s. Today, we believe that Edwards Lifesciences' extensive line of
monitoring catheters and bedside patient monitoring equipment continue to be
considered the standard in critical
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care medicine. Edwards Lifesciences has played a major role in evolving
critical care monitoring technologies, selling more than 20 million catheters
and monitors worldwide, with new generations of products performing
increasingly sophisticated functions.
Edwards Lifesciences also is a global leader in the broader field of
disposable pressure monitoring devices and has introduced a line of innovative
products enabling closed-loop arterial blood sampling to protect both patients
and clinicians from the risk of infection.
Recently Edwards Lifesciences initiated the European launch of Vantex, the
first anti-microbial central venous catheter, manufactured from a patented,
antimicrobial material. Central venous catheters are the primary route for
fluid and medication delivery to patients undergoing major surgical procedures
and/or intensive care. Bloodstream infections related to central venous
catheters have increased significantly over the past 10 years, and addressing
this life-threatening and costly problem is another example of Edwards
Lifesciences' leadership in critical care.
Edwards Lifesciences recognizes that assessing a patient's physiological
balance and minimizing the risk of infection will remain fundamental
requirements for successful treatment of critically ill patients. Edwards
Lifesciences will continue to leverage its strength in this area and explore
further opportunities in the diagnostics and therapeutic delivery areas.
Vascular
The pervasive nature of cardiovascular disease means that the conditions
that occur inside of the heart are often duplicated elsewhere in a patient's
body. Outside of the heart, the network of veins and arteries are collectively
referred to as the body's vascular system. Atherosclerotic disease is one
common circulatory condition which involves the thickening of blood-carrying
vessels and the formation of circulation-restricting plaque, clots, and other
substances, and often occurs concurrently in the vascular system as well as in
the heart. When the abdomen, arms or legs are impacted, the diagnosis is
usually peripheral vascular disease (PVD), which occurs in millions of
patients worldwide, and in very advanced cases, may lead to amputation of
patients' limbs.
Edwards Lifesciences manufactures and sells a variety of products used to
treat PVD, including a line of balloon-tipped, catheter-based products, as
well as surgical clips and inserts, angioscopy equipment, and artificial
implantable grafts. Edwards Lifesciences' Fogarty line of embolectomy
catheters has been an industry standard for removing blood clots from
peripheral blood vessels for more than 30 years.
Edwards Lifesciences is also working on a number of new innovative
technologies to treat PVD. For example, Edwards Lifesciences' Side Branch
Occlusion system was launched in 1998 to help surgeons restore circulation in
the legs. By working within the saphenous veins, the system eliminates the
traditional incision along the entire length of the leg and the extensive
complications usually associated with this procedure.
Another significant area of interest and investment has been the
development of endovascular grafts. Edwards Lifesciences has developed the
Lifepath AAA System to treat potentially life-threatening abdominal aortic
aneurysms (AAA) with an endovascular approach. An abdominal aortic aneurysm
can form in the aorta, the body's main circulatory channel, when a portion of
the aortic wall becomes weakened and begins bulging outward. Often, the
aneurysm grows until it poses a life-threatening risk of rupturing. The
Lifepath AAA System treats abdominal aortic aneurysm by inserting an
endovascular graft which replaces the wall of the aorta in the damaged area.
By accessing and repairing the aneurysm from within the aorta, rather than
making a major incision that exposes most of the body's internal organs, the
endovascular procedure is less traumatic and invasive than standard aortic
repair surgery. The Lifepath AAA is approved for commercial sale in Europe and
Australia. It remains in clinical trials in the United States, with an
anticipated commercial approval within the next two years.
Perfusion Products and Services
During the majority of open heart surgical procedures, a patient's heart is
stopped, and the body's blood flow and oxygenation needs are managed through a
series of pumps, tubing and filters attached to a
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cardiopulmonary bypass machine. After the surgery is completed, the heart is
revived after the normal blood flow through the heart and lung is restored.
The practice of bypassing the heart and lungs externally during surgery is
known as extracorporeal circulation.
Edwards Lifesciences develops, manufactures and markets a diverse line of
disposable products used during extracorporeal circulation, including
oxygenators, blood containers, filters and related devices. Many of the
disposable products in Edwards Lifesciences' perfusion product line are coated
with Edwards Lifesciences' patented Duraflo heparin treatment, which has been
shown to improve the compatibility of medical devices used in cardiopulmonary
bypass procedures with a patient's blood.
Edwards Lifesciences recently expanded its offering of perfusion products
to include hardware with the acquisition of the COBE Century Heart Lung
Machine business, one of the most popular heart-lung machine systems for
cardiopulmonary bypass. Edwards Lifesciences also recently acquired and now
offers the Metaplus Blood Pump System, a next-generation cardiopulmonary
bypass circuit.
Although Edwards Lifesciences had been manufacturing and distributing
perfusion products for years, it did not become active in the service side of
the perfusion business until 1996, when it merged two previously acquired
contract perfusion service companies, PSICOR, Inc. and SETA, Inc., into one
company operating as an indirect, wholly owned subsidiary of Edwards
Lifesciences. Through this subsidiary, coupled with the addition of several
smaller regional perfusion service providers in the United States and Europe,
Edwards Lifesciences now owns or operates the world's largest practice of
contract perfusionists, employing more than 400 clinical perfusionists who
perform an aggregate of more than 50,000 perfusion cases for open heart
surgery per year in the United States. In all but one state, Edwards
Lifesciences' perfusion services allow hospitals to purchase perfusion
supplies and capital equipment as well as contract for highly trained
personnel who perform perfusion during open heart and transplant surgeries,
blood salvage, and intra-aortic balloon pumping procedures.
Competition
The medical devices industry is highly competitive. Edwards Lifesciences
competes with many companies ranging from small start-up enterprises to
companies that are larger and more established than Edwards Lifesciences with
access to significant financial resources. Furthermore, rapid product
development and technological change characterize the market in which Edwards
Lifesciences competes. The present or future products of Edwards Lifesciences
could be rendered obsolete or uneconomical by technological advances by one or
more of Edwards Lifesciences' present or future competitors or by other
therapies, including drug therapies. Edwards Lifesciences must continue to
develop and acquire new products and technologies to remain competitive in the
cardiovascular medical devices industry.
Edwards Lifesciences believes that it competes primarily on the basis of
product reliability and performance, product features that enhance patient
benefit, customer and sales support, and cost-effectiveness.
The cardiovascular segment of the medical device industry is dynamic and
currently undergoing significant change due to cost-of-care considerations,
regulatory reform, industry and customer consolidation, and evolving patient
needs. The ability to provide cost-effective products and services that
improve clinical outcomes is becoming increasingly important for medical
device manufacturers.
Edwards Lifesciences' products and services face substantial competition
from a number of companies. In cardiac surgery, the primary competitors
include St. Jude Medical, Inc., Medtronic, Inc., and Sulzer Medica, Ltd. In
critical care, Edwards Lifesciences' principal competitors include Abbott
Laboratories Inc. and Arrow International, Inc., as well as a number of
smaller companies. In vascular, Edwards Lifesciences' primary competitors
include W.L. Gore and Associates, Inc. and Applied Medical Resources
Corporation. In perfusion products, Edwards Lifesciences' major competitors
include Medtronic, Inc., Sorin Biomedica Ltd. and Terumo Corporation. In
addition, while Edwards Lifesciences is also the leading contract supplier of
perfusion services in the United States, there are many small regional
contract service providers who compete with Edwards Lifesciences for contracts
in those hospitals that outsource perfusion services.
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Sales and Marketing
Edwards Lifesciences has a number of broad product lines which require a
sales and marketing strategy that is tailored to its customers in order to
deliver high quality, cost-effective products and services to all of its
customers worldwide. We believe that Edwards Lifesciences' portfolio includes
some of the most respected product brands in cardiovascular devices today,
including Carpentier-Edwards, Cosgrove-Edwards, Duraflo, Fogarty, Starr-
Edwards and Swan-Ganz. Because of the diverse global needs of the population
that Edwards Lifesciences serves, Edwards Lifesciences' distribution system
includes a direct sales force and independent distributors. In 1999,
approximately 13% of Edwards Lifesciences' pro forma net sales were from sales
to Allegiance Corporation, which serves as a distributor of Edwards
Lifesciences products in the United States. The Allegiance distribution
agreement extends until December 31, 2000 and provides for distribution of
Edwards Lifesciences' products by Allegiance on a generally non-exclusive
basis for a percentage of the price paid to Edwards Lifesciences by Allegiance
for the products. Allegiance distributes Edwards Lifesciences products to a
variety of customers, including hospitals, surgical centers and other health
care institutions. Edwards Lifesciences is not dependent on any single end-
user customer and no single end-user customer accounted for more than 10% of
Edwards Lifesciences' pro forma net sales in 1999.
Sales personnel work closely with the primary decision makers who purchase
Edwards Lifesciences' products, whether they are physicians, material
managers, nurses, biomedical staff, hospital administrators or purchasing
managers. Additionally, Edwards Lifesciences' sales force actively pursues
approval of Edwards Lifesciences as a qualified supplier for hospital group
purchasing organizations that negotiate contracts with suppliers of medical
products. Edwards Lifesciences already has contracts with a number of national
buying groups and is working with a growing number of regional buying groups
that are emerging in response to cost containment pressures and health care
reform in the United States.
United States
In the United States, Edwards Lifesciences sells substantially all of its
products through its direct sales force. Substantially all of its direct sales
force consists of employees of Edwards Lifesciences. In 1999, 62% of Edwards
Lifesciences' pro forma sales were derived from sales to customers in the
United States (on a historical basis for the CardioVascular business, it was
56%).
International
In 1999, 38% of Edwards Lifesciences' pro forma sales were derived
internationally through its direct sales force and independent distributors
(on a historical basis for the CardioVascular business, it was 44%). Edwards
Lifesciences sells its products in more than 80 countries. Major international
countries in which Edwards Lifesciences' products are sold include: Australia,
Belgium, Canada, France, Germany, Italy, Japan (through a contractual joint
venture with Baxter), The Netherlands, Spain and the United Kingdom. The sales
and marketing approach in international geographies varies depending on each
country's size and state of development. See "Edwards Lifesciences'
Relationship With Baxter After The Distribution--Distribution Agreements" and
"--Contractual Joint Venture in Japan."
Raw Materials and Manufacturing
Edwards Lifesciences uses a diverse and broad range of raw and organic
materials in the design, development and manufacture of its products. Edwards
Lifesciences purchases certain of the materials and components used in
manufacturing its products from external suppliers. In addition, Edwards
Lifesciences purchases certain supplies from single sources for reasons of
quality assurance, sole source availability, cost effectiveness or constraints
resulting from regulatory requirements. Edwards Lifesciences works closely
with its suppliers to assure continuity of supply while maintaining high
quality and reliability. Edwards Lifesciences uses a diverse and broad range
of raw and organic materials in the design, development and manufacture of its
products. Edwards Lifesciences purchases certain of the materials and
components used in manufacturing its products from external suppliers. In
addition, Edwards Lifesciences purchases certain supplies from single sources
for reasons of quality assurance, cost effectiveness or constraints resulting
from regulatory requirements. Edwards Lifesciences works closely with its
suppliers to assure continuity of supply while maintaining high quality and
reliability. Alternative supplier options are generally considered and
identified, although Edwards Lifesciences does not typically pursue regulatory
qualification of alternative sources due to the strength of its
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existing supplier relationships and the time and expense associated with the
regulatory process. Although a change in suppliers could require significant
effort or investment by Edwards Lifesciences in circumstances where the items
supplied are integral to the performance of Edwards Lifesciences' products or
incorporate unique technology, management does not believe that the loss of
any existing supply contract would have a material adverse effect on the
company.
Edwards Lifesciences' non-implantable products are manufactured from man-
made raw materials including resins, chemicals, electronics and metal. Most of
Edwards Lifesciences' heart valve therapy products are manufactured from
natural tissues harvested from animal tissue, as well as man-made materials.
In an effort to reduce potential product liability exposure, certain suppliers
have announced that they intend to limit or terminate sales of certain
materials and parts to companies that manufacture implantable medical devices.
In 1998, Congress enacted the Biomaterials Access Assurance Act to help
ensure a continued supply of raw materials and component parts essential to
the manufacture of medical devices by allowing for rapid dismissal of claims
against suppliers in product liability lawsuits if certain facts and
circumstances exist. This law has not yet had a material impact, and it is not
possible to assess the long-term impact it will have, on the continued
availability of raw materials. The inability to develop satisfactory
alternatives, if required, or a reduction or interruption in supply or a
significant increase in the price of materials or components could have a
material adverse effect on Edwards Lifesciences' business.
Quality Assurance
Edwards Lifesciences is committed to providing high quality products to its
customers. To meet this commitment, Edwards Lifesciences has implemented
modern quality systems and concepts throughout the organization. The quality
system starts with the initial product specification and continues through the
design of the product, component specification processes and the
manufacturing, sales and servicing of the product. The quality system is
designed to build in quality and to utilize continuous improvement concepts
throughout the product life.
Edwards Lifesciences' operations are certified under the applicable
international quality systems standards, such as ISO 9001, ISO 9002, EN46001
and EN46002. ISO 9001 and 9002 require, among other items, an implemented
quality system that applies to component quality, supplier control and
manufacturing operations. In addition, ISO 9001 and EN46001 require an
implemented quality system that applies to product design. These
certifications can be obtained only after a complete audit of a company's
quality system has been conducted by an independent outside auditor. These
certifications require that Edwards Lifesciences' facilities undergo periodic
reexamination.
Research and Development
Edwards Lifesciences is engaged in ongoing research and development to
introduce clinically advanced new products, to enhance the effectiveness, ease
of use, safety and reliability of its existing products and to expand the
applications of its products as appropriate. Edwards Lifesciences is dedicated
to developing novel technologies that will furnish health care providers with
a more complete line of products to treat late-stage cardiovascular disease.
Edwards Lifesciences' research and development activities are carried out
primarily in facilities located in the United States. Edwards Lifesciences'
research and development staff is focused on product design and development,
quality, clinical research and regulatory compliance. To pursue primary
research efforts, Edwards Lifesciences has developed alliances with several
leading research institutions and universities. Edwards Lifesciences also
works with leading clinicians around the world in conducting scientific
studies on Edwards Lifesciences' existing and developing products. These
studies include clinical trials which provide data for use in regulatory
submissions and post-market approval studies involving applications of Edwards
Lifesciences' products.
The CardioVascular business spent $55 million on research and development
(6% of total sales) in 1999, approximately $56 million (7% of total sales) in
1998 and approximately $53 million (6% of total sales) in 1997. These funds
have been used primarily to develop new products and to improve and expand the
applications for existing products.
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Proprietary Technology
Patents and other proprietary rights are important to the success of
Edwards Lifesciences' business. Edwards Lifesciences also relies upon trade
secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position. All employees
and consultants that have access to confidential and proprietary information,
or that are employed to perform duties or services that are likely to result
in inventions, are required to sign either our standard employment agreement
or our standard consulting agreement. In addition, all third parties that are
given access to confidential and proprietary information are required to sign
our standard outgoing confidentiality agreement. Edwards Lifesciences reviews
third-party patents and patent applications in an effort to develop an
effective patent strategy, identify licensing opportunities and monitor the
patent claims of others.
The medical device industry has been engaged in substantial litigation in
recent years regarding patent and other intellectual property rights in the
medical device industry. From time to time, Edwards Lifesciences may be
subject to claims of, and legal actions alleging, infringement of the patent
rights of others. While Edwards Lifesciences has taken numerous steps to
continuously review the patents of others with regard to its products, there
can be no assurance that all pertinent third-party patents have been
identified. An adverse outcome with respect to any one or more of these claims
or actions could have a material adverse effect on Edwards Lifesciences.
Edwards Lifesciences owns approximately 294 issued U.S. patents and 110
pending U.S. patent applications, 444 issued foreign patents and 300 pending
patent applications, and has licensed approximately 59 issued U.S. patents, 31
pending U.S. patent applications, 168 issued foreign patents and 75 pending
foreign patent applications, that relate to aspects of the technology
incorporated in many of Edwards Lifesciences' products. This proprietary
protection often affords Edwards Lifesciences the opportunity to enhance its
position in the marketplace by precluding its competitors from using or
otherwise exploiting Edwards Lifesciences' technology.
Most of Edwards Lifesciences' products are protected in some way by issued
patents and/or pending patent applications. Edwards Lifesciences has several
key patents and pending patent applications in the United States, Europe,
Australia, Japan and Canada on improvements to the Carpentier-Edwards
pericardial valve which enhance and extend the original patent coverage on
such product. Although the original pericardial patent will be expiring in
2002 in most countries, because of design improvements made since the original
filing, management does not expect this to have a significant effect on its
business. Edwards Lifesciences also has many important United States and
foreign patents and pending patent applications related to mitral valve repair
and, in particular, patent coverage on the Cosgrove-Edwards annuloplasty
system and the Carpentier-Edwards physio annuloplasty ring. The AAA Lifepath
System for endovascular repair of aortic abdominal aneurysms is an important
technology which is protected by at least ten issued or allowed United States
patents and foreign applications pending in Europe, Canada, Japan and
Australia. Edwards Lifesciences also has numerous key United States and
foreign patents and patent applications that cover catheters, systems and
methods for measuring and monitoring continuous cardiac output (CCO) and
vascular access products, including combinations of introducers and central
venous catheters. Many of the CCO and vascular access patents were issued only
recently and are expected to protect Edwards Lifesciences' intellectual
property rights in such technologies for the next thirteen to seventeen years.
Edwards Lifesciences' Duraflo treatment technology plays a significant role in
the success of its perfusion products and services. The earliest Duraflo
patents held in the United States and Japan do not expire until 2005-2006, and
Edwards Lifesciences is in the process of developing further improvements. In
addition, Edwards Lifesciences has purchased and licensed extensive United
States and foreign patents and patent applications in the angiogenesis field.
Although some of Edwards Lifesciences' patents are due to expire within the
next five years, Edwards Lifesciences' patent strategy is to file improvement
patent applications and, in some cases, additional patent applications
covering new aspects or modifications of the affected products, or line
extensions of these products. As a result, the duration of the patents
covering Edwards Lifesciences' products can extend up to twenty years from the
date of filing of the patent application. Edwards Lifesciences management does
not believe that the
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expiration of any one or more of its patents that are due to expire in the
next five years will cause a material adverse effect on the sales of Edwards
Lifesciences' products. In addition, Edwards Lifesciences is a party to
several license agreements with unrelated third parties pursuant to which it
has obtained, for varying terms, the exclusive or non-exclusive rights to
certain patents held by such third parties in consideration for cross-
licensing rights or royalty payments. Edwards Lifesciences has also granted
various rights in its own patents to others under license agreements. There
can be no assurance that pending patent applications will result in issued
patents. Competitors may challenge the validity and enforceability of, or
circumvent these patents issued to or licensed by Edwards Lifesciences. Such
patents may also be found to be not infringed and thus insufficiently broad to
provide Edwards Lifesciences with a competitive advantage.
Edwards Lifesciences actively monitors the products of its competitors for
possible infringement of Edwards Lifesciences' owned and/or licensed patents.
Historically, litigation has been necessary to enforce certain patent rights
held by Edwards Lifesciences and Edwards Lifesciences plans to continue to
defend and prosecute its rights with respect to such patents. However, Edwards
Lifesciences' efforts in this regard may not be successful. In addition,
patent litigation could result in substantial cost to and diversion of effort
by Edwards Lifesciences. Edwards Lifesciences also relies upon trade secrets
for protection of its confidential and proprietary information. Others may
independently develop substantially equivalent proprietary information and
techniques, and third parties may otherwise gain access to Edwards
Lifesciences' trade secrets.
It is Edwards Lifesciences' policy to require certain of its employees,
consultants and other parties to execute confidentiality and invention
assignment agreements upon the commencement of employment, consulting or other
relationships with Edwards Lifesciences. However, these agreements may not
provide meaningful protection against, or adequate remedies for, the
unauthorized use or disclosure of Edwards Lifesciences' trade secrets.
Edwards Lifesciences has the following registered trademarks and non-
registered trademarks that are referred to in this information statement:
Registered trademarks:
Novacor(R)
AnastaFlo(R) Duraflo(R) Starr-Edwards(R)
Bentley(R) Edwards MIRA(R) Swan-Ganz(R)
Carpentier-Edwards(R) Fogarty(R) Vantex(R)
Cosgrove-Edwards(R) Lifepath AAA(R) System
Non-registered trademarks:
Century(TM) Metaplus(TM)
Edwards Prima Plus(TM) Side Branch Occlusion(TM)
Edwards Prima(TM) Plus System
Many of these trademarks have also been registered for use in certain
foreign countries where registration is available and Edwards Lifesciences has
determined it is commercially advantageous to do so.
Government Regulation and Other Matters
Regulatory Approvals
In the United States, the FDA, among other government agencies, is
responsible for regulating the introduction of new medical devices. The FDA
regulates laboratory and manufacturing practices, labeling and record keeping
for medical devices, and review of required manufacturers' reports of adverse
experience to identify potential problems with marketed medical devices. Many
of the devices that Edwards Lifesciences develops and markets are in a
category for which the FDA has implemented stringent clinical investigation
and pre-market approval requirements. The process of obtaining FDA approval to
market a product can be resource-intensive, lengthy and costly. FDA review may
involve substantial delays that adversely affect the marketing and sale of
Edwards Lifesciences' products. Any delay or acceleration experienced by
Edwards Lifesciences in obtaining regulatory approvals to conduct clinical
trials or in obtaining required market clearances (especially with respect to
significant products in the regulatory process that have been discussed in
public announcements) may affect Edwards Lifesciences' operations or the
market's expectations for the timing of such events and, consequently, the
market price for Edwards Lifesciences' common stock.
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The FDA has the authority to halt the distribution of certain medical
devices, detain or seize adulterated or misbranded medical devices, or order
the repair, replacement or refund of the costs of such devices. The FDA may
also require notification of health professionals and others with regard to
medical devices that present unreasonable risks of substantial harm to the
public health. The FDA may enjoin and restrain certain violations of the Food,
Drug and Cosmetic Act and the Safe Medical Devices Act pertaining to medical
devices, or initiate action for criminal prosecution of such violations.
Moreover, the FDA administers certain controls over the export of medical
devices from the United States and the importation of devices into the United
States.
Medical device laws are also in effect in the other countries in which
Edwards Lifesciences does business outside of the United States. These range
from comprehensive device approval requirements for some or all of Edwards
Lifesciences' medical device products to requests for product data or
certifications. The number and scope of these requirements are increasing.
Health Care Initiatives
Government and private sector initiatives to limit the growth of health
care costs, including price regulation and competitive pricing, are continuing
in many countries where Edwards Lifesciences does business, including the
United States. As a result of these changes, the marketplace has placed
increased emphasis on the delivery of more cost-effective medical therapies.
Although Edwards Lifesciences believes it is well positioned to respond to
changes resulting from this worldwide trend toward cost containment, proposed
legislation and/or changes in the marketplace could have an adverse impact on
future operating results.
Diagnostic-related groups' reimbursement schedules regulate the amount the
United States government, through the United States Health Care Financing
Administration, will reimburse hospitals and doctors for the in-patient care
of persons covered by Medicare. In response to rising Medicare and Medicaid
costs, several legislative proposals in the United States have been advanced
which would restrict future funding increases for these programs. While
Edwards Lifesciences has been unaware of significant domestic price resistance
directly as a result of the reimbursement policies of diagnostic-related
groups, changes in these reimbursement levels and processes could have an
adverse effect on Edwards Lifesciences' domestic pricing flexibility.
In keeping with the increased emphasis on cost-effectiveness in health care
delivery, the current trend among hospitals and other customers of medical
device manufacturers is to consolidate into larger purchasing groups to
enhance purchasing power. The medical device industry has also experienced
some consolidation, partly in order to offer a broader range of products to
large purchasers. As a result, transactions with customers are larger, more
complex and tend to involve more long-term contracts than in the past. The
enhanced purchasing power of these larger customers may also increase the
pressure on product pricing, although management is unable to estimate the
potential impact at this time.
Legal Matters
Edwards Lifesciences operates in an industry susceptible to significant
product liability claims. In recent years, there has been an increased public
interest in product liability claims for implanted or other medical devices.
These claims may be brought by individuals seeking relief for themselves or,
increasingly, by groups seeking to represent a class. In addition, product
liability claims may be asserted against Edwards Lifesciences in the future
arising out of events not known to management at the present time. Management
believes that Edwards Lifesciences' risk management practices, including
insurance coverage, are adequate to protect against potential product and
professional liability losses.
In 1996, government authorities in Germany began an investigation into
certain business and accounting practices by heart valve manufacturers. As a
part of this investigation, documents were seized from the CardioVascular
business and certain other manufacturers. Based upon currently available
information, Edwards Lifesciences does not expect these investigations to have
a materially adverse impact on the company's financial position, results of
operations or liquidity.
Edwards Lifesciences is also subject to various environmental laws and
regulations both within and outside of the United States. The operations of
Edwards Lifesciences, like those of other medical device companies,
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involve the use of substances regulated under environmental laws, primarily in
manufacturing and sterilization processes. While it is difficult to quantify
the potential impact of compliance with environmental protection laws,
management believes that such compliance will not have a material impact on
Edwards Lifesciences' financial position, results of operations or liquidity.
Properties
The locations and uses of the major properties of Edwards Lifesciences are
as follows:
<TABLE>
<C> <C> <S>
North America
Irvine, California (1) Headquarters, Research and Development,
Regulatory and Clinical Affairs and
Manufacturing
Oakland, California (2) Administrative, Research and Development,
Regulatory and Clinical Affairs and
Manufacturing
San Diego, California (2) Administrative, Service Center and Warehouse
Memphis, Tennessee (1) Distribution and Logistics
Midvale, Utah (1) Administrative, Research and Development,
Regulatory Affairs and Manufacturing
Haina, the Dominican Republic (2) Manufacturing
Anasco, Puerto Rico (2) Manufacturing
Europe
Uden, The Netherlands (1) Warehouse, Distribution, Manufacturing and
Offices
Horw, Switzerland (2) Manufacturing
Lausanne, Switzerland (2) European Headquarters
South America
Sao Paulo, Brazil (2) Manufacturing
</TABLE>
- --------
(1) Owned property.
(2) Leased property.
The leases for the leased properties set forth above generally expire
within eight years. The Oakland, California lease expires in 2002; the San
Diego, California lease expires in 2006; the Dominican Republic lease expires
in 2006; the Puerto Rico lease expires in 2008; and the Horw, Switzerland
lease expires in 2001. The Lausanne, Switzerland and Sao Paulo, Brazil leases
will be entered into prior to the distribution date. The leased properties
range in size from approximately 19,000 square feet to 46,000 square feet with
rents ranging from approximately $1.00 to $4.00 per square foot. These leases
generally are not renewable. Each of the existing leases listed above will
require the consent of the landlord for Baxter to assign or sublease the
property to Edwards Lifesciences.
Employees
Edwards Lifesciences employs over 5,000 employees worldwide, the majority
of whom are located at the company's headquarters in Irvine, California, and
at its manufacturing facility in Puerto Rico. Other major concentrations of
employees are located in Europe and Brazil. Edwards Lifesciences emphasizes
competitive compensation, benefits, equity participation and work environment
policies in its efforts to attract and retain qualified personnel. None of
Edwards Lifesciences' North American employees is represented by a labor
union. In various countries outside of North America, there are a limited
number of employees who have relationships with works councils or trade
unions. Edwards Lifesciences considers its relations with its employees to be
good.
EDWARDS LIFESCIENCES' RELATIONSHIP WITH BAXTER AFTER THE DISTRIBUTION
General
Immediately prior to the distribution, Edwards Lifesciences will be a
wholly-owned subsidiary of Baxter. After the distribution, Baxter will not
have any ownership interest in the common stock of Edwards Lifesciences, which
will be an independent, publicly traded company and no Baxter directors will
also be Edwards Lifesciences directors.
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Immediately prior to the distribution, Baxter and Edwards Lifesciences will
enter into certain agreements to define their ongoing relationship after the
distribution and to allocate tax, employee benefits and certain other
liabilities and obligations arising from periods prior to the distribution
date. These agreements are being entered into between Baxter and Edwards
Lifesciences while Edwards Lifesciences is still a wholly owned subsidiary of
Baxter, and certain terms of these agreements are not the same as would have
been obtained through negotiations with an unaffiliated third party.
Reorganization Agreement
Baxter and Edwards Lifesciences will enter into an Agreement and Plan of
Reorganization (the reorganization agreement) providing for, among other
things, the principal corporate transactions required to effect the separation
of the CardioVascular business from the remaining Baxter businesses and the
distribution, and certain other agreements governing the relationship between
Baxter and Edwards Lifesciences after the distribution. The following
description is intended as a summary of all material terms of the
reorganization agreement. We encourage you to read, in its entirety, the
reorganization agreement, which is included as an exhibit to the registration
statement of which this information statement is a part.
Pursuant to the reorganization agreement, Baxter will transfer to Edwards
Lifesciences substantially all of the assets, and Edwards Lifesciences will
assume substantially all of the corresponding liabilities, of the
CardioVascular business (other than cash, third party distribution
relationships and inventory where Baxter continues to serve as the distributor
for Edwards Lifesciences, and assets and liabilities related to Japan). See
"Edwards Lifesciences' Business." The assets of the CardioVascular business
will be transferred to Edwards Lifesciences on an "as is, where is" basis and
no representations or warranties will be made by Baxter with respect to the
assets other than certain product-related indemnities.
Subject to certain exceptions, the reorganization agreement will provide
for cross-indemnities principally designed to place financial responsibility
for the obligations and liabilities of the CardioVascular business with
Edwards Lifesciences and financial responsibility for the obligations and
liabilities of Baxter's retained businesses and its other subsidiaries with
Baxter. Specifically, Edwards Lifesciences has agreed to assume liability for,
and to indemnify Baxter against, any and all liabilities associated with the
CardioVascular business, including any litigation, proceedings or claims
relating to the products and operations of the transferred business whether or
not the underlying basis for such litigation, proceeding or claim arose prior
to or after the distribution date. See "Edwards Lifesciences' Business--
Government Regulation and Other Matters." Baxter has agreed to indemnify
Edwards Lifesciences against any and all liabilities associated with Baxter's
retained businesses and its other subsidiaries. Other than the obligations
contained in the reorganization agreement and the other agreements entered
into in connection with the distribution, the reorganization agreement
provides that Baxter and Edwards Lifesciences will release each other from all
claims existing at the time of the distribution.
The reorganization agreement will also provide that Edwards Lifesciences
will assume and indemnify Baxter for all environmental liabilities that arise
from or are attributable to the operations of the CardioVascular business
regardless of when these liabilities arose. This includes, but is not limited
to, off-site waste disposal liabilities, except that Baxter will retain the
liabilities relating to two off-site disposal locations. In addition, Baxter
has agreed to indemnify Edwards Lifesciences against any and all environmental
liabilities associated with the retained Baxter businesses and its other
subsidiaries.
The reorganization provides that Baxter will receive from Edwards
Lifesciences and its subsidiaries an aggregate of approximately $305 million
through either payments for assets transferred to Edwards Lifesciences or its
subsidiaries or through repayment of intercompany debt existing immediately
prior to the distribution date.
The reorganization agreement will also provide, among other things, that,
in order to avoid potentially adverse tax consequences relating to the
distribution, for a period of two years after the distribution, Edwards
Lifesciences will not:
(1) cease to engage in an active trade or business within the meaning of
the Internal Revenue Code of 1986, as amended;
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(2) issue or redeem any share of stock of Edwards Lifesciences, except for
certain issuances and redemptions for the benefit of Edwards
Lifesciences' employees, or to effect acquisitions by Edwards
Lifesciences in the ordinary course of business, or in connection with
the issuance of any convertible debt by Edwards Lifesciences, or in
accordance with the requirements for permitted purchases of Edwards
Lifesciences common stock as set forth in Section 4.05(1)(b) of Revenue
Procedure 96-30 issued by the IRS; or
(3) liquidate or merge with any other corporation;
unless, with respect to (1), (2) or (3) above, either (a) an opinion is
obtained from counsel to Baxter, or (b) a ruling is obtained from the IRS, in
either case to the effect that such act or event will not adversely affect the
federal income tax consequences of the distribution to Baxter or its
stockholders who receive Edwards Lifesciences stock. Edwards Lifesciences
believes that these limitations will not significantly constrain its
activities or its ability to respond to unanticipated developments. See "The
Distribution--Important Federal Income Tax Consequences."
The reorganization agreement will also provide that if, as a result of
certain transactions occurring after the distribution date involving either
the stock or assets of either Edwards Lifesciences or any of its subsidiaries,
or any combination thereof, the distribution fails to qualify as tax-free
under the provisions of Section 355 of the United States tax code, Edwards
Lifesciences will indemnify Baxter for all taxes, liabilities and associated
expenses, including penalties and interest, incurred as a result of such
failure of the distribution to qualify under Section 355 of the tax code. The
reorganization agreement will further provide that if the distribution fails
to qualify as tax-free under the provisions of Section 355 of the tax code,
other than as a result of a transaction occurring after the distribution date
involving either the stock or assets of Edwards Lifesciences or any of its
subsidiaries, or any combination of stock or assets, then Edwards Lifesciences
will not be liable for those taxes, liabilities or expenses. See "The
Distribution--Important Federal Income Tax Consequences."
The reorganization agreement will also provide for cross-licensing of
certain intellectual property transferred to Edwards Lifesciences or retained
by Baxter. Specifically, to the extent that research and development related
to Baxter's CardioVascular business resulted in the creation of intellectual
property, Baxter will transfer this intellectual property, subject to certain
exceptions, to Edwards Lifesciences as part of the assets being transferred
under the reorganization agreement. Edwards Lifesciences will grant to Baxter
a license for such intellectual property to the extent that Baxter is using
this intellectual property immediately prior to the distribution or to the
extent that Baxter requires the use of this intellectual property for product
extensions developed and manufactured within the three-year period following
the distribution. Conversely, Baxter will grant to Edwards Lifesciences a
license to use certain intellectual property retained by Baxter to the extent
that such intellectual property is being used by Baxter's CardioVascular
business immediately prior to the distribution or to the extent that Edwards
Lifesciences requires the use of this intellectual property for product
extensions developed and manufactured within the three-year period following
the distribution.
The reorganization agreement will also provide for the allocation of
benefits between Baxter and Edwards Lifesciences under existing insurance
policies after the distribution date for claims made or occurrences prior to
the distribution date. The reorganization agreement also sets forth procedures
for the administration of insured claims. In addition, the reorganization
agreement provides that Baxter will use its reasonable efforts to maintain
directors' and officers' insurance at substantially the level of Baxter's
current directors' and officers' insurance policy for a period of six years
with respect to the directors and officers of Baxter who will become directors
and officers of Edwards Lifesciences as of the distribution date for acts
relating to periods prior to the distribution date.
The reorganization agreement will provide that prior to the distribution
date the certificate of incorporation and bylaws of Edwards Lifesciences will
be substantially in the forms attached as exhibits to the registration
statement of which this information statement is a part and that as of the
distribution date the directors of Edwards Lifesciences will be the persons
named in "Edwards Lifesciences Management--Board of Directors."
The reorganization agreement will also provide that each of Baxter and
Edwards Lifesciences will be granted access to certain records and information
in the possession of the other. In addition, the reorganization
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agreement requires Baxter and Edwards Lifesciences to retain for a period of
ten years following the distribution the information in its possession
relating to the other. After the ten year period, Baxter and Edwards
Lifesciences must give prior notice to the other of their intention to dispose
of such information.
The reorganization agreement will also address the treatment of employee
benefit matters and other compensation arrangements for certain former and
current Edwards Lifesciences employees and their beneficiaries and dependents
(we refer to these persons collectively as the Edwards Lifesciences
Participants). These provisions of the reorganization agreement contemplate
that Edwards Lifesciences will establish certain profit sharing, retirement
savings and welfare plans effective on the distribution date. The
reorganization agreement will provide that the account balances (including
outstanding loans) of all Edwards Lifesciences Participants in the Baxter
International Inc. and Subsidiaries Incentive Investment Plan, and the plan
assets related to these liabilities, will be transferred to Edwards
Lifesciences' new retirement savings plan. The reorganization agreement also
contemplates that Edwards Lifesciences Participants in the Baxter
International Inc. and Subsidiaries Pension Plan will be fully vested in their
accrued benefits as of the distribution date under such plan and that Baxter
will remain responsible for the liabilities associated with such benefits. The
reorganization agreement will also provide that Baxter will remain responsible
for all liabilities associated with accruals as of the distribution date for
Edwards Lifesciences Participants under the Baxter International Inc. and
Subsidiaries Supplemental Pension Plan and that Edwards Lifesciences will
become responsible for providing all benefits accrued as of the distribution
date for Edwards Lifesciences Participants under the Baxter International Inc.
and Subsidiaries Deferred Compensation Plan. Moreover, the reorganization
agreement will also generally provide that, after the distribution date,
Edwards Lifesciences will assume certain liabilities for benefits under any
welfare and retirement plans related to Edwards Lifesciences Participants,
other than certain claims incurred on or before the distribution date.
The reorganization agreement also provides that as of the distribution
date, neither Baxter nor Edwards Lifesciences will have entered into, and
within the first six months following the distribution date, neither Baxter
nor Edwards Lifesciences will enter into any agreements, understandings,
arrangements or substantial negotiations that would result, individually or
collectively, in a change of ownership of 50% or more of either within the
meaning of Section 355(e) of the tax code.
The reorganization agreement provides that disputes arising under the
reorganization agreement or the other agreements entered into to implement the
distribution will be resolved through good faith negotiation between senior
management or, if still unresolved, through binding arbitration.
Finally, the reorganization agreement will provide that the distribution
will not be made until specified conditions are satisfied or waived by the
Baxter board of directors in its sole discretion. Even if all of the
conditions are satisfied, the reorganization agreement may be terminated and
the distribution abandoned by the Baxter board of directors, in its sole
discretion, without the approval of the Baxter stockholders, at any time prior
to the distribution date. See "The Distribution--Distribution Conditions and
Termination."
Tax Sharing Agreement
Baxter and Edwards Lifesciences will enter into a tax sharing agreement
that will:
1. allocate responsibility for federal, state and foreign tax liabilities
of the Edwards Lifesciences business attributable to periods including,
or ending on or before, the distribution date;
2. allocate liability for transfer taxes arising under the distribution or
related transactions;
3. provide for the allocation of tax attributes in accordance with United
States Treasury Regulations or other applicable authorities;
4. allocate responsibility for tax return filings, records retention, the
payment of tax liabilities and the administration of tax audits which
relate to the Edwards Lifesciences business;
5. allocate responsibility for property considered abandoned under state
law as of the distribution date; and
6. allocate deductions related to stock acquired under employee
compensation plans prior to, or as a result of, the distribution.
Distribution Agreements
Baxter and Edwards Lifesciences will enter into a number of distribution
agreements, to be effective as of the distribution date, pursuant to which
Baxter will serve as the distributor of Edwards Lifesciences products in
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Argentina, Bolivia, Paraguay, Uruguay, Australia, Greece, Ireland, New
Zealand, China, Russia, Colombia and in certain Nordic, Central European,
Middle Eastern and African countries. In addition, in most European countries,
as well as in India, Baxter will provide distribution services that will be
limited to various physical distribution services. In the other countries,
Baxter will provide more extensive sales and marketing assistance and will
take legal title to products before resale to the end customers. Baxter may
also contract with third-party distributors for the distribution of Edwards
Lifesciences products. In addition, Baxter may provide certain sales and
marketing support services to Edwards Lifesciences in other parts of the
world.
The initial term of the distribution agreements is less than two years.
Generally, the distribution agreements automatically renew for an additional
one-year period unless one of the parties provides the other with a notice of
non-renewal at least four months prior to the expiration of the initial term.
In the event of a change in control of one of the parties to the distribution
agreements, the other party to the agreement will have the right, subject to
certain notice periods and other restrictions, to terminate such agreement
prior to its normal expiration.
Under certain distribution agreements, Edwards Lifesciences is required
within the applicable territories to distribute all covered products through
Baxter, subject to certain exceptions. In addition, in certain jurisdictions,
Baxter may not market, promote or solicit orders for any product that competes
with any covered product. Baxter may, however, take orders for, stock and sell
competing products in response to customer requests.
The compensation received by Baxter under the distribution agreements
generally will approximate or be based upon Baxter's direct and indirect costs
of distribution, plus, in the case of those territories where Baxter performs
more than mere physical distribution services, a margin comparable to the
amounts reflected in the pro forma financial statement of Edwards Lifesciences
contained elsewhere in this document. See "Edwards Lifesciences' Unaudited Pro
Forma Financial Data" on page 39.
Contractual Joint Venture in Japan
The CardioVascular business in Japan, including certain manufacturing
operations, will not be transferred to Edwards Lifesciences at the time of the
distribution due to Japanese regulatory requirements and business culture
considerations. It will be operated pursuant to a contractual joint venture
under which a Japanese subsidiary of Baxter will retain ownership of the
business assets, but a subsidiary of Edwards Lifesciences will hold a 90%
profit interest. Edwards Lifesciences will make an initial capital
contribution of approximately $215 million to obtain its interest in the joint
venture. Edwards Lifesciences will receive 10% of the interest earned on the
initial capital contribution. The joint venture has a term of ten years, but
is terminable by Baxter on six months notice to Edwards Lifesciences and by
Baxter or Edwards Lifesciences in certain other circumstances. Edwards
Lifesciences will also have an option to purchase the Japanese business
assets, which option may be exercised no earlier than 28 months following the
distribution date and no later than 60 months following the distribution date.
The exercise price of the option is approximately $245 million. Of the $245
million exercise price, approximately $215 million would be obtained by
Edwards Lifesciences upon termination of the joint venture from the return of
its fair value in the joint venture at inception. In the event of any
termination of the joint venture or a change in control of Baxter, the option
becomes immediately exercisable. Edwards Lifesciences will also enter into a
fifteen-year distribution agreement with Baxter granting Baxter the exclusive
right to distribute Edwards Lifesciences products in Japan. Amounts received
by Baxter under the distribution agreement will be included as part of the
joint venture. Edwards Lifesciences will include the results of the Japanese
operations using the equity method of accounting.
Services Agreements
Baxter and Edwards Lifesciences will enter into several services
agreements, to be effective as of the distribution date, pursuant to which
Baxter will provide to Edwards Lifesciences certain administrative services
that may be necessary for Edwards Lifesciences to conduct its business. Baxter
will provide a variety of services to Edwards Lifesciences, including
information systems and telecommunications, human resources, finance and
accounting and other administrative services. The initial term of the services
agreements is generally less than two years. Generally, the services
agreements automatically renew for an additional one-year period unless one of
the parties provides the other with a notice of non-renewal at least four
months prior to the expiration of the initial term. Under certain
circumstances involving a change in control, Edwards Lifesciences and Baxter
may terminate the agreements within a shorter timeframe. The prices at which
Baxter will provide these services generally will be equal to or based on the
actual cost of rendering these services.
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THE DISTRIBUTION
Background and Reasons for the Distribution
Baxter is creating an independent, publicly traded company for its
CardioVascular business because it believes that the combined value of two
separate companies will be greater than the value of Baxter as a whole today.
Edwards Lifesciences expects that the distribution will allow it to compete
more effectively in the intensely competitive and rapidly consolidating
cardiovascular medical device industry. Following the distribution, Baxter
will have the ability to invest more resources in its remaining core
businesses, which it expects will further enhance its ability to bring new
products to market and to expand in global markets.
Improved Ability to Compete in Cardiovascular Medical Device Industry
Edwards Lifesciences will benefit from focusing on treating late-stage
cardiovascular disease. While Edwards Lifesciences has developed leadership
positions in several niche segments of the cardiovascular medical device
industry, its competitive position is being challenged by larger and more
focused "pure play" competitors. As size, breadth and access to emerging
technologies become more important in the rapidly evolving and consolidating
cardiovascular medical device industry, Edwards Lifesciences intends to
accelerate its rate of innovation, and make a significant contribution to its
product development pipeline. Edwards Lifesciences expects this strategy to
ultimately lead to the commercialization of more and improved treatment
options for Edwards Lifesciences' customers and their patients. In addition,
Edwards Lifesciences expects that it will increase funding of internal
development and be more aggressive in pursuing acquisition and strategic
alliance opportunities. The distribution will provide Edwards Lifesciences
with a publicly traded equity security that can be used to provide it with
more flexibility in making acquisitions.
Attraction and Retention of Key Employees
Edwards Lifesciences' management believes that having a publicly traded
equity security will create a highly effective incentive tool for motivating
senior management and attracting and retaining talented employees at all
levels of the company. Following the distribution, the stock price of Edwards
Lifesciences will be heavily influenced by the operational and financial
performance of Edwards Lifesciences. This direct link between performance and
stock price appreciation should create an effective incentive system and
should serve to enhance the levels of dedication, commitment and productivity
of the management and employees of Edwards Lifesciences. The impact of this
form of incentive system on Edwards Lifesciences' performance will grow as
management and employee ownership in the company increases through the use of
stock options and participation in stock incentive programs.
Capital Structure and Dividend Policy Optimization
The distribution will provide both Baxter and Edwards Lifesciences the
opportunity to create capital structures and adopt dividend policies that best
reflect the cash flow, investment requirements, competitive landscape,
stockholder expectations and corporate strategy and business objectives of
each company. By appropriately tailoring the capital structures of Baxter and
Edwards Lifesciences, each should be better able to pursue their strategic
objectives while achieving the lowest overall cost of capital consistent with
the risk profiles and competitive factors inherent in each business.
Manner of Effecting the Distribution
The general terms and conditions relating to the distribution are set forth
in the reorganization agreement between Baxter and Edwards Lifesciences. See
"Edwards Lifesciences' Relationship With Baxter After The Distribution--
Reorganization Agreement."
On the distribution date, Baxter will effect the distribution by delivering
all of the outstanding shares of Edwards Lifesciences common stock to First
Chicago Trust Company, a division of EquiServe, as distribution
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agent, for distribution to the holders of record of Baxter common stock at the
close of business on the record date. The distribution will be made on the
basis of one share of Edwards Lifesciences common stock for every five shares
of Baxter common stock.
The actual number of shares of Edwards Lifesciences common stock that will
be distributed will depend on the number of shares of Baxter common stock
outstanding on the record date. The shares of Edwards Lifesciences common
stock will be validly issued, fully paid and nonassessable, and the holders of
such shares will not be entitled to preemptive rights. See "Description of
Edwards Lifesciences Capital Stock." It is expected that certificates
representing shares of Edwards Lifesciences common stock will be mailed to
Baxter stockholders on or about March 31, 2000.
Certificates or script representing fractional shares of Edwards
Lifesciences common stock will not be issued to Baxter stockholders as part of
the distribution. Instead, each holder of Baxter common stock who would
otherwise be entitled to receive a fractional share will receive cash for
those fractional interests less applicable taxes. The distribution agent will,
on or after the distribution date, aggregate and sell all those fractional
interests on the open market at then market prices and distribute the
aggregate proceeds ratably to Baxter stockholders otherwise entitled to those
fractional interests. Baxter will pay all brokers' fees and commissions in
connection with the sale of fractional interests. See "The Distribution--
Important Federal Income Tax Consequences" for a discussion of the United
States federal income tax treatment of proceeds from fractional share
interests.
Accounting Treatment of Plan of Reorganization
The distribution will be accounted for on a historical cost basis and no
gain or loss will be recorded.
Important Federal Income Tax Consequences
Baxter received a ruling from the IRS substantially to the effect that,
among other things, the distribution should qualify as a tax-free spin-off to
Baxter and to Baxter's United States stockholders under the tax-free spin-off
provisions (Section 355) of the Internal Revenue Code of 1986, as amended.
The ruling is based on current provisions of the Internal Revenue Code,
existing regulations under the tax code and current administrative rulings and
court decisions, all of which are subject to change. We have not attempted to
comment on all federal income tax consequences of the distribution that may be
relevant to particular holders, including holders that are subject to special
tax rules such as dealers in securities, foreign persons, mutual funds,
insurance companies, tax-exempt entities, stockholders who acquire their
Edwards Lifesciences common stock pursuant to the exercise of employee stock
options or otherwise as compensation and holders who do not hold their Baxter
common stock as capital assets. We urge holders of Baxter common stock to
consult their own tax advisors regarding the federal income tax consequences
of the distribution in light of their personal circumstances and the
consequences under applicable state, local and foreign tax laws.
Provided that the distribution qualifies as a tax-free distribution under
the tax-free spin-off provisions of the tax code, as expected based on the IRS
ruling, a Baxter stockholder will not recognize any income, gain or loss as a
result of the distribution, except, as described below, in connection with
fractional share proceeds from the deemed receipt and sale of any Edwards
Lifesciences common stock:
1. A Baxter stockholder's aggregate tax basis for Baxter common stock on
which Edwards Lifesciences common stock is distributed and the Edwards
Lifesciences common stock received by such stockholder in the
distribution (including any fractional shares of Edwards Lifesciences
common stock to which such stockholder may be entitled) will be the same
as the basis of Baxter common stock held by such stockholder immediately
prior to the distribution;
2. A Baxter stockholder's aggregate tax basis will be allocated between his
or her Baxter common stock and Edwards Lifesciences common stock
received in the distribution (including any fractional shares of Edwards
Lifesciences common stock deemed received) in proportion to the fair
market value of both the Baxter common stock and Edwards Lifesciences
common stock on the distribution date;
34
<PAGE>
3. A Baxter stockholder's holding period for the Edwards Lifesciences
common stock received in the distribution (including any fractional
shares of Edwards Lifesciences common stock to which such stockholder
may be entitled) will include the holding period of the Baxter common
stock on which the distribution is made, provided that such Baxter
common stock is held as a capital asset by such stockholder on the
distribution date;
4. A Baxter stockholder who receives fractional share proceeds as a result
of the sale of shares of Edwards Lifesciences common stock by the
distribution agent will be treated as if such fractional share had been
received by the stockholder as part of the distribution and then sold by
such stockholder. Accordingly, such stockholder will recognize gain or
loss equal to the difference between the cash so received and the
portion of the tax basis in Edwards Lifesciences common stock that is
allocable to such fractional share. Such gain or loss will be capital
gain or loss, provided that such fractional share was held by such
stockholder as a capital asset at the time of the distribution; and
5. Baxter will not recognize any gain or loss on the distribution.
If for any reason the distribution does not qualify as a tax-free spin-off
under Section 355 of the tax code, Baxter would be required to recognize gain
equal to the excess of the fair market value of the Edwards Lifesciences
common stock distributed to its stockholders over Baxter's basis in the
Edwards Lifesciences common stock. Baxter has agreed to indemnify Edwards
Lifesciences for any tax liability imposed on Edwards Lifesciences or any of
its subsidiaries as a result of the distribution being determined to be a
taxable transaction other than due to any act or failure to act of Edwards
Lifesciences or any of its subsidiaries. In addition, if the distribution
fails to qualify as a tax-free spin-off under Section 355 of the tax code,
each Baxter stockholder would be generally treated as if such stockholder had
received a taxable dividend in an amount equal to the fair market value of the
Edwards Lifesciences common stock received.
Current United States Treasury Regulations require each Baxter stockholder
who receives Edwards Lifesciences common stock pursuant to the distribution to
attach to his or her federal income tax return for the year in which the
distribution occurs a detailed statement setting forth data as may be
appropriate in order to show the applicability under Section 355 of the tax
code to the distribution. Baxter will provide the appropriate information to
each stockholder of record as of the record date.
Under the tax code, a holder of Baxter common stock may be subject, under
certain circumstances, to backup withholding at a rate of 31% with respect to
the amount of cash, if any, received as a result of the sale of fractional
share interests unless the holder provides proof of an applicable exemption or
correct taxpayer identification number, and otherwise complies with applicable
requirements of the backup withholding rules. Any amounts withheld under the
backup withholding rules are not additional tax and may be refunded or
credited against the holder's federal income tax liability, provided the
required information is furnished to the IRS.
Market for Edwards Lifesciences Common Stock
There is no existing market for Edwards Lifesciences common stock. Edwards
Lifesciences common stock will be listed and trade on the NYSE. A "when-
issued" trading market for Edwards Lifesciences common stock is expected to
develop on or shortly before the record date. The term "when-issued" means
that shares can be traded prior to the time certificates are actually
available or issued. We cannot predict the trading prices for Edwards
Lifesciences common stock before or after the distribution date. Until the
common stock is fully distributed and an orderly market develops, the trading
prices for Edwards Lifesciences' common stock may fluctuate. Prices for
Edwards Lifesciences common stock will be determined in the trading markets
and may be influenced by many factors, including:
. the depth and liquidity of the market for Edwards Lifesciences common
stock;
. developments generally affecting Edwards Lifesciences' business;
. the impact of the factors referred to in "Risk Factors" beginning on page
7;
. investor perceptions of Edwards Lifesciences and its business;
35
<PAGE>
. the financial results of Edwards Lifesciences;
. the dividend policy of Edwards Lifesciences; and
. general economic and market conditions.
Edwards Lifesciences common stock will be traded on the NYSE under the
symbol "EW." The transfer agent and registrar for the Edwards Lifesciences
common stock will be First Chicago Trust Company, a division of EquiServe.
As of February 1, 1999, Baxter had 60,830 stockholders of record. Except
for those stockholders who would be entitled to receive less than one share of
Edwards Lifesciences common stock, and assuming that each stockholder is a
stockholder of record on the record date, each stockholder will become a
stockholder of record of Edwards Lifesciences. For certain information
regarding options and other equity-based awards involving Edwards Lifesciences
common stock which may become outstanding after the distribution, see "Edwards
Lifesciences Executive Compensation." Shares of Edwards Lifesciences common
stock distributed to Baxter stockholders in the distribution will be freely
transferable under the Securities Act of 1933, except for shares of Edwards
Lifesciences common stock received by persons who may be deemed to be
affiliates of Edwards Lifesciences. Persons who may be deemed to be affiliates
of Edwards Lifesciences after the distribution generally include individuals
or entities that control, are controlled by or are under common control with
Edwards Lifesciences and may include certain officers and directors, or
principal stockholders, of Edwards Lifesciences. After Edwards Lifesciences
becomes a publicly traded company, securities held by persons who are its
affiliates will be subject to resale restrictions under the Securities Act.
Affiliates of Edwards Lifesciences will be permitted to sell shares of the
entity of which such persons are affiliates only pursuant to an effective
registration statement or an exemption from the registration requirements of
the Securities Act, such as the exemption afforded by Rule 144 under the
Securities Act.
Dividend Policy
Edwards Lifesciences has no current plans to pay dividends following the
distribution. Dividends will be paid on Edwards Lifesciences common stock only
if declared by the Edwards Lifesciences board of directors in its sole
discretion following the distribution. The payment and level of cash
dividends, if any, will be based upon a number of factors, including the
operating results, cash flow and financial requirements of Edwards
Lifesciences. The actual amount and timing of dividends, if any, will depend
on Edwards Lifesciences' financial condition, results of operations, business
prospects, capital requirements and any other matters as Edwards Lifesciences'
board of directors may deem relevant.
Distribution Conditions and Termination
We expect that the distribution will be effective on the distribution date,
March 31, 2000, provided that, among other things:
1. the SEC has declared effective the registration statement on Form 10
under the Exchange Act, as amended, filed by Edwards Lifesciences and no
stop order relating to the registration statement is in effect;
2. Baxter and Edwards Lifesciences have received all necessary permits,
registrations and consents required under the securities or blue sky
laws of states or other political subdivisions of the United States in
connection with the distribution or these permits, registrations and
consents have become effective;
3. Baxter and Edwards Lifesciences have received the favorable tax ruling
from the IRS and the ruling has not been revoked or modified in any
material respect;
4. the NYSE has approved the Edwards Lifesciences common stock for listing
on the NYSE, subject to official notice of issuance;
5. Baxter has completed the transfers of assets and liabilities to Edwards
Lifesciences required to constitute Edwards Lifesciences as described in
this information statement;
36
<PAGE>
6. no order, injunction or decree issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing
consummation of the distribution or any of the transactions related
thereto (including the transfers of assets and liabilities contemplated
by the reorganization agreement) is in effect; and
7. Baxter's board of directors has received opinions of its financial
advisors regarding the fairness of the distribution to stockholders of
Baxter.
The fulfillment of the foregoing conditions will not create any obligation
on the part of Baxter to effect the distribution, and Baxter's board of
directors has reserved the right to amend, modify or abandon the distribution
and the related transactions at any time prior to the distribution date.
Certain of these conditions have already been fulfilled. Baxter's board of
directors may also waive any of these conditions.
Opinions of Financial Advisors
Baxter has engaged Credit Suisse First Boston Corporation (CSFB) and J.P.
Morgan Securities Inc. (J.P. Morgan) as financial advisors in connection with
the distribution. The Baxter board of directors relied, in part, upon the
receipt of the opinions described below in deciding to formally declare the
distribution dividend. The receipt of these opinions was a condition to the
distribution. Baxter's board of directors or a duly authorized committee could
have waived this condition.
CSFB and J.P. Morgan delivered to the Baxter board of directors their
written opinions, each dated March 17, 2000, regarding the fairness of the
distribution to stockholders of Baxter.
Each of CSFB and J.P. Morgan will receive customary fees, including
reimbursement of expenses, for its services as financial advisor related to
the distribution, a portion of which is contingent upon the consummation of
the distribution. Baxter also has agreed to indemnify each of CSFB and J.P.
Morgan against certain liabilities and expenses in connection with its
services as financial advisor.
CSFB and J.P. Morgan and their respective affiliates have acted, and may in
the future act, as underwriters for, and have participated as members of
underwriting syndicates with respect to, offerings of Baxter securities. CSFB
and J.P. Morgan have effected securities transactions for Baxter and performed
financial advisory services in connection with certain acquisitions and
dispositions by Baxter. CSFB and J.P. Morgan have received fees from Baxter in
the past for these services and may receive such fees in the future. Each of
CSFB and J.P. Morgan may in the future serve as an underwriter of Edwards
Lifesciences securities.
37
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected financial information with respect
to the CardioVascular business. These results present the CardioVascular
business as it has historically been operated as a division of Baxter.
Subsequent to the distribution, the Japan operations will be presented on an
equity basis as opposed to the consolidation method reflected in the
historical results. As such, the results reflected here will not be comparable
to the presentation subsequent to the distribution. See "Unaudited Pro Forma
Financial Data." The information, relating to each of the years ended December
31, 1995 through 1999, has been derived from annual financial statements and
related notes found elsewhere in this information statement. The information
set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
"Combined Financial Statements" and related notes to the financial statements
found elsewhere in this information statement. Historical per share data for
net income and dividends have not been presented because Edwards Lifesciences
was not incorporated until September 1999. Pro forma net income per share data
is presented elsewhere in this information statement. See Note 3 to the
"Combined Financial Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for discussions of the effect
of certain acquisitions on revenues, expenses and financial position.
Selected Historical Financial Data
<TABLE>
<CAPTION>
As of or for the years ended
December 31,
-----------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net sales............................. $ 905 $ 865 $ 879 $ 837 $ 730
Gross profit.......................... $ 439 $ 399 $ 416 $ 395 $ 366
Net income(a)......................... $ 82 $ 62 $ (52) $ 87 $ 66
Balance Sheet Data
Total assets.......................... $1,437 $1,483 $1,526 $1,473 $1,390
</TABLE>
- --------
(a) See Note 3 to the "Combined Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for additional information regarding the $132 million in-process research
and development charge in 1997 relating to the acquisition of Research
Medical, Inc.
38
<PAGE>
EDWARDS LIFESCIENCES' UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined statement of income and
unaudited pro forma combined balance sheet present the combined results of
Edwards Lifesciences and its financial position, assuming that the
transactions contemplated by the distribution had been completed as of January
1, 1999 for income statement purposes and as of December 31, 1999 for balance
sheet purposes.
The unaudited pro forma information has been prepared utilizing the
historical combined financial statements of the CardioVascular business. You
should read this information in conjunction with the historical combined
financial statements and related notes included on pages F-1 to F-18 of this
information statement. We have included the unaudited pro forma financial data
as required by the rules and regulations of the SEC and it is for comparative
purposes only. The unaudited pro forma financial data does not purport to be
indicative of the results of Edwards Lifesciences in the future or what the
financial position of results of operations would have been had Edwards
Lifesciences been a separate, stand-alone entity during the period shown.
Unaudited Pro Forma Combined Statement of Income
(in millions, except shares and per share information)
<TABLE>
<CAPTION>
Year ended December 31, 1999
------------------------------------------------
Pro Forma
Adjustments
to Reflect
Japan on an
Pro Forma Equity
Historical Adjustments Basis Pro Forma
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales...................... $905 $-- $(96)(e) $ 809
Costs and expenses
Cost of goods sold........... 460 3 (a) (37)(e) 426
Cost of goods sold--
transactions with Baxter.... 6 -- -- 6
Marketing and administrative
expenses.................... 189 25 (b) (43)(e) 171
Marketing and administrative
expenses--transactions with
Baxter...................... 44 -- -- 44
Research and development
expenses.................... 41 -- (2)(e) 39
Research and development
expenses--transactions with
Baxter...................... 14 -- -- 14
Interest, net................ -- 29 (c) -- 29
Goodwill amortization........ 34 -- -- 34
Other expense (income)....... 4 -- (14)(e) (10)
---- ---- ---- -----------
Total costs and expenses....... 792 57 (96) 753
---- ---- ---- -----------
Income (loss) before income
taxes......................... 113 (57) -- 56
Income tax expense (benefit)... 31 (16)(d) -- 15
---- ---- ---- -----------
Net income (loss).............. $ 82 $(41) $-- $ 41
==== ==== ==== ===========
Share information
Shares to be issued (f)...... 58,180,903
===========
Net income per share (f)..... $ 0.70
===========
</TABLE>
Pro Forma Adjustments
(a) To reflect estimated incremental costs resulting from new or revised
distribution agreements with Baxter in certain foreign locations
subsequent to the distribution. While such distribution agreements are in
the process of being finalized, based on an analysis of the current
intercompany charges, it is anticipated that the draft revised agreements
will result in increased costs to Edwards Lifesciences on a stand-alone
basis.
39
<PAGE>
(b) To reflect estimated incremental costs associated with being an
independent public company, including costs associated with corporate
administrative services such as accounting, tax, treasury, risk
management, insurance, legal, stockholder relations and human resources.
The historical combined financial
statements include all costs incurred by Baxter on behalf of the
CardioVascular business. However, there will be incremental and continuing
costs directly attributable to the planned spin-off, as there will be a
loss of certain synergies and benefits of economies of scale that existed
while the CardioVascular business was part of Baxter. Management estimated
such incremental costs utilizing the parent company's historical headcount
and cost analysis, and the company's organizational chart, which has been
finalized. Management also utilized knowledge and expertise obtained from
executing similar spin-off transactions in the past, and knowledge of the
approximate headcount and cost structures of Edward Lifesciences'
competitor companies. The following is a summary of the estimated
incremental costs by significant function (in millions):
<TABLE>
<S> <C>
. Accounting, tax and legal........................................... $ 8
. Insurance and risk management....................................... 4
. Human resources..................................................... 7
. Treasury, stockholder relations and other costs..................... 6
---
Total............................................................. $25
===
</TABLE>
(c) To reflect the estimated interest expense which would have been incurred
by Edwards Lifesciences based on the incurrence of $520 million of debt at
a weighted-average interest rate of 5.6%. The company's debt facilities
are not yet finalized. The weighted-average interest rate was estimated by
management using current market interest rates and was based on the
assumed mix of debt balances for Edwards Lifesciences, by country, and the
market-quoted LIBOR for the applicable currency coupled with the company's
anticipated credit spread in each applicable country. An increase or
decrease of 0.125 points in the weighted average interest rate would
result in an increase or decrease in interest expense of approximately $1
million.
(d) To reflect the estimated tax impact at statutory rates, for pro forma
adjustments (a) through (c), as well as the estimated impact of different
tax rates available to Edwards Lifesciences as a stand-alone company. It
is anticipated that Edwards Lifesciences will have different tax rates as
a stand-alone company due to the different tax and legal structures it
will have as a stand-alone company subsequent to spin-off date. Management
does not expect the future effective tax rate to be significantly
different from the 1999 pro forma effective tax rate.
(e) To reflect the Japanese operations on an equity basis. See "Edwards
Lifesciences' Relationship With Baxter After The Distribution--Contractual
Joint Venture in Japan."
(f) Pro forma net income per share is computed as if the 58,180,903 common
shares of Edwards Lifesciences, estimated to be issuable in the
distribution, had been outstanding for the periods presented. Refer to
footnote (b) and (c) on page 41 regarding the determination of the
anticipated common shares outstanding.
40
<PAGE>
Unaudited Pro Forma Combined Balance Sheet
(in millions, except shares and per share data)
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------
Pro Forma
Adjustments
to Reflect
Japan on an
Pro Forma Equity Pro
Historical Adjustments Basis Forma
---------- ----------- ----------- ------
<S> <C> <C> <C> <C>
Current assets
Accounts receivable, net of
allowances of $8 million at
December 31, 1999............... $ 133 -- (22)(d) $ 111
Other receivables................ 22 -- -- 22
Inventories...................... 182 -- (34)(d) 148
Short-term deferred income taxes. 9 -- -- 9
Prepaid expenses................. 10 -- -- 10
------ ----- ---- ------
Total current assets........... 356 -- (56) 300
------ ----- ---- ------
Property, plant and equipment
Property, plant and equipment.... 496 -- (58)(d) 438
Accumulated depreciation and
amortization.................... (270) -- 38 (d) (232)
------ ----- ---- ------
Net property, plant and
equipment..................... 226 -- (20) 206
------ ----- ---- ------
Other assets
Goodwill and other intangibles... 839 -- -- 839
Other............................ 16 -- (4)(d) 12
------ ----- ---- ------
Total other assets............. 855 -- (4) 851
------ ----- ---- ------
Total assets................. $1,437 -- (80) $1,357
====== ===== ==== ======
Current liabilities
Accounts payable and accrued
liabilities..................... $ 156 -- (19)(d) $ 137
------ ----- ---- ------
Total current liabilities...... 156 -- (19) 137
------ ----- ---- ------
Long-term debt and other noncurrent
liabilities....................... 57 $ 520 (a) (5)(d) 572
------ ----- ---- ------
Stockholders' equity
Retained earnings................ 418 (2)(c) (56)(d) 362
2 (b)
Investments by and advances from
Baxter International Inc........ 833 (520)(a) --
(313)(b) -- --
Common stock, $1 par value,
authorized 350,000,000 shares,
outstanding 58,180,903 shares... -- 58 (b) -- 58
Other equity..................... -- 253 (b) -- 255
2 (c)
Accumulated other comprehensive
income (loss)................... (27) -- -- (27)
------ ----- ---- ------
Total stockholders' equity .... 1,224 (520) (56) 648
------ ----- ---- ------
Total liabilities and
stockholders' equity........ $1,437 $ -- $(80) $1,357
====== ===== ==== ======
</TABLE>
Pro Forma Adjustments
(a) The "Investments by and advances from Baxter International Inc." account
includes common stock, additional paid-in capital and net intercompany
balances with Edwards Lifesciences which will be contributed at the time
of the spin-off. Refer to Note 2 to the Combined Financial Statements for
further information. Approximately $520 million of Baxter's existing debt
will be indirectly assumed by Edwards Lifesciences through the issuance of
new third-party debt. This adjustment represents an estimate based on
available information. The company's debt agreements are in the process of
being finalized. Management does not expect this adjustment to materially
differ from the final amount.
(b) To reflect the anticipated distribution of 58,039,903 shares of common
stock at $1.00 par value share (at an assumed distribution ratio of one
share of Edwards Lifesciences common stock for every five shares of Baxter
common stock held on the record date) and the elimination of Baxter's
equity investment effected by the anticipated distribution of all
outstanding shares of Edwards Lifesciences stock to Baxter stockholders.
The anticipated total shares outstanding of 58,180,903 also reflects
shares to be issued to hourly employees, as discussed in footnote (c)
below.
(c) To reflect the anticipated initial contribution of principally common
stock to hourly employees worldwide to be held in a special stock account
under the Edwards Lifesciences Retirement Plan. See further discussion on
pages 62 and 64.
(d) To reflect the Japanese operations on an equity basis. See "Edwards
Lifesciences' Relationship With Baxter After The Distribution--Contractual
Joint Venture in Japan."
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis presents the factors that had a
material effect on the results of operations of the CardioVascular business
during the years ended December 31, 1999, 1998 and 1997. Also discussed is its
financial position as of December 31, 1999 and 1998. You should read this
discussion in conjunction with the historical and pro forma combined financial
statements and related notes thereto included elsewhere in this information
statement.
Overview
Edwards Lifesciences provides a comprehensive line of products and services
to treat late-stage cardiovascular disease. Edwards Lifesciences is the
world's leader, and has been a pioneer in the development and
commercialization of tissue valves and repair products, used to replace or
repair a patient's diseased or defective heart. Edwards Lifesciences' sales
are categorized in four main product areas: cardiac surgery, critical care,
vascular and perfusion products and services. See "Edwards Lifesciences'
Product and Service Offerings" elsewhere in this information statement. In
addition, Edwards Lifesciences also offers a diverse grouping of product lines
comprised mostly of select distributed products that are sold in international
markets, and miscellaneous pharmaceutical products. Edwards Lifesciences is
headquartered in Irvine, California, and supplies its products and services to
customers in more than 80 countries, both through direct sales and distributor
relationships. Edwards Lifesciences' products are manufactured in locations
throughout the world, including Brazil, the Dominican Republic, Japan (through
a contractual joint venture with Baxter), The Netherlands, Puerto Rico,
Switzerland and the United States.
Edwards Lifesciences' cardiac surgery portfolio is comprised of products
relating to heart-valve therapy, mechanical cardiac assist, and cannulae and
cardioplegia products used during open-heart surgery. Edwards Lifesciences is
the world's leader, and has been a pioneer in the development and
commercialization of tissue valves and repair products, used to replace or
repair a patient's diseased or defective heart valve. In the critical care
area, Edwards Lifesciences is a world leader in hemodynamic monitoring systems
that are used to measure a patient's heart function in surgical and intensive
care settings. Edwards Lifesciences' vascular product lines include a line of
balloon catheter-based products, surgical clips and inserts, angioscopy
equipment and artificial implantable grafts, as well as an endovascular system
that is used to treat less invasively life-threatening abdominal aortic
aneurysms. In the perfusion products and services category, Edwards
Lifesciences designs, develops, manufactures and markets a diverse line of
disposable products used during cardiopulmonary bypass procedures, including
oxygenators, blood containers, filters and related devices, as well as bypass
equipment. Edwards Lifesciences is also the world's leading provider of
perfusion services, employing more than 400 certified perfusionists who
perform an aggregate of more than 50,000 perfusion cases for open heart
surgery per year.
Cardiovascular disease is the leading cause of death in the world. Edwards
Lifesciences believes that there is a continual and growing need for the
treatment of cardiovascular disease primarily due to the aging population, the
progressive nature of the disease and the continued economic development of
countries around the world that allows for additional funds to be allocated
for the treatment of chronic health conditions. Edwards Lifesciences' business
strategy is to develop, manufacture and market products and services that
result in improved therapeutic outcomes for patients with late-stage
cardiovascular disease. Edwards Lifesciences plans to aggressively expand its
leading product offerings and develop new products and therapies that improve
the quality of patient care and reduce overall treatment costs.
The health-care marketplace continues to be competitive. There has been
consolidation in Edwards Lifesciences' customer base and among its
competitors, which has resulted in pricing and market share pressures. Edwards
Lifesciences has experienced increases in its labor and material costs, which
are primarily influenced by general inflationary trends. Competitive market
conditions have minimized inflation's impact on the selling prices of Edwards
Lifesciences' products and services. Management expects these trends to
continue. Edwards Lifesciences will continue to manage these factors by
capitalizing on its existing leading positions, developing
42
<PAGE>
new products and services through further commitment to internal research and
development activities, investing capital and human resources to upgrade and
expand facilities, leveraging its cost structure and pursuing acquisitions and
strategic alliances.
Results of Operations
Net Sales Trends
The following is a summary of domestic and international net sales:
<TABLE>
<CAPTION>
Year ended
December 31,
------------------
1999 1998 1997
---- ---- ----
(Dollars in
millions)
<S> <C> <C> <C>
United States......................................... $504 $508 $515
% increase/(decrease)............................. (1%) (1%)
International......................................... 401 357 364
% increase/(decrease)............................. 12% (2%)
---- ---- ----
Total net sales....................................... $905 $865 $879
% increase/(decrease)............................. 5% (2%)
==== ==== ====
</TABLE>
Fluctuations in net sales were primarily due to increases in sales of
cardiac surgery products offset by a decline in perfusion product sales and
perfusion service revenues as well as fluctuations in foreign currency
exchange rates. The fluctuations in foreign currency exchange rates were
primarily related to the movement of the U.S. dollar against the Euro and the
Japanese Yen. Excluding the effects of foreign currency exchange rate
fluctuations, net sales worldwide increased 2% in the year ended December 31,
1999 and increased 1% in the year ended December 31, 1998.
The impact of foreign currency exchange rate fluctuations on net sales is
not necessarily indicative of the impact on net income due to the
corresponding effect of foreign currency exchange rate fluctuations on
operating costs and expenses, and hedging activities. For more information,
see "Currency Risk" below.
The following is a summary of net sales by product line:
<TABLE>
<CAPTION>
Year ended
December 31,
------------------
1999 1998 1997
---- ---- ----
(Dollars in
millions)
<S> <C> <C> <C>
Cardiac surgery....................................... 306 $273 $247
% increase/(decrease)............................. 12% 11%
Critical care......................................... 242 221 227
% increase/(decrease)............................. 10% (3%)
Vascular.............................................. 61 60 57
% increase/(decrease)............................. 2% 5%
Perfusion products and services....................... 244 269 289
% increase/(decrease)............................. (9%) (7%)
Other................................................. 52 42 59
% increase /(decrease)............................ 24% (29%)
--- ---- ----
Total net sales....................................... 905 $865 $879
% increase /(decrease)............................ 5% (2%)
=== ==== ====
</TABLE>
Cardiac Surgery
Net sales of cardiac surgery products increased 12% in the year ended
December 31, 1999 and increased 11% in the year ended December 31, 1998.
Excluding the impact of foreign currency exchange rate fluctuations, net sales
of cardiac surgery products would have increased 11% in the year ended
December 31, 1999 and 13% in the year ended December 31, 1998.
43
<PAGE>
Increased demand for heart-valve therapy products is the primary reason for
the growth in sales for all periods presented. Sales growth in 1998 also
benefited from a full year of sales related to the acquisition of Research
Medical, Inc., in March 1997. Research Medical is a leading manufacturer of
cannulae and cardioplegia products used during open-heart procedures. Edwards
Lifesciences now offers more than 1,200 types of cannulae and accessories.
Management expects that its heart-valve therapy products will continue to
serve as the key driver of sales growth.
Critical Care
Net sales of critical care products increased 10% in the year ended
December 31, 1999 and decreased 3% in the year ended December 31, 1998.
Excluding the impact of foreign currency exchange rate fluctuations, net sales
of critical care products would have increased 6% in the year ended December
31, 1999 and 2% in the year ended December 31, 1998.
The growth in 1999 was due primarily to an increased demand for disposable
pressure monitoring devices and the recent European launch of the first anti-
microbial central venous catheter. Although critical care products have been,
and are expected to continue to be, significant contributors to Edwards
Lifesciences' total sales, Edwards Lifesciences management believes that
future sales growth could be impacted by global pricing pressures and
potential reimbursement decreases in Japan.
Vascular
Net sales of vascular products increased 2% in the year ended December 31,
1999 and increased 5% in the year ended December 31, 1998. Excluding the
impact of foreign currency exchange rate fluctuations, net sales of vascular
products would have been flat in the year ended December 31, 1999 and would
have increased 7% in the year ended December 31, 1998.
The sales growth in 1998 was due to new revenues generated from a third
party arrangement involving Edwards Lifesciences' proprietary PTFE (synthetic
material) technology and an increase in sales of Edwards Lifesciences' Side
Branch Occlusion System that was introduced in July 1997. The Side Branch
Occlusion System is an innovative technology that helps vascular surgeons
efficiently restore circulation in the saphenous vein (a critical vein within
the blood circulatory system located in the legs) by effectively removing
clots and other blockages within the vein itself.
Edwards Lifesciences has made a significant commitment to the development
of endovascular grafts, which are used to treat potentially life-threatening
abdominal aortic aneurysms (AAA) through a minimally invasive approach. In
1999, Edwards Lifesciences commercially launched its Lifepath AAA endovascular
graft in Europe and Australia, which is expected to add to future sales
growth. Edwards Lifesciences is pursuing clinical trials in the United States
and expects to obtain FDA regulatory approval within the next two years.
Perfusion Products and Services
Net sales of perfusion products and services decreased 9% in the year ended
December 31, 1999 and decreased 7% in the year ended December 31, 1998.
Excluding the impact of foreign currency exchange rate fluctuations, net sales
of perfusion products and services would have decreased 10% in the year ended
December 31, 1999 and 6% in the year ended December 31, 1998.
Management believes that the decrease in sales of perfusion products and
services was due primarily to a continued slowing in the number of coronary
artery bypass graft procedures on a worldwide basis as well as significant
continuing pricing pressures. Management believes that the slowdown in the
number of traditional coronary bypass graft procedure surgeries has been
caused by increased acceptance of newer, less-invasive procedures such as
coronary stenting, which often eliminates or defers the need for cardiac
surgery. Additionally, there has been an increase in the number of heart
surgeries performed "off-pump" (the surgery is performed on
44
<PAGE>
a beating heart without cardiopulmonary bypass) and this trend has reduced the
need for perfusion services and the use of many traditional perfusion products
manufactured and sold by Edwards Lifesciences. Also, perfusion products and
services sales declined when the CardioVascular business ceased distributing
certain perfusion products in the United States on behalf of Haemonetics, Inc.
effective January 1, 1999. Net sales of product distributed on behalf of
Haemonetics, Inc. were approximately $20 million for the year ended December
31, 1998.
Other
Other net sales increased 24% in the year ended December 31, 1999 and
decreased 29% in the year ended December 31, 1998. Excluding the impact of
foreign currency exchange rate fluctuations, other net sales would have
increased 10% in the year ended December 31, 1999 and would have decreased 26%
in the year ended December 31, 1998.
Other sales include a diverse grouping of product lines comprised primarily
of select distributed products that are sold in international regions, and
miscellaneous pharmaceutical products. This category of sales, which generally
represents less than ten percent of total sales, has fluctuated based on the
timing of new or terminated distribution agreements, foreign currency exchange
rate fluctuations and other factors and events.
Contractual Joint Venture in Japan
Subsequent to the distribution, the CardioVascular business in Japan will
be operated pursuant to a contractual joint venture under which a Japanese
subsidiary of Baxter will retain ownership of the Japanese business assets,
but a subsidiary of Edwards Lifesciences will hold a 90% profit interest.
Edwards Lifesciences will also have an option to purchase the Japanese
business assets, which option may be exercised no earlier than 28 months
following the distribution date and no later than 60 months following the
distribution date. The Japanese operations are consolidated in the
accompanying combined financial statements as that is the historical treatment
of the operations while a part of Baxter. Subsequent to the distribution, and
based on new agreements between Baxter and the company, Edwards Lifesciences
will record its interest in the joint venture on the equity method. On a pro
forma basis, sales and other income statement amounts are different from the
historical amounts, but net income for all periods is the same as the
historical amounts. Reflecting the Japanese operations on the equity method,
pro forma sales were $809 million in 1999, $790 million in 1998 and $791
million in 1997, and pro forma sales growth was 2% in 1999 and sales were
approximately flat in 1998.
Gross Margin
<TABLE>
<CAPTION>
Year ended
December 31,
--------------------------
1999 1998 1997
---- ---- -----
<S> <C> <C> <C>
Gross margin percentage........................ 48.5% 46.1% 47.3%
Increase/(decrease).......................... 2.4 pts. (1.2 pts.)
</TABLE>
The gross margin percentage increased 2.4 points in the year ended December
31, 1999 and decreased 1.2 points in the year ended December 31, 1998.
Excluding the impact of foreign currency exchange rate fluctuations, the gross
margin percentage would have increased 0.8 points in the year ended December
31, 1999 and 1.7 points in the year ended December 31, 1998. The increase in
the gross margin percentage for both periods was due to increased sales of
higher-margin cardiac surgery products and by a reduction in sales of lower-
margin perfusion products and services.
Reflecting the Japanese operations on the equity method, the pro forma
gross margin percentage was 46.6% in 1999, 44.8% in 1998 and 45.5% in 1997.
45
<PAGE>
Marketing and Administrative Expenses
<TABLE>
<CAPTION>
Year ended
December 31,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Marketing & administrative expenses as a
percentage of sales.............................. 25.7% 25.7% 24.0%
Increase......................................... -- 1.7 pts.
</TABLE>
Marketing and administrative expenses increased as a percentage of sales in
the year ended December 31, 1998 due to an increased investment in the direct
United States field-sales force as a result of discontinuing sales of Research
Medical products through outside distributors following the acquisition of
Research Medical in March 1997. Reflecting the Japanese operations on the
equity method, the pro forma marketing & administrative expenses as a
percentatge of sales would have been 26.6% in 1999, 26.6% in 1998, and 24.9%
in 1997.
Research and Development Expenses
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1999 1998 1997
---- ---- ----
(Dollars in
millions)
<S> <C> <C> <C>
Research and development expenses........................ $55 $56 $53
% increase/(decrease)................................ (2%) 6%
Research and development expenses as a percentage of
sales................................................... 6.1% 6.5% 6.0%
</TABLE>
Research and development expenses presented above exclude the in-process
research and development charge relating to the acquisition of Research
Medical in 1997, which is discussed in more detail in Note 3 of "Notes to
Combined Financial Statements." As a percentage of sales, these expenses have
remained relatively constant over the periods presented.
Edwards Lifesciences is engaged in ongoing research and development to
introduce clinically-advanced new products, to maximize the effectiveness,
ease of use, safety and reliability of its existing products and to expand the
applications of its products as appropriate. Edwards Lifesciences has a strong
commitment to bolster its research and development activities in the future
with the goal of developing and commercializing new innovative products and
therapies that enhance performance and patient quality of life and address
cost-containment issues.
Goodwill Amortization
Goodwill amortization remained constant in the years ended December 31,
1999, 1998 and 1997.
Other Income and Expense
Refer to Note 9 to the "Combined Financial Statements" for a summary of the
amounts included in other income and expense. Other income in 1998 principally
consisted of $13 million of net insurance proceeds associated with hurricane
damage at one of the company's manufacturing facilities, net of a $3 million
loss associated with the impairment of a minority equity investment.
Income before Taxes
As a result of the factors discussed above, excluding the charge for in-
process research and development in 1997, income before taxes increased 22% in
the year ended December 31, 1999 and decreased 21% in the year ended December
31, 1998.
Income Taxes
The effective income tax rate was approximately 27% in the year ended
December 31, 1999, 33% in the year ended December 31, 1998 and 32% in the year
ended December 31, 1997 (excluding the 1997 charge for in-process research and
development). The reduction in the tax rate for the year ended December 31,
1999 was due primarily to more favorable tax grants in certain jurisdictions.
46
<PAGE>
Net Income
Net income increased 32% in the year ended December 31, 1999 and decreased
23% in the year ended December 31, 1998 (excluding the 1997 charge for in-
process research and development). These changes are consistent with the
changes in income before taxes and the changes in the effective income tax
rate, each as discussed above.
Liquidity and Capital Resources
Edwards Lifesciences management will assess Edwards Lifesciences' liquidity
in terms of its overall ability to mobilize cash to support ongoing business
levels and to fund its growth. Historically, the CardioVascular business has
generated sufficient cash to satisfy its normal operating cash and capital
requirements, and is expected to continue to do so in the future.
Cash flow provided by operations for 1999 was flat when compared to 1998
due primarily to higher inventory levels, offset by increased earnings and
improved accounts receivable collections. Cash flows provided by operations
for 1998 increased approximately 8% due primarily to improved accounts
receivable collections, liability management, partially offset by lower
earnings. In addition, included in cash flows provided by operations for 1998
was approximately $22 million in proceeds relating to the sale of certain
trade receivables in Japan to an independent financial institution. An
insignificant loss was recognized on the sale.
Uses of cash for investing activities included the acquisition of property,
plant and equipment and acquisitions. Capital expenditures have remained
fairly constant for all periods presented. Acquisition spending in 1999
related primarily to the purchase of the Century Heart Lung Machine (HLM)
business of Cobe Cardiovascular Inc. from Sorin Biomedica. Net cash outflows
for acquisitions in 1998 and 1997 related principally to the acquisition of
Research Medical.
As of the distribution date, Edwards Lifesciences expects to have revolving
credit facilities in place amounting to approximately $650 million.
Approximately $520 million will be used to execute asset transfers from
Baxter, assume debt from Baxter, pay bank fees related to the credit
facilities and for general corporate purposes. Assuming a debt level of $520
million, Edwards Lifesciences' debt as a percent of total capital would have
been 44.5% at December 31, 1999. See "Financing."
In addition to this short-term facility, Edwards Lifesciences management
believes that it has sufficient cash flow from operations and financial
flexibility to attract long-term capital to fund short-term and long-term
growth objectives. However, no assurances can be given that such long-term
capital will be available to Edwards Lifesciences on favorable terms, or at
all.
Euro Conversion
On January 1, 1999, the European Economic and Monetary Union created and
introduced the Euro, the official single currency for the eleven participating
member countries. A transition period is currently in effect which began
January 1, 1999 and will continue through December 31, 2001, during which time
transactions will be executed in both the Euro and the member country's
individual currencies. Effective January 1, 2002, Euro bank notes will be
introduced and as of July 1, 2002, the Euro will be the sole legal tender of
the European Economic and Monetary Union countries.
Edwards Lifesciences has appointed a team of individuals to address all
issues associated with the conversion to the Euro and expects to be prepared
for such conversion as of the designated dates. At the time Edwards
Lifesciences switches to using the Euro as the sole functional currency for
the affected regions, certain modifications that are primarily related to
information systems will be required. The costs associated with preparing for
the conversion and continued use of the Euro will be expensed as incurred and
are not expected to be material to Edwards Lifesciences' financial position,
results of operations or cash flows. The ultimate impact on Edwards
Lifesciences' business, including the impact on the competitive environment in
which Edwards Lifesciences operates, is currently unknown.
47
<PAGE>
New Accounting and Disclosure Standard
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for all quarters of
fiscal years beginning after June 15, 2000. This Statement requires that all
derivatives be recorded in the balance sheet as either assets or liabilities
and be measured at fair value. The accounting for changes in the fair value of
a derivative depends on the intended use of the derivative and the resulting
designation. Management is in the process of evaluating this standard and has
not yet determined the future impact on Edwards Lifesciences' combined
financial statements.
Currency Risk
Edwards Lifesciences operates on a global basis and therefore is subject to
the exposure resulting from foreign currency exchange rate fluctuations. These
exposures arise from transactions denominated in foreign currencies, primarily
from translation of results of operations from outside the United States.
Additionally, such exposures may change over time as changes occur in Edwards
Lifesciences' international operations.
For all periods presented, the CardioVascular business has been considered
in Baxter's overall risk management strategy. As part of this strategy, Baxter
managed its foreign currency exchange rate risk to an acceptable level based
on management's judgment of the appropriate trade-off between risk,
opportunity and costs. With respect to the CardioVascular business' currency
risks, Baxter primarily utilized options to hedge these exposures.
As a stand-alone company, Edwards Lifesciences' objective will be to manage
its exposure to foreign currency fluctuations to minimize earnings and cash
flow volatility associated with foreign exchange rate changes. In order to
reduce the risk of foreign currency exchange rate fluctuations, Edwards
Lifesciences expects to establish a policy of hedging a substantial portion of
its expected foreign currency denominated cash flow from operations. The
instruments that Edwards Lifesciences expects use for hedging will be readily
marketable traded forward contracts and options with financial institutions.
Edwards Lifesciences expects that the changes in fair value of such contracts
are expected to have a high correlation to the price changes in the related
hedged cash flow. Edwards Lifesciences does not expect that the risk of
transaction gains or losses from changes in the fair value of Edwards
Lifesciences' foreign exchange position will be material because most
transactions will occur in either the functional currency or in a currency
that has a high correlation to the functional currency. The principal
currencies that Edwards Lifesciences expects to hedge, which are the
currencies of the markets that present the primary risk of loss to Edwards
Lifesciences, are the Japanese Yen and the Euro. Any gains and losses on these
hedge contracts are expected to offset changes in the value of the related
exposures. Edwards Lifesciences expects to enter into foreign currency
transactions only to the extent that foreign currency exposure exists. Edwards
Lifesciences does not plan on entering into foreign currency transactions for
speculative purposes. A sensitivity analysis of changes in the fair value of
foreign currency exchange contracts outstanding at December 31, 1999 indicated
that, if the U.S. dollar uniformly weakened by 10% against all currencies, the
fair value of these contracts would decrease by $9 million. A similar analysis
performed with respect to contracts outstanding at December 31, 1998 indicated
that the fair value of such contracts would decrease by $5 million. The amount
for 1999 was greater than that for 1998 due principally to a larger portfolio
of foreign currency exchange contracts outstanding at December 31, 1999 and
higher implied volatilities with respect to the Japanese Yen and the Euro.
FINANCING
Prior to the distribution, Edwards Lifesciences expects to have two
revolving credit facilities amounting to $650 million, one of which is
expected to have a maturity of one year, and another of which is expected to
have a maturity of five years. A substantial portion is expected to be drawn
at March 31, 2000, for the purposes described below. These facilities will
enable Edwards Lifesciences to borrow funds on an unsecured basis at variable
interest rates. Edwards Lifesciences expects to incur indebtedness of
approximately $520 million from the facilities on or about the date of
distribution, which will be used to execute asset transfers from Baxter,
assume debt from Baxter, pay bank fees related to the credit facilities and
for general corporate purposes. See "Edwards Lifesciences' Unaudited Pro Forma
Financial Data."
48
<PAGE>
EDWARDS LIFESCIENCES MANAGEMENT
Board of Directors
Immediately after the distribution date, Edwards Lifesciences expects that
the Edwards Lifesciences board of directors will consist of the individuals
named in the table below. The Edwards Lifesciences board of directors will be
divided into three classes. Each director will serve for a term expiring at
the annual meeting of stockholders in the year indicated below. For more
information see "Certain Anti-Takeover Effects of Provisions of Edwards
Lifesciences' Certificate of Incorporation and Bylaws and of Delaware Law."
Edwards Lifesciences will be managed under the direction of its board of
directors. The Edwards Lifesciences board of directors will meet on a regular
basis to review Edwards Lifesciences' operations, strategic and business
plans, acquisitions and dispositions, and other significant developments
affecting Edwards Lifesciences, and to act on matters requiring Edwards
Lifesciences board approval. It will also hold special meetings when important
matters require Edwards Lifesciences board action between scheduled meetings.
Members of senior management will be invited to Edwards Lifesciences board
meetings to discuss the progress of and future plans relating to their areas
of responsibility.
<TABLE>
<CAPTION>
Term as
Name/Age Director Background
-------- ------------ ----------
<C> <C> <S>
Michael A. Mussallem Expires 2003 Mr. Mussallem will be the Chairman of the
Age 47 Board and Chief Executive Officer of Edwards
Lifesciences. He first joined Baxter in 1979
and has been the Group Vice President of
Baxter's CardioVascular business since 1994
and Group Vice President of Baxter's
Biopharmaceutical business since 1998.
Vernon R. Loucks Jr. Expires 2001 Mr. Loucks served as a director of Baxter
Age 65 from 1975 through December 1999, including
chairman of the Board since 1987. He was
Chief Executive Officer of Baxter from 1980
through 1998 and was first elected as an
officer of Baxter in 1975. Mr. Loucks is
also a director of Affymetrix Inc.,
Anheuser-Busch Companies, Inc., Emerson
Electric Co., GeneSoft, Inc. and The Quaker
Oats Company.
Philip M. Neal Expires 2002 Mr. Neal is President and Chief Executive
Age 59 Officer and a director of Avery Dennison
Corporation, a multi-billion dollar Fortune
500 company that manufactures and markets a
wide range of products for consumer and
industrial markets, including Avery-brand
office supplies and Fasson-brand self-
adhesive materials. Mr. Neal joined Avery
Dennison in 1974, served as President and
Chief Operating Officer from 1990 through
April 1998, at which time he was elected
CEO. Mr. Neal serves as a director of
Independent Colleges of Southern California
and the Los Angeles Area Chamber of
Commerce, a trustee of Pomona College and a
Member of the Board of Governors of Town
Hall of California.
David E.I. Pyott Expires 2002 Mr. Pyott is President and Chief Executive
Age 46 Officer and a director of Allergan, Inc., a
global health care company that provides eye
care and specialty pharmaceutical products
worldwide. Prior to joining Allergan in
1998, he was a division president of
Novartis AG, and before 1996 he held various
positions with Sandoz International AG and
Sandoz Nutrition Corporation. He is also a
member of the board of directors of Avery
Dennison Corporation and the California
Healthcare Institute, serves on the
Executive Board of the Pharmaceutical
Research & Manufacturers of America and is
on the Executive Council of the University
of California-Irvine Graduate School of
Management.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Term as
Name/Age Director Background
-------- ------------ ----------
<C> <C> <S>
Victoria R. Fash Expires 2001 Ms. Fash is President and Chief Executive
Age 48 Officer of IMS Health Incorporated, a
provider of information solutions to the
pharmaceutical and healthcare industries.
From 1996 to 1998, Ms. Fash was Executive
Vice President and Chief Financial Officer of
Cognizant Technology Solutions Corporation.
Prior to that in 1995, she was Senior Vice
President of Business Strategy for Dun &
Bradstreet. Ms. Fash is also a member of the
Board of Directors of Cognizant Technology
Solutions Corporation and Orion Capital
Corporation.
Mike R. Bowlin Expires 2003 Mr. Bowlin is Chairman of the Board and Chief
Age 57 Executive Officer of Atlantic Richfield
Company. Between 1995 and 1998, he also
served as President. Atlantic Richfield
Company and its subsidiaries are engaged in
the worldwide exploration, development,
production, transportation and refining of
petroleum and natural gas liquids. In
addition to serving on the Board of Directors
of Atlantic Richfield Company, he also serves
as a Director of Wells Fargo & Company.
</TABLE>
Committees of the Board of Directors
To facilitate independent director review, and to make the most effective
use of the directors' time and capabilities, the Edwards Lifesciences bylaws
establish the committees described below. The Edwards Lifesciences board is
permitted to establish other committees from time to time as it deems
appropriate.
The Audit and Public Policy Committee
The Audit and Public Policy Committee will review the scope of the audit by
the independent auditors, inquire into the effectiveness of Edwards
Lifesciences' accounting and internal control functions, and recommend to the
Edwards Lifesciences board any changes in the appointment of independent
auditors which the committee may deem to be in the best interests of Edwards
Lifesciences and its stockholders. The committee will also assist the Edwards
Lifesciences board in establishing and monitoring compliance with the ethical
standards of Edwards Lifesciences. The Audit and Public Policy Committee will
also review the policies of Edwards Lifesciences to assure they are consistent
with its social responsibility to employees, customers and society, including
policies relating to health and safety and ethics. The committee will consist
solely of directors who are independent of management. Members of this
committee are expected to be: Philip M. Neal (Chairperson), Victoria R. Fash
and David E.I. Pyott.
The Compensation and Planning Committee
The Compensation and Planning Committee will determine the compensation of
officers and outside directors, other than the Chairman of the Board and Chief
Executive Officer (which will be determined by the Edwards Lifesciences
board), exercise the authority of the Edwards Lifesciences board concerning
employee benefit plans and advise the Edwards Lifesciences board on other
compensation and employee benefit matters. In addition, the committee will
make recommendations to the Edwards Lifesciences board regarding candidates
for election as directors of Edwards Lifesciences. The committee will also
advise the board on board committee structure and membership and corporate
governance matters. The committee will consist solely of directors who are
independent of management. Members of this committee are expected to be:
Vernon R. Loucks Jr. (Chairperson), Mike R. Bowlin and David E.I. Pyott.
50
<PAGE>
Compensation of Directors
Cash compensation of non-employee directors will consist of a $15,000
annual retainer. Chairpersons of committees will receive an additional annual
retainer of $5,000. Employee directors are not compensated separately for
their board or committee activities.
In addition, to align the directors' interests more closely with the
interest of all of Edwards Lifesciences' stockholders, each non-employee
director will receive an additional annual retainer in the form of 7,500
options to purchase Edwards Lifesciences common stock under the Edwards
Lifesciences Corporation Non-Employee Directors and Consultants Stock
Incentive Program. These options will vest fifty percent per year over two
years. All non-employee directors, serving as such on the distribution date or
joining the board in 2000, will also receive a one-time restricted common
stock grant equal to 5,000 shares shares of Edwards Lifesciences common stock
under the Edwards Lifesciences Corporation Non-Employee Directors and
Consultants Stock Incentive Program. The common stock will remain restricted
until the first anniversary of their election to the Edwards Lifesciences
board of directors when it will vest entirely, if they remain on the board on
such anniversary date.
Executive Officers
Set forth below is information with respect to those individuals who
Edwards Lifesciences expects to serve as executive officers of Edwards
Lifesciences immediately following the distribution. Except as described
below, those individuals named below who are currently officers or employees
of Baxter will resign from all positions with Baxter prior to or as of the
distribution date.
Michael A. Mussallem, age 47. Mr. Mussallem will be the Chairman of the
Board and Chief Executive Officer of Edwards Lifesciences. Mr. Mussallem
joined Baxter in 1979 and has been the Group Vice President of Baxter's
CardioVascular business since 1994 and Group Vice President of Baxter's
Biopharmaceutical business since 1998. During his tenure at Baxter, Mr.
Mussallem has held a variety positions with increased responsibility in
engineering, product development and senior management. He was appointed
General Manager of Access Products in 1984, Vice President and General Manager
of Pharmaceuticals in 1986, President of the Perfusion Products business in
1988 and President of the Critical Care business in 1993. In 1994, Mr.
Mussallem was named Group Vice President for Baxter's Surgical Group. From
1996 until 1998, he was the Chairman of Baxter's Asia Pacific Board overseeing
Baxter operations throughout Asia. Mr. Mussallem received his Bachelor of
Science degree in chemical engineering from Rose-Hulman Institute of
Technology and was conferred an honorary doctorate by his alma mater in 1999.
Stuart L. Foster, age 49. Mr. Foster will be the Corporate Vice President,
Global Operations of Edwards Lifesciences. Mr. Foster joined Baxter's
CardioVascular Group in 1994 as President of the Vascular business, and
continues to hold that position today. In 1997, his responsibilities increased
to include global oversight responsibilities for the Critical Care business.
He is also currently responsible for all international operations of the
CardioVascular business and leads the CardioVascular business' Technology
Innovation Team. Prior to joining Baxter, Mr. Foster was Chief Executive
Officer and President of Intramed Laboratories, which was acquired by Baxter
in 1994. Prior to that, he was an executive with SensorMedics Corporation, a
medical device company that he co-founded. Mr. Foster received his Bachelor of
Science degree in biomedical engineering from Rensselaer Polytechnic Institute
and earned his masters degree from the University of Southern California.
Anita B. Bessler, age 52. Ms. Bessler will be the Corporate Vice President,
Cardiac Surgery of Edwards Lifesciences. Ms. Bessler joined Baxter in 1988 as
Vice President and General Manger of Sales and Marketing for Baxter's Hyland
division. Prior to her tenure with Baxter, from 1986 until 1988 she was Senior
Executive Vice President with the USV/Armour Pharmaceutical Division of Rhone
Poulenc Rohrer. From 1976 until 1986, Ms. Bessler held senior management
positions with Revlon's Healthcare Group. She is a member of the External
Advisory Board of the Department of Biomedical Engineering of the Cleveland
Clinic Research Institute. She is a graduate of Indiana University, where she
earned a Bachelor of Science degree in marketing and economics.
51
<PAGE>
Bruce J. Bentcover, age 45. Mr. Bentcover will be the Corporate Vice
President and Chief Financial Officer of Edwards Lifesciences. Mr. Bentcover
joined Baxter's CardioVascular Group in January 2000. From 1997 through 1998
Mr. Bentcover was Chief Operating and Financial Officer of the Women's
Healthcare Management Group, a private physician practice management company
that he co-founded. Prior to that he was Senior Vice President and Chief
Financial Officer of Resort Condominiums International; Vice President--
Finance and Treasurer of Hallmark Cards Inc.; Vice President and Treasurer and
then Vice President--Controller of Ecolab Inc. Mr. Bentcover earned his
Bachelor of Arts degree in political science from Eastern Illinois University
and received his MBA from the University of Chicago.
Bruce P. Garren, age 53. Mr. Garren will be Corporate Vice President,
General Counsel and Secretary of Edwards Lifesciences. Mr. Garren joined
Baxter's CardioVascular Group in February 2000. Previously, he was Senior Vice
President--General Counsel for Safeskin Corporation, a manufacturer of latex
and synthetic gloves for the healthcare and scientific markets. From 1985 to
1998, he was employed by Tambrands Inc., a medical device manufacturer. He
served in various legal counsel positions at Tambrands, becoming Vice
President--Group Counsel in 1991 and Vice President--General Counsel in 1996.
Mr. Garren was an Associate with the law firm of Arnold & Porter in
Washington, D.C. from 1980 to 1985. He received his undergraduate degree from
Antioch College and his law degree from Cornell Law School.
Richard L. Miller, age 51. Mr. Miller will be the Corporate Vice President,
Critical Care of Edwards Lifesciences. Mr. Miller joined American Hospital
Supply Corporation in 1971, which was later acquired by Baxter, as a sales
representative for Scientific Products. Prior to his appointment as President
of the Critical Care business in 1999, he was President of Baxter's Health
Systems from 1994 through 1997 and President, Corporate Health Systems, from
1997 through 1998. During that time, Mr. Miller was a member of Baxter's North
American Board and also led Baxter's North American Sales and Marketing
Taskforce. Mr. Miller received a Bachelor of Arts in biology and chemistry
from the University of Colorado and earned an MBA from Portland University. He
also served in the United States Army Reserve from 1970 until 1976.
Andre-Michel Ballester, age 41. Mr. Ballester will be the Corporate Vice
President, Europe for Edwards Lifesciences. Mr. Ballester joined Baxter in
1986 as a Strategic Planning Analyst for Baxter France and subsequently became
Operations Manager for Baxter France. In 1989, he left the company to become
General Manager of consumer electronics company Prestinox International. Mr.
Ballester returned to Baxter in 1992 as Director of European Sales and
Marketing for the Critical Care division of Baxter's CardioVascular Group; he
was appointed Vice President of Marketing in 1995 and later assumed
responsibility for the Critical Care division's global marketing and business
development activities. Mr. Ballester currently serves as President of
Baxter's CardioVascular Group Europe and as Chairman of Baxter France. He
holds a Master of Science degree in chemical engineering from the Ecole
Centrale Lille in France and an MBA from INSEAD, Fontainebleau, France.
John H. Kehl, Jr., age 46. Mr. Kehl will be the Corporate Vice President,
Strategy & Business Development of Edwards Lifesciences. Mr. Kehl has held
various positions of increasing responsibility at Baxter since joining its
treasury department in 1975. In 1980, he was promoted to Manager of Investor
Relations and Communications and, in 1985, assumed responsibility for
directing all aspects of Baxter's external communications. Mr. Kehl was
appointed Vice President, Controller for Baxter's CardioVascular business in
1988 with responsibility for finance, information systems and business
planning. He became Vice President of Business Development in 1995, a position
he continues to hold today. In his current capacity, he leads all business
development initiatives, including strategy development and acquisition and
divestiture activities. Mr. Kehl has also served on Baxter's Japan Board that
oversees all operations in Japan. He earned his Bachelor of Arts degree in
business and economics from Loras College and received his MBA from Loyola
University in Chicago.
Robert C. Reindl, age 45. Mr. Reindl will be the Corporate Vice President,
Human Resources of Edwards Lifesciences. From 1993 through 1997, Mr. Reindl
was Vice President of Baxter's Institute for Training and
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<PAGE>
Development. In 1997, he became the Vice President, Human Resources, for
Baxter's CardioVascular business. From 1987 until 1993, Mr. Reindl was a
manager with Arthur Andersen & Co., where he consulted on a variety of human
resource and organizational development issues, as well as designed training
programs focusing on time management, communication, team building and
interviewing. Prior to this, he was a communications instructor at Marietta
College and Ohio University. Mr. Reindl earned his Bachelor of Science degree
in communication from the University of Wisconsin-Stevens Point and his
masters degree from Bowling Green State University in Ohio.
Huimin Wang, M.D., age 43. Dr. Wang will be Corporate Vice President,
Japan. In addition to his responsibilities with Edwards Lifesciences, Dr. Wang
will act as a representative director of Baxter Limited, a Japan corporation.
Dr. Wang joined Baxter in 1993 and served as a Senior Manager of strategy
development and, later, Director of product/therapy for Baxter's Renal
division in Japan. In 1997, he became President of medical systems and
devices, responsible for both the CardioVascular and Intravenous Systems
businesses in Japan. Prior to joining Baxter, Dr. Wang was a Senior Associate
with Booz, Allen & Hamilton in Chicago, specializing in strategy development,
organizational change, operations improvement and mergers and acquisitions for
health care providers. From 1990 until 1991, he was Vice President of
Integrated Strategies Inc., a consulting and venture management firm he co-
founded. He also was an Associate with McKinsey & Company. From 1981 until
1986, Dr. Wang was a Resident and Staff Physician in anesthesiology at Keio
University Hospital in Tokyo. Dr. Wang earned his Doctor of Medicine degree
from Kagoshima University in Japan, and his MBA from the University of
Chicago.
Randel W. Woodgrift, age 38. Mr. Woodgrift will be Corporate Vice
President, Manufacturing Operations of Edwards Lifesciences. Since joining
Baxter in 1983, Mr. Woodgrift has held positions of increasing responsibility
in research and development, manufacturing and operations, including
management of the Puerto Rico operation of Baxter's CardioVascular Group. From
1990 to 1993, Mr. Woodgrift held Director positions in U.S. operations and
established CardioVascular's first plant in Mexico. From 1994 to 1997, he was
Vice President, Heart Valve Operations for the United States and Europe. In
1997, his responsibilities were expanded to include all European plants. In
1998, Mr. Woodgrift assumed responsibility for all CardioVascular
manufacturing, logistics, facilities, environmental and health and safety
functions. In 1999, he initiated CardioVascular's first operations in the
Dominican Republic. Mr Woodgrift earned his Bachelor of Science degree in
mechanical engineering from California Polytechnic State University, San Luis
Obispo, a biomedical engineering certification from the University of
California--Irvine and an MBA from Pepperdine University.
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<PAGE>
EDWARDS LIFESCIENCES EXECUTIVE COMPENSATION
1999 Compensation of Executive Officers
The following table shows the 1999 compensation for services rendered by
the Chairman of the Board and Chief Executive Officer of Edwards Lifesciences
and the individuals who are expected to be the next four most highly
compensated executive officers of Edwards Lifesciences (collectively, referred
to as the "named executive officers") based on their 1999 Baxter compensation,
if any, and their expected 2000 Edwards Lifesciences compensation. The
compensation shown in this table was paid by Baxter or its subsidiaries for
services rendered to Baxter and its subsidiaries. References to "restricted
stock" and "stock options" mean restricted shares of Baxter common stock and
options to purchase Baxter common stock. Amounts shown are for each individual
in his or her last position with Baxter, and do not necessarily reflect the
compensation which these five individuals will earn in their new capacities as
executive officers of Edwards Lifesciences.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------------------
Annual Compensation Awards Payouts
---------------------- --------------------- -------
Restricted All
Stock Securities LTIP Other
Salary Bonus Other Award(s) Underlying Payouts Compensation
Name and Principal Position Year ($)(1) ($)(1) ($)(2) ($)(3) Options(4) ($)(5) ($)(6)
- --------------------------- ---- ------- ------- ------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael A. Mussallem....... 1999 410,000 310,000 10,049 -0- 118,900 329,766 16,788
Chairman of the Board &
Chief Executive Officer
Anita B. Bessler........... 1999 237,442 96,000 -- -0- 50,800 188,438 6,914
Group Vice President
Stuart L. Foster........... 1999 236,231 96,000 -- -0- 50,800 188,438 7,332
Group Vice President
Bruce J. Bentcover......... 1999 -- -- -- -- -- -- --
Corporate Vice President(7)
Bruce P. Garren............ 1999 -- -- -- -- -- -- --
Corporate Vice President(7)
</TABLE>
- --------
(1) Amounts shown include cash compensation earned by the named executive
officers during 1999, including amounts deferred at the election of those
officers. Bonuses are paid in the year following the year during which
they are earned. The bonuses shown for the named executive officers are
their target bonuses for 1999.
(2) As permitted by the SEC's rules, this column excludes perquisites and
other personal benefits for the named executive officer if the total
incremental cost in 1999 did not exceed the lesser of $50,000 or 10% of
the total of annual salary and bonus reported for the named executive
officer for 1999.
(3) Based on the $62.8125 closing price of Baxter common stock on December 31,
1999, the number and value of the aggregate restricted stock holdings of
the named executive officers on that date are as follows: Mr. Mussallem--
15,918 shares ($999,849); Ms. Bessler--5,295 shares ($332,592); Mr.
Foster--3,800 shares ($238,688); Mr. Bentcover--0 shares ($0); and Mr.
Garren--0 shares ($0). No new grants of restricted stock were made during
1999. Dividends are payable on all outstanding shares of restricted stock
held by all Baxter executives at the same rate and time and in the same
form in which dividends are payable on all outstanding shares of Baxter
common stock.
(4) No Stock Appreciation Rights (SARs) were granted by Baxter in 1999, and
there are no outstanding SARs held by any employee or director of Edwards
Lifesciences. The number of options granted in 1999 includes the options
granted and exercised pursuant to Baxter's Shared Investment Plan, as
described below in footnote (3) to the "Option Grants Table" on page 55.
(5) Amounts shown represent the market value of earned restricted stock which
vested under Baxter's Long- Term Incentive Plan on December 31, 1999. The
vested shares were earned as of December 31, 1998.
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<PAGE>
(6) Amounts shown represent matching contributions made under the Baxter
International Inc. and Subsidiaries Incentive Investment Plan (Baxter
Incentive Investment Plan), a tax-qualified section 401(k) profit sharing
plan, additional matching contributions in Baxter's deferred compensation
plan and the dollar value of split-dollar life insurance benefits. Those
three amounts, expressed in the same order as identified above, for the
named executive officers are as follows: Mr. Mussallem--$4,800, $11,988,
and $288; Ms. Bessler--$4,800, $2,114, and $210; Mr. Foster--$4,800,
$2,532, and $156; Mr. Bentcover--$0, $0, and 0; and Mr. Garren--$0, $0,
and 0.
(7) Messrs. Bentcover and Garren joined Edwards Lifesciences in January and
February 2000, respectively, and did not earn compensation from Edwards
Lifesciences in 1999. They are, however, expected to be among the five
highest paid executive officers of Edwards Lifesciences in 2000.
Stock Option Grants
The following table contains information relating to the Baxter stock
option grants made in 1999 to the named executive officers.
Option Grants Table
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
------------------------------------------- -----------------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#) Fiscal Year (%)(1) ($/Sh)(2)(3) Date 0% ($) 5% (4)(5)(6) 10% (4)(5)(6)
---- ----------- ------------------ ------------ ---------- ------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mr. Mussallem........ 18,900 .2 67.6875 2/13/09 -0- $ 2,083,835 $ 3,318,159
100,000 1.2 63.6250 5/3/99 -0- -- --
- --------------------------------------------------------------------------------------------------------------------------
Ms. Bessler.......... 10,800 .1 67.6875 2/13/09 -0- $ 1,190,763 $ 1,896,091
40,000 .5 63.6250 5/3/99 -0- -- --
- --------------------------------------------------------------------------------------------------------------------------
Mr. Foster........... 10,800 .1 67.6875 2/13/09 -0- $ 1,190,763 $ 1,896,091
40,000 .5 63.6250 5/3/99 -0- -- --
- --------------------------------------------------------------------------------------------------------------------------
Mr. Bentcover........ -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Mr. Garren........... -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
All Stockholders..... N/A N/A N/A N/A -0- $31,080,316,210(5) $49,490,209,190(5)
- --------------------------------------------------------------------------------------------------------------------------
All Optionees........ 8,128,000 100 Various Various -0- $ 870,507,351(6) $ 1,384,137,475(6)
- --------------------------------------------------------------------------------------------------------------------------
Optionee Gain as % of
All Stockholders'
Gain................ N/A N/A N/A N/A N/A 2.8% 2.8%
</TABLE>
- --------
(1) In 1999, Baxter granted options on approximately 8.1 million shares of
Baxter common stock to approximately 3,700 employees at various exercise
prices at different times during the year.
(2) The exercise prices shown for the named executive officers are the closing
prices of Baxter common stock on the dates of the grants, which were
February 15, 1999 and May 3, 1999.
(3) The options shown in this table as granted to the named executive officers
at the exercise price of $67.6875 become exercisable three years from the
date of grant. The exercise price of the options may be paid in cash or in
shares of Baxter common stock. If specified corporate control changes
occur, all outstanding options will become exercisable immediately. The
options shown in this table as granted to the named executive officers at
the exercise price of $63.6250 were granted on May 3, 1999 pursuant to
Baxter's Shared Investment Plan. Under the Shared Investment Plan, the
named executive officers (except Messrs. Bentcover and Garren) and 139
other Baxter executives exercised a one-day stock option to purchase a
significant amount of Baxter common stock. The stock option exercises were
financed through
55
<PAGE>
full-recourse, personal loans made by commercial banks. The loans are
guaranteed by Baxter. More information on the Shared Investment Plan is
contained in Baxter's proxy statement dated March 24, 2000.
(4) Potential realizable values are calculated net of the option exercise
price but before taxes associated with exercise. The assumed rates of
stock price appreciation are set by rules of the SEC governing proxy
statement disclosure and are not intended to forecast the future
appreciation of Baxter common stock.
(5) The potential realizable values for all stockholders were calculated on
the 290,199,514 shares of Baxter stock outstanding on December 31, 1999.
The potential realizable values were calculated assuming the stockholders
purchased Baxter stock at $67.6875, the closing price on February 15,
1999. Because the Shared Investment Plan options were granted and
exercised at the closing price of Baxter stock on May 3, 1999, there was
no potential realizable value for the option term.
(6) The potential realizable values for all optionees were calculated based on
the approximately 8.1 million options that were granted to employees of
Baxter at various exercise prices at different times during the year. The
potential realizable values were calculated assuming that all of the
options were granted at the $67.6875 exercise price.
Stock Option Exercises
The following table contains information relating to the exercise of Baxter
common stock options by the named executive officers in 1999, as well as the
number and value of their unexercised Baxter common stock options as of
December 31, 1999.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Fiscal Year-End (#)(2) Fiscal Year End ($)(3)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise (#)(1) Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------------ --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Mussallem........... 111,018 575,601 143,449 79,900 2,929,443 455,188
Ms. Bessler............. 56,754 738,014 39,525 38,800 742,798 244,125
Mr. Foster.............. 40,000 -0- 71,628 38,800 1,274,214 244,125
Mr. Bentcover........... -- -- -- -- -- --
Mr. Garren.............. -- -- -- -- -- --
</TABLE>
- --------
(1) The number of shares shown in these columns include the options granted
and exercised on May 3, 1999 pursuant to Baxter's Shared Investment Plan.
See footnote (3) to the Option Grants Table on page 55. Because those
options were granted and exercised at the closing price of Baxter common
stock on May 3, 1999, there was no value realized upon the exercise of
those options.
(2) The sum of the numbers under the Exercisable and Unexercisable columns of
this table represents each named executive officer's total number of
outstanding Baxter options.
(3) The dollar amounts shown under the Exercisable and Unexercisable columns
of this table represent the number of exercisable and unexercisable Baxter
options, respectively, which had an exercise price below the closing price
of Baxter common stock on December 31, 1999, which was $62.8125,
multiplied by the difference between such closing price and the exercise
price of the Baxter options.
Pension Plan and Excess Pension Plan
The table on the following page shows estimated annual retirement benefits
payable to participants under the Baxter International Inc. and Subsidiaries
Pension Plan (Pension Plan) whose employment terminates at normal retirement
age (age 65). The Pension Plan's normal retirement benefit equals (1) 1.75% of
an employee's Final Average Pay multiplied by the employee's number of years
of benefit service, as defined by the Pension Plan, minus (2) 1.75% of an
employee's estimated primary social security benefit, multiplied by the
employee's years of benefit service, as defined by the Pension Plan. An
employee's Final Average Pay is equal to the average of an employee's five
highest consecutive calendar years of earnings out of his or her last ten
calendar years of
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<PAGE>
earnings. In general, the earnings covered by the Pension Plan include salary,
annual cash bonuses and other regular pay. The figures shown include benefits
payable under the Pension Plan and Baxter's related defined benefit excess
pension plan. The estimates assume that benefit payments begin at age 65 under
a single life annuity form. The figures are net of the Social Security offset
specified by the Pension Plan's benefit formula and therefore do not include
Social Security benefits payable from the federal government. The estimated
primary Social Security benefit used in the calculations is that payable for
an individual attaining age 65 in 1999.
Although age 65 is the normal retirement age under the Pension Plan, the
Pension Plan has early retirement provisions based on a point system. Under
the point system, each participant is awarded one point for each year of
benefit service, as defined by the Pension Plan and one point for each year of
age. Participants who terminate employment after accumulating at least 65
points, and who wait to begin receiving their Pension Plan benefits until they
have 85 points, receive an unreduced Pension Plan benefit regardless of their
actual age when they begin receiving their Pension Plan benefits.
Pension Plan Table
<TABLE>
<CAPTION>
Estimated Annual Retirement Benefits
Years of Pension Plan
Final Average Pay(1)($) Participation(1)($)
----------------------- ---------------------------------------
10 15 20 25 30
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
100,000.......................... 14,500 21,700 29,000 36,200 43,400
200,000.......................... 32,000 48,000 64,000 80,000 95,900
300,000.......................... 49,500 74,200 99,000 123,700 148,400
400,000.......................... 67,000 100,500 134,000 167,500 200,900
500,000.......................... 84,500 126,700 169,000 211,200 253,400
600,000.......................... 102,000 153,000 204,000 255,000 305,900
700,000.......................... 119,500 179,200 239,000 298,700 358,400
800,000.......................... 137,000 205,500 274,000 342,500 410,900
900,000.......................... 154,500 231,700 309,000 386,200 463,400
</TABLE>
- --------
(1) As of December 31, 1999, the named executive officers' years of benefit
service and Final Average Pay for purposes of calculating annual
retirement benefits payable under the Pension Plan are as follows:
Mr. Mussallem--19 years and $544,908; Ms. Bessler--11 years and $269,068;
Mr. Foster--9 years and $255,804; Mr. Bentcover--0 years and $0; and Mr.
Garren--0 years and $0.
Baxter Common Stock Held By Edwards Lifesciences Employees
Baxter restricted common stock held by Edwards Lifesciences employees that
has not yet been earned will be forfeited. Baxter restricted common stock held
by Edwards Lifesciences employees that has been earned but not yet vested will
vest so long as such employees remain employed by Edwards Lifesciences or
Baxter through the remainder of the vesting period. It is anticipated that
Edwards Lifesciences employees holding Baxter stock options will, as of the
distribution date, be considered terminated and, as such, vesting and exercise
will be in accordance with the terms and conditions of the outstanding grants.
It is also anticipated that Edwards Lifesciences will grant converted stock
options to Edwards Lifesciences employees, including the named executive
officers, for certain unvested Baxter stock options pursuant to the Edwards
Lifesciences Long-Term Stock Incentive Compensation Program.
Future Compensation of Executive Officers
The compensation of Edwards Lifesciences' executive officers for periods
beginning on and after the distribution date will be determined by the Edwards
Lifesciences board of directors or its Compensation Committee.
Compensation Philosophy For Executive Officers
Edwards Lifesciences expects that its philosophy will be to provide
compensation opportunities supporting Edwards Lifesciences' business
objectives and values. Forms and levels of total compensation will be
structured to be competitive when compared to other companies of similar focus
and size. These companies are reported in surveys whose participants include
many companies in the Fortune 500 as well as other companies with which
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<PAGE>
Edwards Lifesciences and its subsidiaries compete for executive talent. This
philosophy is intended to assist Edwards Lifesciences in attracting, retaining
and motivating executives with superior leadership and management abilities.
Consistent with this philosophy, a total compensation structure will be
determined for each officer, including Mr. Mussallem, consisting primarily of
salary, cash bonus, stock options and benefits. The proportions of these
elements of compensation will vary among the officers depending upon their
levels of responsibility. The senior executive officers will receive a larger
portion of their total compensation through performance-based incentive plans,
which place a greater percentage of their compensation at risk while more
closely aligning their interests with the interests of Edwards Lifesciences'
stockholders.
Edwards Lifesciences' philosophy with respect to the limitation on the tax-
deductibility of executive compensation will be to maximize the benefit of tax
laws for Edwards Lifesciences' stockholders by seeking performance-based
exemptions which are consistent with Edwards Lifesciences' compensation
policies and practices. Edwards Lifesciences will adopt performance goals for
the officer cash bonus plan which are expected to satisfy the deductibility
requirements with respect to any payments under those plans.
Compensation Elements
Salaries will be targeted each year at the median of salaries of executive
officers in comparison companies. In addition, officer salaries will be based
on the officer's individual performance. Bonuses are intended to provide
executive officers with an opportunity to receive additional cash compensation
but only if they earn it through Edwards Lifesciences' achievement of strong
performance results as measured by key financial indicators. Each year, a
bonus target will be established for each executive officer between the 50th
and 75th percentile of the market data of comparison companies. After year-end
results are calculated, each officer's bonus will be determined based on
Edwards Lifesciences' performance against the key financial indicators
established for the year. Achievement of the performance objectives will
determine an officer's opportunity to earn bonus compensation either
significantly above or below the bonus target.
Stock options will be granted under Edwards Lifesciences' 2000 Incentive
Compensation Program and such other stock option plans that may be
established, as described below. They represent a vehicle for more closely
aligning management's and stockholders' interests, specifically motivating
executives to remain focused on the market value of Edwards Lifesciences
Stock.
The number of stock options granted to executive officers is expected to be
market-based. The intent is to provide an opportunity to earn stock-based
compensation at the 75th percentile compared to executives in comparison
companies.
Long-Term Stock Program
Edwards Lifesciences expects to adopt the Edwards Lifesciences Long-Term
Stock Incentive Compensation Program (Incentive Program). The Incentive
Program is expected to be approved by Baxter as sole stockholder of Edwards
Lifesciences prior to the distribution.
General
The Incentive Program is designed to promote success and enhance the value
of Edwards Lifesciences by linking participants' interests more closely to
those of Edwards Lifesciences stockholders and by providing participants with
an incentive for excellence.
The Incentive Program will be administered by the Compensation Committee of
Edwards Lifesciences. The Compensation Committee must consist of two or more
directors who qualify as non-employee directors under Rule 16b-3 of the
Securities Exchange Act of 1934 and as outside directors under Section 162(m)
of the Code. Incentives may consist of the following: (a) stock options; (b)
restricted stock; (c) performance shares; and (d)
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<PAGE>
performance units. Incentives may be granted to certain contractors and any
employee of Edwards Lifesciences (including directors of Edwards Lifesciences
who are also employees of Edwards Lifesciences) selected from time to time by
the Compensation Committee.
The number of shares of Edwards Lifesciences common stock authorized for
issuance (including conversion for outstanding awards) under the Incentive
Program and all other stock-based compensation plans in place at the time of
the distribution will not exceed 20 to 22% of the outstanding shares of
Edwards Lifesciences common stock as of the distribution date.
Stock Options
Under the Incentive Program, the Compensation Committee may grant non-
qualified and incentive stock options to eligible employees to purchase shares
of Edwards Lifesciences common stock from Edwards Lifesciences. The Incentive
Program gives the Compensation Committee discretion, with respect to any such
stock option, to determine the number and purchase price of the shares subject
to the option, the term of each option and the time or times during its term
when the option becomes exercisable, subject to the following limitations. No
stock option may be granted with a purchase price below the fair market value
of the shares subject to the option on the date of grant and the term may not
exceed 10 years from the date of grant. The fair market value of shares on the
date of a grant shall mean the closing sale price of Edwards Lifesciences
common stock as reported on the New York Stock Exchange composite reporting
tape. No person may receive, in any calendar year, stock options which, in the
aggregate, represent more than 1,000,000 shares of Edwards Lifesciences common
stock. The initial option grant to the named executive officers is expected to
be as follows: Mr. Mussallem, 470,000 shares; Ms. Bessler, 140,000 shares; Mr.
Foster, 190,000 shares; Mr. Bentcover, 120,000 shares; and Mr. Garren, 75,000
shares.
Restricted Stock
Restricted stock consists of the sale or transfer by Edwards Lifesciences
to an eligible employee of one or more shares of Edwards Lifesciences common
stock which are subject to restrictions on their sale or other transfer by the
employee. The price, if any, at which restricted stock will be sold will be
determined by the Compensation Committee, and it may vary from time-to-time
and among employees and may require no payment or be less than the fair market
value of the shares at the date of sale. All shares of restricted stock may be
subject to the attainment of performance goals under Section 162(m) of the tax
code and other restrictions as the Compensation Committee may determine.
Subject to these restrictions and the other requirements of the Incentive
Program, a participant receiving restricted stock will have the rights of a
stockholder (including voting and dividend rights) as to those shares only to
the extent the Compensation Committee designates such rights at the time of
the grant. Not more than 500,000 shares of Edwards Lifesciences common stock
may be issued in the form of restricted stock under the Incentive Program. No
person may receive, in any calendar year, shares of restricted stock which, in
the aggregate, represent more than 50,000 shares of Edwards Lifesciences
common stock.
Performance Shares and Performance Units
Performance shares and performance units consist of the grant by Edwards
Lifesciences to an eligible employee of a contingent right to receive payment
of the value of such shares or units. The performance shares or performance
units will be earned to the extent performance goals set forth in the grant
are achieved. The Compensation Committee shall have discretion to make
payments of earned performance shares or performance units in the form of cash
or Edwards Lifesciences common stock (or a combination thereof). All grants of
performance shares and performance units to a person subject to Section 16(a)
of the Exchange Act (executive officers of Edwards Lifesciences) will be
subject to the attainment of performance goals under Section 162(m) of the tax
code. The number of shares or units granted and the performance goals will be
determined by the
59
<PAGE>
Compensation Committee. No person may receive in any calendar year performance
shares which, in the aggregate, represent more than 100,000 shares of Edwards
Lifesciences common stock. No person may receive in any calendar year
performance units which, in the aggregate, exceed $2,000,000.
Section 162(m) Performance Goals
Under the Incentive Program, grants of restricted stock, performance
shares, and other incentives (as defined in the Incentive Program) may be
subject to the attainment of performance goals under Section 162(m) of the tax
code. The regulations under Section 162(m) require the performance goals
related to grants under the Incentive Program to be approved separately by
Edwards Lifesciences' stockholders. Performance goals for performance based
grants may include, but are not limited to, stock price, sales, return on
equity, cash flow, market share, earnings per share and/or costs.
Non-Transferability of Incentives
Unless otherwise determined by the Compensation Committee, no stock option,
performance share or performance unit granted under the Incentive Program will
be transferable by its holder, except in the event of the holder's death, by
will or the laws of descent and distribution. During an employee's lifetime,
these incentives may be exercised only by the employee or the employee's
guardian or legal representative. The Compensation Committee may allow the
limited transfer of these incentives to the immediate family of an employee to
facilitate estate planning.
Amendment of the Program
Edwards Lifesciences' board of directors may amend or discontinue the
Incentive Program at any time. However, no amendment or discontinuance may
adversely affect in any material way an incentive previously granted without
the written consent of the participant holding such incentive. In addition,
the board of directors may not amend the Incentive Program without approval of
Edwards Lifesciences' stockholders to the extent such approval is required by
law, agreement or any exchange on which Edwards Lifesciences common stock is
traded.
Acceleration of Incentives
In the event of a change in control of Edwards Lifesciences (as specified
in the Incentive Program), the restrictions on all outstanding shares of
restricted stock that are not performance-based will lapse immediately, all
outstanding stock options will become exercisable immediately and all
performance goals will be deemed to be met at target and payment made within
30 days of the effective date of the change in control.
Other Edwards Lifesciences Stock Option Plans
Edwards Lifesciences also expects to adopt one or more stock option plans
to provide for the grant of non-statutory stock options to certain
consultants, independent contractors and other persons who are not employees
of Edwards Lifesciences and its subsidiaries, including the Edwards
Lifesciences Corporation Non-Employee Directors and Consultants Stock
Incentive Program.
Edwards Lifesciences Change of Control Plan and Employment Agreement
Edwards Lifesciences expects to adopt the Edwards Lifesciences Change of
Control Plan. Pursuant to agreements entered into under this plan, employees
selected to participate (including each of the named executive officers) will
be entitled to separation pay and benefits following a change of control in
Edwards Lifesciences and the employee's subsequent termination of employment
unless such termination is voluntary and unprovoked or results from death,
disability, retirement or cause. The eligible termination must occur within 24
months of the change of control or the agreement is void. Mr. Mussallem will
be permitted to terminate his employment
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<PAGE>
voluntarily at any time during the thirteenth month following a change of
control and collect the change of control separation pay and benefits. Each
agreement will continue for three years from the distribution date and
automatically extend for one year on each anniversary of the agreement, unless
Edwards Lifesciences notifies the specific participant in writing that the
agreement will not be renewed.
Under this plan, the separation pay will equal either three years'
annualized base salary and target cash bonus or two years' annualized base
salary and target cash bonus (as determined by the Compensation Committee in
its discretion depending on the employee's position). In addition, vesting of
all outstanding equity grants will be accelerated upon a change of control and
other terms and conditions will be governed by the provisions of the Edwards
Lifesciences 2000 Incentive Compensation Program.
In the event that any payments would be subject to an excise tax under the
tax code, Edwards Lifesciences will pay an additional gross-up amount for any
excise tax and federal, state and local income taxes, such that the net amount
of the payments would be equal to the net payments after income taxes had the
excise tax and resulting gross-up not been imposed.
Edwards Lifesiences will enter into an employment agreement with its Chief
Executive Officer, Michael A. Mussallem. The agreement has a term of three
years, with automatic one-year renewals after two years. The agreement sets
forth Mr. Mussallem's compensation and benefits arrangements. The agreement
provides that if Edwards Lifesciences terminates Mr. Mussallem for "cause" as
defined in the employment agreement, he will be entitled to his base salary
through the date of termination and all vested benefits. If Mr. Mussallem is
involuntarily terminated by Edwards Lifesciences without "cause" as defined in
the employment agreement, Edwards Lifesciences is required to pay Mr.
Mussallem his unpaid base salary and accrued vacation through the date of
termination; a pro rata portion of his annual target bonus for the period
served; two times the sum of (1) his annualized base salary and (2) the
greater of his target annual bonus for the year he is terminated or his actual
annual bonus for the prior year; and 24 months of continued medical coverage.
The agreement also contains non-disclosure, non-solicitation and non-
disparagement obligations of Mr. Mussallem.
Edwards Lifesciences Retirement Plan for United States Employees
Edwards Lifesciences will adopt a tax-qualified defined contribution
retirement plan (Edwards Lifesciences Retirement Plan) for its United States
employees effective on the distribution date. This plan will include a section
401(k) deferred compensation account (401(k) account), a company matching
contribution account, a performance account for Edwards Lifesciences' hourly
manufacturing employees, an initial stock grant for Edwards Lifesciences'
hourly employees and a transition account for each eligible employee, as
described below.
The defined contribution accounts for transferring employees under the
Baxter Incentive Investment Plan will be transferred to the Edwards
Lifesciences Retirement Plan. The Edwards Lifesciences Retirement Plan will
establish a fund to hold the Baxter common stock currently held on behalf of
Edwards Lifesciences employees in the Baxter Incentive Investment Plan. The
Edwards Lifesciences Retirement Plan will allow participants to redirect the
balances of their Edwards Lifesciences Retirement Plan accounts that are
invested in the Baxter common stock fund but not allow participants to direct
that their plan accounts make new investments in Baxter common stock within
the Edwards Lifesciences Retirement Plan.
401(k) Account and Company Matching Contribution Account
Employees of Edwards Lifesciences will be eligible to contribute to the
Edwards Lifesciences Retirement Plan on or after the distribution date.
Participants may elect to contribute, on a before-tax basis, up to 15% of
their annual eligible compensation as defined by the Edwards Lifesciences
Retirement Plan to their 401(k) accounts. Edwards Lifesciences will match the
first 3% (from 1-3%) of the participant's annual eligible compensation
contributed to the plan on a dollar for dollar basis. Edwards Lifesciences
will match the next 2% (from 4-5%) of the participant's annual eligible
compensation to the plan on a 50% basis.
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Performance Account
Subject to the terms of the Edwards Lifesciences Retirement Plan, hourly
manufacturing employees of Edwards Lifesciences in the United States will be
eligible to receive contributions to their performance accounts under such
plan. Edwards Lifesciences will make discretionary contributions to each
performance account in an amount equal to a target of 3% of the participant's
annual eligible compensation based on achievement of certain performance
measures. Contributions will be made quarterly, in cash, and will be invested
according to each employee's current 401(k) account investment elections if
the employee is a participant in the 401(k); otherwise the contributions will
be invested in the Edwards Lifesciences Common Stock Fund. Such contribution
will be immediately vested, and participants may elect to re-invest them in
any of the other funds within the Retirement Plan.
Initial Stock Grant Account
Edwards Lifesciences will be awarding each hourly manufacturing employee in
the United States a contribution of 50 shares of Edwards Lifesciences common
stock to be held in a special account under the Edwards Lifesciences
Retirement Plan. The grant will be immediately vested, but the shares will not
be available for loan or withdrawals, and the special stock account may not be
reallocated to other funds within the 401(k) account.
Transition Account
Edwards Lifesciences has determined that it will facilitate the transition
of certain longer service employees from the Baxter Pension Plan to the
Edwards Lifesciences Retirement Plan by offering some additional benefits to
employees who meet specific age and service criteria. Contributions to a
transition account under the Edwards Lifesciences Retirement Plan will be made
to five groups of salaried non-exempt and hourly manufacturing employees.
These contributions will be made in cash, and will be invested according to
each employee's current 401(k) account investment elections if the employee is
a participant in the 401(k); otherwise the contributions will be invested in
the Edwards Lifesciences Common Stock Fund. They will be immediately vested,
and participants may elect to re-invest them in any of the other funds within
the Retirement Plan. Annual contributions will be made for eligible
participants until the earlier of when such participant terminates employment
or reaches age 65.
Employees with 75 or more "points" (as determined under the terms of the
Baxter Pension Plan explained on page 56) as of the distribution date will
receive transition contributions equal to 5% of the participant's eligible
compensation.
Employees with 70-74 "points" as of the distribution date will receive
transition contributions equal to 3% of the participant's eligible
compensation.
Employees with 65-69 "points" as of the distribution date will receive
transition contributions equal to 2.5% of the participant's eligible
compensation.
Employees with 60-64 "points" and at least 10 years of "benefit service"
(as determined under the terms of the Baxter Pension Plan explained on page
56) as of the distribution date will receive transition contributions equal to
1% of the participant's eligible compensation.
Employees with 55-59 "points" and at least 10 years of "benefit service"
(as determined under the terms of the Baxter Pension Plan explained on page
56) as of the distribution date will receive transition contributions equal to
one-half of 1% of the participant's eligible compensation.
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Edwards Lifesciences Non-Qualified Plan
Federal income tax laws limit the amount Edwards Lifesciences may
contribute to the accounts of certain highly compensated participants under
the Edwards Lifesciences Retirement Plan. Federal income tax laws also limit
the amount participants may contribute to their accounts under the Edwards
Lifesciences Retirement Plan. Edwards Lifesciences will adopt an unfunded non-
qualified excess plan (Edwards Lifesciences Excess Plan) that will credit
participants affected by the limits with the amount of their contributions
that the participants would have contributed or that Edwards Lifesciences
would have contributed on their behalf to the Edwards Lifesciences Retirement
Plan but for such limits. Eligible participants may elect to defer all or a
portion of their bonuses payable under the Edwards Lifesciences Incentive Plan
to the Edwards Lifesciences Retirement Plan.
Baxter Pension Plan
Eligible Edwards Lifesciences employees (transferring employees) will
continue to participate for purposes of benefit accruals in the Baxter Pension
Plan through the distribution date. All benefit accruals for Edwards
Lifesciences United States employees in the Baxter Pension Plan cease as of
the distribution date and all such employees will be fully vested in their
accrued benefits under the Pension Plan as of such date. Edwards Lifesciences'
United States employees with vested accrued benefits in the Pension Plan will
have those benefits maintained by the Pension Plan until they are eligible or
required to receive them according to the terms of the Plan.
Employee Stock Purchase Plan for United States Employees
Edwards Lifesciences will adopt an employee stock purchase plan for its
United States employees, as described in Section 423 of the tax code. All
active employees of Edwards Lifesciences and its United States subsidiaries
will be eligible to participate in the Plan. The employee stock purchase plan
will make available shares of Edwards Lifesciences common stock for purchase
by eligible employees through payroll deductions at a maximum rate of 12% of
eligible compensation. The purchase price per share will be equal to the
lesser of 85% of the fair market value of Edwards Lifesciences common stock on
the effective date of subscription or 85% of the fair market value of Edwards
Lifesciences common stock on the date of purchase. Purchases will be made
quarterly. There will be 325,000 shares reserved for issuance under this Plan.
Transition Options for Salaried Exempt Employees
Edwards Lifesciences has determined that it will facilitate the transition
of certain longer service salaried exempt employees out of the Baxter Pension
Plan by offering additional stock options to salaried exempt employees who
meet specific age and service criteria. Transition stock options will be
provided to five groups of salaried exempt employees. Eligible employees will
receive an annual grant as described below, until the earlier of when the
employee reaches age 65 or terminates employment. The options will have a ten
year term with three year vesting.
Employees with 75 or more "points" (as determined under the terms of the
Pension Plan explained on page 52) as of the distribution date will receive an
annual transition option grant equal in value to 8% of the participant's
eligible compensation (based on a Black Scholes valuation of the options as of
the distribution date).
Employees with 70-74 "points" as of the distribution date will receive an
annual transition option grant equal in value to 6% of the participant's
eligible compensation.
Employees with 65-69 "points" as of the distribution date will receive an
annual transition option grant equal in value to 5.5% of the participant's
eligible compensation.
Employees with 60-64 "points" and at least 10 years of "benefit service"
(as determined under the terms of the Pension Plan explained on page 56) as of
the distribution date will receive an annual transition option grant equal in
value to 4% of the participant's eligible compensation.
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Employees with 55-59 "points" and at least 10 years of "benefit service"
(as determined under the terms of the Pension Plan explained on page 56) as of
the distribution date will receive an annual transition option grant equal in
value to 3.5% of the participant's eligible compensation.
Initial Stock Option Grant for Salaried Employees Worldwide
Edwards Lifesciences will be awarding each salaried exempt and each
salaried non-exempt employee 250 Edwards Lifesciences stock options. This is a
one-time stock option grant. The options will have a ten year term and three
year vesting.
Employee Stock Purchase Plan for Employees Outside the United States
Employees outside the United States are also eligible to participate in an
Employee Stock Purchase Plan. The terms of that plan mirror the stock plan
available to United States employees. There will be 50,000 shares reserved for
issuance under this plan.
Initial Stock Grant for Hourly Employees Outside the United States
As noted above, hourly employees within the United States will receive a
one-time contribution of 50 shares of Edwards Lifesciences common stock to be
held in a special account under the Edwards Lifesciences Retirement Plan.
Hourly employees outside the United States will also receive an identical
contribution where permitted by local law. In these jursidictions where it is
not permitted hourly employees will receive a one time cash contribution which
will be allocated to each employee's retirement plan account where permitted.
These contributions will be immediately vested. Whether those shares can be
allocated to the local retirement plan for those employees will be determined
on a country-by-country basis.
Other Retirement Plans for Employees Outside the United States
Various other retirement plans will be offered to Edwards Lifesciences
employees outside the United States according to the terms of local law and as
supplemented by Edwards Lifesciences.
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SECURITY OWNERSHIP OF EDWARDS LIFESCIENCES
The following table sets forth the beneficial ownership of Edwards
Lifesciences common stock immediately following the distribution date based on
an assumed exchange ratio of five to one by each of Edwards Lifesciences'
directors, its Chief Executive Officer and the executive officers who are
expected to be Edwards Lifesciences' four most highly compensated executive
officers in 2000 and all directors and executive officers as a group, based
upon information available to Baxter concerning ownership of shares of Baxter
common stock on January 31, 2000. The mailing address of each of these
individuals is c/o Edwards Lifesciences Corporation, 17221 Red Hill Avenue,
Irvine, California 92614. Immediately following the distribution date, none of
these directors and executive officers will individually own more than 1% of
the outstanding Edwards Lifesciences common stock, and as a group all of these
directors and executive officers will not cumulatively own more than 1% of the
outstanding Edwards Lifesciences common stock. Except as otherwise noted, each
individual has sole investment and voting power with respect to the shares
listed.
<TABLE>
<CAPTION>
Number of Shares
Projected to be
Name Beneficially Owned
---- ------------------
<S> <C> <C>
Michael A. Mussallem............................... 57,213(1)
Vernon R. Loucks Jr................................ 151,557(2)(3)
Philip M. Neal..................................... -0-(3)
David E.I. Pyott................................... -0-(3)
Victoria R. Fash................................... -0-(3)
Mike R. Bowlin..................................... -0-(3)
Anita B. Bessler................................... 18,943
Stuart L. Foster................................... 23,701
Bruce J. Bentcover................................. -0-
Bruce P. Garren.................................... -0-
All directors and executive officers as a group
(16 persons)...................................... 308,078(1)(2)
</TABLE>
- --------
(1) Includes shares held in joint tenancy with spouse over which the named
individual shares voting or investment power as follows: Mr. Mussallem--
5,339 and all directors and executive officers as a group--5,755.
(2) Includes 750 shares not held directly by Mr. Loucks but held by his
spouse.
(3) As non-employee directors serving on the distribution date, Messrs.
Loucks, Neal, Pyott and Bowlin, and Ms. Fash will each receive a one-time
restricted stock grant of 5,000 shares of Edwards Lifesciences' common
stock under the Edwards Lifesciences Non-Employee Directors and
Consultants Stock Incentive Program. See "Edwards Lifesciences
Management--Compensation of Directors."
Based on ownership of Baxter common stock as of December 31, 1999, the
following entity is expected to be a beneficial owner of five percent or more
of Edwards Lifesciences' common stock:
<TABLE>
<CAPTION>
Percent
Projected Amount of of
Name and Address of Beneficial Owner Beneficial Ownership Class
------------------------------------ -------------------- -------
<S> <C> <C>
Wellington Management Company, LLP (1)
75 State Street
Boston, Massachusetts 02109 2,994,498 5.15%
</TABLE>
(1) Based solely on information contained in the Schedule 13G filed with the
SEC by Wellington Management Company, LLP on its own behalf, on February
11, 2000.
No other person is projected to own beneficially more than 5% of the
outstanding Edwards Lifesciences common stock immediately following the
distribution date.
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DESCRIPTION OF EDWARDS LIFESCIENCES CAPITAL STOCK
Authorized Capital Stock
The authorized capital stock of Edwards Lifesciences consists of
350,000,000 shares of common stock, par value $1.00 per share, and 50,000,000
shares of preferred stock, par value $.01 per share. Baxter will not issue any
shares of Edwards Lifesciences preferred stock in connection with the
distribution. Based on the number of shares of Baxter common stock outstanding
as of December 31, 1999, Baxter will issue up to approximately 58,039,903
shares of Edwards Lifesciences common stock to Baxter stockholders in the
distribution. All of the shares of Edwards Lifesciences common stock issued in
the distribution will be validly issued, fully paid and non-assessable. The
following is a summary description of the capital stock of Edwards
Lifesciences. For more complete information, you should read the amended and
restated certificate of incorporation (certificate of incorporation) and
amended and restated bylaws (bylaws) of Edwards Lifesciences that are included
as exhibits to the registration statement of which this information statement
is a part.
Edwards Lifesciences Common Stock
Edwards Lifesciences stockholders are entitled to one vote for each share
of common stock held by that stockholder on all matters submitted to a vote of
stockholders. A majority of the votes cast is required for all actions to be
taken by stockholders, except for the election of directors which requires a
plurality of the votes cast, and amendments of certain provisions of the
certificate of incorporation and bylaws as described below under "Certain
Anti-Takeover Effects of Provisions of Edwards Lifesciences' Certificate of
Incorporation and Bylaws and of Delaware Law--Certificate of Incorporation and
Bylaws--Amendment of Certain Provisions of the Certificate of Incorporation
and Bylaws."
Edwards Lifesciences stockholders will not have cumulative voting rights in
the election of directors. Edwards Lifesciences stockholders will not have any
preemptive, subscription, redemption, sinking fund or conversion rights.
Edwards Lifesciences stockholders are entitled to the dividends that may be
declared by the Edwards Lifesciences board out of funds legally available for
dividends, subject to preferences that may apply to holders of any outstanding
shares of Edwards Lifesciences preferred stock. If there is a liquidation,
dissolution or winding-up of Edwards Lifesciences, Edwards Lifesciences will
distribute the assets that are legally available for distribution to
stockholders ratably among the holders of Edwards Lifesciences common stock
outstanding at that time, subject to prior distribution rights of creditors
and to the preferential rights of any outstanding shares of Edwards
Lifesciences preferred stock.
Edwards Lifesciences Preferred Stock
Under the Edwards Lifesciences certificate of incorporation, the Edwards
Lifesciences board is authorized to provide for the issuance of Edwards
Lifesciences preferred stock, in one or more series. The Edwards Lifesciences
board is authorized to determine the designations, voting powers, preferences
and rights of any series of preferred stock, and any qualifications,
limitations or restrictions of any series of preferred stock. The Edwards
Lifesciences board designated a series of preferred stock in connection with
the rights agreement described below.
Edwards Lifesciences Rights Agreement
Edwards Lifesciences' board adopted a rights agreement between Edwards
Lifesciences and EquiServe Trust Company, N.A., as rights agent. The board
will cause Edwards Lifesciences to issue one preferred share purchase right
with each share of Edwards Lifesciences common stock issued at the close of
business on the record date for the distribution. Each right will entitle the
registered holder to purchase from Edwards Lifesciences one one-hundredth of a
share of Series A Junior Participating Preferred Stock for a price to be
determined by a pricing committee of the board prior to the distribution,
subject to the adjustments specified in the rights agreement. The terms of the
rights will be set forth in the rights agreement. The description set forth
below is intended as a summary of the rights and the rights agreement. For
more complete information, you should read the form of rights agreement that
is included as an exhibit to the registration statement of which this
information statement is a part.
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The rights become exercisable upon the earliest to occur of:
. 10 days after the first public announcement that any person or group of
affiliated or associated persons has acquired beneficial ownership of 15%
or more of the outstanding shares of Edwards Lifesciences common stock,
subject to certain exceptions (an "Acquiring Person"); and
. 10 business days, unless delayed by the board, after the commencement by
any person of a tender or exchange offer if, upon the consummation of the
tender or exchange offer, that person would be the beneficial owner of
15% or more of the outstanding shares of Edwards Lifesciences common
stock.
The earliest of the dates specified in the preceding sentence is called the
"Rights Distribution Date."
Until the rights become exercisable, they will only be represented by the
stock certificates for the Edwards Lifesciences common stock and will not
trade independently, but only with the associated shares of Edwards
Lifesciences common stock. If the rights become exercisable, separate
certificates representing the rights will be distributed to holders and the
rights will then trade independently from the Edwards Lifesciences common
stock. Until a right is exercised, the holder of the right, as such, will have
no rights as a stockholder of Edwards Lifesciences, including, without
limitation, the right to vote or to receive dividends. Preferred shares
purchasable upon exercise of the rights will not be redeemable. The rights are
not exercisable until the Rights Distribution Date. The rights will expire ten
years from the date of issuance, unless the expiration date is extended or
unless the rights are earlier redeemed or exchanged by Edwards Lifesciences,
as described below.
Because of the nature of the dividend, liquidation and voting rights of the
Series A preferred stock, the value of one one-hundredth interest in a share
of Series A preferred stock purchasable upon exercise of each right should
approximate the value of one share of Edwards Lifesciences common stock. Each
preferred share will be entitled to a minimum preferential quarterly dividend
payment of $1 per share and an aggregate dividend of 100 times the dividend
declared per share of Edwards Lifesciences common stock. If there is a
liquidation of Edwards Lifesciences, the holders of the preferred shares will
be entitled to a minimum preferential liquidation payment of $100 per share.
Each preferred share will have 100 votes and will vote together with the
Edwards Lifesciences common stock. Finally, if there is any merger,
consolidation or other transaction in which shares of Edwards Lifesciences
common stock are exchanged, each preferred share will be entitled to receive
100 times the amount received per share of Edwards Lifesciences common stock.
Edwards Lifesciences will not issue fractional shares of preferred stock,
other than fractions that are integral multiples of one one-hundredth of a
share of preferred stock, which may, at Edwards Lifesciences election, be
evidenced by depositary receipts. In lieu of fractional shares, an adjustment
in cash will be made based on the market price of the preferred shares on the
last trading day prior to the date of exercise. The rights are protected by
customary anti-dilution provisions.
If any person or group of affiliated or associated persons becomes an
Acquiring Person, as defined in the rights agreement, each holder of a right,
other than rights beneficially owned by the Acquiring Person which will be
voided, will have the right to receive upon exercise of the right the number
of shares of Edwards Lifesciences common stock having a market value of two
times the exercise price of the right. If Edwards Lifesciences is acquired in
a merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold after a person or group of
affiliated or associated persons has become an Acquiring Person, each holder
of a right will have the right to receive, upon the exercise of the right, the
number of shares of common stock of the acquiring company that at the time of
the transaction will have a market value of two times the exercise price of
the right.
At any time after any person or group of affiliates or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or
group of 50% or more of the outstanding shares of Edwards Lifesciences common
stock, the Edwards Lifesciences board may exchange the rights, other than
rights that have become void, in whole or in part, at an exchange ratio of one
share of Edwards Lifesciences common stock, or one one-hundredth of a
preferred share, or of a share of a class or series of Edwards Lifesciences
preferred stock having equivalent rights, preferences and privileges, per
right, subject to adjustment.
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In general, Edwards Lifesciences may redeem the rights in whole, but not in
part, at a price of $.01 per right at any time until ten days following the
first public announcement that a person or group of affiliated or associated
persons has become an Acquiring Person. Immediately upon the board's
authorization of a redemption, the rights will terminate and the only right of
the holders of the rights will be to receive the redemption price.
The terms of the rights may be amended by the Edwards Lifesciences board
without the consent of the holders of the rights. However, from and after such
time as any person or group of affiliated or associated persons becomes an
Acquiring Person, the Edwards Lifesciences board may not amend the terms of
the rights in a manner adversely affecting the interests of the holders of the
rights.
The rights will have an anti-takeover effect because the rights will cause
substantial dilution to a person or group that attempts to acquire Edwards
Lifesciences on terms not approved by the Edwards Lifesciences board. The
rights should not interfere with any merger or other business combination
approved by the Edwards Lifesciences board because the rights may be redeemed
by Edwards Lifesciences until the tenth day following the first public
announcement that a person or group has become an Acquiring Person.
CERTAIN ANTI-TAKEOVER EFFECTS OF
PROVISIONS OF EDWARDS LIFESCIENCES' CERTIFICATE OF INCORPORATION AND
BYLAWS AND OF DELAWARE LAW
Certificate of Incorporation and Bylaws
Edwards Lifesciences' certificate of incorporation and bylaws contain
provisions that could make it more difficult to acquire Edwards Lifesciences
by means of a tender offer, proxy contest or otherwise. The description set
forth below is intended as a summary only; for more complete information you
should read the certificate of incorporation and the bylaws that are included
as exhibits to the registration statement, of which this information statement
is a part.
Classified Board of Directors
Edwards Lifesciences' certificate of incorporation provides that the
Edwards Lifesciences directors, other than those who may be elected by the
holders of any series of preferred stock under specified circumstances, will
be divided into three classes of directors, with the classes to be as nearly
equal in number as possible, and with each class serving a staggered term.
Immediately after the distribution, the Edwards Lifesciences board will
consist of the persons referred to in "Edwards Lifesciences Management--Board
of Directors." The certificate of incorporation provides that the term of
office of the first class will expire at the 2001 annual meeting of
stockholders. The term of office of the second class will expire at the 2002
annual meeting of stockholders. The term of office of the third class will
expire at the 2003 annual meeting of stockholders.
The classification of directors will make it more difficult for
stockholders to change the composition of the Edwards Lifesciences board. At
least two annual meetings of stockholders, instead of one, will be required to
change a majority of the Edwards Lifesciences board. Such a delay may help
ensure that the Edwards Lifesciences board, if confronted by a stockholder's
attempt to force a stock repurchase at a premium above market price, a proxy
contest or an extraordinary corporate transaction, would have sufficient time
to review the proposal as well as any available alternatives to the proposal
and to act in what they believe to be the best interests of the stockholders.
However, the classification provisions could have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to obtain control of Edwards Lifesciences, even though
such an attempt might be beneficial to Edwards Lifesciences and its
stockholders. In addition, the classification of the Edwards Lifesciences
board could increase the likelihood that incumbent directors will retain their
positions. Finally, because the classification provisions may discourage
accumulations of large blocks of Edwards Lifesciences' stock by purchasers
whose objective is to take control of Edwards Lifesciences and remove a
majority of the Edwards Lifesciences board, the classification of the Edwards
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<PAGE>
Lifesciences board could reduce the likelihood of fluctuations in the market
price of Edwards Lifesciences common stock that might result from
accumulations of large blocks. Accordingly, stockholders could be deprived of
certain opportunities to sell their shares of Edwards Lifesciences common
stock at a higher market price than they might otherwise obtain.
Number of Directors; Filling Vacancies; Removal
Edwards Lifesciences' certificate of incorporation provides that the
Edwards Lifesciences board will fix the number of Edwards Lifesciences
directors, subject to any rights of holders of Edwards Lifesciences preferred
stock to elect additional directors under specific circumstances. In addition,
the certificate of incorporation provides that any vacancy that results from
an increase in the number of directors or for any other reason may be filled
only by a majority of directors then in office, subject to any rights of
holders of Edwards Lifesciences preferred stock. Accordingly, absent an
amendment to the Edwards Lifesciences certificate of incorporation, the
Edwards Lifesciences board could prevent a stockholder from increasing the
size of the Edwards Lifesciences board and filling the newly created
directorships with that stockholder's own nominees. Under Delaware General
Corporation Law, unless otherwise provided in the certificate of
incorporation, directors serving on a classified board may be removed by the
stockholders only for cause.
No Stockholder Action by Written Consent; Special Meetings
Edwards Lifesciences' certificate of incorporation prohibits stockholder
action by written consent in lieu of a meeting. The bylaws provide that
special meetings of the stockholders may be called only by the chairman of the
board or the secretary or by resolution of the directors, and shall be called
upon a request signed by a majority of the directors.
The provisions of Edwards Lifesciences' certificate of incorporation
prohibiting stockholder action by written consent may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting
unless a special meeting is called at the request of a majority of the board.
These provisions would also prevent the holders of a majority of the voting
power of the voting stock from unilaterally using the written consent
procedure to take stockholder action. Moreover, a stockholder could not force
stockholder consideration of a proposal over the opposition of the Edwards
Lifesciences board by calling a special meeting of stockholders prior to the
time a majority of the board believes such consideration to be appropriate.
Advance Notice of Stockholder Nominations and Stockholder Proposals Required
The Edwards Lifesciences bylaws establish an advance notice procedure for
stockholders to make nominations of candidates for election as directors, or
bring other business before an annual meeting of stockholders.
The advance notice procedures provide that the only persons who are
eligible for election as Edwards Lifesciences directors are those who are
nominated by, or at the direction of, the Edwards Lifesciences board, or by a
stockholder who has given timely written notice to the secretary prior to the
meeting at which directors are to be elected. The advance notice procedures
provide that at an annual meeting the only business that may be conducted is
that which has been brought before the meeting by, or at the direction of, the
Edwards Lifesciences board or by a stockholder who has given timely written
notice to Edwards Lifesciences' secretary of that stockholder's intention to
bring that business before the meeting. Under the advance notice procedures,
for a stockholder to timely provide notice of any stockholder nominations at
an annual meeting, Edwards Lifesciences must receive the notice not less than
75 days nor more than 100 days prior to the first anniversary of the previous
year's annual meeting. However, if Edwards Lifesciences advances the date of
any other annual meeting by more than 30 days from the anniversary date of the
meeting, a stockholder must provide notice not later than the 10th day after
Edwards Lifesciences mails or publicly announces the notice of the date of the
annual meeting. Under the advance notice procedures, for a stockholder to
timely provide notice of any stockholder nominations at a special meeting at
which directors are to be elected, Edwards Lifesciences must receive the
notice not less than 75 days nor more than 100 days prior to the special
meeting or by the 10th day after Edwards Lifesciences publicly announces the
date of the special meeting.
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A stockholder's notice to Edwards Lifesciences proposing to nominate a
person for election as a director must contain certain information including,
without limitation, the name and address of the nominating stockholder, the
class and number of shares of stock of Edwards Lifesciences that are owned by
that stockholder and all information regarding the proposed nominee that would
be required to be included in a proxy statement soliciting proxies for the
proposed nominee. A stockholder's notice to Edwards Lifesciences relating to
other proposed business must contain certain information about the proposed
business and about the proposing stockholder, including, without limitation, a
brief description of the business, the reasons for conducting the business at
the meeting, the name and address of the proposing stockholder, the class and
number of shares of stock of Edwards Lifesciences beneficially owned by such
stockholder and any material interest of that stockholder in the business so
proposed. If the chairman of the board or other officer presiding at the
meeting determines that a person was not nominated or other business was not
properly brought before the meeting, that person will not be eligible for
election as a director or that business will not be conducted at the meeting,
as the case may be.
The advance notice procedures regarding election of directors afford
Edwards Lifesciences' board an opportunity to consider the qualifications of
the proposed nominees and, to the extent deemed necessary or desirable by the
Edwards Lifesciences board regarding other proposed business, provide a more
orderly procedure for conducting annual meetings of stockholders. In addition,
these advance notice procedures will provide the Edwards Lifesciences board
with an opportunity to inform stockholders in advance of a meeting, to the
extent deemed necessary or desirable by the Edwards Lifesciences board, of any
business proposed to be conducted at the meeting and any board recommendation
regarding the proposed business, so that stockholders can better decide
whether to attend the meeting or to grant a proxy regarding the disposition of
the proposed business.
Although the bylaws do not give the Edwards Lifesciences board any power to
approve or disapprove of stockholder nominations for the election of directors
or other proposals, they may preclude a contest for the election of directors
or the consideration of stockholder proposals if the proper procedures are not
followed. In addition, these procedures may discourage or deter a third party
from conducting a solicitation of proxies to elect its own slate of directors
or to approve its own proposal, without regard to whether consideration of
those nominees or proposals might be harmful or beneficial to Edwards
Lifesciences and its stockholders.
Amendment of Certain Provisions of the Certificate of Incorporation and
Bylaws
Under Delaware General Corporation Law, the stockholders have the right to
adopt, amend or repeal the bylaws and, with the approval of the board of
directors, the certificate of incorporation of a corporation. In addition,
under Delaware General Corporation Law, if the certificate of incorporation so
provides, the bylaws may be adopted, amended or repealed by the board of
directors. Edwards Lifesciences' certificate of incorporation provides that
the affirmative vote of the holders of at least 80% of the voting power of the
outstanding shares of voting stock, voting together as a single class, is
required to amend provisions of the certificate of incorporation relating to:
. the prohibition of stockholder action without a meeting;
. the number, election and term of Edwards Lifesciences' directors;
. super-majority voting requirements to amend the charter; and
. the issuance of rights.
The bylaws may be amended by the Edwards Lifesciences board or by the
affirmative vote of the holders of at least 80% of the voting power of the
outstanding shares of voting stock, voting together as a single class. These
super-majority voting requirements will have the effect of making more
difficult any amendment by stockholders of the bylaws or of any of the
provisions of the certificate of incorporation described above, even if a
majority of Edwards Lifesciences' stockholders believe that an amendment would
be in their best interests.
70
<PAGE>
Delaware Law
Anti-Takeover Legislation
Section 203 of the Delaware General Corporation Law provides that, subject
to the exceptions specified in that section, a corporation may not engage in
any business combination with any interested stockholder for a three-year
period following the time that such stockholder becomes an interested
stockholder unless:
. prior to that time, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced (excluding certain shares); or
. at or subsequent to that time, the business combination is approved by
the board of directors of the corporation and by the affirmative vote of
at least two-thirds of the outstanding voting stock that is not owned by
the interested stockholder.
Except as specified in Section 203 of the Delaware General Corporation Law,
an "interested stockholder" is defined to include:
. any person that is the owner of 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation, at any time within three years immediately
prior to the relevant date; and
. the affiliates and associates of any person described in the preceding
clause.
Under certain circumstances, Section 203 of the Delaware General
Corporation Law makes it more difficult for a person who would be an
interested stockholder to effect various business combinations with a
corporation for a three-year period. It is anticipated that the provisions of
Section 203 may encourage persons interested in acquiring Edwards Lifesciences
to negotiate in advance with the Edwards Lifesciences board, since those
persons could avoid the stockholder approval requirement if a majority of the
directors then in office approves either the business combination or the
transaction that results in the stockholder becoming an interested
stockholder.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF EDWARDS LIFESCIENCES DIRECTORS
AND OFFICERS
Limitation of Liability of Directors
Edwards Lifesciences' certificate of incorporation provides that a director
of Edwards Lifesciences will not be personally liable to Edwards Lifesciences
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
. for any breach of the director's duty of loyalty to Edwards Lifesciences
or its stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, which concerns
unlawful payments of dividends, stock purchases or redemptions; or
. for any transaction from which the director derived an improper personal
benefit.
While Edwards Lifesciences' certificate of incorporation provides directors
with protection from awards for monetary damages for breaches of their duty of
care, it does not eliminate their duty of care. Accordingly, the certificate
of incorporation will have no effect on the availability of equitable remedies
such as an injunction or rescission based on a director's breach of his or her
duty of care. The provisions of the certificate of incorporation described
above apply to an officer of Edwards Lifesciences only if he or she is a
director of Edwards Lifesciences and is acting in his or her capacity as
director, and do not apply to officers of Edwards Lifesciences who are not
directors.
71
<PAGE>
Indemnification of Directors and Officers
The Edwards Lifesciences certificate of incorporation provides that each
person who is, or was, or has agreed to become a director or officer of
Edwards Lifesciences, and each person who serves, or may have served, at the
request of Edwards Lifesciences as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
will be indemnified by Edwards Lifesciences to the fullest extent permitted
from time to time by Delaware law, as the same exists or may hereafter be
amended. Directors and officers will not be indemnified with respect to an
action commenced by such directors or officers against Edwards Lifesciences or
by such directors or officers as a derivative action.
The certificate of incorporation of Edwards Lifesciences provides that the
right to indemnification and the payment of expenses conferred in the
certificate of incorporation will not be exclusive of any other right which
any person may have or may in the future acquire under any agreement, vote of
stockholders, vote of disinterested directors or otherwise. The certificate of
incorporation permits Edwards Lifesciences to maintain insurance on behalf of
any person who is, or was, a director, officer, employee or agent of Edwards
Lifesciences, or is serving at the request of Edwards Lifesciences as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any expense, liability or
loss, whether or not Edwards Lifesciences would have the power to indemnify
such person against that liability under the certificate of incorporation or
Delaware law.
Edwards Lifesciences intends to obtain directors and officers liability
insurance providing coverage to its directors and officers.
EDWARDS LIFESCIENCES' 2001 ANNUAL MEETING OF STOCKHOLDERS
The Edwards Lifesciences bylaws provide that an annual meeting of
stockholders will be held each year on a date specified by the Edwards
Lifesciences board of directors. The first annual meeting of Edwards
Lifesciences stockholders after the distribution is expected to be held on May
10, 2001. In order to be considered for inclusion in Edwards Lifesciences'
proxy materials for the 2001 annual stockholders meeting, any proposals by
stockholders must be received at Edwards Lifesciences' principal executive
offices at 17221 Red Hill Avenue, Irvine, California 92614, prior to January
10, 2001. Edwards Lifesciences anticipates commencing the mailing of proxies
for the 2001 annual stockholders meeting on or about March 9, 2001. In
addition, stockholders at the Edwards Lifesciences 2001 annual meeting may
consider stockholder proposals or nominations brought by a stockholder of
record on the record date for the 2001 annual meeting, who is entitled to vote
at such annual meeting and who has complied with the advance notice procedures
established by the Edwards Lifesciences bylaws. A stockholder proposal or
nomination intended to be brought before the Edwards Lifesciences 2001 annual
meeting must be received by Edwards Lifesciences' secretary on or after
January 30, 2001 and on or prior to February 24, 2001. See "Certain Anti-
Takeover Effects of Provisions of Edwards Lifesciences' Certificate of
Incorporation and Bylaws and of Delaware Law--Certificate of Incorporation and
Bylaws."
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement, of which this
information statement constitutes a part, under the Securities Exchange Act of
1934 with respect to the Edwards Lifesciences common stock being received by
Baxter stockholders in the distribution. This information statement does not
contain all of the information set forth in the registration statement. For
further information with respect to our business and the common stock being
received by Baxter stockholders in the distribution, please refer to the
registration statement. While we have provided a summary of the material terms
of the contents of certain contracts and other documents, the summary does not
describe all of the details of the contracts and other documents. In each
instance where a copy of a contract or other document has been filed as an
exhibit to the registration statement, please refer to the registration
statement. Each statement in this information statement regarding a contract
or
72
<PAGE>
other document is qualified in all respects by such exhibit. You may read and
copy all or any portion of the registration statement at the offices of the
SEC at Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549, and copies
of all or any part of the registration statement may be obtained from the
Public Reference Section of the SEC, Washington, D.C. 20549 upon the payment
of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for
further information about the public reference rooms. The SEC maintains a Web
site, http://www.sec.gov, that contains reports, proxy and information
statements and other information regarding registrants, such as Baxter and
Edwards Lifesciences, that file electronically with the SEC. Upon completion
of this offering, Edwards Lifesciences will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934,
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. These periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the SEC's Web site.
Edwards Lifesciences intends to furnish its stockholders with annual
reports containing consolidated financial statements (beginning with fiscal
year 2000) audited by independent accountants.
You should rely only on the information contained in this information
statement and other documents referred to in this information statement.
Baxter and Edwards Lifesciences have not authorized anyone to provide you with
information that is different. This information statement is being furnished
by Baxter solely to provide information to Baxter stockholders who will
receive Edwards Lifesciences common stock in the distribution. It is not, and
is not to be construed as, an inducement or encouragement to buy or sell any
securities of Baxter or Edwards Lifesciences. Baxter and Edwards Lifesciences
believe that the information presented herein is accurate as of the date
hereof. Changes will occur after the date hereof, and neither Baxter nor
Edwards Lifesciences will update the information except to the extent required
in the normal course of their respective public disclosure practices and as
required pursuant to the federal securities laws.
73
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Combined Balance Sheets.................................................... F-3
Combined Statements of Income.............................................. F-4
Combined Statements of Cash Flows.......................................... F-5
Combined Statements of Equity and Comprehensive Income..................... F-6
Notes to Edwards Lifesciences Corporation Combined Financial Statements.... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders of
Baxter International Inc.
In our opinion, the combined financial statements listed on the
accompanying index present fairly, in all material respects, the financial
position of Edwards Lifesciences Corporation (the Company, a division of
Baxter International Inc.) at December 31, 1999, 1998 and 1997 and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related combined financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards in the United States, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 18, 2000
F-2
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
COMBINED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
December 31,
--------------
1999 1998
------ ------
<S> <C> <C>
Current assets
Accounts receivable, net of allowances of $8 million at
December 31, 1999 and December 31, 1998..................... $ 133 $ 141
Other receivables............................................ 22 28
Inventories.................................................. 182 156
Short-term deferred income taxes............................. 9 14
Prepaid expenses............................................. 10 14
------ ------
Total current assets....................................... 356 353
------ ------
Property, plant and equipment
Property, plant and equipment................................ 496 480
Accumulated depreciation and amortization.................... (270) (253)
------ ------
Net property, plant and equipment.......................... 226 227
------ ------
Other assets
Goodwill and other intangibles............................... 839 886
Other........................................................ 16 17
------ ------
Total other assets......................................... 855 903
------ ------
Total assets............................................. $1,437 $1,483
====== ======
Current liabilities
Accounts payable and accrued liabilities..................... $ 156 $ 157
------ ------
Total current liabilities.................................. 156 157
------ ------
Other noncurrent liabilities................................... 57 55
Contingencies and commitments..................................
Equity
Retained earnings............................................ 418 336
Investments by and advances from (payments to) Baxter
International Inc., net..................................... 833 960
Accumulated other comprehensive income (loss)................ (27) (25)
------ ------
Total equity............................................... 1,224 1,271
------ ------
Total liabilities and equity............................. $1,437 $1,483
====== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
COMBINED STATEMENTS OF INCOME
(in millions)
<TABLE>
<CAPTION>
Years ended
December 31,
---------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales..................................................... $905 $865 $879
Costs and expenses
Cost of goods sold.......................................... 460 455 455
Cost of goods sold--transactions with Baxter................ 6 11 8
Marketing and administrative expenses....................... 189 187 168
Marketing and administrative expenses--transactions with
Baxter..................................................... 44 35 43
Research and development expenses........................... 41 40 41
Research and development expenses--transactions with Baxter. 14 16 12
In-process research and development......................... -- -- 132
Goodwill amortization....................................... 34 34 34
Other expense (income)...................................... 4 (6) 1
---- ---- ----
Total costs and expenses...................................... 792 772 894
---- ---- ----
Income (loss) before income taxes............................. 113 93 (15)
Income tax expense............................................ 31 31 37
---- ---- ----
Net income (loss)............................................. $ 82 $ 62 ($52)
==== ==== ====
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
COMBINED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
(Brackets denote cash outflows)
<S> <C> <C> <C>
Cash flow provided from operations
Net income (loss)........................ $ 82 $ 62 $ (52)
Adjustments
Depreciation and amortization.......... 84 82 80
In-process research and development.... -- -- 132
Other.................................. 12 14 (3)
Changes in balance sheet items
Accounts receivable.................... 14 9 (6)
Inventories............................ (14) (1) 10
Accounts payable and accrued
liabilities........................... (1) 6 4
Other.................................. (1) 4 (2)
---------- ---------- ----------
Cash flow provided by operations......... 176 176 163
---------- ---------- ----------
Investment transactions
Capital expenditures..................... (42) (40) (42)
Acquisitions (net of cash received)...... (7) (12) (16)
---------- ---------- ----------
Investment transactions, net............. (49) (52) (58)
---------- ---------- ----------
Financing transactions
Investments by and advances from
(payments to)
Baxter International Inc., net.......... (127) (124) (105)
---------- ---------- ----------
Financing transactions, net.............. (127) (124) (105)
---------- ---------- ----------
Change in cash and equivalents............. -- -- --
Cash and equivalents at beginning of
period.................................... -- -- --
---------- ---------- ----------
Cash and equivalents at end of period...... $ -- $ -- $ --
========== ========== ==========
Disclosure of noncash activity
Acquisition of business with Baxter
International Inc. common stock......... $ -- $ -- $ 223
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
COMBINED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
(in millions)
<TABLE>
<CAPTION>
Investments by
and advances
from (payments Accumulated
to) Baxter other
Total Retained International comprehensive Comprehensive
equity earnings Inc., net income (loss) Income (loss)
------ -------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................. $1,284 $326 $ 966 $ (8)
Net loss............. (52) (52) $(52)
----
Other comprehensive
income (loss):
Currency
translation
adjustments....... (16)
Unrealized net loss
on marketable
security, net of
tax benefit of $2. (3)
----
Other
comprehensive
income (loss)... (19) (19) (19)
----
Investments by and
advances from
(payments to) Baxter
International Inc.,
net:
Cash............... (105) (105)
Acquisition of
business with
Baxter
International Inc.
common stock...... 223 223
------ ---- ----- ----
Comprehensive income
(loss)................ $(71)
====
Balance at December 31,
1997.................. 1,331 274 1,084 (27)
Net income........... 62 62 $ 62
----
Other comprehensive
income:
Currency
translation
adjustments....... --
Unrealized net gain
on marketable
security, net of
tax of $1......... 2
----
Other
comprehensive
income.......... 2 2 2
----
Investments by and
advances from
(payments to) Baxter
International Inc.,
net................. (124) (124)
------ ---- ----- ----
Comprehensive income... $ 64
====
Balance at December 31,
1998.................. 1,271 336 960 (25)
Net income........... 82 82 $ 82
Other comprehensive
income:
Currency
translation
adjustments....... (1)
Unrealized net loss
on marketable
security, net of
tax benefit of $1. (1)
----
Other
comprehensive
income (loss)... (2) (2) (2)
----
Investments by and
advances from
(payments to) Baxter
International Inc.,
net................. (127) (127)
------ ---- ----- ---- ----
Comprehensive income... $ 80
====
Balance at December 31,
1999.................. $1,224 $418 $ 833 $(27)
====== ==== ===== ====
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE>
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
On July 11, 1999, the board of directors of Baxter International Inc.
(Baxter) approved a plan to spin off its CardioVascular business to Baxter
stockholders. Management expects that shares of the new cardiovascular
company, Edwards Lifesciences Corporation (Edwards Lifesciences or the
company,) will be distributed to Baxter stockholders (the distribution) in the
first quarter of 2000 and that the spin-off will be tax-free. The distribution
will result in Edwards Lifesciences operating as an independent entity with
publicly traded common stock.
Edwards Lifesciences is a global leader in providing a comprehensive line
of products and services to treat late-stage cardiovascular disease. Edwards
Lifesciences' sales are categorized in four main product areas: (a) cardiac
surgery, (b) critical care, (c) vascular and (d) perfusion products and
services. In addition, Edwards Lifesciences also offers a diverse grouping of
product lines comprised mostly of pharmaceuticals and selected distributed
products. Edwards Lifesciences' cardiac surgery portfolio is comprised of
products relating to heart valve therapy, mechanical cardiac assist, and
cannulae and cardioplegia products used during open-heart surgery. The
critical care product category primarily includes hemodynamic monitoring
systems used to measure a patient's heart function in surgical and intensive
care settings. The vascular product area includes balloon catheter-based
products, surgical clips and inserts, angioscopy equipment, artificial
implantable grafts, and an endovascular system used for less-invasive
abdominal aortic aneurysms. The perfusion products and services area includes
disposable products used during cardiopulmonary bypass procedures and contract
perfusion services.
Baxter will have no ownership interest in Edwards Lifesciences after the
spin-off, but will continue to conduct business pursuant to various
agreements, which are outlined in Note 7. However, unless released by third
parties, Baxter will remain liable for certain lease and other obligations and
liabilities that are transferred to and assumed by Edwards Lifesciences.
Edwards Lifesciences will be obligated by the reorganization agreement to
indemnify Baxter against liabilities related to those transferred obligations
and liabilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the combined financial statements.
These policies are in conformity with accounting principles generally accepted
in the United States (GAAP) and have been applied consistently in all material
respects. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements, the
reported amounts of revenues and expenses during the reporting period, and
related disclosures. Actual results could differ from those estimates.
Basis of presentation
Baxter does not account for its businesses on the basis of separate legal
entities. The specific product lines included in Baxter's CardioVascular
business are described in Note 1 above. The accompanying combined financial
statements include those assets, liabilities, revenues, expenses and cash
flows directly attributable to the operations associated with the product
lines described above. The combined financial statements have been prepared
using Baxter's historical bases in the assets and liabilities and the
historical results of operations of the CardioVascular business, operated
primarily as a division of Baxter, except for the accounting for income taxes
which is further discussed in Note 10. All material intercompany balances have
been eliminated. The combined financial statements include allocations of
certain Baxter corporate assets, liabilities and expenses to Edwards
Lifesciences. These amounts have been allocated to the company on the basis
that is considered by management to reflect most fairly or reasonably the
utilization of the services provided to or the benefit obtained by the
company. Typical measures and activity indicators used for allocation purposes
include headcount, sales, payroll expense, or the specific level of activity
related to the allocated item. Management believes the methods used to
F-7
<PAGE>
allocate amounts are reasonable. However, the financial information included
herein does not necessarily reflect what the financial position, results of
operations and cash flows of the company would have been had it operated as a
stand-alone public entity during the periods covered, and may not be
indicative of future operations, cash flows or financial position. The
combined financial statements do not include an allocation of Baxter's
consolidated debt and interest expense.
Estimated incremental selling, general and administrative costs associated
with being an independent public company total approximately $25 million on an
annual basis. The following is a summary of the estimated annual incremental
costs (pretax) by significant function:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
Accounting, tax and legal.................................................. $ 8
Insurance and risk management.............................................. 4
Human resources............................................................ 7
Treasury, stockholder relations and other costs............................ 6
---
Total...................................................................... $25
===
</TABLE>
Estimated incremental annual pretax interest expense is $29 million. The
company's debt agreements are not yet finalized. This management estimate is
based on the incurrence of $520 million of debt at a weighted-average interest
rate of 5.6%.
Fiscal year of international operations
Certain operations outside the United States and its territories are
included in the combined financial statements on the basis of fiscal years
ending November 30 in order to facilitate timely combination.
Foreign currency translation
The results of operations for non-U.S. subsidiaries, other than those
located in highly inflationary countries, are translated into U.S. dollars
using the average exchange rates during the year, while assets and liabilities
are translated using period-end rates. Resulting translation adjustments are
recorded as currency translation adjustments within other comprehensive
income. Where foreign affiliates operate in highly inflationary economies,
non-monetary amounts are remeasured at historical exchange rates while
monetary assets and liabilities are remeasured at the current rate with the
related adjustments reflected in the combined statements of income.
Revenue recognition
The company's practice is to recognize revenues from product sales when
title transfers and for services as performed. For certain products, the
company maintains consigned inventory at customer locations. For these
products, revenue is recognized at the time the company is notified that the
inventory has been used by the customer.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Market value for raw materials is based on replacement costs
and, for other inventory classifications, on net realizable value.
Inventories consisted of the following:
<TABLE>
<CAPTION>
December
31,
---------
1999 1998
---- ----
(in
millions)
<S> <C> <C>
Raw materials......................................................... $ 29 $ 33
Work in process....................................................... 28 36
Finished products..................................................... 125 87
---- ----
Total inventories..................................................... $182 $156
==== ====
</TABLE>
Reserves for excess and obsolete inventory were approximately $12 million
at December 31, 1999 and $10 million at December 31, 1998.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are principally calculated for financial reporting purposes on
the straight-line method over the estimated useful lives of the related
assets,
F-8
<PAGE>
which range from 20 to 50 years for buildings and improvements and from three
to 15 years for machinery and equipment. Leasehold improvements are amortized
over the life of the related facility leases or the asset, whichever is
shorter. Straight-line and accelerated methods of depreciation are used for
income tax purposes.
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
as of December 31 1999 1998
- ----------------- ----- -----
(in
millions)
<S> <C> <C>
Land.............................................................. $ 27 $ 28
Buildings and leasehold improvements.............................. 79 82
Machinery and equipment........................................... 281 274
Equipment with customers.......................................... 96 81
Construction in progress.......................................... 13 15
----- -----
Total property, plant and equipment, at cost...................... 496 480
Accumulated depreciation and amortization......................... (270) (253)
----- -----
Net property, plant and equipment................................. $ 226 $ 227
===== =====
</TABLE>
Depreciation expense was $37 million in 1999, $35 million in 1998, and $33
million in 1997. Repairs and maintenance expense was $8 million in 1999, $10
million in 1998 and $7 million in 1997.
Goodwill and other intangible assets
Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized on a straight-line basis over estimated useful lives
ranging from 15 to 40 years.
Other intangible assets include purchased patents, trademarks and other
identified rights and are amortized on a straight-line basis over their legal
or estimated useful lives, whichever is shorter (generally not exceeding 17
years).
Goodwill and other intangible assets are summarized as follows:
<TABLE>
<CAPTION>
as of December 31 1999 1998
- ----------------- ------ ------
(in millions)
<S> <C> <C>
Goodwill........................................................ $1,115 $1,116
Accumulated amortization........................................ (371) (337)
------ ------
Net goodwill.................................................... 744 779
------ ------
Other intangibles............................................... 184 184
Accumulated amortization........................................ (89) (77)
------ ------
Net other intangibles........................................... 95 107
------ ------
Goodwill and other intangibles.................................. $ 839 $ 886
====== ======
</TABLE>
Management reviews the carrying amounts of goodwill and other intangibles
whenever events and circumstances indicate that the carrying amounts of an
asset may not be recoverable. Impairment indicators include, among other
conditions, cash flow deficits, historic or anticipated declines in revenue or
operating profit and adverse legal or regulatory developments. If it is
determined that such indicators are present and the review indicates that the
assets will not be fully recoverable, based on undiscounted estimated cash
flows over the remaining amortization periods, their carrying values are
reduced to estimated fair market value. Estimated fair market value is
determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. For the purpose of identifying and
measuring impairment, assets are grouped at the lowest level for which there
are identifiable cash flows that are largely independent of the cash flows
generated by other asset groups. Based upon management's assessment of the
future undiscounted operating cash flows of acquired businesses, the carrying
values of goodwill and other intangibles at December 31, 1999, have not been
impaired.
F-9
<PAGE>
Income taxes
Edwards Lifesciences' operations were historically included in Baxter's
consolidated U.S. federal and state income tax returns and in the tax returns
of certain Baxter foreign subsidiaries. The provision for income taxes has
been determined as if Edwards Lifesciences had filed separate tax returns
under its existing structure for the periods presented. Accordingly, the
effective tax rate of Edwards Lifesciences in future years could vary from its
historical effective rates depending on Edwards Lifesciences' future legal
structure and tax elections. All income taxes are settled with Baxter on a
current basis through the "Investments by and advances from (payments to)
Baxter International Inc., net" account.
Derivatives
For all periods presented, Edwards Lifesciences has been considered in
Baxter's overall risk management strategy. Baxter's accounting policies with
respect to derivatives are summarized below as they apply to Edwards
Lifesciences.
Gains and option premiums relating to qualifying foreign currency hedges of
anticipated transactions are deferred and recognized in income as offsets of
gains and losses resulting from the underlying hedged transactions. Gains
relating to terminations of qualifying hedges are deferred and recognized in
income at the same time as the underlying hedged transactions. In
circumstances where the underlying anticipated transaction is no longer
expected to occur, any remaining deferred amounts are recognized immediately
in income. Foreign currency contracts not qualifying for hedge treatment are
marked to market at each balance sheet date with resulting gains and losses
recognized in earnings. Cash flows from derivatives are classified in the same
category as the cash flows from the related hedged activity. Foreign currency
financial instruments are used to hedge economic risks and are not used for
trading purposes.
Investments by and Advances from (payments to) Baxter International Inc., net
Investments by and advances from (payments to) Baxter International Inc.,
net includes common stock, additional paid-in capital and net intercompany
balances with Edwards Lifesciences which will be contributed at the time of
the spin-off. Baxter does not manage the activity in this account on the basis
of separate legal entities. There is no distinction in this account between
net investments in and net advances to Edwards Lifesciences as there was no
term associated with the cash infusions and no intent or expectation that the
infusions would be remitted to Baxter.
Comprehensive income (loss)
Comprehensive income (loss) encompasses all changes in equity other than
those arising from transactions with stockholders, and consists of net income,
currency translation adjustments and unrealized net gains and losses on
marketable equity securities. The company does not provide for U.S. income
taxes on foreign currency translation adjustments since it does not provide
for such taxes on undistributed earnings of foreign subsidiaries. The net
unrealized gain on a marketable security of $2 million for 1998 (net-of-tax)
principally consisted of a reclassification adjustment for an impairment loss
included in net income during the year.
Recent accounting pronouncement
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (Statement No. 133) which was to be effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. In June 1999, the FASB
issued Statement No. 137, "Accounting for Derivative Instruments -- Deferral
of the Effective Date of FASB Statement No. 133" (Statement No. 137).
Statement No. 137 deferred the effective date of Statement No. 133 to all
fiscal quarters of fiscal years beginning after June 15, 2000. Statement No.
133 requires that all derivatives be recorded in the balance sheet as either
assets or liabilities and be measured at fair value. The accounting for
changes in the fair
F-10
<PAGE>
value of a derivative will depend on the intended use of the derivative and
the resulting designation. Management is in the process of evaluating this
standard and has not yet determined the future impact on the company's
financial statements.
3. ACQUISITIONS
All acquisitions during the three years ended December 31, 1999 were
accounted for under the purchase method. Results of operations of acquired
companies are included in the company's results of operations as of the
respective acquisition dates. The purchase price of each acquisition was
allocated to the net assets acquired based on estimates of their fair values
at the date of the acquisition. The excess of the purchase price over the fair
values of the net tangible assets and liabilities and identifiable intangibles
acquired was allocated to goodwill.
Research Medical, Inc.
In March 1997, Edwards Lifesciences acquired Research Medical, Inc.
(Research Medical), a manufacturer of specialized products used in open-heart
surgery for approximately $239 million. Approximately $223 million of the
purchase price was in the form of 4,801,711 shares of Baxter International
Inc. common stock, issued from treasury. As further discussed below, $132
million of the purchase price was allocated to in-process research and
development (IPR&D), and, under generally accepted accounting principles,
immediately expensed. Approximately $40 million and $38 million of the
purchase price was allocated to existing product technology and goodwill,
respectively, and is being amortized on a straight-line basis over 14 years
and 20 years, respectively.
In-process Research and Development
The amount allocated to IPR&D was determined on the basis of independent
appraisals using the income approach, which measures the value of an asset by
the present value of its future economic benefits. Estimated cash flows for
each project category were discounted to their present values at rates of
return that incorporate the risk-free rate, the expected rate of inflation,
and risks associated with the particular projects, including their stages of
completion. Projected revenue and cost assumptions were determined considering
the company's historical experience and industry trends and averages. At the
date of acquisition, it was determined that the technology acquired had no
alternative future use. No value was assigned to any IPR&D project unless it
was probable of being further developed.
Approximately $76 million of the total IPR&D charge pertained to minimally
invasive surgical (MIS) procedures, with the remainder relating principally to
heparin removal technology, autologous fibrin delivery kit and sealant
technologies, retrograde reprofusion system technologies and ischemic limb
reperfusion system technologies. The status of development, stage of
completion, assumptions, nature and timing of remaining efforts for
completion, risks and uncertainties, and other key factors varied by
individual project. Discount rates on individual projects ranged from 14
percent to 20 percent, with a discount rate of 16 percent used for the MIS
procedures project. Material net cash inflows for the most significant
projects were forecasted to commence between 1998 and 2000. Assumed research
and development expenditures prior to the various dates of product
introductions totaled approximately $2 million.
The products under development were at various stages of development, and
substantial further research and development, pre-clinical testing and
clinical trials would be required to determine their technical feasibility and
commercial viability. Any delay in the development, introduction or marketing
of the products under development could result either in such products being
marketed at a time when their cost and performance characteristics would not
be competitive in the marketplace or in a shortening of their commercial
lives. If the products are not completed on time, the expected returns on the
investment could be significantly and unfavorably impacted.
F-11
<PAGE>
As part of the post-acquisition integration and research and development
(R&D) rationalization process, management reassessed all of Research Medical's
ongoing R&D projects. Based on these subsequent analyses of the costs versus
potential future benefits of continuing the Research Medical projects, several
of the R&D projects in-process at acquisition date were terminated in late
1997. Such projects related principally to heparin removal technology,
autologous fibrin delivery kit and sealant technologies, retrograde
reprofusion system technologies and ischemic limb reperfusion system
technologies. The total IPR&D charge recorded at acquisition date relating to
these projects subsequently terminated totaled approximately $56 million.
With respect to the MIS procedures project, at the time of acquisition, the
MIS industry was still in an embryonic state, with virtually no commercially
available product offerings. It was believed that over the next several years,
a significant transition from traditional surgical to MIS procedures would
occur in the marketplace. Several competitors were in the process of
developing products for the emerging MIS sector. While at the date of
acquisition, Research Medical had introduced only a couple of basic MIS
products to the marketplace, the company had a number of promising MIS
products in the process of being developed. Such products under development
required substantial further research and development and would require
regulatory approval prior to becoming available for sale. At the date of
acquisition, it was expected that net cash inflows would commence in the year
after acquisition and increase significantly over the following two to five
years.
The expected timetable for significant net cash inflows from the MIS
procedures IPR&D has been significantly and unfavorably impacted by the effect
of a significantly slower than anticipated transition from traditional
surgical procedures to MIS procedures in the marketplace. While sales are
currently being generated, the current and anticipated future level is
significantly less than projected in the original timetable. In addition, the
expected future R&D costs to be incurred to generate such future revenues are
significantly more than anticipated at the time of acquisition. Management's
current net present value of estimated future net cash inflows is
substantially less than that estimated at acquisition date. It is currently
not clear whether originally projected sales are delayed or whether the
originally anticipated levels will not be achieved. Substantial research and
development, and sales and marketing costs will need to be expended to achieve
the projections. It is possible that, even with such substantial efforts, the
MIS market will never develop to the initially anticipated size. It is also
possible that management will reduce its investments in the MIS sector in the
future based on its ongoing assessment of the marketplace and re-
prioritization of strategic initiatives.
Acquisition reserves
Approximately $14 million of reserves were established with respect to the
acquisition of Research Medical. Of this total, approximately $1 million was
reserved to eliminate 17 positions at Research Medical, principally in the
sales and marketing and research and development functions, and approximately
$13 million was established principally to terminate certain distribution
contracts relating to the acquired company. The reserves were fully utilized
as of December 31, 1998 and such utilization was in accordance with the
original plans.
Pro forma information (unaudited)
Had the acquisition of Research Medical taken place on January 1, 1997,
combined net sales and net income would not have been materially different
from the reported amounts in 1997 and, therefore, pro forma information is not
presented.
F-12
<PAGE>
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
as of December 31 1999 1998
----------------- ---- ----
(in
millions)
<S> <C> <C>
Accounts payable, principally trade............................ $ 41 $ 44
Employee compensation and withholdings......................... 52 47
Property, payroll and other taxes.............................. 9 10
Other accrued liabilities...................................... 41 45
Other accounts payable......................................... 13 11
---- ----
Accounts payable and accrued liabilities....................... $156 $157
==== ====
</TABLE>
5. LEASE OBLIGATIONS
Certain facilities and equipment are leased under operating leases expiring
at various dates. Most of the operating leases contain renewal options. Total
expense for all operating leases was $9 million in 1999, $8 million in 1998
and $9 million in 1997.
Future minimum lease payments (including interest) under noncancelable
operating leases at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Operating
leases
-------------
(in millions)
<S> <C>
2000........................................................ $ 8
2001........................................................ 4
2002........................................................ 3
2003........................................................ 2
2004........................................................ 2
Thereafter.................................................. --
----
Total obligations and commitments........................... $ 19
====
</TABLE>
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Concentrations of credit risk
In the normal course of business, Edwards Lifesciences provides credit to
customers in the health-care industry, performs credit evaluations of these
customers and maintains reserves for potential credit losses which, when
realized, have been within the range of management's allowance for doubtful
accounts.
Foreign exchange risk management
For all periods presented, Edwards Lifesciences has been considered in
Baxter's overall risk management strategy. As part of this strategy, Baxter
uses certain financial instruments to reduce its exposure to adverse movements
in foreign exchange rates. These financial instruments are not used for
trading purposes. The financial instruments contain credit risk in that the
banking counterparty may be unable to meet the terms of the agreements. Such
risk is minimized by limiting counterparties to major financial institutions
and by management's monitoring of credit risk. In addition, where appropriate,
Baxter has arranged collateralization and master-netting agreements to
minimize the risk of loss.
As part of implementing its strategy, Baxter enters into foreign exchange
contracts, principally options, with terms generally less than two years, to
hedge anticipated but not yet committed sales expected to be denominated in
foreign currencies. Baxter has allocated to Edwards Lifesciences the net
income associated with certain of
F-13
<PAGE>
such contracts in the amounts of $1 million in 1999 and $3 million in both
1998 and 1997. The approximate notional amounts associated with the allocated
portion of these foreign exchange contracts was $349 million and $177 million
at December 31, 1999 and 1998, respectively. The allocations were determined
based on Edwards Lifesciences' hedged sales relative to Baxter's total hedged
sales, by applicable currency. With respect to Edwards Lifesciences' foreign
currency exposures, Baxter principally hedges the Japanese Yen and the Euro.
Fair values of financial instruments
<TABLE>
<CAPTION>
Carrying Approximate
amounts fair values
--------- ------------
as of December 31 1999 1998 1999 1998
- ----------------- ---- ---- ----- -----
(in millions)
<S> <C> <C> <C> <C>
Investments in affiliates.............................. $ 1 $ 1 $ 1 $ 1
Foreign currency hedges................................ 7 2 1 2
</TABLE>
The carrying values of accounts receivable and payable and accrued
liabilities approximate fair value due to the short-term maturities of these
assets and liabilities.
7. RELATED PARTY TRANSACTIONS
Baxter has provided to Edwards Lifesciences certain legal, treasury,
employee benefits, insurance and administrative services. Charges for these
services, which have been recorded in cost of sales, marketing and
administrative expenses and research and development expenses, as applicable,
are based on actual costs incurred by Baxter and totaled $64 million, $62
million and $63 million in 1999, 1998 and 1997, respectively. The bases for
the amounts charged to Edwards Lifesciences varied depending on the nature of
the service, but generally were determined using headcount, sales, payroll,
square footage or other appropriate data, or were determined based on actual
utilization of services. Management believes that the bases used for
allocating services is reasonable. However, the terms of these transactions
may differ from those that would result from transactions with unrelated third
parties or had Edwards Lifesciences performed these functions on their own.
Edwards Lifesciences participates in a centralized cash management program
administered by Baxter. Short-term advances from Baxter or excess cash sent to
Baxter has been treated as an adjustment to the "Investments by and advances
from (payments to) Baxter International Inc., net" account as of and through
the respective balance sheet dates. No interest is charged on this balance.
Effective on the distribution date, Baxter and Edwards Lifesciences will
enter into a series of administrative services agreements pursuant to which
Baxter and Edwards Lifesciences will continue to provide, for a specified
period of time, certain administrative services which each entity historically
has provided to the other. These agreements require both parties to pay each
other a fee which approximates the actual costs of these services.
Additionally, subsequent to the spin-off, Edwards Lifesciences will have
continuing relationships with Baxter as a customer and supplier for certain
products. See "Edwards Lifesciences' Relationship with Baxter after the
Distribution" included elsewhere in this Information Statement, for detailed
descriptions of the related agreements.
8. RETIREMENT AND OTHER BENEFIT PROGRAMS
Edwards Lifesciences employees participated in Baxter-sponsored non-
contributory, defined benefit pension plans covering substantially all
employees in the U.S. and Puerto Rico and employees in certain other
countries. The benefits were based on years of service and the employee's
compensation during 5 of the last 10 years of employment as defined by the
plans. Baxter and Edwards Lifesciences have announced their intent to freeze
benefits under the U.S. plan at the date of the spin-off for the Edwards
Lifesciences employees. Edwards Lifesciences has also announced that it will
not have a defined benefit pension plan in the U.S. to replace the Baxter
plan. The pension liability related to Edwards Lifesciences' U.S. employees'
service prior to the spin-off
F-14
<PAGE>
date will remain with Baxter. With respect to the Puerto Rico plan, Baxter
plans to transfer the assets and liabilities relating to Edwards Lifesciences'
employees to Edwards Lifesciences at spin-off date. Edwards Lifesciences
intends to continue to have a non-contributory, defined benefit pension plan
in Puerto Rico after the spin-off date.
Pension expense for the Baxter-sponsored plans in the U.S. and Puerto Rico
relating to Edwards Lifesciences' employees was $5 million, $4 million, $3
million in 1999, 1998 and 1997, respectively. The assumed discount rate
applied to benefit obligations to determine 1999 and 1998 pension expense was
7.25% and 7.5%, respectively. The assumed long-term rate of return on assets
was 10.5% for 1999 and 1998. The assumed rate of compensation increase was
4.5% and 4.0% for the U.S. and Puerto Rico plan, respectively, in both 1999
and 1998.
In addition to pension benefits, Edwards Lifesciences participated in
Baxter-sponsored contributory health-care and life insurance benefits for
substantially all domestic retired employees. Baxter and Edwards Lifesciences
have announced that they will freeze benefits under these plans at the date of
the spin-off for Edwards Lifesciences employees. Edwards Lifesciences has
announced its intention not to establish new health-care and life insurance
plans for employees retiring subsequent to the spin-off date. Expense
associated with these benefits relating to Edwards Lifesciences employees was
less than $1 million in each of the years 1999, 1998 and 1997.
Most U.S. employees have been eligible to participate in a qualified 401(k)
plan. Participants could contribute up to 12% of their annual compensation
(subject to IRS limitation) to the plan and Baxter matched participants'
contributions, up to 3% of an individual participant's compensation. Matching
contributions relating to Edwards Lifesciences employees were approximately $3
million in each of 1999, 1998 and 1997.
9. OTHER EXPENSE (INCOME)
Components of other expense (income) are as follows:
<TABLE>
<CAPTION>
years ended December 31: 1999 1998 1997
------------------------ ---- ---- ----
(in millions)
<S> <C> <C> <C>
Asset dispositions and writedowns, net................... $ 1 $ 6 $--
Insurance and legal settlements.......................... (1) (13) --
Foreign exchange......................................... 2 1 --
Other.................................................... 2 -- 1
--- ---- ----
Total other expense (income)............................. $ 4 $ (6) $ 1
=== ==== ====
</TABLE>
10. INCOME TAXES
Income before tax expense by category is as follows:
<TABLE>
<CAPTION>
years ended December 31: 1999 1998 1997
------------------------ ---- ---- ----
(in millions)
<S> <C> <C> <C>
U.S...................................................... $ 92 $66 $(42)
International............................................ 21 27 27
---- --- ----
Income before income tax expense......................... $113 $93 $(15)
==== === ====
</TABLE>
F-15
<PAGE>
Income tax expense by category and by income statement classification is as
follows:
<TABLE>
<CAPTION>
years ended December 31: 1999 1998 1997
------------------------ ---- ---- ----
(in millions)
<S> <C> <C> <C>
Current
U.S.
Federal................................................. $ 13 $ 16 $ 18
State and local, including Puerto Rico.................. 8 11 16
International............................................ 8 4 7
---- ---- ----
Current income tax expense................................ 29 31 41
Deferred
U.S.
Federal................................................. 2 -- (3)
State and local, including Puerto Rico.................. -- -- (1)
International........................................... -- -- --
---- ---- ----
Deferred income tax expense............................... 2 -- (4)
---- ---- ----
Income tax expense........................................ $ 31 $ 31 $ 37
==== ==== ====
</TABLE>
The income tax shown above was calculated as if Edwards Lifesciences were a
stand-alone entity.
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
years ended December 31: 1999 1998 1997
------------------------ ---- ---- ----
(in millions)
<S> <C> <C> <C>
Deferred tax assets
Accrued expenses..................................... $ 8 $ 12 $ 8
Other................................................ 1 2 2
---- ---- ----
Total deferred tax assets.......................... 9 14 10
Deferred tax liabilities
Asset basis differences.............................. 47 43 45
Other................................................ 1 1 1
---- ---- ----
Total deferred tax liabilities..................... 48 44 46
---- ---- ----
Net deferred tax assets (liabilities).................. $(39) $(30) $(36)
==== ==== ====
</TABLE>
Income tax expense differs from income tax expense calculated by using the
U.S. federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
years ended December 31: 1999 1998 1997
------------------------ ---- ---- ----
(in millions)
<S> <C> <C> <C>
Income tax expense at statutory rate................... $ 40 $ 33 $ (5)
Tax-exempt operations.................................. (24) (12) (16)
Nondeductible goodwill................................. 12 12 12
State and local taxes.................................. 3 4 4
Foreign tax expense.................................... -- (6) (4)
In-process R&D expense................................. -- -- 46
---- ---- ----
Income tax expense..................................... $ 31 $ 31 $ 37
==== ==== ====
</TABLE>
The company has manufacturing operations outside the United States, namely
in Puerto Rico and Switzerland, which benefit from reductions in local tax
rates under various tax incentives. As a result of the spin-
F-16
<PAGE>
off of the company from Baxter and other actions, the company will seek to
renegotiate these existing tax incentives. It is expected that comparable tax
grants will be secured on a stand-alone basis in due course.
11. LEGAL PROCEEDINGS
Upon the distribution, Edwards Lifesciences will assume the defense of
litigation involving cases and claims related to the Edwards Lifesciences
business. Edwards Lifesciences has not been named as a defendant in such
matters but will be defending and indemnifying Baxter Healthcare Corporation,
as contemplated by the reorganization agreement, for all related expenses and
potential liabilities. It is possible that Edwards Lifesciences may be added
as a defendant in existing cases and claims.
The cases and claims relate primarily to products and services currently or
formerly manufactured or performed, as applicable, by Edwards Lifesciences.
Such cases and claims raise difficult and complex factual and legal issues and
are subject to many uncertainties and complexities, including, but not limited
to, the facts and circumstances of each particular case or claim, the
jurisdiction in which each suit is brought, and differences in applicable law.
Accordingly, in certain cases, Edwards Lifesciences is not able to estimate
the amount of its liabilities with respect to such matters.
Upon resolution of any pending legal matters, Edwards Lifesciences may
incur charges in excess of presently established reserves. While such a charge
could have a material adverse impact on Edwards Lifesciences' net income or
net cash flows in the period in which it is recorded or paid, management
believes that no such charge would have a material adverse effect on Edwards
Lifesciences' combined financial position.
Edwards Lifesciences believes that the liability and defense costs relating
to its legal matters will be within self-insured retentions or substantially
covered by insurance, subject to exclusions, conditions, policy limits and
potential insurer insolvency.
12. STOCK-BASED COMPENSATION PLANS
Certain employees of Edwards Lifesciences participated in stock-based
compensation plans sponsored by Baxter. Such plans principally included fixed
stock option plans and employee stock purchase plans. Baxter applies APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for such plans. Accordingly, no compensation
cost has been recognized by Baxter for its fixed stock option plans and its
stock purchase plans. These plans are the sole responsibility of Baxter and,
accordingly, no information is presented herein.
Employees who transfer to the cardiovascular business will be required to
exercise any vested options within 90 days from the date of spin-off, which is
currently anticipated to occur during the first quarter of 2000. All unvested
options will be canceled 90 days after the date of spin-off.
13. SEGMENT INFORMATION
The company manages its business on the basis of one reportable segment.
Refer to Note 1 for a description of the company's business. The company's
products and services share similar distribution channels and customers and
are sold principally to hospitals and physicians. Management evaluates its
various global product portfolios on a revenue basis, which is presented
below, and profitability is generally evaluated on an enterprise-wide basis
due to shared infrastructures. Edwards Lifesciences' principal markets are the
United States, Europe and Japan.
F-17
<PAGE>
Geographic area data includes net sales based on product shipment
destination and long-lived asset data is presented based on physical location.
<TABLE>
<CAPTION>
as of or for the year ended December 31 1999 1998 1997
--------------------------------------- ---- ---- ----
(in millions)
<S> <C> <C> <C>
Net Sales by Geographic Area
United States............................................. $504 $508 $515
Japan..................................................... 166 138 154
Other countries........................................... 235 219 210
---- ---- ----
Totals.................................................... $905 $865 $879
==== ==== ====
Net Sales by Major Product and Service Area
Cardiac Surgery........................................... $306 $273 $247
Vascular.................................................. 61 60 57
Critical Care............................................. 242 221 227
Perfusion Products and Services........................... 244 269 289
Other..................................................... 52 42 59
---- ---- ----
Totals.................................................... $905 $865 $879
==== ==== ====
Long-Lived Assets by Geographic Area
United States............................................. $196 $198 $189
Other countries........................................... 30 29 28
---- ---- ----
Totals.................................................... $226 $227 $217
==== ==== ====
</TABLE>
Sales to Allegiance Corporation, a subsidiary of Cardinal Health, Inc.,
represented approximately 12 percent, 13 percent and 10 percent of the
company's total net sales in 1999, 1998 and 1997, respectively.
F-18
<PAGE>
SCHEDULE II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
----------------------
Balance at Charged to Charged to Deductions Balance
beginning costs and other from at end of
of period expenses accounts(a) reserves period
---------- ---------- ----------- ---------- ---------
(In millions of dollars)
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999:
Allowance for doubtful
accounts and returns. $ 8 $ 5 -- $(5) $ 8
Inventory reserves.... 10 9 1 (8) 12
Litigation reserves... 1 1 -- -- 2
--- --- --- --- ---
Year ended December 31,
1998:
Allowance for doubtful
accounts and returns. 6 8 -- (6) 8
Inventory reserves.... 13 4 -- (7) 10
Litigation reserves... 1 1 -- (1) 1
--- --- --- --- ---
Year ended December 31,
1997:
Allowance for doubtful
accounts and returns. 6 6 (1) (5) 6
Inventory reserves.... 15 3 -- (5) 13
Litigation reserves... -- 1 -- -- 1
Deferred tax asset
valuation allowance.. 1 -- -- (1) --
--- --- --- --- ---
</TABLE>
- --------
(a) Valuation accounts of acquired or divested companies and foreign currency
translation adjustments. Reserves are deducted from assets to which they
apply.
S-1
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment No. 5 to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized.
/s/ Michael A. Mussallem
By: _________________________________
Name: Michael A. Mussallem
Title: Chief Executive Officer
Date: April 4, 2000
<PAGE>
(b) Exhibits
<TABLE>
<CAPTION>
<C> <S> <C>
3.1* Amended and Restated Certificate of Incorporation of
Edwards Lifesciences Corporation
3.2* Amended and Restated Bylaws of Edwards Lifesciences
Corporation
3.3* Form of Certificate of Designation for Edwards
Lifesciences Corporation Series A Junior Participating
Preferred Stock (included as Exhibit A to Exhibit 10.9)
4.1** Specimen form of certificate representing Edwards
Lifesciences Corporation common stock
10.1** Agreement and Plan of Reorganization, dated March 31, 2000
between Edwards Lifesciences Corporation and Baxter
International Inc.
10.2** Tax Sharing Agreement, dated March 31, 2000 between
Edwards Lifesciences Corporation and Baxter International
Inc.
10.3* Edwards Lifesciences Corporation Long-Term Stock Incentive
Compensation Program
10.4* Edwards Lifesciences Corporation Change in Control
Severance Agreement
10.5* Employment Agreement For Michael A. Mussallem
10.6* Edwards Lifesciences Corporation Employee Stock Purchase
Plan for United States Employees
10.7* Edwards Lifesciences Corporation Deferred Compensation
Plan
10.8* Edwards Lifesciences Corporation Chief Executive Officer
Change in Control Severance Agreement
10.9** Rights Agreement between Edwards Lifesciences Corporation
and EquiServe Trust Company, N.A, as Rights Agent, dated
as of March 31, 2000
10.10* Services and Distribution Agreement between Edwards
Lifesciences LLC, as successor in interest to Baxter
Healthcare Corporation, and Allegiance Healthcare
Corporation, dated as of October 1, 1996. CONFIDENTIAL
INFORMATION APPEARING IN THIS DOCUMENT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION IN ACCORDANCE WITH SECTION 24(b) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED AND RULE 24b-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN
REPLACED WITH ASTERISKS.
10.11* Form of Employment Agreement
10.12* Form of Consulting Agreement
10.13* Form of Outgoing Confidentiality Agreement
10.14* Edwards Lifesciences Corporation Nonemployee Directors and
Consultants Stock Incentive Program
10.15* Edwards Lifesciences Corporation Employee Stock Purchase
Plan for International Employees
10.16** Tokumei Kumiai Agreement by and between Baxter Limited and
Edwards Lifesciences Finance Limited, dated as of April 1,
2000
10.17** Option Agreement by and between Baxter Limited and Edwards
Lifesciences Limited, dated as of April 1, 2000
10.18** Japan Distribution Agreement by and between Baxter Limited
and Edwards Lifesciences LLC, dated as of April 1, 2000
21.1* Subsidiaries of Edwards Lifesciences Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
27.1* Financial Data Schedule--December 31, 1999
27.2* Financial Data Schedule--December 31, 1998
27.3* Financial Data Schedule--December 31, 1997
</TABLE>
NOTE
*previously filed
**filed herewith
2
<PAGE>
Exhibit 4.1
Edwards Lifesciences SHARES
Corporation [Edwards Logo]
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE CUSIP 28176E 10 8
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE
IN NEW YORK, NY AND JERSEY CITY, NJ
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF
ONE DOLLAR ($1) EACH OF THE COMMON STOCK
of Edwards Lifesciences Corporation, transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this certificate properly endorsed. This certificate is not valid
unless countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated
Facsimile Signature Facsimile Signature
Secretary Chief Executive Officer
Countersigned and Registered:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
TRANSFER AGENT
AND REGISTRAR
BY [PHOTO]
AUTHORIZED SIGNATURE
[ART]
<PAGE>
Edwards Lifsciences Corporation
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with the
right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT -_______________________ Custodian _________________
(Cust) (Minor)
under Uniform Gifts to Minors Act
Act __________________________
(State)
UNIF TRF MIN ACT -_________________ Custodian (until age_________________)
(Cust)
_________________ under Uniform Transfers
(Minor)
to Minors Act _______________________
(State)
Additional abbreviations may be used though not in the above list.
For Value Received, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------------
- ---------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF
ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
_________________________________________________________________________ Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated: ________________________
X
---------------------------------------------
X
---------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
- ------------------------------------------------
SIGNATURE GUARANTEED
THE SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL
BANK OR STOCK BROKER AFFILIATED WITH ONE OF THE
MAJOR STOCK EXCHANGES.
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in the Rights Agreement between Edwards Lifesciences
Corporation (the "Company") and Equiserve Trust Company, N.A. (the "Rights
Agent") dated as of March 31, 2000 (the "Rights Agreement"), the terms of which
are hereby incorporated herein by reference and a copy of which is on file at
the principal offices of the Company. Under certain circumstances, as set forth
in the Rights Agreement, such Rights will be evidenced by separate certificates
and will no longer be evidenced by this certificate. The Company will mail to
the holder of this certificate a copy of the Rights Agreement, as in effect on
the date of mailing, without charge promptly after receipt of a written request
therefor. Under certain circumstances set forth in the Rights Agreement, Rights
issued to, or held by, any Person who is, was or becomes an Acquiring Person or
any Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement), whether currently held by or on behalf of such Person or by any
subsequent holder, may become null and void.
<PAGE>
EXHIBIT 10.1
------------
REORGANIZATION AGREEMENT
Dated as of March 15, 2000
by and between
BAXTER INTERNATIONAL INC.
and
EDWARDS LIFESCIENCES CORPORATION
<PAGE>
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<S> <C>
ARTICLE I - DEFINITIONS AND INTERPRETATION................................................... 2
1.1. Definitions.......................................................................... 2
1.2. Interpretation....................................................................... 19
ARTICLE II - THE DISTRIBUTION................................................................. 21
2.1. Issuance and Delivery of Edwards Shares.............................................. 21
2.2. Distribution of Edwards Shares....................................................... 21
2.3. Treatment of Fractional Shares....................................................... 21
2.4. Baxter Board Action.................................................................. 21
2.5. Additional Approvals................................................................. 22
ARTICLE III - FOREIGN TRANSFERS............................................................... 22
3.1. Edwards World Trade.................................................................. 22
3.2. Puerto Rico (936).................................................................... 22
3.3. Puerto Rico (MS&P)................................................................... 23
3.4. Dominican Republic................................................................... 24
3.5. Intentionally Omitted................................................................ 24
3.6. Brazil............................................................................... 25
3.7. Canada............................................................................... 25
3.8. China................................................................................ 26
3.9. Taiwan............................................................................... 26
3.10. Singapore and the Philippines........................................................ 27
3.11. Malaysia............................................................................. 28
3.12. Thailand............................................................................. 28
3.13. Korea................................................................................ 29
3.14. India................................................................................ 29
3.15. Latin America........................................................................ 30
3.16. Switzerland.......................................................................... 33
3.17. EU Holdings (Denmark)................................................................ 35
3.18. Germany.............................................................................. 35
3.19. Austria.............................................................................. 36
3.20. France............................................................................... 37
3.21. Italy................................................................................ 37
3.22. Belgium/Luxembourg................................................................... 38
3.23. Netherlands.......................................................................... 39
3.24. Uden................................................................................. 40
3.25. Spain................................................................................ 40
3.26. United Kingdom....................................................................... 41
3.27. Restrictions on Intercompany Debt.................................................... 41
3.28. Transfer of Assets................................................................... 41
3.29. Transfer of Liabilities.............................................................. 41
</TABLE>
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3.30. Transfer of Edwards World Trade to Baxter........................................ 42
3.31. Edwards Holdings Switzerland..................................................... 42
3.32. Transfer of Inventory............................................................ 42
ARTICLE IV - TRANSFERS TO EDWARDS U.S. OPERATING SUBSIDIARY.............................. 42
4.1. Organization of Edwards U.S. Operating Subsidiary................................ 42
4.2. Transfer of Assets............................................................... 42
4.3. Transfer of Third-Party Distribution Contracts................................... 43
4.4. Assumption of Liabilities........................................................ 43
4.5. Transfer of Intangibles and Operating Subsidiaries............................... 43
ARTICLE V - ORGANIZATION OF EDWARDS LIFESCIENCES CORPORATION............................. 43
5.1. Organization of Edwards.......................................................... 43
5.2. Transfer of Certain Subsidiaries................................................. 44
5.3. Transfer of Assets............................................................... 44
5.4. Transfer of Liabilities.......................................................... 44
ARTICLE VI - EXCLUSIONS FROM TRANSFERS................................................... 44
6.1. Retained Assets.................................................................. 44
6.2. Retained Liabilities............................................................. 45
6.3. Termination of Existing Intercompany Agreements.................................. 46
ARTICLE VII - ASSET SEPARATION CLOSING MATTERS........................................... 46
7.1. Delivery of Instruments of Conveyance............................................ 46
7.2. Delivery of Other Agreements..................................................... 46
7.3. Non-Assignable Contracts......................................................... 46
7.4. Further Assurances............................................................... 47
7.5. Novation of Assumed Liabilities.................................................. 48
7.6. Nominee Shares................................................................... 49
7.7. Provision of Corporate Records................................................... 49
ARTICLE VIII - REPRESENTATIONS AND WARRANTIES............................................ 49
8.1. Organization, Good Standing and Authority of Baxter.............................. 49
8.2. Organization, Good Standing and Authority of Edwards............................. 49
8.3. No Other Representations and Warranties.......................................... 49
ARTICLE IX - CERTAIN COVENANTS........................................................... 50
9.1. Conduct of Edwards Business Pending the Distribution Date........................ 50
9.2. Registration and Listing......................................................... 50
9.3. Funds Distributed to Baxter...................................................... 51
9.4. Post-Distribution Tax-Related Restrictions....................................... 51
9.5. Intercompany Receivables and Payables, Cash Management and True-Up............... 52
9.6. Intercompany Debt True-Up........................................................ 53
</TABLE>
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<TABLE>
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<S> <C>
9.7. Collection of Accounts Receivable.................................................. 56
9.8. Agreements Relating to Baxter and Edwards.......................................... 58
9.9. Certain Releases................................................................... 59
9.10. Litigation......................................................................... 59
9.11. Liability for Previously Delivered Products........................................ 59
9.12. Edwards Bank Accounts.............................................................. 60
9.13. Informal, Nondocumented Real Estate Leases......................................... 61
9.14. Third Party Consents............................................................... 61
9.15. Material Governmental Approvals and Consents....................................... 61
9.16. Late Payments...................................................................... 61
ARTICLE X - INTELLECTUAL PROPERTY LICENSES.................................................. 62
10.1. License to Baxter of Transferred Intellectual Property............................. 62
10.2. License to Edwards of Retained Baxter Intellectual Property........................ 63
10.3. Licenses Related to Interlink...................................................... 65
10.4. Use by Edwards of Baxter's Trademarks.............................................. 65
10.5. Limitations on Requirements to Supply.............................................. 66
10.6. Fair Market Value.................................................................. 66
ARTICLE XI - CONDITIONS TO THE DISTRIBUTION................................................. 67
11.1. Approval by Baxter Board of Directors.............................................. 67
11.2. Receipt of IRS Private Letter Tax Ruling........................................... 67
11.3. Compliance with State and Foreign Securities and................................... 67
11.4. SEC Filings and Approvals.......................................................... 67
11.5. Filing and Effectiveness of Registration Statement; No Stop Order.................. 67
11.6. Approval of NYSE Listing Application............................................... 67
11.7. Receipt of Fairness Opinions of Financial Advisors................................. 67
11.8. Ancillary Agreements............................................................... 68
11.9. Resignations....................................................................... 68
11.10. Election of Edwards Board.......................................................... 68
11.11. Consents........................................................................... 68
11.12. No Actions......................................................................... 68
11.13. New Credit Facility................................................................ 68
11.14. Consummation of Pre-Distribution Transactions...................................... 68
11.15. No Other Events.................................................................... 68
11.16. Satisfaction of Conditions......................................................... 68
ARTICLE XII - EMPLOYEES AND EMPLOYEE BENEFIT MATTERS........................................ 69
12.1. Edwards Employees.................................................................. 69
12.2. Employment of Edwards Employees.................................................... 69
12.3. Terminations/Layoff/Severance...................................................... 69
12.4. International Edwards Employees.................................................... 69
</TABLE>
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-----------------
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<TABLE>
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<S> <C>
12.5. Employment Solicitation................................................................... 70
12.6. WARN Act.................................................................................. 70
12.7. Leave of Absence Policies................................................................. 70
12.8. Withdrawal from Participation in Baxter Plans and Establishment of Edwards Plans.......... 71
12.9. Transfer of Account Balances and Accrued Benefits......................................... 71
12.10. Entitlement to Distributions Under Pension Plan........................................... 73
12.11. Welfare Benefits Provided Under Edwards Plans............................................. 73
12.12. Stock Purchase Plans...................................................................... 73
12.13. Workers' Compensation..................................................................... 74
12.14. Vacation Pay Policy....................................................................... 74
12.15. Non-Qualified Deferred Compensation Plans................................................. 74
12.16. Split-Dollar Life Insurance............................................................... 74
12.17. Restricted Stock.......................................................................... 74
12.18. Information to be Provided to Baxter...................................................... 74
12.19. Corporate Action; Delegation of Authority................................................. 75
12.20. Transfer of Employee Files................................................................ 75
ARTICLE XIII - INSURANCE MATTERS.................................................................. 75
13.1. Insurance Prior to the Distribution Date.................................................. 75
13.2. Ownership of Existing Policies and Programs............................................... 75
13.3. Procurement of Insurance for Edwards...................................................... 75
13.4. Acquisition and Maintenance of Post-Distribution Edwards Insurance Policies and Programs.. 76
13.5. Edwards Directors' and Officers' Insurance................................................ 76
13.6. Pre-Distribution Insurance Claims Administration.......................................... 77
13.7 Post-Distribution Insurance Claims Administration......................................... 77
13.8. Non-Waiver of Rights to Coverage.......................................................... 78
13.9. Scope of Affected Policies of Insurance................................................... 78
ARTICLE XIV - EXPENSE AND TAX MATTERS............................................................. 78
14.1. Allocation of Expenses.................................................................... 78
14.2. Allocation of Taxes....................................................................... 79
ARTICLE XV - RELEASE AND INDEMNIFICATION.......................................................... 79
15.1. Release of Pre-Distribution Claims........................................................ 79
15.2. Indemnification by Edwards................................................................ 81
15.3. Indemnification by Baxter................................................................. 82
15.4. Applicability of and Limitation on Indemnification........................................ 82
15.5. Adjustment of Indemnifiable Losses........................................................ 83
15.6. Procedures for Indemnification of Third Party Claims...................................... 84
15.7. Procedures for Indemnification of Direct Claims........................................... 86
</TABLE>
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<TABLE>
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<S> <C>
15.8. Contribution......................................................................... 86
15.9. No Third-Party Beneficiaries......................................................... 86
15.10. Remedies Cumulative.................................................................. 87
15.11. Survival............................................................................. 87
ARTICLE XVI - DISPUTE RESOLUTION.............................................................. 87
16.1. General.............................................................................. 87
16.2. Escalation........................................................................... 87
16.3. Arbitration.......................................................................... 87
16.4. Procedures........................................................................... 88
16.5. Injunctive Relief.................................................................... 88
ARTICLE XVII - ACCESS TO INFORMATION AND SERVICES............................................. 88
17.1. Access to Financial Information...................................................... 88
17.2. Ownership of Information............................................................. 89
17.3. Compensation for Providing Information............................................... 89
17.4. Retention of Records................................................................. 89
17.5. Limitations.......................................................................... 90
17.6. Production of Witnesses.............................................................. 90
17.7. Confidentiality...................................................................... 90
17.8. Privileged Matters................................................................... 91
ARTICLE XVIII - MISCELLANEOUS 92
18.1. Entire Agreement..................................................................... 92
18.2. Choice of Law and Forum.............................................................. 92
18.3. Amendment............................................................................ 93
18.4. Waiver............................................................................... 93
18.5. Partial Invalidity................................................................... 93
18.6. Execution in Counterparts............................................................ 93
18.7. Successors and Assigns............................................................... 93
18.8. Third Party Beneficiaries............................................................ 93
18.9. Notices.............................................................................. 93
18.10. Performance.......................................................................... 94
18.11. Force Majeure........................................................................ 94
18.12. No Public Announcement............................................................... 94
18.13. Termination.......................................................................... 95
</TABLE>
-v-
<PAGE>
EXHIBITS
- --------
Exhibit A - Edwards Business
Exhibit B - Operating Agreements
Exhibit C - Tax Sharing Agreement
Exhibit D - Transferred Subsidiaries
Exhibit E - Amended and Restated Certificate of Incorporation of Edwards
Exhibit F - Amended and Restated By-laws of Edwards
Exhibit G - Form of Edwards Stockholder Rights Plan
Exhibit H - Board of Directors of Edwards
SCHEDULES
- ---------
Schedule 1.1(b) - BHC Loans
Schedule 1.1(f) - CERCLA and OSHA Liabilities
Schedule 1.1(g) - Other Assumed Environmental Liabilities
Schedule 1.1(l) - Guarantees and Letters of Credit
Schedule 1.1(m) - Indemnification Agreements
Schedule 1.2(d) - Owned Real Property
Schedule 1.2(e) - Real Property Leases
Schedule 1.2(f) - Aircraft
Schedule 1.2(g)(ii) - Patents
Schedule 1.2(g)(iv) - Trademarks
Schedule 1.2(h)(i) - Contracts Related to Acquisitions or Divestitures
Schedule 1.2(h)(ii) - Customer Contracts
Schedule 1.2(h)(iv) - Government Contracts
Schedule 1.2(h)(v) - Supplier Contracts
Schedule 1.2(h)(vi) - Joint Development and Confidentiality Contracts
Schedule 1.2(h)(vii) - Consulting Contracts
Schedule 1.2(h)(viii) - Distribution Contracts
Schedule 1.2(h)(xi) - Personal Property Leases
Schedule 1.2(h)(xii) - Derivatives Contracts
Schedule 1.2(h)(xiii) - Other Contracts
Schedule 1.2(i) - Permits and Licenses
Schedule 1.2(j) - Claims and Indemnities
Schedule 1.2(k) - Subsidiaries, Joint Ventures and Minority Interests
Schedule 1.2(n) - Intellectual Property Licenses
Schedule 1.2(o) - Software and Software Contracts
Schedule 1.2(p) - Internet Protocol Addresses
Schedule 1.2(q) - Other Assets
Schedule 3.1 - Timing of Foreign Transfers
Schedule 4.3 - Foreign Subsidiaries' Third-Party Distribution Contracts
Schedule 6.1(h) - Baxter Distribution Countries
Schedule 6.2 - Retained Liabilities
Schedule 6.3 - Surviving Intercompany Agreements
Schedule 9.3 - Use of Proceeds Summary
Schedule 9.6(g) - Transfers
-vi-
<PAGE>
Schedule 9.8 - Shared Agreements
Schedule 9.10(a) - Assumed Actions
Schedule 9.10(b) - Transferred Actions
Schedule 9.12 - Transferred Bank Accounts
Schedule 10.2(a) - Licensed Baxter Intellectual Property
Schedule 12.1 - Edwards Employees
Schedule 12.4 - Calculation of Edwards Foreign and Puerto Rico Employees'
Pension Benefits
-vii-
<PAGE>
REORGANIZATION AGREEMENT
------------------------
REORGANIZATION AGREEMENT, dated as of March 15, 2000 (this
"Agreement"), by and between Baxter International Inc., a Delaware corporation
---------
("Baxter"), and Edwards Lifesciences Corporation, a Delaware corporation
------
("Edwards") which is, as of the date hereof, a wholly-owned Subsidiary (as
-------
hereinafter defined) of Baxter.
WHEREAS, Baxter, through its Subsidiaries, provides, inter alia, a
comprehensive line of therapies and services to treat cardiovascular disease (as
more fully described in Exhibit A hereto, the "Edwards Business");
--------- ----------------
WHEREAS, the Board of Directors of Baxter has determined that it would
be advisable and in the best interests of Baxter and its stockholders for Baxter
to transfer to Edwards and/or one or more of its Subsidiaries the business,
operations, assets and liabilities related to the Edwards Business;
WHEREAS, Baxter has agreed to transfer and assign, or cause to be
transferred and assigned, to Edwards or one or more of its Subsidiaries
substantially all of the assets and properties related to the Edwards Business
held by Baxter, Baxter Healthcare Corporation, a Delaware corporation ("BHC")
---
and a wholly-owned Subsidiary of Baxter, and, subject to certain exceptions,
certain other Subsidiaries of Baxter, and Edwards has agreed to assume, or cause
to be assumed by one or more of its Subsidiaries, certain liabilities and
obligations arising out of or relating to the Edwards Business;
WHEREAS, the Board of Directors of Baxter has determined that it would
be advisable and in the best interests of Baxter and its stockholders for Baxter
to distribute on a pro-rata basis to the holders of record of Baxter common
stock, par value $1.00 per share (the "Baxter Common Stock"), without any
-------------------
consideration being paid by such holders, all of the outstanding shares of
Edwards common stock, par value $1.00 per share (the "Edwards Common Stock"),
--------------------
owned directly and indirectly by Baxter (the "Distribution");
------------
WHEREAS, for United States federal income tax purposes, the
Distribution is intended to qualify as a tax-free spin-off within the meaning of
Sections 355 and 368(a)(1)(D) of the United States Internal Revenue Code of
1986, as amended (the "Code"); and
----
WHEREAS, it is appropriate and desirable to set forth the principal
corporate transactions required to effect the Distribution and certain other
agreements that will govern the relationship of Baxter and Edwards following the
Distribution;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Baxter and Edwards
agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS AND INTERPRETATION
------------------------------
1.1. Definitions. In this Agreement, the following terms have the
-----------
meanings specified or referred to in this Section 1.1:
-----------
"Accounts Payable Amount" has the meaning specified in Section 9.6(g).
----------------------- --------------
"Accounts Receivable Amount" has the meaning specified in Section
-------------------------- -------
9.6(g).
- ------
"Accounts Receivable Report" has the meaning specified in Section
-------------------------- -------
9.7(f).
- ------
"Act" has the meaning specified in Section 9.11(a).
--- ---------------
"Action" means any action, claim, suit, arbitration, inquiry,
------
subpoena, discovery request, proceeding or investigation by or before any court
or grand jury, any governmental or other regulatory or administrative entity,
agency or commission or any arbitration tribunal.
"Active Edwards Employees" means any regular full-time or part-time
------------------------
employee of Baxter or one of its Subsidiaries who commences employment with
Edwards or one of its Subsidiaries immediately following the Distribution Date.
"Actual Balance Sheet" has the meaning specified in Section 9.6(g).
-------------------- --------------
"Actually Using" has the meaning specified in Section 10.1(a).
-------------- ---------------
"Affiliate" means, with respect to any Person, any other Person that
---------
directly or indirectly controls, is controlled by or is under common control
with such Person. For the purpose of this definition, the term "control" means
the power to direct the management of an entity, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
term "controlled" has the meaning correlative to the foregoing. After the
Distribution Date, Edwards and Baxter shall not be deemed to be under common
control for purposes hereof due solely to the fact that Edwards and Baxter have
common stockholders.
"Aggregate Amount Received" has the meaning specified in Section
------------------------- -------
9.6(g).
- ------
"Anasco Division" has the meaning specified in Section 3.2.
--------------- -----------
"Asset Transfer Amount" has the meaning specified in Section 9.6(g).
--------------------- --------------
"Assumed Actions" has the meaning specified in Section 9.10(a).
--------------- ---------------
"Assumed Liabilities" means all contractual and other Liabilities of
-------------------
Baxter or any of its Subsidiaries (excluding the Retained Liabilities) arising
out of or relating to (but only to the extent relating to) the Edwards Business
any Divested Business and/or any of the past or present facilities of Baxter or
any of its Subsidiaries used primarily in connection with the Edwards Business
or any Divested Business, whether due or to become due, including:
-2-
<PAGE>
(a) All Liabilities (excluding, except as provided in subparagraph
(b) below, Loans owed to Baxter or any of its Subsidiaries) that are reflected,
disclosed or reserved for on the Balance Sheet, as such Liabilities may be
increased or decreased in the operation of the Edwards Business from the date of
the Balance Sheet through the Distribution Date in the ordinary course of
business consistent with past practice;
(b) The Loans set forth on Schedule 1.1(b) hereto;
---------------
(c) All Liabilities under or related to the Real Estate Leases and
the Edwards Contracts, such assumption to occur as (i) assignee if such Real
Estate Leases and Edwards Contracts are assignable and are assigned or otherwise
transferred to Edwards or one of its Subsidiaries, or (ii) subcontractor,
sublessee or sublicensee as provided in Section 7.3 below if assignment of such
-----------
Real Estate Leases and Edwards Contracts and/or the proceeds thereof is
prohibited by law or by the terms thereof or is not permitted by the other
contracting party;
(d) All warranty, performance and similar obligations entered into or
made prior to the Distribution Date with respect to the products or services of
the Edwards Business;
(e) All Liabilities related to any and all Actions asserting a
violation of any law, rule or regulation related to or arising out of the
operations of the Edwards Business, whether before or after the Distribution
Date and the Liabilities relating to any Assumed Actions;
(f) All Liabilities arising under (i) CERCLA and any other foreign,
federal, state or local laws regarding the management, control and clean-up of
hazardous materials (including off-site waste disposal liabilities) or (ii) the
Occupational Safety and Health Act or similar state laws or regulations, in
either case relating to or arising out of the operations of the Edwards
Business, whether before or after the Distribution Date, including those set
forth on Schedule 1.1(f) hereto;
---------------
(g) All environmental Liabilities relating to facilities transferred
to Edwards or one of its Subsidiaries in fee or by way of an assignment of a
lease or sublease from a third party, including those set forth on Schedule
--------
1.1(g) hereto;
- ------
(h) All Liabilities in connection with claims of past, current or
prospective employees of the Edwards Business, including claims related to any
Baxter Plans, except as otherwise provided in Article XII, whether incurred
-----------
prior to, on or after the Distribution Date;
(i) All Liabilities under any mortgage interest subsidy program on
behalf of any Edwards Employee;
(j) All Liabilities associated with the transfer of assets from the
Baxter Savings Plan to the Edwards Savings Plan;
(k) All Liabilities related to the Transferred Intellectual Property
included as part of the Transferred Assets;
(l) All Liabilities under each of the guarantees and letters of
credit set forth on Schedule 1.1(l) hereto;
---------------
-3-
<PAGE>
(m) All Liabilities under the indemnification agreements set forth on
Schedule 1.1(m);
- ---------------
(n) All Liabilities for property taxes with respect to any of the
Transferred Assets;
(o) All Liabilities for deferred taxes with respect to the Edwards
Business consistent with FAS 109;
(p) All Liabilities related to Governmental Permits; and
(q) All other Liabilities (other than the Retained Liabilities)
relating to the Edwards Business or any Divested Business, whether existing on
the date hereof or arising at any time or from time to time after the date
hereof, and whether based on circumstances, events or actions arising heretofore
or hereafter, whether or not such Liabilities shall have been disclosed herein,
and whether or not reflected on the books and records of Baxter or Edwards or
the Balance Sheet.
"Balance Sheet" has the meaning specified in paragraph (a) of the
-------------
definition of "Transferred Assets."
"Baxter" has the meaning specified in the first paragraph of this
------
Agreement.
"Baxter Alaska" has the meaning specified in Section 3.2.
------------- -----------
"Baxter Austria" has the meaning specified in Section 3.19.
-------------- ------------
"Baxter Asia" has the meaning specified in Section 3.10.
----------- ------------
"Baxter Belgium" has the meaning specified in Section 3.22.
-------------- ------------
"Baxter Canada" has the meaning specified in Section 3.7.
------------- -----------
"Baxter Chile" has the meaning specified in Section 3.15(b).
------------ ---------------
"Baxter China" has the meaning specified in Section 3.8.
------------ -----------
"Baxter Colombia" has the meaning specified in Section 3.15(a).
--------------- ---------------
"Baxter Common Stock" has the meaning specified in the fifth paragraph
-------------------
of this Agreement.
"Baxter Edwards" means Baxter Edwards AG, a company organized under
--------------
the laws of Switzerland.
"Baxter Export Corporation" means Baxter Export Corporation, a Nevada
-------------------------
corporation.
"Baxter Foreign Pension Plan" has the meaning specified in Section
--------------------------- -------
12.4.
- ----
-4-
<PAGE>
"Baxter France" has the meaning specified in Section 3.20.
-------------- ------------
"Baxter Germany" means Baxter Deutschland GmbH, a German limited
--------------
company and a wholly-owned Subsidiary of Baxter Germany Holdings.
"Baxter Germany Holdings" means Baxter Deutschland Holding GmbH, a
-----------------------
German limited company and a wholly-owned Subsidiary of Baxter World Trade.
"Baxter Group Member" means Baxter and (a) any corporation that is a
-------------------
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as Baxter; (b) a trade or business (whether or not
incorporated) under common control (within the meaning of Section 414(c) of the
Code) with Baxter; (c) any organization (whether or not incorporated) that is a
member of an affiliated service group (within the meaning of Section 414(m) of
the Code) that includes Baxter, a corporation described in clause (a) of this
definition or a trade or business described in clause (b) of this definition or
(d) any other entity that is required to be aggregated with Baxter pursuant to
regulations promulgated under Section 414(o) of the Code.
"Baxter Hong Kong" has the meaning specified in Section 3.8.
---------------- -----------
"Baxter Hospitalar" means Baxter Hospitalar Ltda., a company organized
-----------------
under the laws of Brazil.
"Baxter Indemnified Parties" has the meaning specified in Section
-------------------------- -------
9.11(b).
- -------
"Baxter Italy" has the meaning specified in Section 3.21.
------------ ------------
"Baxter Japan" means Baxter Limited, a Japanese corporation.
------------
"Baxter Korea" has the meaning specified in Section 3.13.
------------ ------------
"Baxter Marks" has the meaning specified in Section 10.4.
------------ ------------
"Baxter Mexico" has the meaning specified in Section 3.15(e).
------------- ---------------
"Baxter Netherlands" has the meaning specified in Section 3.23.
------------------ ------------
"Baxter Panama" has the meaning specified in Section 3.4.
------------- -----------
"Baxter Pension Plan" has the meaning specified in Section 12.10.
------------------- -------------
"Baxter Peru" has the meaning specified in Section 3.15(d).
----------- ---------------
"Baxter Pharmacy Services" means Baxter Pharmacy Services Corporation,
------------------------
a Delaware corporation.
"Baxter Philippines" has the meaning specified in Section 3.10.
------------------ ------------
"Baxter Plans" has the meaning specified in Section 12.8(a).
------------ ---------------
-5-
<PAGE>
"Baxter Policy" and "Baxter Policies" have the meanings specified in
------------- ---------------
Section 13.2.
- ------------
"Baxter PR Pension Plan" has the meaning specified in Section 12.9(c).
---------------------- ---------------
"Baxter PR Savings Plan" has the meaning specified in Section 12.9(b).
---------------------- ---------------
"Baxter Products" means those products manufactured by Baxter or its
---------------
Subsidiaries (as they would exist immediately following the Distribution Date)
(except for products manufactured by Baxter or its Subsidiaries for the Edwards
Business, but including those products manufactured for Baxter and its
Subsidiaries by Edwards or its Subsidiaries pursuant to the Manufacturing
Contracts).
"Baxter Retiree Welfare Plan" means the Baxter Retiree Medical Plan
---------------------------
and the post-retirement life insurance portion of the Baxter Group Term Life
Insurance Plan.
"Baxter Sales and Distribution" shall have the meaning specified in
-----------------------------
Section 3.3.
- -----------
"Baxter Savings Plan" has the meaning specified in Section 12.9(a).
------------------- ---------------
"Baxter Severance Pay Plan" means the Baxter International Inc. and
-------------------------
Subsidiaries Severance Pay Plan.
"Baxter Share" means one share of Baxter Common Stock.
------------
"Baxter Spain" has the meaning specified in Section 3.25.
------------ ------------
"Baxter Stock Purchase Plans" means the Baxter International Inc.
---------------------------
Employee Stock Purchase Plan for United States Employees and the Baxter
International Inc. Employee Stock Purchase Plan for International Employees.
"Baxter Taiwan" has the meaning specified in Section 3.9.
------------- -----------
"Baxter Thailand" has the meaning specified in Section 3.12.
--------------- ------------
"Baxter U.K." has the meaning specified in Section 3.26.
----------- ------------
"Baxter Venezuela" has the meaning specified in Section 3.15(c).
---------------- ---------------
"Baxter Woodlands" means Baxter Healthcare Pte. Ltd. (Singapore), a
----------------
company organized under the laws of Singapore.
"Baxter World Trade" has the meaning specified in Section 3.1.
------------------ -----------
"BHC" has the meaning specified in the fourth paragraph of this
---
Agreement.
"BIPL" means Baxter (India) Private Limited, a company organized under
----
the laws of India.
-6-
<PAGE>
"BPCL" means Baxter Participacoes e Commercial Ltda., a company
----
organized under the laws of Brazil.
"BRL" means Baxter Representacoes Ltda., a company organized under the
---
laws of Brazil.
"Board of Directors" means the board of directors of the referenced
------------------
corporation or any duly authorized committee thereof.
"CERCLA" means the Comprehensive Environmental Response, Compensation
------
and Liability Act, as amended.
"Code" has the meaning specified in the sixth paragraph of this
----
Agreement.
"Contracts" means contracts, agreements, arrangements, leases (other
---------
than Real Estate Leases), manufacturers' warranties, memoranda, understandings
and offers open for acceptance of any nature, whether written or oral.
"Conveyancing Instruments" has the meaning specified in Section 7.1.
------------------------ -----------
"Copyrights" means United States and foreign copyrights, both
----------
registered and unregistered, along with the registrations and applications to
register any such copyrights.
"CPR" means the Center for Public Resources Institute for Dispute
---
Resolution.
"Debt True-Up Amount" has the meaning specified in Section 9.6(g).
------------------- --------------
"Debt True-Up Notice" has the meaning specified in Section 9.6(g).
------------------- --------------
"Dispute" has the meaning specified in Section 16.2.
------- ------------
"Distribution" has the meaning specified in the fifth paragraph of
------------
this Agreement.
"Distribution Date" means the date and time determined by the Board of
-----------------
Directors of Baxter, or a duly authorized committee thereof, as the date on
which the Edwards Shares are distributable to holders of record of Baxter Common
Stock as of the Record Date.
"Divested Business" means any business primarily related to the
-----------------
Edwards Business that was divested by Baxter or any of its Subsidiaries at any
time prior to the Distribution Date, including any business divested pursuant to
any of the agreements listed on Schedule 1.2(h)(i) as "Divestitures."
------------------
"Edwards" has the meaning specified in the first paragraph of this
-------
Agreement.
"Edwards Austria" has the meaning specified in Section 3.19(a).
--------------- ---------------
"Edwards Belgium" has the meaning specified in Section 3.22(a).
--------------- ---------------
-7-
<PAGE>
"Edwards Business" has the meaning specified in the second paragraph
----------------
of this Agreement.
"Edwards Canada" has the meaning specified in Section 3.7(a).
-------------- --------------
"Edwards Common Stock" has the meaning specified in the fifth
--------------------
paragraph of this Agreement.
"Edwards Contracts" has the meaning specified in paragraph (h) of the
-----------------
definition of "Transferred Assets".
"Edwards Credit Facility" has the meaning specified in Section 9.3.
----------------------- -----------
"Edwards Deferred Compensation Plan" has the meaning specified in
----------------------------------
Section 12.8(b).
- ---------------
"Edwards Distributable Share" means for each holder of record of
---------------------------
Baxter Common Stock as of the Record Date one (1) Edwards Share for every five
(5) Baxter Shares outstanding and held of record by such holder as of the Record
Date.
"Edwards Employees" has the meaning specified in Section 12.1.
----------------- ------------
"Edwards EU Holdings" has the meaning specified in Section 3.17(a).
------------------- ---------------
"Edwards Foreign Employees" has the meaning specified in Section 12.4.
------------------------- ------------
"Edwards Foreign Entity" means any Subsidiary of Baxter that is
----------------------
located or incorporated in a jurisdiction outside the United States and will,
upon consummation of the transactions contemplated by this Agreement, become a
Subsidiary of Edwards.
"Edwards France" has the meaning specified in Section 3.20(a).
-------------- ---------------
"Edwards Germany" has the meaning specified in Section 3.18(b)(i).
--------------- ------------------
"Edwards Germany Holdings" has the meaning specified in Section
------------------------ -------
3.18(a)(i).
- ----------
"Edwards Holdings Switzerland" has the meaning specified in Section
---------------------------- -------
3.31.
- ----
"Edwards Indemnified Parties" has the meaning specified in Section
--------------------------- -------
15.3.
- ----
"Edwards Italy" has the meaning specified in Section 3.21(a).
------------- ---------------
"Edwards Korea" has the meaning specified in Section 3.13(a).
------------- ---------------
"Edwards Lifesciences AG" has the meaning specified in Section
----------------------- -------
3.16(a)(i).
- ----------
"Edwards LLC" has the meaning specified in Section 4.1(a).
----------- --------------
"Edwards Mexico" has the meaning specified in Section 3.15(e).
-------------- ---------------
-8-
<PAGE>
"Edwards Netherlands" has the meaning specified in Section 3.23(a).
------------------- ---------------
"Edwards PR Employees" has the meaning specified in Section 12.9(b).
-------------------- ---------------
"Edwards PR Pension Plan" has the meaning specified in Section
----------------------- -------
12.9(c).
- -------
"Edwards PR Savings Plan" has the meaning specified in Section
----------------------- -------
12.9(b).
- -------
"Edwards Products" means those products manufactured by Edwards or its
----------------
Subsidiaries (as they would exist immediately following the Distribution Date)
(excluding products manufactured by Edwards or its Subsidiaries for the Retained
Business but including those products manufactured for Edwards and its
Subsidiaries by Baxter or its Subsidiaries pursuant to the Manufacturing
Contracts).
"Edwards Puerto Rico (936)" has the meaning specified in Section
------------------------- -------
3.2(a).
- ------
"Edwards Puerto Rico (MS&P)" has the meaning specified in Section
-------------------------- -------
3.3(a).
- ------
"Edwards Savings Plan" has the meaning specified in Section 12.8(b).
-------------------- ---------------
"Edwards Severance Pay Plan" has the meaning specified in Section
-------------------------- -------
12.8(b).
- -------
"Edwards Share" means one share of Edwards Common Stock.
-------------
"Edwards Spain" has the meaning specified in Section 3.25(a).
------------- ---------------
"Edwards Stock Purchase Plans" means the Edwards Lifesciences
----------------------------
Corporation Employee Stock Purchase Plan for United States Employees and the
Edwards Lifesciences Corporation Stock Purchase Plan for International
Employees.
"Edwards Swiss Commissionaire" has the meaning specified in Section
---------------------------- -------
3.16(c)(i).
- ----------
"Edwards Uden" has the meaning specified in Section 3.24(a).
------------ ---------------
"Edwards UK" has the meaning specified in Section 3.26(a).
---------- ---------------
"Edwards U.S." has the meaning specified in Section 4.1(b).
------------ --------------
"Edwards U.S. Employees" has the meaning specified in Section 12.9.
---------------------- ------------
"Edwards Welfare Plans" has the meaning specified in Section 12.9.
--------------------- ------------
"Edwards World Trade" has the meaning specified in Section 3.1.
------------------- -----------
"ELIPL" means Edwards Lifesciences (India) Private Limited, a company
-----
organized under the laws of India.
"Escalation Notice" has the meaning specified in Section 16.2.
----------------- ------------
-9-
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
(together with the rules and regulations promulgated thereunder).
"Exclusively" (and, with correlative meaning, "Exclusive") means, when
----------- ---------
used in connection with the Edwards Business, used only with or relating only to
the Edwards Business.
"Expenses" means any and all expenses incurred in connection with
--------
investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter indemnified against hereunder (including court filing
fees, court costs, arbitration fees or costs, witness fees, and reasonable fees
and disbursements of legal counsel, investigators, expert witnesses,
consultants, accountants and other professionals).
"FESCO" has the meaning specified in Section 3.8(d).
----- --------------
"F.R.C.P." has the meaning specified in Section 16.4.
-------- ------------
"Foreign Exchange Rate" means, with respect to any currency other than
---------------------
United States dollars, as of any date of determination, the average of the
opening bid and asked rates on such date at which such currency may be exchanged
for United States dollars as quoted by Bank One, NA.
"Foreign Subsidiaries" has the meaning specified in Section 4.3.
-------------------- -----------
"German Accounts Payable Amount" has the meaning specified in Section
------------------------------ -------
9.6(g).
- ------
"German Accounts Receivable Amount" has the meaning specified in
---------------------------------
Section 9.6(g).
- --------------
"Governmental Authority" means any foreign, federal, state, local or
----------------------
other government, governmental, statutory or administrative authority,
regulatory body or commission or any court, tribunal or judicial or arbitral
body.
"Governmental Permits" has the meaning specified in paragraph (i) of
--------------------
the definition of "Transferred Assets."
"Implementation Agreements" means the agreements implementing the
-------------------------
transactions referred to in Articles III, IV and V, including the agreements set
------------ -- -
forth on the closing lists with respect to the transactions described in
Articles III, IV and V.
- ------------ -- -
"Indemnified Party" has the meaning specified in Section 15.5(a).
----------------- ---------------
"Indemnifying Party" has the meaning specified in Section 15.5(a).
------------------ ---------------
"Indemnity Payment" has the meaning specified in Section 15.5(a).
----------------- ---------------
"Information" has the meaning specified in Section 17.1(a).
----------- ---------------
-10-
<PAGE>
"Information Statement" has the meaning specified in Section 9.2(a).
--------------------- --------------
"Insurance Amount" has the meaning specified in Section 13.5.
---------------- ------------
"Insurance Charges" has the meaning specified in Section 13.7.
----------------- ------------
"Insurance Proceeds" means those monies (i) received by an insured
------------------
from an insurance carrier, (ii) paid by an insurance carrier on behalf of the
insured or (iii) received from any third Person in the nature of insurance,
contribution or indemnification in respect of any Liability, in each such case
net of any applicable premium adjustments (including reserves and
retrospectively rated premium adjustments) and net of any costs or expenses
(including allocated costs of in-house counsel and other personnel) incurred in
the collection thereof.
"Insured Claims" means those liabilities that, individually or in the
--------------
aggregate, are covered within the terms and conditions of any of the Baxter
Policies, whether or not subject to deductibles, co-insurance, uncollectability,
premium adjustments (including reserves), retrospectively-rated premium
adjustments or retentions, but only to the extent that such liabilities are
within applicable Baxter Policy limits, including aggregates and deductibles.
"Intellectual Property" means (a) Copyrights, (b) Patents, (c)
---------------------
Trademarks, (d) business and non-technical information, (e) non-patented or non-
patentable technical information, inventions, processes and formulations and (f)
discoveries, trade secrets, know-how and technical data.
"Intercompany Agreements" means any Contract between Baxter and
-----------------------
Edwards entered into on or before the Distribution Date.
"Intercompany Receivables and Payables" means any intercompany
-------------------------------------
receivables and payables (other than Loans) arising in the ordinary course of
business.
"Inventory Amount" has the meaning specified in Section 9.6(g).
---------------- --------------
"IRS" means the Internal Revenue Service.
---
"Liability" means any and all debts, liabilities and obligations,
---------
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising (unless otherwise
specified in this Agreement), including all costs and expenses relating thereto,
and including those debts, liabilities and obligations arising under any law,
rule, regulation, Action, threatened Action, order or consent decree of any
Governmental Authority or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
"Licensed Baxter Intellectual Property" has the meaning specified in
-------------------------------------
Section 10.2(a).
- ---------------
"Licensed Edwards Intellectual Property" has the meaning specified in
--------------------------------------
Section 10.1(a).
- ---------------
-11-
<PAGE>
"Loan" means any intercompany indebtedness for borrowed money.
----
"Losses" means any and all losses, costs, obligations, liabilities,
------
settlement payments, awards, judgments, fines, penalties, damages, fees,
expenses, deficiencies, claims or other charges, absolute or contingent, matured
or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown
(including the costs and expenses of any and all Actions, threatened Actions,
demands, assessments, judgments, settlements and compromises relating thereto
and attorneys' fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any such Actions or threatened
Actions).
"Macchi" has the meaning specified in Section 3.6.
------ -----------
"Manufacturing Contracts" means the agreements set forth in Exhibit C
----------------------- ---------
hereto under the caption "Manufacturing Agreements."
"Material Governmental Approvals and Consents" means any material
--------------------------------------------
notices, reports or other filings to be made with or to, or any consents,
registrations, approvals, permits, clearances or authorizations to be obtained
from, any Governmental Authority.
"New Product" means a product that is either (a) based upon the design
-----------
of a product that is manufactured and distributed prior to the Distribution
Date, but the design of which is modified from such pre-existing product by
changing the size or other dimensions, the materials or the manufacturing
process; or (b) a replacement for a product that is manufactured and distributed
prior to the Distribution Date but has an improved feature or property while
retaining the overall functionality of such pre-existing product.
"NYSE" means the New York Stock Exchange, Inc. or any successor
----
thereto.
"Operating Agreements" means the agreements set forth in Exhibit B
-------------------- ---------
hereto and any other agreements between Baxter and Edwards and their respective
Affiliates regarding their ongoing business and service relationships following
the Distribution entered into in contemplation of the Distribution.
"Party" means Baxter or Edwards.
-----
"Pas Palzer KG" has the meaning specified in Section 3.18.
------------- ------------
"Pas Palzer Verwaltungs" has the meaning specified in Section 3.18.
---------------------- ------------
"Patents" means United States and foreign patents and applications for
-------
patents, including any continuations, continuations-in-part, re-examinations,
patents by addition, Supplemental Protection Certificates, patent term
extensions, divisions, renewals, reissues and extensions thereof.
"Person" means any individual, corporation, partnership, joint
------
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or Governmental Authority.
-12-
<PAGE>
"Personal Property Leases" has the meaning specified in paragraph
------------------------
(h)(xi) of the definition of "Transferred Assets."
"PR Transferred Accounts" has the meaning specified in Section
----------------------- -------
12.9(b).
- -------
"PR Transferred Accrued Benefits" has the meaning specified in Section
------------------------------- -------
12.9(c).
- -------
"Pre-Distribution Claims Administration" has the meaning specified in
--------------------------------------
Section 13.6.
- ------------
"Prime Rate" means the rate that Bank One, NA (or any successor
----------
thereto or other major money center commercial bank agreed to by the Parties)
announces from time to time as its prime lending rate, as in effect from time to
time.
"Privilege" or "Privileges" has the meaning specified in Section
--------- ---------- -------
17.8(a).
- -------
"Privileged Information" has the meaning specified in Section 17.8(a).
---------------------- ---------------
"Products" has the meaning specified in Section 9.11.
-------- ------------
"Real Estate Leases" has the meaning specified in paragraph (e) of the
------------------
definition of "Transferred Assets."
"Receivables" has the meaning specified in paragraph (b)(i) of the
-----------
definition of "Transferred Assets."
"Record Date" means the date determined by the Board of Directors of
-----------
Baxter, or a duly authorized committee thereof, as the record date for
determining stockholders of Baxter entitled to receive shares of Edwards Common
Stock in the Distribution.
"Refund Amount" has the meaning specified in Section 9.7(f).
------------- --------------
"Refund Notice" has the meaning specified in Section 9.7(f).
------------- --------------
"Registration Statement" has the meaning specified in Section 9.2(a).
---------------------- --------------
"Retained Assets" has the meaning specified in Section 6.1.
--------------- -----------
"Retained Baxter Intellectual Property" means all of the Intellectual
-------------------------------------
Property owned by Baxter or its Subsidiaries as of the Distribution Date other
than the Transferred Intellectual Property.
"Retained Business" means those portions of the business of Baxter and
-----------------
its current Subsidiaries that are not part of the Edwards Business.
"Retained Liabilities" has the meaning specified in Section 6.2.
-------------------- -----------
"Rights Plan" means the rights plan referred to in Section 5.1.
----------- -----------
-13-
<PAGE>
"SEC" means the United States Securities and Exchange Commission.
---
"Shared Agreements" has the meaning specified in Section 9.8(a).
----------------- --------------
"Software" means computer software programs, in source code and object
--------
code form, including all related source diagrams, flow charts, specifications,
documentation and all other materials necessary to allow a reasonably skilled
third-party programmer or technician to maintain, support and enhance the
Software.
"Subsidiary" means, when used with reference to any Person, any
----------
corporation or other organization whether incorporated or unincorporated of
which at least a majority of the securities or interests having by the terms
thereof ordinary voting power to elect at least a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such Person or by any one or more of its Subsidiaries, or by such Person and
one or more of its Subsidiaries; provided, however, that no Person that is not
-------- -------
directly or indirectly wholly-owned by any other Person shall be a Subsidiary of
such other Person unless such other Person controls, or has the right, power or
ability to control, that Person.
"Swiss Sales Branch" has the meaning, specified in Section 3.16.
------------------ ------------
"Tax" (and, with correlative meaning, "Taxes" and "Taxable") means:
--- ----- -------
(i) any federal, state, local or foreign net income, gross income,
gross receipts, windfall profit, severance, property, production, sales,
use, license, excise, franchise, employment, payroll, withholding,
alternative or add-on minimum, ad valorem, value-added, transfer, stamp, or
environmental tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest or penalty, addition to tax or additional amount imposed by any
Governmental Authority; and
(ii) any liability of either Party for the payment of amounts with
respect to payments of a type described in clause (i) as a result of being
a member of an affiliated, consolidated, combined or unitary group, or as a
result of any obligation of either Party under any Tax sharing arrangement
or Tax indemnity arrangement.
"Tax Sharing Agreement" means the tax sharing agreement in
---------------------
substantially the form of Exhibit C hereto.
---------
"Third Party Claim" has the meaning specified in Section 15.6(a).
----------------- ---------------
"Third Party Consents" has the meaning specified in Section 9.14.
-------------------- ------------
"Trademarks" means all United States, state and foreign trademarks,
----------
service marks, trade names and service names (including all assumed or
fictitious names under which Baxter is conducting the Edwards Business), whether
registered or unregistered, including all common law rights in and all goodwill
associated with the foregoing, and all registrations and pending applications to
register the foregoing.
-14-
<PAGE>
"Transfer Agent" means First Chicago Trust Company of New York, a
--------------
division of EquiServe, the distribution agent appointed by Baxter to distribute
shares of Edwards Common Stock pursuant to the Distribution.
"Transferred Accounts" has the meaning specified in Section 12.9(a).
-------------------- ---------------
"Transferred Actions" has the meaning specified in Section 9.10(b).
------------------- ---------------
"Transferred Assets" means the tangible and intangible assets,
------------------
properties, rights and interests relating Exclusively to the Edwards Business
(excluding the Retained Assets), including the following:
(a) Balance Sheet Assets. All assets reflected or disclosed on the
--------------------
audited balance sheet of the Edwards Business as of December 31, 1999 contained
in the Registration Statement (the "Balance Sheet"), including all machinery,
-------------
equipment, furniture and other tangible personal property, whether owned or
leased, used Exclusively in the operation of the Edwards Business, subject to
acquisitions, dispositions and adjustments in the ordinary course of the Edwards
Business, consistent with past practice, after such date;
(b) Receivables.
-----------
(i) All accounts receivable, notes receivable, lease receivables,
prepayments (other than prepaid insurance), advances and other receivables
arising out of or produced by the Edwards Business and owing by any Persons
(the "Receivables");
-----------
(ii) all payments received after the Distribution Date on account of
the Receivables ;
(iii) all manufacturers' warranties or guarantees related to the
Transferred Assets or related to any of the Assumed Liabilities; and
(iv) any and all manufacturers' or third-party service or replacement
programs relating to the Transferred Assets;
(c) Inventories.
-----------
(i) All work-in-process, finished goods and spare parts inventory of
Edwards Products, other than (x) finished goods inventory (including
inventory in transit) in the jurisdictions set forth in Schedule 6.1(h) and
---------------
(y) Edwards Products manufactured by Baxter or one of its Subsidiaries and
with respect to which title has not yet passed to Edwards or one of its
Subsidiaries pursuant to the terms of the Manufacturing Contracts or
Baxter's past practices;
(ii) all raw materials inventory related to Edwards Products other
than Edwards Products manufactured by Baxter or one of its Subsidiaries
pursuant to the Manufacturing Contracts;
-15-
<PAGE>
(iii) all supplies, packaging and other inventories related to the
Edwards Business but excluding any such items in the possession of Baxter
or one of its Subsidiaries that relate to Edwards Products manufactured by
Baxter or one of its Subsidiaries pursuant to the Manufacturing Contracts;
and
(iv) rights with respect to consignment inventory of Edwards
Products held by others;
(d) Owned Real Property. Those certain parcels of land set forth
-------------------
on Schedule 1.2(d) hereto, together with any and all buildings and other
---------------
structures and improvements thereon, any and all rights and privileges
pertaining thereto or to any of such buildings or other structures or
improvements, including all ownership interests, oil and mineral interests,
water rights, easements, permits, licenses, rights of way, leases, and purchase
and option agreements with respect to real property, and, to the extent
constituting real property, any and all fixtures, machinery, equipment and other
property attached thereto or located thereon (other than equipment and furniture
located in property to be retained by Baxter or its Subsidiaries hereunder) and
all other rights and interests of any nature in and to any such real estate or
other real estate of the Edwards Business;
(e) Real Property Leases. Those certain real estate leases set
--------------------
forth on Schedule 1.2(e) hereto including any amendments thereto (collectively
the "Real Estate Leases") and all rights to use the leased premises including
------------------
any and all improvements, fixtures, machinery, equipment and other property
located on the premises demised under such Real Estate Leases (other than
equipment and furniture located in property to be retained by Baxter or its
Subsidiaries hereunder);
(f) Vehicles and Aircraft. All vehicles and aircraft used
---------------------
Exclusively in connection with the Edwards Business, whether owned or leased,
including the interests in the aircraft set forth on Schedule 1.2(f) hereto;
---------------
(g) Intellectual Property. All of the following Intellectual
---------------------
Property (collectively, the "Transferred Intellectual Property") along with (1)
---------------------------------
the right to sue, recover and retain such recoveries for infringement of the
Transferred Intellectual Property occurring prior to the Distribution Date, and
(2) the right to continue in the name of Baxter any actions for infringement of
the Transferred Intellectual Property pending as of the Distribution Date and to
recover and retain such recoveries therefrom:
(i) All business and non-technical information; non-patented or
non-patentable technical information, inventions, processes and
formulations; and discoveries, trade secrets, know-how and technical data
(A) used Exclusively in connection with the Edwards Business as of the
Distribution Date and made or conceived by employees, consultants or
contractors of Baxter or its Subsidiaries or any third-party; or (B) to be
used Exclusively in connection with the Edwards Business and to be made or
conceived by third parties pursuant to Contracts with said third parties;
(ii) All Patents used Exclusively in connection with the Edwards
Business as of the Distribution Date (including all such Patents set forth
on Schedule 1.2(g)(ii)
-------------------
-16-
<PAGE>
hereto), all other Patents set forth on Schedule 1.2(g)(ii) hereto that are
-------------------
not used Exclusively in connection with the Edwards Business (if any), and
all invention records set forth on Schedule 1.2(g)(ii) hereto;
-------------------
(iii) All Copyrights used Exclusively in connection with the Edwards
Business as of the Distribution Date; and
(iv) All Trademarks used Exclusively in connection with the Edwards
Business as of the Distribution Date (including all such Trademarks set
forth on Schedule 1.2(g)(iv)), all other Trademarks set forth on Schedule
------------------- --------
1.2(g)(iv) that are not used Exclusively in connection with the Edwards
----------
Business (if any), and all common law rights in the EDWARDS, EDWARDS
LABORATORIES, EDLABS, EDWARDS CARDIOVASCULAR SYSTEM, EDWARDS CVS, EDWARDS
CARDIOVASCULAR SURGERY, EDWARDS CRITICAL CARE, EDWARDS LIS and EDWARDS LESS
INVASIVE SURGERY marks (whether used Exclusively in connection with the
Edwards Business or not);
(h) Contracts. All of the following Contracts (such Contracts being
---------
referred to as the "Edwards Contracts"):
-----------------
(i) all Contracts related Exclusively to the Edwards Business
related to acquisitions or divestitures of assets or stock, including
Contracts related to the transactions set forth on Schedule 1.2(h)(i)
------------------
hereto, except to the extent any such Contracts relate to the Retained
Business;
(ii) all Contracts with customers Exclusive to the Edwards Business,
including those set forth on Schedule 1.2(h)(ii) hereto but only if the
-------------------
Contracts so set forth are actually Exclusive to the Edwards Business;
(iii) all customer leases under which the underlying equipment is the
Exclusive marketing responsibility of Edwards;
(iv) all government Contracts Exclusive to the Edwards Business,
including those set forth on Schedule 1.2(h)(iv) hereto;
-------------------
(v) all supplier Contracts Exclusive to the Edwards Business
relating either to raw materials or distributed products, including those
set forth on Schedule 1.2(h)(v) hereto;
------------------
(vi) all joint development and confidentiality Contracts Exclusive
to the Edwards Business, including those set forth on Schedule 1.2(h)(vi)
------------------
hereto but only if the Contracts so set forth are actually Exclusive to the
Edwards Business;
(vii) all consulting Contracts Exclusive to the Edwards Business,
including those set forth on Schedule 1.2(h)(vii) hereto but only if the
--------------------
Contracts so set forth are actually Exclusive to the Edwards Business;
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<PAGE>
(viii) all third-party distribution Contracts Exclusive to the Edwards
Business, including those set forth on Schedule 1.2(h)(viii) hereto but only if
---------------------
the Contracts so set forth are actually Exclusive to the Edwards Business;
(ix) all manufacturing Contracts Exclusive to the Edwards Business;
(x) the Shared Agreements, if any, set forth on Schedule 9.8 hereto
------------
that are specifically designated on such Schedule 9.8 as being assigned to
------------
Edwards;
(xi) those certain machinery, equipment or other tangible personal
property leases Exclusive to the Edwards Business (the "Personal Property
-----------------
Leases") set forth on Schedule 1.2(h)(xi) hereto but only if the Contracts
------ -------------------
so set forth are actually Exclusive to the Edwards Business;
(xii) the portion of the Contracts related to derivatives set forth
on Schedule 1.2(h)(xii) equal to the amount set forth on such Schedule
-------------------- --------
1.2(h)(xii); and
- -----------
(xiii) all other Contracts Exclusive to the Edwards Business,
including those set forth on Schedule 1.2(h)(xiii) hereto but only if the
---------------------
Contracts so set forth are actually Exclusive to the Edwards Business;
(i) Permits and Licenses. All permits, approvals, licenses,
--------------------
franchises, authorizations, product registrations or other rights granted by any
Governmental Authority held or applied for and that are used Exclusively in the
Edwards Business or that relate Exclusively to the Transferred Assets or any of
the Transferred Subsidiaries, and all other consents, grants and other rights
that are used Exclusively for the lawful ownership of the Transferred Assets or
the operation of the Edwards Business (collectively, "Governmental Permits")
--------------------
including, in each case, those set forth on Schedule 1.2(i) hereto;
---------------
(j) Claims and Indemnities. All rights, claims, demands, causes of
----------------------
action, judgments, decrees, general releases, settlement agreements and rights
to indemnity or contribution, whether contractual or otherwise, in favor of
Baxter or any of its Subsidiaries relating Exclusively to the Edwards Business
or the Transferred Assets, including those set forth on Schedule 1.2(j) hereto,
---------------
including the right to sue, recover and retain such recoveries and the right to
continue in the name of Baxter and its Subsidiaries any pending actions relating
to the foregoing, and to recover and retain any damages therefrom, but not
including any such rights, claims, demands, causes of action, judgments, decrees
and rights to indemnity or contribution relating to the Retained Assets,
including in particular any third-party distribution agreements that are
excluded from the Transferred Assets because Baxter or one of its Subsidiaries
is retaining it in its capacity as distributor for Edwards after the
Distribution Date;
(k) Subsidiaries, Joint Ventures and Minority Interests. All shares
---------------------------------------------------
of capital stock or equity or debt or other interests owned by Baxter or its
Subsidiaries in the Subsidiaries, joint ventures and minority investments set
forth on Schedule 1.2(k) hereto;
---------------
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<PAGE>
(l) Books And Records. All books and records (including all records
-----------------
pertaining to customers, suppliers and personnel), wherever located, that
relate Exclusively to the Edwards Business;
(m) Supplies. All office supplies, production supplies, spare parts,
--------
purchase orders, forms, labels, shipping material, art work, catalogues, sales
brochures, operating manuals and advertising and promotional material and all
other printed or written material that relate Exclusively to the Edwards
Business;
(n) Intellectual Property Licenses. All permits, grants, contracts,
agreements and licenses running to or from Baxter or its Subsidiaries relating
to the Transferred Intellectual Property, including those set forth on Schedule
--------
1.2(n) hereto;
- ------
(o) Software. All (i) Software set forth on Schedule 1.2(o) hereto,
-------- ---------------
(ii) shrink-wrapped Software located on hardware included in the Transferred
Assets and (iii) any Contracts related to the aforementioned Software
including those set forth on Schedule 1.2(o) hereto;
---------------
(p) Internet Protocol Addresses. All Class "C" Internet Protocol
---------------------------
addresses set forth on Schedule 1.2(p) hereto; and
---------------
(q) Other Assets. All other assets, tangible or intangible,
------------
including all goodwill, that are Exclusive to the operations of, or otherwise
relate Exclusively to, the Edwards Business, including those set forth on
Schedule 1.2(q) hereto.
- ---------------
"Transferred Intellectual Property" means the Intellectual Property
---------------------------------
described in paragraph (g) of the definition of "Transferred Assets."
"Transferred Subsidiaries" means the Subsidiaries of Baxter set forth
------------------------
on Exhibit D hereto, the issued and outstanding shares of which will be
---------
transferred to Edwards or one or more of its Subsidiaries.
"True-Up Balance Sheet" has the meaning specified in Section 9.6(g).
--------------------- --------------
"Uden Manufacturing Facility" has the meaning specified in Section
--------------------------- -------
3.24.
- ----
"Unbudgeted Transfer Adjustment" has the meaning specified in Section
------------------------------ -------
9.6(a).
- ------
"Under Development" has the meaning specified in Section 10.1(a).
----------------- ---------------
"Variance Amount" has the meaning specified in Section 9.6(g).
--------------- --------------
"WARN Act" has the meaning specified in Section 12.6.
-------- ------------
"Xenomedica" has the meaning specified in Section 3.16.
---------- ------------
1.2. Interpretation. (a) In this Agreement, unless the context
--------------
clearly indicates otherwise:
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<PAGE>
(i) words used in the singular include the plural and words in the
plural include the singular;
(ii) reference to any Person includes such Person's successors and
assigns, but only if such successors and assigns are permitted by this
Agreement;
(iii) reference to any gender includes the other gender;
(iv) the word "including" (and with correlative meaning "include")
means "including but not limited to";
(v) reference to any Article, Section, Exhibit or Schedule means
such Article or Section of, or such Exhibit or Schedule to, this Agreement,
as the case may be, and references in any Section or definition to any
clause means such clause of such Section or definition;
(vi) the words "herein," "hereunder," "hereof," "hereto" and words
of similar import shall be deemed references to this Agreement as a whole
and not to any particular Section or other provision hereof;
(vii) reference to any agreement, instrument or other document means
such agreement, instrument or other document as amended, supplemented and
modified from time to time to the extent permitted by the provisions thereof and
by this Agreement;
(viii) reference to any law (including statutes and ordinances) means
such law (including all rules and regulations promulgated thereunder) as
amended, modified, codified or reenacted, in whole or in part, and in effect at
the time of determining compliance or applicability;
(ix) relative to the determination of any period of time, "from"
means "from and including," "to" means "to but excluding" and "through" means
"through and including";
(x) accounting terms used herein shall have the meanings
historically ascribed to them by Baxter and its Subsidiaries based upon Baxter's
internal financial policies and procedures in effect prior to the date of this
Agreement;
(xi) in the event of any conflict between the provisions of the body
of this Agreement and the Exhibits or Schedules hereto, the provisions of the
body of this Agreement shall control;
(xii) the titles to Articles and headings of Sections contained in
this Agreement have been inserted for convenience of reference only and shall
not be deemed to be a part of or to affect the meaning or interpretation of this
Agreement; and
(xiii) references to "dollars" or "$" shall mean United States Dollars
unless otherwise indicated.
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<PAGE>
(b) This Agreement was negotiated by the Parties with the benefit of
legal representation, and no rule of construction or interpretation otherwise
requiring this Agreement to be construed or interpreted against either Party
shall apply to any construction or interpretation hereof. Subject to Section
-------
18.5, this Agreement shall be interpreted and construed to the maximum extent
- ----
possible so as to uphold the enforceability of each of the terms and provisions
hereof, it being understood and acknowledged that this Agreement was entered
into by the Parties after substantial negotiations and with full awareness by
the Parties of the terms and provisions hereof and the consequences thereof.
ARTICLE II
THE DISTRIBUTION
----------------
2.1. Issuance and Delivery of Edwards Shares. Edwards shall issue
---------------------------------------
to Baxter the number of Edwards Shares required so that the total number of
Edwards Shares held by Baxter on the Distribution Date is equal to the total
number of Edwards Shares distributable pursuant to Section 2.2. Baxter shall
-----------
deliver to the Transfer Agent one or more stock certificates representing all
the Edwards Shares then issued and outstanding, together with one or more stock
power(s) duly endorsed in blank. The Transfer Agent will then transfer and
distribute such shares in the manner described in Section 2.2 below.
-----------
2.2. Distribution of Edwards Shares. Edwards shall provide to the
------------------------------
Transfer Agent sufficient certificates in such denominations as the Transfer
Agent may request in order to effect the Distribution. Promptly following the
Distribution Date, Baxter shall instruct the Transfer Agent to distribute to all
holders of record of Baxter Common Stock as of the Record Date the Edwards
Distributable Share. All the distributed Edwards Shares shall be validly issued,
fully paid and nonassessable and shall be free of any preemptive rights.
2.3. Treatment of Fractional Shares. No certificates or scrip
------------------------------
representing fractional Edwards Shares shall be issued in the Distribution. In
lieu of receiving fractional shares, each holder of Baxter Common Stock who
otherwise would be entitled to receive a fractional Edwards Share pursuant to
the Distribution will receive cash (rounded to the nearest cent) for such
fractional share. Baxter and Edwards shall instruct the Transfer Agent to
determine the number of whole Edwards Shares and fractional Edwards Shares
(rounded to the eighth decimal place) allocable to each holder of record of
Baxter Common Stock as of the Record Date, to aggregate all such fractional
shares into whole shares and to sell the whole shares obtained thereby in the
open market at the then prevailing prices on behalf of holders who otherwise
would be entitled to receive fractional share interests, and the Transfer Agent
shall distribute to each such holder such holder's ratable share of the total
proceeds of such sale after making appropriate deductions of any amounts
required for federal tax withholding purposes and after deducting any taxes
attributable to the sale of such fractional share interests. Baxter shall bear
the costs of commissions incurred in connection with such sales.
2.4. Baxter Board Action. The Board of Directors of Baxter, or a
-------------------
duly authorized committee of the Board of Directors, shall, in its sole
discretion, determine the
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<PAGE>
Record Date and the Distribution Date and all appropriate procedures in
connection with the Distribution. The Board of Directors of Baxter or such
committee also shall have the right to adjust at any time prior to the
Distribution Date the Edwards Distributable Share. The consummation of the
transactions provided for in this Article II shall be effected only after the
----------
Distribution has been declared by the Board of Directors of Baxter or such
committee and after all of the conditions set forth in Article XI hereof shall
----------
have been satisfied or waived by Baxter.
2.5. Additional Approvals. Baxter shall cooperate with Edwards in
--------------------
effecting, and if so requested by Edwards, Baxter shall, as the sole stockholder
of Edwards prior to the Distribution, ratify all actions that are reasonably
necessary or desirable to be taken by Edwards to effectuate, the transactions
referenced in or contemplated by this Agreement in a manner consistent with the
terms of this Agreement.
ARTICLE III
FOREIGN TRANSFERS
-----------------
3.1. Edwards Lifesciences World Trade. Baxter has caused to be
--------------------------------
incorporated, under the General Corporation Law of Delaware, Edwards
Lifesciences World Trade Corporation ("Edwards World Trade") as a wholly-owned
-------------------
Subsidiary of Baxter World Trade Corporation, a Delaware corporation and a
wholly-owned Subsidiary of Baxter ("Baxter World Trade"). Edwards World Trade
------------------
has been qualified as a foreign corporation under the General Corporation Law of
California. Subject to the terms and conditions of this Agreement, Baxter and
Edwards hereby agree to take, or cause to be taken, any and all actions
necessary to effect the transactions described in this Article III, with each
-----------
transaction occurring at the approximate times and/or in the order described in
Schedule 3.1 hereto.
- ------------
3.2. Puerto Rico (936). Baxter and Edwards hereby agree to take any
-----------------
and all actions necessary to effect the transfer to Edwards World Trade of all
of the right, title and interest of Baxter Healthcare Corporation of Puerto
Rico, an Alaska corporation and a wholly-owned Subsidiary of Baxter Pharmacy
Services ("Baxter Alaska"), in and to the Anasco division of Baxter Alaska which
-------------
is engaged in the Edwards Business, and all of the Transferred Assets and the
Assumed Liabilities related thereto (the "Anasco Division"), as follows:
---------------
(a) Edwards Lifesciences Corporation of Puerto Rico ("Edwards Puerto
--------------
Rico (936)") shall be incorporated as a Delaware corporation;
- ----------
(b) Edwards Puerto Rico (936) shall be qualified as a foreign
corporation under the laws of Puerto Rico;
(c) Baxter Alaska shall transfer to Edwards Puerto Rico (936) all of
its right, title and interest in and to the Anasco Division in return for 100
shares of capital stock of Edwards Puerto Rico (936);
(d) Baxter Alaska shall transfer to Baxter Pharmacy Services all of
its right, title and interest in and to the capital stock of Edwards Puerto Rico
(936);
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<PAGE>
(e) Baxter Pharmacy Services shall transfer to Baxter World Trade as
a dividend, all of its right, title and interest in and to the capital stock of
Edwards Puerto Rico (936) as described in Section 3.3(e) below;
--------------
(f) Baxter World Trade shall transfer to Edwards World Trade as a
contribution to capital, all of its right, title and interest in and to the
capital stock of Edwards Puerto Rico (936) as described in Section 3.3(f) below;
--------------
(g) Edwards World Trade shall transfer to Edwards Puerto Rico (MS&P)
as a contribution to capital, all of its right, title and interest in and to the
capital stock of Edwards Puerto Rico (936) as described in Section 3.3(g)
--------------
below; and
(h) After the Distribution Date, at the option of Edwards, Edwards
Puerto Rico (936) shall transfer to Edwards Lifesciences AG or its designated
affiliate, by novation, all of its right, title and interest in and to certain
Transferred Assets and the Assumed Liabilities transferred to Edwards Puerto
Rico (936) by Baxter Alaska as part of the Anasco Division, which assets and
liabilities relate to the Edwards Business conducted in the Dominican Republic
prior to the Distribution Date, in return for cash or other consideration equal
to the fair market value of such Transferred Assets net of such Assumed
Liabilities, plus the assumption of such Assumed Liabilities.
3.3. Puerto Rico (MS&P). Baxter and Edwards hereby agree to take any
------------------
and all actions necessary to effect the transfer to Edwards World Trade of all
of the right, title and interest in and to the Transferred Assets and the
Assumed Liabilities held by Baxter Pharmacy Services, Baxter Sales and
Distribution Corp., a Delaware corporation and a wholly-owned Subsidiary of
Baxter Pharmacy Services ("Baxter Sales and Distribution"), and Edwards
-----------------------------
Lifesciences Cardiovascular Resources, Inc., a Pennsylvania corporation, as
follows:
(a) Edwards Lifesciences Sales Corporation ("Edwards Puerto Rico
-------------------
(MS&P)") shall be incorporated as a Delaware corporation and a wholly-owned
- ------
Subsidiary of Edwards World Trade;
(b) Edwards Puerto Rico (MS&P) shall be qualified as a foreign
corporation under the laws of Puerto Rico;
(c) Baxter Sales and Distribution shall transfer to Edwards Puerto
Rico (MS&P) all of its right, title and interest in and to the Transferred
Assets and the Assumed Liabilities, including those assets and liabilities
relating to the marketing and sales business conducted in Puerto Rico, in return
for cash or other consideration equal to the fair market value of such
Transferred Assets net of such Assumed Liabilities, plus the assumption of such
Assumed Liabilities;
(d) Baxter Pharmacy Services shall transfer to Edwards Puerto Rico
(MS&P) all of its right, title and interest in and to the Transferred Assets and
the Assumed Liabilities, including those assets, if any, liabilities and
employees relating to the perfusion business conducted in Puerto Rico in return
for cash or other consideration equal to the fair market value
-23-
<PAGE>
of such Transferred Assets net of such Assumed Liabilities, plus the assumption
of such Assumed Liabilities;
(e) Baxter Pharmacy Services shall transfer to Baxter World Trade as
a dividend, all of its right, title and interest in and to the capital stock of
Edwards Puerto Rico (936) as described in Section 3.2(e) above;
--------------
(f) Baxter World Trade shall transfer to Edwards World Trade as a
contribution to capital, all of its right, title and interest in and to the
capital stock of Edwards Puerto Rico (936) as described in Section 3.2(f) above;
--------------
(g) Edwards World Trade shall transfer to Edwards Puerto Rico (MS&P)
as a contribution to capital, all of its right, title and interest in and to the
capital stock of Edwards Puerto Rico (936) as described in Section 3.2(g)
--------------
above; and
(h) Edwards Lifesciences Cardiovascular Resources, Inc., a
Pennsylvania corporation, shall transfer to Edwards Puerto Rico (MS&P) all of
its right, title and interest in and to the Transferred Assets and Assumed
Liabilities, if any, relating to the perfusion business conducted in Puerto
Rico, in exchange for cash or other consideration equal to the fair market value
of such Transferred Assets net of such Assumed Liabilities, plus the assumption
of such Assumed Liabilities.
3.4. Dominican Republic. Baxter and Edwards hereby agree to take
------------------
any and all actions necessary to effect the transfer to Edwards Lifesciences AG
of all of the right, title and interest of Baxter Healthcare S. de R.L., a
company organized under the laws of Panama ("Baxter Panama"), in and to the
-------------
Transferred Assets and the Assumed Liabilities, consisting of contracts for the
construction and leasing of a manufacturing facility located in the Dominican
Republic, as follows:
(a) A branch office of Edwards Lifesciences AG shall be established
in the Dominican Republic and Edwards Lifesciences AG shall be qualified as a
foreign corporation under the laws of the Dominican Republic;
(b) Baxter Panama shall transfer to Edwards Lifesciences AG all of
its right, title and interest in and to the Transferred Assets and the Assumed
Liabilities, consisting of contracts for the construction and leasing of a
manufacturing facility located in the Dominican Republic; and
(c) After the Distribution Date, at the option of Edwards, Edwards
Puerto Rico (936) shall transfer to Edwards Lifesciences AG or its designated
affiliate, by novation, all of its right, title and interest in and to certain
Transferred Assets and the Assumed Liabilities transferred to Edwards Puerto
Rico (936) by Baxter Alaska as described in Section 3.2(h) above in return for
--------------
cash or other consideration equal to the fair market value of such Transferred
Assets net of such Assumed Liabilities, plus the assumption of such Assumed
Liabilities.
3.5. Intentionally Omitted.
---------------------
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<PAGE>
3.6. Brazil. Baxter and Edwards hereby agree to take any and all
------
actions necessary to effect the transfer to Edwards World Trade of all the
right, title and interest in Edwards Lifesciences Macchi Ltda., a Brazilian
corporation ("Macchi"), held by BPCL and BRL, as follows:
------
(a) BRL shall transfer to BPCL all of its right, title and interest
in and to 6,750,947 quotas of Macchi, together with all of its right, title and
interest in the Agreement for the Assignment and Transfer of Quotas of Macchi
and other Covenants dated December 22, 1993, in exchange for the transfer by
BPCL to BRL of all of BPCL's right, title and interest in and to 17,448,432
quotas of Baxter Hospitalar;
(b) BRL shall transfer to Edwards all of its right, title and
interest in and to 1 quota of Macchi;
(c) BPCL shall transfer to Baxter Export Corporation all of its
right, title and interest in and to 1 quota of Baxter Hospitalar;
(d) Baxter World Trade shall transfer to Edwards World Trade as a
contribution to capital all of its right, title and interest in and to
25,158,211 quotas of BPCL;
(e) Baxter Export Corporation shall transfer (i) to Edwards World
Trade all of its right, title and interest in and to 764 quotas of BPCL and (ii)
to Edwards all of its right, title and interest in and to 1 quota of BPCL; and
(f) Baxter World Trade, S.A., a company organized under the laws of
Belgium, shall transfer to Edwards Lifesciences Japan Holdings, Inc. all of
their right, title and interest in and to debt of Macchi owing to such company
in exchange for cash or other consideration equal to the face value of such debt
plus accrued interest thereon;
(g) Macchi shall repay debt, together with accrued interest thereon,
owing to Baxter Uruguay, S.A., a company organized under the laws of Uruguay, in
the amount of $5,643,000; and
(h) Edwards World Trade shall pay $2,380,000 to Baxter World Trade,
S.A. as a reduction of the debt owing to Baxter World Trade, S.A. by Baxter
Uruguay, S.A.
3.7. Canada. Baxter and Edwards hereby agree to take any and all
------
actions necessary to effect the transfer to Edwards World Trade of all of the
right, title and interest of Baxter Corporation, a company organized under the
laws of Ontario ("Baxter Canada"), in and to the Transferred Assets and the
-------------
Assumed Liabilities, which constitutes the Edwards Business conducted in Canada,
as follows:
(a) Edwards Lifesciences (Canada) Inc. ("Edwards Canada") shall be
--------------
incorporated as a Canadian corporation and a wholly-owned Subsidiary of Edwards
World Trade; and
(b) Baxter Canada shall transfer to Edwards Canada all of its right,
title and interest in and to the Transferred Assets and the Assumed Liabilities
for cash equal to the fair
-25-
<PAGE>
market value of the Transferred Assets net of such Assumed Liabilities, plus the
assumption of such Assumed Liabilities.
3.8. China. Baxter and Edwards hereby agree to take any and all
-----
actions necessary to effect the transfer to Edwards World Trade and Edwards LLC
of all of the right, title and interest of Baxter Healthcare Limited, a company
organized under the laws of Hong Kong ("Baxter Hong Kong"), and Baxter (China)
----------------
Investment Co. Ltd., a company organized under the laws of the People's Republic
of China ("Baxter China"), in and to the Transferred Assets and the Assumed
------------
Liabilities, which constitutes the Edwards Business conducted in Hong Kong and
the People's Republic of China, as follows:
(a) A representative office of Edwards World Trade shall be
established in Shanghai, China;
(b) Baxter Hong Kong and Baxter China shall each directly or
indirectly transfer to Edwards World Trade all of its respective right, title
and interest in and to the Transferred Assets and the Assumed Liabilities
(except for third-party distribution agreements, inventory and accounts
receivable and accounts payable relating to the purchase of products) in return
for cash or other consideration equal to the fair market value of such
Transferred Assets net of such Assumed Liabilities, plus the assumption of such
Assumed Liabilities;
(c) Baxter Hong Kong and Baxter China shall each directly or
indirectly transfer to Edwards LLC all of its respective right, title and
interest in and to all third-party distribution agreements relating to the
purchase of products in U.S. dollars in its name but relating Exclusively to the
Edwards Business and all accounts receivable and accounts payable relating to
such sales activity in return for cash or other consideration equal to the fair
market of such agreements and accounts receivable net of such accounts payable
and the Assumed Liabilities under such agreements, plus the assumption of such
accounts payable and the Assumed Liabilities under such agreements; and
(d) Baxter Hong Kong shall terminate the Labor Supply Contracts by
and between Baxter Hong Kong and Foreign Enterprise Services Corporation
("FESCO") or another government agency, relating to the contracting from FESCO
-----
or such other government agency of Baxter Hong Kong employees transferred to
Edwards World Trade, and Edwards World Trade shall enter into agreements with
FESCO or such other government agency providing for the same.
3.9. Taiwan. Baxter and Edwards hereby agree to take any and all
------
actions necessary to effect the transfer to Edwards World Trade and Edwards LLC
of all of the right, title and interest of Baxter Healthcare Limited, a company
organized under the laws of Taiwan ("Baxter Taiwan"), in and to the Transferred
-------------
Assets and the Assumed Liabilities, which constitutes the Edwards Business
conducted in Taiwan, as follows:
(a) A branch office of Edwards World Trade shall be established in
Taipei, Taiwan;
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<PAGE>
(b) Baxter Taiwan shall transfer to Edwards World Trade all of its
right, title and interest in and to the product registrations relating
Exclusively to the Edwards Business;
(c) Baxter Taiwan shall transfer all third-party distribution
agreements relating to the purchase of products relating Exclusively to the
Edwards Business to Edwards LLC; and
(d) Edwards World Trade Taiwan branch shall enter into an agreement
with Edwards LLC whereby the Taiwan branch of Edwards World Trade shall provide,
for a fee, certain sales and promotion activities on behalf of Edwards LLC in
connection with the distribution of Edwards Products by third-party distributors
in Taiwan.
3.10. Singapore and the Philippines. Baxter and Edwards hereby
-----------------------------
agree to take any and all actions necessary to effect the transfer to Edwards
World Trade and Edwards LLC of all of the right, title and interest of Baxter
Healthcare (Asia) Pte. Ltd., a company organized under the laws of Singapore
("Baxter Asia"), in and to the Transferred Assets and the Assumed Liabilities,
-----------
which constitutes the Edwards Business conducted in Singapore, and of Baxter
Healthcare Philippines Inc., a company organized under the laws of the
Philippines ("Baxter Philippines"), in and to the Transferred Assets and the
------------------
Assumed Liabilities, which constitutes the Edwards Business conducted in the
Philippines, as follows :
(a) A representative office of Edwards World Trade shall be
established in Singapore;
(b) Baxter Asia shall transfer to Edwards World Trade all of its
right, title and interest in and to the Transferred Assets and the Assumed
Liabilities relating Exclusively to the Edwards Business conducted in Singapore
(except for public hospital contracts, third-party distribution agreements,
inventory and accounts receivable and accounts payable relating to the purchase
of products) in return for cash or other consideration equal to the fair market
value of such Transferred Assets net of such Assumed Liabilities, plus the
assumption of such Assumed Liabilities;
(c) Baxter Asia shall transfer all of its right, title and interest
in and to certain public hospital contracts relating Exclusively to the Edwards
Business conducted in Singapore to a third-party distributor in return for its
release from its obligations under such contracts;
(d) Baxter Philippines shall transfer to third-party distributors
all of its right, title and interest in and to the product registrations in its
name but relating Exclusively to the Edwards Business conducted in the
Philippines;
(e) Baxter Asia shall transfer all of its right, title and interest
in and to the third-party distribution agreements related to the purchase of
products relating Exclusively to the Edwards Business conducted in Singapore,
Malaysia, Brunei, Indonesia, Pakistan, Sri Lanka, Taiwan, Myanmar, Laos and
Cambodia and all accounts receivable and accounts payable relating to such sales
activity to Edwards LLC in return for cash or other consideration equal to the
fair market value of such agreements and accounts receivable net of such
accounts payable
-27-
<PAGE>
and the Assumed Liabilities under such agreements, plus the assumption of such
accounts payable and the Assumed Liabilities under such agreements; and
(f) Baxter Philippines shall transfer all of its right, title and
interest in and to the third-party distribution agreements related to the
purchase of products relating Exclusively to the Edwards Business conducted in
the Philippines and all accounts receivable and accounts payable relating to
such sales activity to Edwards LLC in return for cash or other consideration
equal to the fair market value of such agreements and accounts receivable net of
such accounts payable and the Assumed Liabilities under such agreements, plus
the assumption of such accounts payable and the Assumed Liabilities under such
agreements.
3.11. Malaysia. Baxter and Edwards hereby agree to take any and all
--------
actions necessary to effect the transfer to Edwards LLC of all of the right,
title and interest of Baxter Asia in and to the Transferred Assets and the
Assumed Liabilities, which constitutes the Edwards Business conducted in
Malaysia, as follows:
(a) A representative office of Edwards World Trade shall be
established in Malaysia;
(b) Baxter Asia shall transfer all of its right, title and interest
in and to all accounts receivable and accounts payable relating to the purchase
of products relating Exclusively to the Edwards Business conducted in Malaysia
to Edwards LLC in return for cash or other consideration equal to the fair
market value of such accounts receivable net of such accounts payable, plus the
assumption of such accounts payable.
3.12. Thailand. Baxter and Edwards hereby agree to take any and all
--------
actions necessary to effect the transfer to Edwards World Trade and Edwards LLC
of all of the right, title and interest of Baxter Healthcare (Thailand) Co.,
Ltd., a company formed under the laws of Thailand ("Baxter Thailand"), in and to
---------------
the Transferred Assets and the Assumed Liabilities, which constitutes the
Edwards Business conducted in Thailand, as follows:
(a) A representative office of Edwards World Trade shall be
established in Bangkok, Thailand;
(b) Baxter Thailand shall transfer to Edwards World Trade all of its
right, title and interest in and to the fixed assets relating Exclusively to the
Edwards Business conducted in Thailand and the liabilities relating thereto in
return for cash or other consideration equal to the fair market value of such
assets net of such liabilities, plus the assumption of such liabilities;
(c) Baxter Thailand shall transfer all of its right, title and
interest in and to all bank guarantee deposits, third-party distribution
agreements relating to the purchase of products in its name but relating
Exclusively to the Edwards Business conducted in Thailand and Vietnam and all
accounts receivable relating to such sales activity to Edwards LLC in return for
cash or other consideration equal to the fair market value of such deposits,
agreements and accounts receivable net of the assumption of the Assumed
Liabilities under such agreements, plus the assumption of the Assumed
Liabilities under such agreements;
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<PAGE>
(d) Baxter Thailand shall permit product registrations in its name
but relating Exclusively to the Edwards Business conducted in Thailand to lapse,
and Osotspa Co., Ltd., a third-party distributor of Edwards Products in
Thailand, shall apply for new product registrations for such Edwards Products;
and
(e) Edwards World Trade shall reimburse Baxter Thailand for all
severance payments required to be made to Edwards Employees due to the
termination of their employment by Baxter Thailand.
3.13. Korea. Baxter and Edwards hereby agree to take any and all
-----
actions necessary to effect the transfer to Edwards World Trade of all of the
right, title and interest of Baxter Korea Co. Ltd., a company organized under
the laws of Korea ("Baxter Korea"), in and to the Transferred Assets and the
------------
Assumed Liabilities, which constitutes the Edwards Business conducted in Korea,
as follows:
(a) Edwards Lifesciences Korea Ltd. ("Edwards Korea") shall be
-------------
organized as a Korean private limited company (chusik hwesa) and a wholly-owned
Subsidiary of Edwards World Trade; and
(b) Baxter Korea shall transfer to Edwards Korea all of its right,
title and interest in and to the Transferred Assets and the Assumed Liabilities
in return for cash or other consideration equal to the fair market value of such
Transferred Assets net of such Assumed Liabilities, plus the assumption of such
Assumed Liabilities.
3.14. India. Baxter and Edwards hereby agree to take any and all
-----
actions necessary to effect the transfer to Edwards World Trade of (i) all the
right, title and interest in ELIPL held by BIPL and Sanjiv Verma and (ii) all
the remaining right, title and interest of BIPL in and to the Edwards Business
conducted in India, as follows:
(a) BIPL shall transfer to Edwards World Trade all of its right,
title and interest in and to 2,999,980 shares of capital stock of ELIPL for
29,999,800 Indian Rupees (approximately $689,000 on March 7, 2000);
(b) Sanjiv Verma shall transfer to Edwards all of his right, title
and interest in and to 20 shares of capital stock of ELIPL for 200 Indian Rupees
(approximately $4.60 on March 7, 2000);
(c) Edwards World Trade shall subscribe for 15,216,020 additional
shares of capital stock of ELIPL for 152,160,200 Indian Rupees (approximately
$3.49 million on March 7, 2000);
(d) Edwards shall subscribe for 183,980 additional shares of
capital stock of ELIPL for 1,839,800 Indian Rupees (approximately $42,200 on
March 7, 2000); and
(e) BIPL shall transfer to ELIPL all of its right, title and
interest in and to the Transferred Assets and the Assumed Liabilities as a going
concern, which constitutes the Edwards Business conducted by BIPL in return for
cash or other consideration equal to the fair
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<PAGE>
market value of such Transferred Assets net of such Assumed Liabilities, plus
the assumption of such Assumed Liabilities.
3.15. Latin America. Baxter will continue to serve as distributor
-------------
for Edwards on a short-term basis in the Latin American countries set out below.
Accordingly, Baxter will retain the inventory, accounts receivable and accounts
payable relating to the sale of products related Exclusively to the Edwards
Business conducted in each such country until the termination of the
distribution arrangement in such country. Upon termination of the distribution
arrangement, (i) Edwards shall purchase (or cause to be purchased) the
inventory, (ii) Edwards shall pay Baxter for the cost of money to Baxter of
carrying such inventory and (iii) Baxter shall continue to hold and to collect
or pay, as applicable, the accounts receivable and accounts payable, subject to
the obligations of Edwards set forth in Section 9.7(f), all as follows:
--------------
(a) Colombia.
--------
(i) Upon termination of the distribution arrangement for Colombia,
Edwards shall purchase, or cause another party to purchase, all of the
right, title and interest of Laboratorios Baxter S.A., a company formed
under the laws of Colombia ("Baxter Colombia"), in and to the inventory
---------------
relating to the sale of products related Exclusively to the Edwards
Business conducted in Colombia and all other products or equipment related
Exclusively to the Edwards Business conducted in Colombia but in the
possession of third parties;
(ii) Edwards shall indemnify Baxter Colombia against (A) the
difference, if any, between the sale price of any inventory sold pursuant
to Section 3.15(a)(i) that is included in the Retained Assets and the book
------------------
value of such inventory on the Distribution Date in U.S. dollars,
calculated using the respective Foreign Exchange Rates in effect on the
date of sale and the Distribution Date and (B) the difference, if any,
between the sale price of any replacement inventory sold pursuant to
Section 3.15(a)(i) and the cost of such inventory in U.S. dollars,
------------------
calculated using the respective Foreign Exchange Rates in effect on the
date of sale and the date of purchase of such inventory, in each case
accounting for the sale of inventory on a first-in, first-out basis. Any
payment required pursuant to this Section shall be paid simultaneously with
the sale of such inventory; and
(iii) Edwards shall, simultaneously with the sale pursuant to Section
-------
3.15(a)(i), pay to Baxter Colombia as an indemnity the time value of money
----------
to Baxter Colombia of carrying the inventory included in the Retained
Assets and any replacement inventory relating Exclusively to the Edwards
Business conducted in Colombia, from the Distribution Date through the date
of transfer of such inventory.
(b) Chile.
-----
(i) Upon termination of the distribution arrangement for Chile,
Edwards shall purchase, or cause another party to purchase, all of the
right, title and interest of Baxter de Chile Ltda., a company organized
under the laws of Chile ("Baxter Chile"), in and to the inventory relating
------------
to the sale of products related Exclusively to the Edwards Business
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<PAGE>
conducted in Chile and all other products or equipment related Exclusively
to the Edwards Business conducted in Chile but in the possession of third
parties;
(ii) Edwards shall indemnify Baxter Chile against (A) the difference,
if any, between the sale price of any inventory sold pursuant to Section
-------
3.15(b)(i) that is included in the Retained Assets and the book value of
----------
such inventory on the Distribution Date in U.S. dollars, calculated using
the respective Foreign Exchange Rates in effect on the date of sale and the
Distribution Date plus (B) the difference, if any, between the sale price
of any replacement inventory sold pursuant to Section 3.15(b)(i) and the
------------------
cost of such inventory in U.S. dollars, calculated using the respective
Foreign Exchange Rates in effect on the date of sale and the date of
purchase of such inventory, in each case accounting for the sale of
inventory on a first-in, first-out basis. Any payment required pursuant to
this Section shall be paid simultaneously with the sale of such inventory;
and
(iii) Edwards shall, simultaneously with the sale pursuant to Section
-------
3.15(b)(i), pay to Baxter Chile as an indemnity the time value of money to
----------
Baxter Chile of carrying the inventory included in the Retained Assets and
any replacement inventory relating Exclusively to the Edwards Business
conducted in Chile, from the Distribution Date through the date of transfer
of such inventory.
(c) Venezuela.
---------
(i) Upon termination of the distribution arrangement for Venezuela,
Edwards shall purchase, or cause another party to purchase, all of the
right, title and interest of Baxter de Venezuela C.A., a company organized
under the laws of Venezuela ("Baxter Venezuela"), in and to the inventory
----------------
relating to the sale of products related Exclusively to the Edwards
Business conducted in Venezuela and all other products or equipment related
Exclusively to the Edwards Business conducted in Venezuela but in the
possession of third parties;
(ii) Edwards shall indemnify Baxter Venezuela against (A) the
difference, if any, between the sale price of any inventory sold pursuant
to Section 3.15(c)(i) that is included in the Retained Assets and the book
------------------
value of such inventory on the Distribution Date in U.S. dollars,
calculated using the respective Foreign Exchange Rates in effect on the
date of sale and the Distribution Date and (B) the difference, if any,
between the sale price of any replacement inventory sold pursuant to
Section 3.15(c)(i) and the cost of such inventory in U.S. dollars,
------------------
calculated using the respective Foreign Exchange Rates in effect on the
date of sale and the date of purchase of such inventory, in each case
accounting for the sale of inventory on a first-in, first-out basis. Any
payment required pursuant to this Section shall be paid simultaneously with
the sale of such inventory; and
(iii) Edwards shall, simultaneously with the sale pursuant to Section
-------
3.15(c)(i), pay to Baxter Venezuela as an indemnity the time value of money
----------
to Baxter Venezuela of carrying the inventory included in the Retained
Assets and any replacement inventory relating Exclusively to the Edwards
Business conducted in Venezuela, from the Distribution Date through the
date of transfer of such inventory.
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<PAGE>
(d) Peru.
----
(i) Upon termination of the distribution arrangement for Peru,
Edwards shall purchase, or cause another party to purchase, all of the
right, title and interest of Laboratorios Baxter de Peru, S.A., a company
organized under the laws of Peru ("Baxter Peru"), in and to the inventory
-----------
relating to the sale of products related Exclusively to the Edwards
Business conducted in Peru and all other products or equipment related
Exclusively to the Edwards Business conducted in Peru but in the possession
of third parties;
(ii) Edwards shall indemnify Baxter Peru against (A) the difference,
if any, between the sale price of any inventory sold pursuant to Section
-------
3.15(d)(i) that is included in the Retained Assets and the book value of
----------
such inventory on the Distribution Date in U.S. dollars, calculated using
the respective Foreign Exchange Rates in effect on the date of sale and the
Distribution Date and (B) the difference, if any, between the sale price of
any replacement inventory sold pursuant to Section 3.15(d)(i) and the cost
------------------
of such inventory in U.S. dollars, calculated using the respective Foreign
Exchange Rates in effect on the date of sale and the date of purchase of
such inventory, in each case accounting for the sale of inventory on a
first-in, first-out basis. Any payment required pursuant to this Section
shall be paid simultaneously with the sale of such inventory; and
(iii) Edwards shall, simultaneously with the sale pursuant to Section
-------
3.15(d)(i), pay to Baxter Peru as an indemnity the time value of money to
----------
Baxter Peru of carrying the inventory included in the Retained Assets and
any replacement inventory relating Exclusively to the Edwards Business
conducted in Peru, from the Distribution Date through the date of transfer
of such inventory.
(e) Mexico.
------
(i) Edwards Lifesciences Mexico, S.A. de C.V. ("Edwards Mexico")
--------------
shall be incorporated as a Mexican corporation and a wholly-owned
Subsidiary of Edwards World Trade;
(ii) Baxter S.A. de C.V., a company organized under the laws of
Mexico ("Baxter Mexico"), shall transfer to Edwards Mexico all of its
-------------
right, title and interest in and to the Transferred Assets, if any, and the
Assumed Liabilities, if any, relating Exclusively to the Edwards Business
conducted in Mexico (except for third-party distribution agreements,
inventory, accounts receivable and accounts payable relating to the
purchase of products) in return for cash or other consideration equal to
the fair market value of the Transferred Assets net of such Assumed
Liabilities, plus the assumption of such Assumed Liabilities;
(iii) Upon termination of the distribution arrangement for Mexico,
Edwards Mexico shall purchase all of the right, title and interest of
Baxter Mexico in and to the inventory relating to the sale of products
related Exclusively to the Edwards Business conducted in Mexico and all
other products or equipment related Exclusively to the Edwards Business
conducted in Mexico but in the possession of third parties;
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<PAGE>
(iv) Edwards Mexico shall indemnify Baxter Mexico against (A) the
difference, if any, between the sale price of any inventory sold pursuant
to Section 3.15(e)(iii) that is included in the Retained Assets and the
--------------------
book value of such inventory on the Distribution Date in U.S. dollars,
calculated using the respective Foreign Exchange Rates in effect on the
date of sale and the Distribution Date and (B) the difference, if any,
between the sale price of any replacement inventory sold pursuant to
Section 3.15(e)(iii) and the cost of such inventory in U.S. dollars,
--------------------
calculated using the respective Foreign Exchange Rates in effect on the
date of sale and the date of purchase of such inventory, in each case
accounting for the sale of inventory on a first-in, first-out basis. Any
payment required pursuant to this Section shall be paid simultaneously with
the sale of such inventory; and
(v) Edwards shall, simultaneously with the sale pursuant to Section
-------
3.15(e)(iii), pay to Baxter Mexico as an indemnity the time value of money
------------
to Baxter Mexico of carrying the inventory included in the Retained Assets
and any replacement inventory relating Exclusively to the Edwards Business
conducted in Mexico, from the Distribution Date through the date of
transfer of such inventory.
3.16. Switzerland. Baxter and Edwards hereby agree to take any and
-----------
all actions necessary to effect the transfer to Edwards World Trade of (i) all
the right, title and interest of Baxter Edwards in and to the Transferred Assets
and the Assumed Liabilities, which constitutes the Edwards Business conducted in
Switzerland; (ii) all the right, title and interest in Xenomedica AG, a company
organized under the laws of Switzerland and a wholly-owned Subsidiary of Baxter
World Trade ("Xenomedica"), held by Baxter World Trade; and (iii) all the
----------
right, title and interest of Baxter Woodlands in and to the Transferred Assets
and the Assumed Liabilities, which constitutes the Swiss sales branch ("Swiss
-----
Sales Branch") of Baxter Woodlands, all as follows :
- ------------
(a) Edwards Lifesciences A.G. (Swiss Principal).
-------------------------------------------
(i) Edwards Lifesciences A.G. ("Edwards Lifesciences AG") shall be
-----------------------
formed as a Swiss corporation;
(ii) Baxter Edwards shall transfer to Edwards Lifesciences AG all of
its right, title and interest in and to the Transferred Assets and the
Assumed Liabilities, which constitutes the Edwards Business conducted by
Baxter Edwards (except for the sales employees and related assets and
Liabilities), in return for 248 shares of capital stock of Edwards
Lifesciences AG;
(iii) Peter Wiget and Nicole Sidler shall each subscribe for one share
of capital stock of Edwards Lifesciences AG;
(iv) Baxter Edwards shall transfer to Baxter World Trade as a
dividend, all of its right, title and interest in and to the stock of
Edwards Lifesciences AG;
(v) Baxter Woodlands shall transfer the Swiss Sales Branch to
Edwards Lifesciences AG in return for 25,000 Swiss francs (approximately
$14,900 on March 7,
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<PAGE>
2000) and assumption by Edwards Lifesciences AG of the Liabilities of the
Swiss Sales Branch;
(vi) Edwards Lifesciences AG shall apply for VAT registrations in
the European countries in which Edwards' Subsidiaries will have a legal
presence as described in this Article III;
-----------
(vii) The third-party distribution agreements relating to the
purchase of products relating Exclusively to the Edwards Business, and all
accounts receivable and accounts payable relating to such sales activity,
in Malta and Portugal shall be transferred from the applicable Baxter
Subsidiaries to Edwards Lifesciences AG in return for cash or other
consideration equal to the fair market value of such agreements and
accounts receivable net of such accounts payable and the Assumed
Liabilities under such agreements, plus the assumption of such accounts
payable and the Assumed Liabilities under such agreements;
(viii) Baxter World Trade shall transfer to Edwards World Trade as a
contribution to capital all of its right, title and interest in and to the
capital stock of Xenomedica; and
(ix) Baxter World Trade shall transfer to Edwards World Trade as a
contribution to capital all of its right, title and interest in and to the
capital stock of Edwards Lifesciences AG.
(b) Baxter AG, Volketswil.
---------------------
(i) Baxter AG, Volketswil, will transfer all of its right, title
and interest in all third-party distribution agreements in its name but
relating Exclusively to the Edwards Business conducted in Switzerland to
Edwards Lifesciences AG; and
(ii) Baxter AG, Volketswil, will transfer to Edwards Swiss
Commissionaire all of its right, title and interest in certain assets and
the Assumed Liabilities related thereto in return for cash or other
consideration equal to the fair market value of such assets net of such
Assumed Liabilities, plus the assumption of such Assumed Liabilities.
(c) Edwards Swiss Commissionaire.
----------------------------
(i) Edwards Lifesciences Marketing GmbH ("Edwards Swiss
-------------
Commissionaire") shall be organized as a Swiss limited company (GmbH) and a
--------------
wholly-owned Subsidiary of Edwards EU Holdings; and
(ii) Baxter Edwards shall transfer to Edwards Swiss Commissionaire
all of the sales employees relating to the Edwards Business conducted by
Baxter Edwards together with all of its right, title and interest in
certain related assets and liabilities in return for cash or other
consideration equal to the fair market value of such transferred assets net
of such assumed liabilities, plus the assumption of such assumed
liabilities.
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<PAGE>
3.17. EU Holdings (Denmark). Baxter and Edwards hereby agree to
---------------------
take any and all actions necessary to establish a holding company in Europe to
hold the stock of all of the Edwards European entities described in Sections
--------
3.18 through 3.23, 3.25 and 3.26 below, as follows:
- ---- ---- ---- ----
(a) Edwards Lifesciences Holding A/S ("Edwards EU Holdings") shall
-------------------
be formed as a Danish corporation;
(b) Baxter shall purchase all issued and outstanding capital stock
(500 shares) of Edwards EU Holdings from the organizer of Edwards EU Holdings
for 500,000 Danish Krone (approximately $64,400 on March 7, 2000);
(c) Baxter shall transfer to Baxter World Trade as a contribution
to capital all of its right, title and interest in and to the capital stock of
Edwards EU Holdings; and
(d) Baxter World Trade shall transfer to Edwards World Trade as a
contribution to capital all of its right, title and interest in and to the
capital stock of Edwards EU Holdings.
3.18. Germany. Baxter and Edwards hereby agree to take any and all
-------
actions necessary to effect the transfer to Edwards World Trade of (i) all the
right, title and interest of Baxter Germany in and to the Transferred Assets and
the Assumed Liabilities, which constitutes the Edwards Business conducted in
Germany; (ii) all the right, title and interest in PAS Palzer GmbH & Co. KG, a
German limited company ("Pas Palzer KG"), held by Baxter Germany; and (iii) all
-------------
the right, title and interest in PAS Palzer Verwaltungs GmbH, a German limited
company ("Pas Palzer Verwaltungs"), held by Baxter Germany Holdings, all as
----------------------
follows:
(a) Edwards Germany Holdings.
------------------------
(i) Edwards Lifesciences Holding Germany GmbH ("Edwards Germany
---------------
Holdings") shall be formed as a German limited company (GmbH); and
--------
(ii) Edwards EU Holdings shall purchase all issued and outstanding
capital stock (one share) of Edwards Germany Holdings from the organizer of
Edwards Germany Holdings for 25,000 Euro (approximately $24,000 on March 7,
2000).
(b) Edwards Germany.
---------------
(i) Edwards Lifesciences Germany GmbH ("Edwards Germany") shall be
---------------
formed as a German limited company (GmbH);
(ii) Edwards Germany Holdings shall purchase all issued and
outstanding capital stock (one share) of Edwards Germany from the organizer
of Edwards Germany for 25,000 Euro (approximately $24,000 on March 7,
2000);
(iii) Baxter Germany shall transfer to Edwards Germany all of its
right, title and interest in and to the Transferred Assets and the Assumed
Liabilities (except for inventory, which shall be transferred pursuant to
Sections 3.18(b)(iv) and (v), and
-------------------- ---
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<PAGE>
accounts receivable and accounts payable that are not capable of being
specifically separated between Baxter Germany and Edwards Germany, which
shall be Retained Assets and Retained Liabilities, respectively) as well as
its partnership interest in Pas Palzer KG in return for cash or other
consideration equal to the fair market value of such Transferred Assets and
partnership interest net of such Assumed Liabilities, plus the assumption
of such Assumed Liabilities;
(iv) Baxter Germany shall transfer to Baxter Belgium all of its
right, title and interest in and to certain U.S. sourced inventory relating
Exclusively to the Edwards Business in Germany in return for cash or other
consideration equal to the fair market value of such inventory;
(v) Baxter Germany shall transfer to Edwards Lifesciences AG all
other inventory relating Exclusively to the Edwards Business in Germany in
return for cash or other consideration equal to the fair market value of
such inventory;
(vi) Baxter Germany Holdings shall transfer to Edwards Germany
Holdings all issued and outstanding capital stock (one share) of Pas Palzer
Verwaltungs in return for cash or other consideration equal to the fair
market value of such capital stock; and
(vii) After the Distribution Date, Edwards Germany shall transfer to
Edwards Lifesciences AG all of its right, title and interest in and to the
accounts receivable held by Edwards Germany in return for cash or other
consideration equal to the fair market value of such accounts receivable.
3.19. Austria. Baxter and Edwards hereby agree to take any and all
-------
actions necessary to effect the transfer to Edwards World Trade of all of the
right, title and interest of Baxter Immuno Vertriebsgesellschaft GmbH, a company
organized under the laws of Austria ("Baxter Austria"), in and to the
--------------
Transferred Assets and the Assumed Liabilities, which constitutes the Edwards
Business conducted in Austria, as follows:
(a) Edwards Lifesciences Austria GmbH ("Edwards Austria") shall be
---------------
organized as an Austrian limited company (GmbH) and a wholly-owned Subsidiary of
Edwards EU Holdings;
(b) Baxter Austria shall transfer to Edwards Austria all of its
right, title and interest in and to the Transferred Assets and the Assumed
Liabilities (except for inventory) in return for cash or other consideration
equal to the fair market value of such Transferred Assets net of such Assumed
Liabilities, plus the assumption of such Assumed Liabilities;
(c) Baxter Austria shall transfer to Edwards Lifesciences AG all of
its right, title and interest in and to all inventory relating Exclusively to
the Edwards Business in Austria in return for cash or other consideration equal
to the fair market value of such inventory; and
(d) After the Distribution Date, Edwards Austria shall transfer to
Edwards Lifesciences AG all of its right, title and interest in and to the
accounts receivable held by
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<PAGE>
Edwards Austria in return for cash or other consideration equal to the fair
market value of such accounts receivable.
3.20. France. Baxter and Edwards hereby agree to take any and all
------
actions necessary to effect the transfer to Edwards World Trade of all of the
right, title and interest of Baxter S.A. (France), a company organized under the
laws of France ("Baxter France"), in and to the Transferred Assets and the
-------------
Assumed Liabilities, which constitutes the Edwards Business conducted in France,
as follows:
(a) Edwards Lifesciences SAS ("Edwards France") shall be organized
--------------
as a French SAS;
(b) Baxter France shall transfer to Baxter Belgium all of its
right, title and interest in and to certain U.S. sourced inventory relating
Exclusively to the Edwards Business in France in return for cash or other
consideration equal to the fair market value of such inventory;
(c) Baxter France shall transfer to Edwards Lifesciences AG all of
its right, title and interest in and to all other inventory relating Exclusively
to the Edwards Business in France in return for cash or other consideration
equal to the fair market value of such inventory;
(d) Baxter France shall transfer to Edwards France all of its
right, title and interest in and to the Transferred Assets and the Assumed
Liabilities in return for 4,000 shares of capital stock of Edwards France;
(e) Edwards France shall transfer to Edwards Lifesciences AG all of
its right, title and interest in and to all third-party distribution agreements
in its name but relating Exclusively to the Edwards Business conducted in
France;
(f) Baxter France shall transfer to Edwards EU Holdings all of its
right, title and interest in and to the capital stock of Edwards France for cash
or other consideration equal to the fair market value of such capital stock; and
(g) After the Distribution Date, Edwards France shall transfer to
Edwards Lifesciences AG all of its right, title and interest in and to the
accounts receivable held by Edwards France in return for cash or other
consideration equal to the fair market value of such accounts receivable.
3.21. Italy. Baxter and Edwards hereby agree to take any and all
-----
actions necessary to effect the transfer to Edwards World Trade of all of the
right, title and interest of Baxter S.p.A., a company organized under the laws
of Italy ("Baxter Italy"), in and to the Transferred Assets and the Assumed
------------
Liabilities, which constitutes the Edwards Business conducted in Italy, as
follows:
(a) Baxter Italy shall transfer to Edwards Lifesciences AG all of
its right, title and interest in and to the accounts receivable and inventory
relating to the sale of products relating Exclusively to the Edwards Business
conducted in Italy in return for cash or other consideration equal to the fair
market value of such accounts receivable and inventory;
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<PAGE>
(b) Baxter World Trade and Baxter Export Corporation, as
shareholders of Baxter Italy, shall spin off the Transferred Assets and the
Assumed Liabilities, which constitutes the Edwards Business conducted in Italy,
thus creating a new company, under the name CVG Italia S.p.A. ("Edwards Italy");
-------------
(c) As a result, Baxter World Trade and Baxter Export Corporation
shall jointly own the entire share capital of Edwards Italy;
(d) Simultaneously with the spin-off pursuant to Section 3.21(b),
---------------
Baxter Italy shall transfer to Edwards Lifesciences AG all of its right, title
and interest in and to the accounts receivable relating to the sale of products
relating Exclusively to the Edwards Business conducted in Italy created after
the transfer pursuant to Section 3.21(a) in return for cash or other
---------------
consideration equal to the fair market value of such accounts receivable;
(e) Edwards Italy shall transfer to Edwards Lifesciences AG all of
its right, title and interest in and to all third-party distribution agreements
in its name but relating Exclusively to the Edwards Business and the inventory
relating Exclusively to the Edwards Business conducted in Italy in return for
cash or other consideration equal to the fair market value of such agreements
and inventory net of the Assumed Liabilities under such agreements, plus the
assumption of the Assumed Liabilities under such agreements;
(f) Baxter World Trade shall transfer to Edwards World Trade as a
contribution to capital all of its right, title and interest in and to the
capital stock of Edwards Italy received pursuant to Sections 3.21(b) and (c);
---------------- ---
(g) Edwards World Trade shall transfer to Edwards EU Holdings as a
contribution to capital all of its right, title and interest in and to the
capital stock of Edwards Italy received from Baxter World Trade pursuant to
Section 3.21(f);
- ---------------
(h) Baxter Export Corporation shall distribute to Baxter World
Trade all of its right, title and interest in and to the capital stock of
Edwards Italy received pursuant to Sections 3.21(b) and (c);
---------------- ---
(i) Baxter World Trade shall transfer to Edwards World Trade as a
contribution to capital all of its right, title and interest in and to the
capital stock of Edwards Italy received from Baxter Export Corporation pursuant
to Section 3.21(h); and
---------------
(j) Edwards World Trade shall transfer to Edwards Holdings
Switzerland as a contribution to capital all of its right, title and interest in
and to the capital stock of Edwards Italy received from Baxter World Trade
pursuant to Section 3.21(i).
---------------
3.22. Belgium/Luxembourg. Baxter and Edwards hereby agree to take
------------------
any and all actions necessary to effect the transfer to Edwards World Trade of
all of the right, title and interest of Baxter S.A. (Belgium), a company
organized under the laws of Belgium ("Baxter Belgium"), in and to the
--------------
Transferred Assets and the Assumed Liabilities, which constitutes the Edwards
Business conducted in Belgium and Luxembourg, as follows:
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<PAGE>
(a) Edwards Lifesciences S.P.R.L. ("Edwards Belgium") shall be
---------------
organized as a Belgian SPRL with Raymond Lauret as a 0.08% holder and Edwards EU
Holdings as a 99.92% holder;
(b) Baxter Belgium shall transfer to Edwards Belgium all of its
right, title and interest in and to the Transferred Assets and the Assumed
Liabilities, in return for cash or other consideration equal to the fair market
value of such Transferred Assets net of such Assumed Liabilities, plus the
assumption of such Assumed Liabilities;
(c) Edwards Belgium shall transfer to Edwards Lifesciences AG all
of its right, title and interest in and to the inventory relating Exclusively to
the Edwards Business in Germany, France, Belgium, Luxembourg, the Netherlands,
Austria and the U.K. in return for cash or other consideration equal to the fair
market value of such inventory; and
(d) After the Distribution Date, Edwards Belgium shall transfer to
Edwards Lifesciences AG all of its right, title and interest in and to the
accounts receivable held by Edwards Belgium in return for cash or other
consideration equal to the fair market value of such accounts receivable.
3.23. Netherlands. Baxter and Edwards hereby agree to take any and
-----------
all actions necessary to effect the transfer to Edwards World Trade of all of
the right, title and interest of Baxter B.V., a company organized under the laws
of the Netherlands ( "Baxter Netherlands"), in and to the Transferred Assets and
------------------
the Assumed Liabilities, which constitutes the Edwards Business conducted in the
Netherlands, except for the Uden Manufacturing Facility, as follows:
(a) Edwards Lifesciences BV ("Edwards Netherlands") shall be
-------------------
organized as a Dutch corporation and a wholly-owned Subsidiary of Edwards EU
Holdings;
(b) Baxter Netherlands shall transfer to Edwards Netherlands all of
its right, title and interest in and to the Transferred Assets and the Assumed
Liabilities (except for inventory, third-party distribution agreements and the
Uden Manufacturing Facility) in return for cash or other consideration equal to
the fair market value of such Transferred Assets net of such Assumed
Liabilities, plus the assumption of such Assumed Liabilities;
(c) Baxter Netherlands shall transfer to Baxter Belgium all of its
right, title and interest in and to certain U.S. sourced inventory relating
Exclusively to the Edwards Business in the Netherlands in return for cash or
other consideration equal to the fair market value of such inventory;
(d) Baxter Netherlands shall transfer to Edwards Lifesciences AG all
of its right, title and interest in and to all third-party distribution
agreements in its name but relating Exclusively to the Edwards Business
conducted in the Netherlands;
(e) Baxter Netherlands shall transfer to Edwards Lifesciences AG all
of its right, title and interest in and to all other inventory relating
Exclusively to the Edwards Business
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<PAGE>
in the Netherlands in return for cash or other consideration equal to the fair
market value of such inventory; and
(f) After the Distribution Date, Edwards Netherlands shall transfer
to Edwards Lifesciences AG all of its right, title and interest in and to the
accounts receivable held by Edwards Netherlands in return for cash or other
consideration equal to the fair market value of such accounts receivable.
3.24. Uden. Baxter and Edwards hereby agree to take any and all
----
actions necessary to effect the transfer to Edwards World Trade of all of the
right, title and interest of Baxter Netherlands in the manufacturing facility in
Uden that produces Edwards Products and all of the Transferred Assets plus the
assumption of such Assumed Liabilities related thereto (the "Uden Manufacturing
------------------
Facility"), as follows:
- --------
(a) Edwards Lifesciences Uden BV ("Edwards Uden") shall be
------------
organized as a Dutch corporation and a wholly-owned Subsidiary of Edwards World
Trade; and
(b) Baxter Netherlands shall transfer to Edwards Uden all of its
right, title and interest in and to the Uden Manufacturing Facility in return
for cash or other consideration equal to the fair market value of the Uden
Manufacturing Facility net of the Assumed Liabilities included therein, plus the
assumption of the Assumed Liabilities included therein.
3.25. Spain. Baxter and Edwards hereby agree to take any and all
-----
actions necessary to effect the transfer to Edwards World Trade of all of the
right, title and interest of Baxter S.L. (Spain), a company organized under the
laws of Spain ("Baxter Spain"), in and to the Transferred Assets and the Assumed
------------
Liabilities, which constitutes the Edwards Business conducted in Spain, as
follows:
(a) Edwards Lifesciences, S.L. ("Edwards Spain") shall be
-------------
organized as a Spanish Sociedad Limitada and a wholly-owned Subsidiary of
Edwards EU Holdings;
(b) Baxter Spain shall transfer to Edwards Spain all of its right,
title and interest in and to the Transferred Assets and the Assumed Liabilities
(except for inventory and third-party distribution agreements) in return for
cash or other consideration equal to the fair market value of such Transferred
Assets net of such Assumed Liabilities, plus the assumption of such Assumed
Liabilities;
(c) Baxter Spain shall transfer to Edwards Lifesciences AG all of
its right, title and interest in and to the inventory relating Exclusively to
the Edwards Business in Spain in return for cash or other consideration equal to
the fair market value of such inventory;
(d) Baxter Spain shall transfer to Edwards Lifesciences AG all of
its right, title and interest in and to all third-party distribution agreements
in its name but relating Exclusively to the Edwards Business conducted in Spain;
and
(e) After the Distribution Date, Edwards Spain shall transfer to
Edwards Lifesciences AG all of its right, title and interest in and to the
accounts receivable held by
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Edwards Spain in return for cash or other consideration equal to the fair market
value of such accounts receivable.
3.26. United Kingdom. Baxter and Edwards hereby agree to take any
--------------
and all actions necessary to effect the transfer to Edwards World Trade of all
of the right, title and interest of Baxter Healthcare Ltd., a company organized
under the laws of England ("Baxter U.K."), in and to the Transferred Assets and
-----------
the Assumed Liabilities, which constitutes the Edwards Business conducted in the
United Kingdom, as follows:
(a) Edwards Lifesciences Limited ("Edwards U.K.") shall be
------------
organized as an English limited liability company and a wholly-owned Subsidiary
of Edwards EU Holdings;
(b) Baxter U.K. shall transfer to Edwards U.K. all of its right,
title and interest in and to the Transferred Assets and the Assumed Liabilities
(except for inventory and third-party distribution agreements), in return for
cash or other consideration equal to the fair market value of such Transferred
Assets net of such Assumed Liabilities, plus the assumption of such Assumed
Liabilities;
(c) Baxter U.K. shall transfer to Edwards Lifesciences AG all of
its right, title and interest in and to all third-party distribution agreements
in its name but relating Exclusively to the Edwards Business conducted in the
United Kingdom;
(d) Baxter U.K. shall transfer to Edwards Lifesciences AG all of
its right, title and interest in and to all inventory relating Exclusively to
the Edwards Business in the United Kingdom in return for cash or other
consideration equal to the fair market value of such inventory; and
(e) After the Distribution Date, Edwards U.K. shall transfer to
Edwards Lifesciences AG all of its right, title and interest in and to the
accounts receivable held by Edwards U.K. in return for cash or other
consideration equal to the fair market value of such accounts receivable.
3.27. Restrictions on Intercompany Debt. Neither Baxter nor any
---------------------------------
Affiliate of Baxter shall make any Loan, other than in the ordinary course of
business, to any Edwards Foreign Entity from March 15, 2000 through the
Distribution Date, except as specifically contemplated by this Agreement.
3.28. Transfer of Assets. Subject to the terms and conditions of
------------------
this Agreement, Baxter hereby agrees to convey, assign, transfer, contribute and
set over, or cause to be conveyed, assigned, transferred, contributed and set
over, to Edwards World Trade on or prior to the Distribution Date all of Baxter
World Trade's right, title and interest in and to the Transferred Assets, if
any.
3.29. Transfer of Liabilities. Subject to the terms and conditions
-----------------------
of this Agreement, Edwards shall cause Edwards World Trade to assume, effective
as of the Distribution Date, and pay, comply with and discharge all Assumed
Liabilities of Baxter World Trade.
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<PAGE>
3.30. Transfer of Edwards World Trade to Baxter. Baxter and Edwards
-----------------------------------------
hereby agree to take, or cause to be taken, any and all actions necessary to
effect the declaration of a dividend by Baxter World Trade to Baxter of all of
Baxter World Trade's right, title and interest in and to the common stock of
Edwards World Trade.
3.31. Edwards Holdings Switzerland. After the Distribution Date,
----------------------------
Edwards Lifesciences Holding (Switzerland) AG ("Edwards Holdings Switzerland")
----------------------------
shall be formed as a Swiss corporation, and Edwards World Trade shall transfer
to Edwards Holdings Switzerland all of its right, title and interest in and to
the capital stock of Edwards Lifesciences AG, Edwards EU Holdings and Edwards
Uden in exchange for newly issued shares of capital stock of Edwards Holdings
Switzerland.
3.32. Transfer of Inventory. Prior to the Distribution Date, the
---------------------
inventory, if any, relating Exclusively to the Edwards Business in the following
countries and regions shall be transferred from the applicable Baxter
Subsidiaries to third-party distributors: Malta, Portugal, Bahrain, Kuwait,
Qatar, Yemen, United Arab Emirates, Oman, Central America, China and Hong Kong
(U.S. $ sales only), Taiwan, Pakistan, Sri Lanka, Bangladesh, Nepal, Singapore,
Brunei, Indonesia, Malaysia, Thailand, Vietnam, Laos, Cambodia, Myanmar and the
Philippines.
ARTICLE IV
TRANSFERS TO EDWARDS U.S. OPERATING SUBSIDIARY
----------------------------------------------
4.1. Organization of Edwards U.S. Operating Subsidiary. (a) Baxter
-------------------------------------------------
has caused to be formed, under the Limited Liability Company Act of Delaware,
Edwards Lifesciences LLC ("Edwards LLC"), as a wholly-owned Subsidiary of BHC.
-----------
Edwards LLC has been qualified as a foreign limited liability company under the
relevant laws of each state within the United States and in each jurisdiction
outside the United States where the ownership of its assets or conduct of its
business makes such qualification necessary.
(b) Baxter has caused to be formed, under the General Corporation
Law of Delaware, Edwards Lifesciences (U.S.) Inc. ("Edwards U.S."), as a wholly-
------------
owned Subsidiary of BHC. Edwards U.S. has been qualified as a foreign
corporation under the relevant laws of each state within the United States and
in each jurisdiction outside the United States where the ownership of its assets
or conduct of its business makes such qualification necessary.
4.2. Transfer of Assets. Subject to the terms and conditions of this
------------------
Agreement, on or prior to the Distribution Date, Baxter shall convey, assign,
transfer, contribute and set over, or cause to be conveyed, assigned,
transferred, contributed and set over, to Edwards LLC, and Edwards shall cause
Edwards LLC to accept and receive, on or prior to the Distribution Date:
(a) all right, title and interest of BHC in and to the Transferred
Assets (other than intangible assets included in the Transferred Assets);
(b) all of the right, title and interest of Baxter Export
Corporation in inventory relating Exclusively to the Edwards Business, accounts
receivable relating to the purchase of
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<PAGE>
products relating Exclusively to the Edwards Business and accounts receivable
due from Macchi in return for cash or other consideration equal to the fair
market value of such inventory and accounts receivable; and
(c) all right, title and interest of Baxter Export Division of Baxter
Alaska in accounts receivable due from Macchi in return for cash or other
consideration equal to the fair market value of such accounts receivable.
4.3. Transfer of Third-Party Distribution Contracts. Subject to the
----------------------------------------------
terms and conditions of this Agreement, Baxter shall cause the foreign
Subsidiaries of Baxter World Trade listed on Schedule 4.3 hereto (the "Foreign
------------ -------
Subsidiaries") to convey, assign, transfer, contribute and set over to Edwards
- ------------
LLC, and Edwards shall cause Edwards LLC to accept and receive, on or prior to
the Distribution Date, all right, title and interest of the Foreign Subsidiaries
in and to the third-party distribution contracts relating to the purchase of
products relating Exclusively to the Edwards Business, all accounts receivable
and accounts payable relating to such sales activity, except as indicated on
Schedule 4.3, in return for cash or other consideration equal to the fair market
- ------------
value of such contracts and accounts receivable net of such accounts payable and
the Assumed Liabilities under such contracts, plus the assumption of such
accounts payable and the Assumed Liabilities under such contracts.
4.4. Assumption of Liabilities. Except as expressly limited in this
-------------------------
Article IV, Edwards shall cause one or more of its Subsidiaries to assume,
- ----------
effective on or before the Distribution Date, and pay, comply with and discharge
the Assumed Liabilities.
4.5. Transfer of Intangibles and Operating Subsidiaries. Baxter and
--------------------------------------------------
Edwards hereby agree to take, or cause to be taken, any and all actions
necessary to cause BHC to contribute to Edwards U.S., in exchange for all of the
capital stock of Edwards U.S. together with the assumption by Edwards U.S. of
$125 million of debt owed by BHC to Baxter World Trade, (i) all of BHC's right,
title and interest in and to the intangible assets included in the Transferred
Assets, (ii) all of BHC's right, title and interest in and to the membership
interests of Edwards LLC and (iii) all of BHC's right, title and interest in and
to the capital stock of Edwards Lifesciences Cardiovascular Resources, Inc., a
Pennsylvania corporation; in each case, on or prior to the Distribution Date and
at the approximate time and in the order described on Schedule 3.1.
------------
ARTICLE V
ORGANIZATION OF EDWARDS LIFESCIENCES CORPORATION
------------------------------------------------
5.1. Organization of Edwards. Baxter and Edwards shall take any and
-----------------------
all action necessary so that, on the Distribution Date, the Certificate of
Incorporation and By-laws of Edwards shall be in the forms attached hereto as
Exhibits E and F, respectively. Prior to the Distribution Date, the Board of
- ---------- -
Directors of Edwards shall consider the adoption of a stockholder rights plan in
substantially the form attached hereto as Exhibit G. On the Distribution Date,
---------
the Edwards Board of Directors shall consist of, and Baxter and Edwards shall
take all actions that may be required to elect or otherwise appoint as directors
of Edwards on or prior to the
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<PAGE>
Distribution Date, the persons named on Exhibit H. Edwards has taken appropriate
action to be qualified as a foreign corporation under the General Corporation
Law of California.
5.2. Transfer of Certain Subsidiaries. Baxter and Edwards hereby
--------------------------------
agree to take, or cause to be taken, any and all actions necessary to effect the
following transactions, on or prior to the Distribution Date and at the
approximate times described in Schedule 3.1:
------------
(a) BHC shall distribute as a dividend to Baxter all of BHC's right,
title and interest in and to the capital stock of Edwards U.S.; and
(b) Baxter shall contribute to Edwards, in exchange for the
assumption by Edwards of $65 million of debt owed by Baxter to Baxter Hemoglobin
Therapeutics, Inc., a Delaware corporation, all of Baxter's right, title and
interest in and to the capital stock of (i) Edwards U.S., (ii) Edwards World
Trade, (iii) Edwards Lifesciences Research Medical, Inc., a Utah corporation,
and (iv) Edwards Lifesciences Sub Inc., a Delaware corporation.
5.3. Transfer of Assets. Subject to the terms and conditions of this
------------------
Agreement, Baxter hereby agrees to convey, assign, transfer, contribute and set
over, or cause to be conveyed, assigned, transferred, contributed and set over,
to Edwards on or prior to the Distribution Date, all of Baxter's right, title
and interest in and to the Transferred Assets.
5.4. Transfer of Liabilities. Subject to the terms and conditions of
-----------------------
this Agreement, Edwards shall assume, or cause to be assumed, effective as of
the Distribution Date, and pay, comply with and discharge, or cause to be paid,
complied with or discharged, all Assumed Liabilities of Baxter.
ARTICLE VI
EXCLUSIONS FROM TRANSFERS
-------------------------
6.1. Retained Assets. Notwithstanding anything to the contrary
---------------
herein, the following assets (the "Retained Assets") are not, and shall not be
---------------
deemed to be, Transferred Assets:
(a) Subject to Section 9.6(e), cash and cash equivalents, any cash
--------------
on hand or in bank accounts, certificates of deposit, commercial paper and
similar securities, except for (i) cash and cash equivalents of the Transferred
Subsidiaries, (ii) deposits securing bonds, letters of credit, leases and all
other obligations related to the Edwards Business and (iii) petty cash and
impressed funds related to the Edwards Business;
(b) Except as otherwise provided in the Tax Sharing Agreement, any
right, title or interest of Baxter or its Subsidiaries in any foreign, federal,
state or local tax refund, credit or benefit (including any income with respect
thereto) relating to the operations of the Edwards Business prior to the
Distribution Date;
(c) Any amounts accrued on the books and records of Baxter or its
Subsidiaries or the Edwards Business with respect to any Retained Liabilities;
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(d) All assets relating to all employee benefit plans of Baxter
other than the assets transferred in accordance with Section 12.9;
------------
(e) Any corporate allocations of non-Edwards Business-related assets
heretofore made by Baxter or its Subsidiaries to the Edwards Business for
internal management responsibility reporting purposes, other than allocations of
accounts receivable and accounts payable as contemplated by Section 9.7(c);
--------------
(f) Any proprietary rights in and to the BAXTER name and the related
emblem design, and any variants thereof, and the Trademarks used by Baxter or
its Subsidiaries in relation to the Retained Business, except as provided in
Article X;
- ---------
(g) All assets held by Baxter Japan;
(h) Contracts with customers or third-party distributors in or with
respect to the countries or regions listed on Schedule 6.1(h) hereto (which are
---------------
the countries and regions where Baxter, as principal, is serving as the
distributor for Edwards Products) together with the accounts receivable and all
other rights, claims, demands, causes of action and rights to indemnification or
contribution under such Contracts and the inventory (including inventory in
transit) in such countries or regions;
(i) All assets used in connection with Baxter's Tisseal product;
(j) The accounts receivable of Baxter Germany that are not capable
of being specifically separated between Baxter Germany and Edwards Germany; and
(k) All other assets, properties and rights of Baxter and its
Subsidiaries not used Exclusively in the conduct of the Edwards Business and not
specifically included as Transferred Assets.
6.2. Retained Liabilities. Notwithstanding anything to the contrary
--------------------
in this Agreement, neither Edwards nor any of its Subsidiaries shall assume any
of the following Liabilities of Baxter and its Subsidiaries (the "Retained
--------
Liabilities"):
- -----------
(a) Liabilities of Baxter Japan;
(b) The environmental liabilities set forth on Schedule 6.2 hereto;
------------
(c) The accounts payable relating to sales activity in the
countries and regions listed on Schedule 6.1(h);
---------------
(d) Any Liabilities relating to the Cessna Citation VII aircraft,
manufacturer's serial number 650-7085, listed on Schedule 1.2(f) accrued on or
---------------
before February 3, 2000, but not including any Liabilities under any Edwards
Contracts other than Liabilities required to be performed on or before such
date;
(e) Any Liabilities relating to the Cessna Citation VII aircraft,
manufacturer's serial number 650-7081, listed on Schedule 1.2(f) accrued on or
---------------
before the Distribution Date, but
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<PAGE>
not including any Liabilities under any Edwards Contracts other than Liabilities
required to be performed on or before such date;
(f) The accounts payable of Baxter Germany that are not capable of
being specifically separated between Baxter Germany and Edwards Germany; and
(g) Liabilities or obligations in respect of the Retained Assets.
Nothing contained in this Section 6.2 shall be construed as in any way limiting
-----------
the Liabilities of Edwards or any of its Subsidiaries under any of the Operating
Agreements.
6.3. Termination of Existing Intercompany Agreements. Except for
-----------------------------------------------
this Agreement, the Conveyancing Instruments, the Implementation Agreements, the
Operating Agreements and the agreements set forth on Schedule 6.3 (or as
------------
otherwise provided in any such agreements or instruments) and except for the
payable from Edwards Lifesciences AG to Baxter Belgium in respect of the
inventory transferred pursuant to Section 3.22(c), all Intercompany Agreements
---------------
and all other intercompany arrangements and course of dealings, whether or not
in writing and whether or not binding, in effect immediately prior to the
Distribution Date, shall be terminated and be of no further force and effect
from and after the Distribution Date.
ARTICLE VII
ASSET SEPARATION CLOSING MATTERS
--------------------------------
7.1. Delivery of Instruments of Conveyance. In order to effectuate
-------------------------------------
the transactions contemplated by Articles III, IV and V, the Parties shall
------------ -- -
execute and deliver, or cause to be executed and delivered, prior to or as of
the Distribution Date such deeds, bills of sale, instruments of assumption,
instruments of assignment, stock powers, certificates of title and other
documents of assignment, transfer, assumption and conveyance (collectively, the
"Conveyancing Instruments") as the Parties shall reasonably deem necessary or
------------------------
appropriate to effect such transactions.
7.2. Delivery of Other Agreements. Prior to or as of the
----------------------------
Distribution Date, the Parties shall execute and deliver, or shall cause to be
executed and delivered, each of the Implementation Agreements, the Operating
Agreements and the Tax Sharing Agreement.
7.3. Non-Assignable Contracts. In the event and to the extent that
------------------------
Baxter and its Subsidiaries are unable to obtain any consent, approval or
amendment to any Contract, lease, license, Governmental Permit or other rights
relating to the Edwards Business that otherwise would be transferred or assigned
to Edwards or one of its Subsidiaries as contemplated by this Agreement or any
other agreement or document contemplated hereby, (i) Baxter and its Subsidiaries
shall continue to be bound thereby and the purported transfer or assignment to
Edwards or one of its Subsidiaries shall automatically be deemed deferred until
such time as all legal impediments are removed and/or all necessary consents
have been obtained and/or a new Governmental Permit in the name of Edwards or
one of its Subsidiaries or its designee have been issued and (ii) unless not
permitted by the terms thereof or by law, Edwards or one of its Subsidiaries
shall pay, perform and discharge fully all the obligations of Baxter or its
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<PAGE>
Subsidiaries thereunder from and after the Distribution Date, or such earlier
date as such transfer or assignment otherwise would have taken place. Edwards
shall indemnify Baxter and its Subsidiaries for all indemnifiable Losses arising
out of the performance by Edwards or its Subsidiaries referred to in the
preceding sentence or any actions of Baxter or any of its Subsidiaries taken in
accordance with this Section 7.3 or at the direction or request of Edwards as
-----------
provided in this Section 7.3. Baxter and its Subsidiaries shall, without
-----------
further consideration therefor, pay and remit to Edwards or its Subsidiaries
promptly all monies, rights and other considerations received in respect of such
performance. Baxter and its Subsidiaries shall exercise or exploit its rights
and options under all such Contracts, leases, licenses, Governmental Permits and
other rights and commitments referred to in this Section 7.3, including
-----------
instituting or joining as a party legal proceedings, as reasonably directed by
Edwards and at Edwards' expense. If and when any such consent shall be obtained
or such Contract, lease, license, Governmental Permit or other right shall
otherwise become assignable or be able to be novated or a new Governmental
Permit has been issued in the name of Edwards or one of its Subsidiaries or its
designed, Baxter or its Subsidiaries shall promptly assign and novate (to the
extent permissible) all of its rights and obligations thereunder to Edwards or
its Subsidiaries without payment of further consideration, and Edwards or its
Subsidiaries shall, without the payment of any further consideration therefor,
assume such rights and obligations. To the extent that the assignment of any
Contract, lease, license, Governmental Permit or other right (or the proceeds
thereof) pursuant to this Section 7.3 is prohibited by law, the assignment
-----------
provisions of this Section 7.3 shall operate to create a subcontract with
-----------
Edwards or its Subsidiaries to perform each relevant unassignable Contract or
Governmental Permit of Baxter at a subcontract price equal to the monies, rights
and other considerations received by Baxter or its Subsidiaries with respect to
the performance by Edwards or its Subsidiaries under such subcontract.
7.4. Further Assurances. (a) In addition to the actions specifically
------------------
provided for elsewhere in this Agreement, each of the Parties shall use
commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable laws, regulations and agreements to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement and the other agreements and documents
contemplated hereby. Without limiting the generality of the foregoing, each
Party shall cooperate with the other Party to execute and deliver, or use
commercially reasonable efforts to cause to be executed and delivered, all
instruments, including instruments of conveyance, assignment and transfer, and
to make all filings with, and to obtain all consents, approvals or
authorizations of, any Governmental Authority or any other Person under any
permit, license, product registration, Contract or other instrument, and to take
all such other actions as such Party may reasonably be requested to take by the
other Party from time to time, consistent with the terms of this Agreement, in
order to confirm the title of Edwards and its Subsidiaries to all of the Edwards
Business, to put Edwards or its Subsidiaries in actual possession and operating
control of the Transferred Assets and to permit Edwards or its Subsidiaries to
exercise all rights with respect thereto and to effectuate the provisions and
purposes of this Agreement, the Conveyancing Instruments, the Implementation
Agreements, the Operating Agreements, the Tax Sharing Agreement and the other
agreements and documents contemplated hereby or thereby; provided, however, that
-------- -------
neither Party shall be obligated to pay any consideration to any third-party in
connection with the foregoing. In addition, Baxter shall use reasonable efforts
to remove or cause to be removed any liens for
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<PAGE>
borrowed money existing on the Transferred Assets immediately prior to the
Distribution Date other than liens securing Assumed Liabilities or liens
incurred in connection with the transactions contemplated by this Agreement.
(b) If, as a result of mistake, oversight or otherwise, any asset
reasonably necessary to the conduct of the Edwards Business is not transferred
to Edwards or one of its Subsidiaries, or any asset reasonably necessary to the
conduct of the Retained Business is transferred to Edwards or one of its
Subsidiaries, Baxter and Edwards shall negotiate in good faith after the
Distribution Date to determine whether such asset should be transferred to
Edwards or one of its Subsidiaries or to Baxter or one of its Subsidiaries, as
the case may be, and/or the terms and conditions upon which such asset shall be
made available to Edwards or one of its Subsidiaries or to Baxter or one of its
Subsidiaries, as the case may be. Unless expressly provided to the contrary in
this Agreement, the Conveyancing Instruments, the Implementation Agreements, the
Operating Agreements or the Tax Sharing Agreement, if as a result of mistake,
oversight or otherwise, any Liability arising out of or relating to the Edwards
Business is retained by Baxter or its Subsidiaries, or any Liability arising out
of or relating to the Retained Business is assumed by Edwards or its
Subsidiaries, Baxter and Edwards shall negotiate in good faith after the
Distribution Date to determine whether such Liability should be transferred to
Edwards or one of its Subsidiaries or Baxter or one of its Subsidiaries, as the
case may be, and/or the terms and conditions upon which any such Liability shall
be transferred. The Parties agree that the terms and conditions upon which any
assets or Liabilities are made available or assumed as provided in this Section
-------
7.4(b) shall be consistent with the terms of this Agreement, the Implementation
- ------
Agreements, the Operating Agreements and the Tax Sharing Agreement and that it
is not intended for either Party to pay or receive additional consideration for
any such transfer if such consideration would not have been paid or received if
such transfer had been identified and made at the time of the Distribution.
(c) If, after the Distribution Date, either Party identifies any
commercial or other service, product or component that can be provided by the
other Party, that is needed to assure a smooth and orderly transition of the
businesses in connection with the consummation of the transactions contemplated
hereby, and that is not otherwise governed by the provisions of this Agreement,
the Implementation Agreements, the Operating Agreements or the Tax Sharing
Agreement, the Parties will cooperate in determining whether there is a mutually
acceptable arm's-length basis, consistent with the terms of the this Agreement,
the Implementation Agreements, the Operating Agreements and the Tax Sharing
Agreement, on which one Party will provide such service to the other Party.
7.5. Novation of Assumed Liabilities. (a) Edwards or its Subsidiaries,
-------------------------------
at the request of Baxter or its Subsidiaries, shall use commercially reasonable
efforts to obtain, or cause to be obtained, any consent, approval, release,
substitution or amendment required to novate (including with respect to any
federal government contract) or assign all obligations under the Assumed
Liabilities, or to obtain in writing the unconditional release of all parties to
such arrangements other than Edwards or its Subsidiaries; provided, however,
-------- -------
that Edwards and its Subsidiaries shall not be obligated to pay any
consideration therefor to any third-party from whom such consents, approvals,
releases, substitutions or amendments are requested.
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<PAGE>
(b) Edwards agrees to promptly provide Baxter, upon written request,
with a list of Contracts included in the Transferred Assets under which Baxter
or one of its Subsidiaries remains liable and which has a base term that is
subject to automatic renewal or renewal in the absence of notice at the option
of Edwards or one of its Subsidiaries. Edwards agrees that if so requested by
Baxter with respect to any individual Contract or Contracts included on such
list or which should have been included on such list, it will not exercise any
option to renew such Contract and, to the extent such Contract provides for
automatic renewal, Edwards agrees that it will not permit such Contract to enter
an auto-renewal period.
7.6. Nominee Shares. Baxter agrees to use commercially reasonable
--------------
efforts to cause to be transferred to, or as directed by, Edwards all director's
qualifying or other shares of capital stock of any of the Transferred
Subsidiaries held as of the Distribution Date by persons who are not Edwards
Employees. Edwards agrees to use commercially reasonable efforts to cause to be
transferred to, or as directed by, Baxter all director's qualifying or other
shares of capital stock of any Baxter Subsidiary other than Edwards and the
Transferred Subsidiaries held as of the Distribution Date by Edwards Employees.
7.7. Provision of Corporate Records. Prior to or as promptly as
------------------------------
practicable after the Distribution Date, Baxter shall deliver to Edwards all
corporate books and records of Edwards and copies of all corporate books and
records of Baxter relating to the Edwards Business, including in each case all
active agreements, litigation files and government filings. From and after the
Distribution Date, all books, records and copies so delivered shall be the
property of Edwards.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
------------------------------
8.1. Organization, Good Standing and Authority of Baxter. Baxter
---------------------------------------------------
hereby represents and warrants to Edwards as follows: Baxter is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Baxter has full power and authority to execute, deliver and
perform this Agreement. The execution, delivery and performance of this
Agreement by Baxter have been duly authorized and approved by Baxter's Board of
Directors and do not require any further authorization or consent of Baxter or
its stockholders. This Agreement has been duly authorized, executed and
delivered by Baxter.
8.2. Organization, Good Standing and Authority of Edwards. Edwards
----------------------------------------------------
represents and warrants to Baxter as follows: Edwards is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Edwards has full power and authority to execute, deliver and perform
this Agreement. The execution, delivery and performance of this Agreement by
Edwards has been duly authorized and approved by Edwards' Board of Directors and
do not require any further authorization or consent of Edwards or its
stockholder. This Agreement has been duly authorized, executed and delivered by
Edwards.
8.3. No Other Representations and Warranties. Except as expressly set
---------------------------------------
forth herein or in any Operating Agreement, and notwithstanding anything
contained in any Implementation Agreement, neither Baxter nor any of its
Subsidiaries represents or warrants in
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any way (i) as to the value or freedom from encumbrance of, or any other matter
concerning, any of the Transferred Assets or Transferred Subsidiaries or (ii) as
to the legal sufficiency to convey title to any of the Transferred Assets or
Transferred Subsidiaries on the execution, delivery and filing of the
Conveyancing Instruments. SUBJECT TO SECTION 9.11 AND THE OPERATING AGREEMENTS,
------------
ALL SUCH ASSETS AND SUBSIDIARIES ARE BEING TRANSFERRED ON AN "AS IS, WHERE IS"
BASIS WITHOUT ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, MARKETABILITY, TITLE, VALUE, FREEDOM FROM ENCUMBRANCE OR ANY
OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, and Edwards and its
Subsidiaries shall bear the economic and legal risks that any conveyances of
such assets and Subsidiaries shall prove to be insufficient or that Edwards' and
its Subsidiaries' title to any such assets and Subsidiaries shall be other than
good and marketable and free of encumbrances. Except as expressly set forth in
this Agreement or in any Operating Agreement, and notwithstanding anything
contained in any Implementation Agreement, neither Baxter nor any of its
Subsidiaries represents or warrants that the obtaining of the consents or
approvals, the execution and delivery of any amendatory agreements and the
making of the filings and applications contemplated by this Agreement shall
satisfy the provisions of all applicable agreements or the requirements of all
applicable laws or judgments, and, subject to Section 7.3, Edwards and its
-----------
Subsidiaries shall bear the economic and legal risk that any necessary consents
or approvals are not obtained or that any requirements of law or judgments are
not complied with.
ARTICLE IX
CERTAIN COVENANTS
-----------------
9.1. Conduct of Edwards Business Pending the Distribution Date. Each
---------------------------------------------------------
of the Parties agrees that, from the date hereof until the Distribution Date,
except as otherwise expressly contemplated by this Agreement, it will take, or
cause to be taken, all reasonable efforts to carry on the Edwards Business
diligently in the ordinary course and substantially in the same manner as
heretofore conducted and to preserve intact the business organization and
goodwill of the Edwards Business.
9.2. Registration and Listing. Prior to the Distribution Date:
------------------------
(a) Baxter and Edwards shall prepare a registration statement on Form
10, including such amendments or supplements thereto as may be necessary
(together, the "Registration Statement") to effect the registration of the
----------------------
Edwards Common Stock under the Exchange Act, which Registration Statement shall
include an information statement to be sent by Baxter to its stockholders in
connection with the Distribution (the "Information Statement"). Edwards shall
---------------------
file the Registration Statement with the SEC and shall use commercially
reasonable efforts to cause the Registration Statement to become and remain
effective under the Exchange Act as soon as reasonably practicable. After the
Registration Statement becomes effective, Baxter shall mail the Information
Statement to the holders of Baxter Common Stock as of the Record Date.
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(b) The Parties shall use commercially reasonable efforts to take all
such action as may be necessary or appropriate under state and foreign
securities and "Blue Sky" laws in connection with the transactions contemplated
by this Agreement.
(c) Baxter and Edwards shall prepare, and Edwards shall file and seek
to make effective, an application for the listing of the Edwards Common Stock on
the NYSE, subject to official notice of issuance.
(d) The Parties shall cooperate in preparing, filing with the SEC and
causing to become effective any registration statements or amendments thereto
that are necessary or appropriate in order to effect the transactions
contemplated hereby or to reflect the establishment of, or amendments to, any
employee benefit plans contemplated hereby.
9.3. Funds Distributed to Baxter. On or prior to the Distribution
---------------------------
Date, Edwards shall enter into a new credit facility or facilities with
commercial lenders (the "Edwards Credit Facility") and use the proceeds of the
-----------------------
indebtedness incurred under the Edwards Credit Facility to execute asset
transfers from Baxter and its Subsidiaries, invest in a Japanese contractual
joint venture (tokumei kumiai), assume debt from Baxter and its Subsidiaries,
pay bank fees related to the credit facility and for general corporate purposes.
The calculation of the amounts set forth in this Section 9.3 is set forth on
-----------
Schedule 9.3.
- ------------
9.4. Post-Distribution Tax-Related Restrictions. (a) In order to avoid
------------------------------------------
potentially adverse tax consequences relating to the Distribution, for a period
of two years after the Distribution Date Edwards shall not:
(i) cease to engage in the active conduct of a trade or business
within the meaning of Section 355 of the Code;
(ii) issue or redeem any share of stock of Edwards, except for
issuances and redemptions
(A) for the benefit of Edwards' employees, or
(B) to effect acquisitions by Edwards in the ordinary course
of business, or
(C) in connection with the issuance of any convertible debt
by Edwards, or
(D) in accordance with the requirements for permitted
purchases of Edwards stock as set forth in Section 4.05(1)(b) of
Revenue Procedure 96-30 issued by the IRS; or
(iii) liquidate or merge with any other corporation;
unless, with respect to (i), (ii) or (iii) above, either (x) an opinion is
obtained from counsel to Baxter reasonably acceptable to Edwards, or (y) a
ruling is obtained from the IRS, in either case
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to the effect that such act or event will not adversely affect the federal
income tax consequences of the Distribution to Baxter, its stockholders who
receive Edwards Shares or Edwards.
(b) If, as a result of any transaction occurring after the
Distribution Date involving either the stock or assets of either Edwards or any
of its Subsidiaries, or any combination thereof, the Distribution fails to
qualify as tax-free under the provisions of Section 355 of the Code, Edwards
shall indemnify Baxter for all Taxes, Liabilities and associated expenses,
including penalties and interest, incurred as a result of such failure of the
Distribution to qualify under Section 355 of the Code. If the Distribution
fails to qualify as tax-free under the provisions of Section 355 of the Code
other than as a result of a transaction occurring after the Distribution Date
involving either the stock or assets of Edwards or any of its Subsidiaries, or
any combination thereof, then Edwards shall not be liable for such Taxes,
Liabilities or expenses.
(c) Notwithstanding Section 9.4(a) above, Baxter and Edwards agree
--------------
that as of the Distribution Date, neither Baxter nor Edwards has entered into,
and within the first six months following the Distribution Date, neither Baxter
nor Edwards will enter into any agreements, understandings, arrangements or
substantial negotiations that would result, individually or collectively, in a
change of ownership of 50% or more of either within the meaning of Section
355(e) of the Code. Further, should Edwards enter into or continue any
negotiations during the first six months following the Distribution Date that
could result in the acquisition of its stock by a third-party, Edwards agrees to
notify the Baxter tax department immediately.
9.5. Intercompany Receivables and Payables. (a) All Intercompany
-------------------------------------
Receivables and Payables between any Subsidiary of Baxter, on the one hand, and
any Subsidiary of Edwards, on the other hand, shall be settled as of 3:00 p.m.,
Chicago time, on March 28, 2000. Commencing from the opening of business on
March 28, 2000, Intercompany Receivables and Payables between any Subsidiary of
Baxter, on the one hand, and any Subsidiary of Edwards, on the other hand, shall
be recorded for accounting purposes as third-party trade account receivables and
payables.
(b) Subject to the exception contained in Section 6.1(a) and subject
--------------
to Section 9.6(e), Baxter shall be entitled to all cash bank balances existing
--------------
immediately prior to the Distribution Date relating to the Edwards Business, or
otherwise utilized or maintained in connection with the Edwards Business,
including cash balances representing deposited checks or drafts for which only a
provisional credit has been allowed in depository accounts, which are to be
transferred to Edwards or any of its Subsidiaries on or prior to the
Distribution Date. Any such cash balances as of the Distribution Date which
have not been transferred to Baxter shall be paid to Baxter.
(c) All Loans owing by Edwards or any of its Subsidiaries to Baxter
or any of its Subsidiaries after giving effect to the transactions contemplated
by Articles III, IV and V shall be repaid no later than the Distribution Date.
------------ -- -
(d) Edwards or an appropriate Subsidiary thereof shall be responsible
for payment of all checks or drafts issued up to the Distribution Date against
disbursement accounts transferred to Edwards or such Subsidiary, which checks or
drafts have not been charged against
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such disbursement accounts on or prior to the Distribution Date (other than with
respect to payroll accounts, which will be assumed by Baxter or its
Subsidiaries).
(e) Baxter shall assist Edwards and each of its Subsidiaries in
establishing a separate cash management system effective as of and immediately
after the Distribution Date.
9.6. Intercompany Debt True-Up.
-------------------------
(a) Calculation of Operational Cash Flow. As soon as practicable,
------------------------------------
but in any event within 60 days after the Distribution Date, Baxter shall
prepare a statement of operational cash flow for the Edwards Business, for the
period January 1, 2000 through the Distribution Date. The operational cash flow
statement shall be prepared from the books and records of Baxter in a manner
consistent with Baxter's historical cash flow allocation among its various
business units. The statement of operational cash flow will be adjusted (the
"Unbudgeted Transfer Adjustment") to eliminate the operational cash flow impact
------------------------------
of any assets, liabilities and reserves transferred to Edwards or its
Subsidiaries pursuant to this Agreement but which was not taken into account in
the initial internal budgeting process upon which this Section 9.6 (including
-----------
the amount set forth in paragraph (c) against which the cash flow is trued up)
was based. The Unbudgeted Transfer Adjustment shall not include the impact of
any expenses that Edwards is required to pay under the terms of Section 14.1 or
------------
Section 14.2. The effect of these unbudgeted transfers on operational cash flow
- ------------
shall be included as a separate schedule accompanying the statement of
operational cash flow. Subject to Section 9.6(g), the statement of operational
--------------
cash flow delivered by Baxter to Edwards shall be final, binding and conclusive
on the Parties for all purposes of this Agreement and shall provide the basis
for determining the adjustments (if any) specified in Section 9.6(c).
--------------
(b) Definition of Operational Cash Flow. Operational cash flow for
-----------------------------------
each Baxter operating unit consists of net income plus depreciation and
amortization, increased or decreased, as appropriate, by cash restructuring
utilization and the net change in "managed capital" (as defined in Baxter
Finance Policy #1402) during the period, but including the effects of any cash
restructuring utilization and acquisitions (excluding acquisitions for up to
$7.5 million in cash) and divestitures on managed capital. The operational cash
flow shall be computed in the same manner as reflected in the Hyperion
Management Report, "Cash Flow Trends" (as defined in Baxter Finance Policy
#1902), but including the effects of any cash restructuring utilization and
acquisitions (excluding acquisitions for up to $7.5 million in cash) and
divestitures.
(c) Cash Flow True-Up For First Quarter 2000. In the event that the
----------------------------------------
final determination of the cash flow statement indicates that the operational
cash flow is less than $4.6 million plus or minus the Unbudgeted Transfer
Adjustment, the amount of the difference shall be paid by Edwards to Baxter, as
an adjustment to intercompany debt assumed by Edwards or its Subsidiaries
pursuant to Section 9.3, within 10 days after the final determination of such
-----------
adjustment. In the event that the final determination of the cash flow statement
indicates that the operational cash flow is greater than $4.6 million plus or
minus the Unbudgeted Transfer Adjustment, the amount of the difference shall be
paid by Baxter to Edwards, as an adjustment to intercompany debt assumed by
Edwards, within 10 days after the final determination of such adjustment.
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(d) Cash True-Up for "Lag" Entities. The financial results of
-------------------------------
certain Baxter foreign subsidiaries (lag entities) are included in the
consolidated financial results of Baxter and Edwards on a one-month lag basis.
Therefore, for the month March, 2000, the financial results of the Edwards
Business operations will be included, for external reporting purposes, in the
post Distribution quarter beginning April 1 through June 30, 2000. Since the
month of March, 2000, is funded by Baxter, there shall be a cash true-up between
Baxter and Edwards based on the operational cash flow generated or used in March
by lag entities. As soon as practicable, but in any event within 60 days after
the Distribution Date, Baxter shall prepare a statement of operational cash flow
for the Edwards Business, for the period March 1, 2000 through the Distribution
Date for lag entities. This statement of operational cash flow will be prepared
as defined in Sections 9.6(a) and 9.6(b), except that the recognition of
--------------- ------
deferred intercompany gross profit allocations will be deleted from the earnings
statement to reflect the cost of goods sold at the local subsidiary's cost. If
the operational cash flow results in a positive amount representing the
generation of cash, then Baxter will remit that amount to Edwards within 10 days
of the final determination of such amount. On the other hand, if the
operational cash flow is a negative amount representing a use of cash, then
Edwards will reimburse Baxter for that amount within 10 days of the final
determination of such amount. If a transfer contemplated by Article III to
-----------
occur on or prior to March 31, 2000 does not occur on March 31, 2000 for any lag
entity, a separate operational cash flow statement will be prepared (using the
procedures described above) for the period beginning April 1, 2000 through the
actual transfer in the lag country. If the operational cash flow results in a
positive amount representing the generation of cash, then Baxter will remit that
amount to Edwards within 10 days after the final determination of such amount.
On the other hand, if the operational cash flow is a negative amount
representing a use of cash, then Edwards will reimburse Baxter for that amount
within 10 days after the final determination of such amount.
(e) "Cash Balance" True-up. As provided in Section 9.5(b) and subject
---------------------- --------------
to the exceptions referred to therein, Baxter is entitled to all cash bank
balances existing immediately prior to the Distribution Date, and any such cash
balances as of the Distribution Date which have not been transferred to Baxter
shall be paid to Baxter. Within 30 days after the Distribution Date, Baxter
shall calculate the amount of cash held by the Transferred Subsidiaries as of
the Distribution Date and shall provide Edwards prompt written notice of such
calculated amount. If such amount is greater than $10 million, Edwards shall
pay the difference between such amount and $10 million to Baxter as an
adjustment to intercompany debt assumed by Edwards within 10 days after the
final determination of such amount. If such amount is less than $10 million,
Baxter shall pay the difference between $10 million and such amount to Edwards
within 10 days after the final determination of such amount.
(f) Cash True-Up for Tax Liability Generated During Funded Period.
-------------------------------------------------------------
The Edwards Business activity during the period funded by the Baxter lag
entities described in Section 9.6(d) above, will increase or decrease the tax
--------------
liability of the Baxter lag entity funding the Edwards Business operations. The
amount of the tax liability or tax benefit generated during the funded period by
the Edwards Business operations will be calculated by Baxter, as soon as
practicable but in any event within 60 days after the Distribution Date. If the
tax computation results in a tax benefit, then Baxter will remit that amount to
Edwards within 10 days of the final determination of such amount. On the other
hand, if the tax computation results in a tax liability,
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then Edwards will reimburse Baxter for that amount within 10 days of the final
determination of such amount.
(g) Assumed Debt True-Up. Within 90 days of the Distribution Date,
--------------------
Baxter shall prepare (1) a balance sheet (the "True-Up Balance Sheet") of the
---------------------
Edwards Business as of the Distribution Date reflecting the transfers and
retentions of assets and liabilities contemplated by Articles III, IV and V and
------------ -- -
(2) a balance sheet (the "Actual Balance Sheet") of the Edwards Business as of
--------------------
the Distribution Date reflecting the transfers and retentions of assets and
liabilities that actually occurred between Baxter and its Subsidiaries and
Edwards and its Subsidiaries in contemplation of the Distribution. Both balance
sheets shall be prepared using consistent accounting principles. Within 20 days
of the preparation of the True-Up Balance Sheet and the Actual Balance Sheet,
Baxter shall calculate (A) the sum of the amounts actually paid to Baxter or its
applicable Subsidiary (including or net of, as applicable, any adjustments in
the purchase prices for such transfers that were actually paid to Baxter or one
of its Subsidiaries by Edwards or one of its Subsidiaries or to Edwards or one
of its Subsidiaries by Baxter or one of its Subsidiaries, as the case may be) in
respect of the transfers set forth on Schedule 9.6(g) hereto in U.S. dollars
---------------
computed at the Foreign Exchange Rate in effect at the Distribution Date (the
"Asset Transfer Amount"), (B) the book value as of March 31, 2000 of the
---------------------
finished goods inventory in the countries or regions set forth in Schedule
--------
6.1(h) (the "Inventory Amount"), (C) the book value as of the Distribution Date
- ------ ----------------
of the accounts receivable relating to the sales activity relating Exclusively
to the Edwards Business in the countries or regions set forth in Schedule 6.1(h)
---------------
in U.S. dollars computed at the Foreign Exchange Rate in effect at the
Distribution Date (the "Accounts Receivable Amount"), (D) the book value as of
--------------------------
the Distribution Date of the accounts receivable of Baxter Germany that are not
capable of being specifically separated between Baxter Germany and Edwards
Germany in U.S. dollars computed at the Foreign Exchange Rate in effect at the
Distribution Date (the "German Accounts Receivable Amount"), (E) the book value
---------------------------------
as of the Distribution Date of the accounts payable relating to the sales
activity relating Exclusively to the Edwards Business in the countries or
regions set forth in Schedule 6.1(h) in U.S. dollars computed at the Foreign
---------------
Exchange Rate in effect at the Distribution Date (the "Accounts Payable
----------------
Amount"), (F) the book value as of the Distribution Date of the accounts payable
- ------
of Baxter Germany that are not capable of being specifically separated between
Baxter Germany and Edwards Germany in U.S. dollars computed at the Foreign
Exchange Rate in effect at the Distribution Date (the "German Accounts Payable
-----------------------
Amount") and (G) the aggregate net differences, if any, between the assets and
- ------
liabilities reflected in the True-Up Balance Sheet and the Actual Balance Sheet
resulting from transfers or retentions of assets and liabilities that vary from
the transfers and retentions contemplated by Articles III, IV and V (the
------------ -- -
"Variance Amount") and shall provide Edwards prompt written notice (the "Debt
--------------- ----
True-Up Notice") of such calculations.
- --------------
If (I) the Asset Transfer Amount plus (II) $190 million (representing
----
the aggregate amount of intercompany debt assumed by Edwards and Edwards U.S.
pursuant to Sections 4.5 and 5.2(b)) plus (III) the Inventory Amount plus (IV)
------------ ------ ---- ----
the Accounts Receivable Amount plus (V) the German Accounts Receivable Amount
----
minus (VI) the Accounts Payable Amount minus (VII) the German Accounts Payable
- ----- -----
Amount plus or minus, as applicable, (VIII) the Variance Amount (such sum being
---- -----
referred to herein as the "Aggregate Amount Received") is:
-------------------------
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<PAGE>
(i) less than $292.5 million (the "Debt True-Up Amount"), Edwards shall,
-------------------
within 10 days of the delivery of the Debt True-Up Notice, pay to Baxter
the difference between the Aggregate Amount Received and the Debt True-Up
Amount by wire transfer of immediately available funds to the account
designated by Baxter, which payment shall be used by Baxter to repay a
portion of the debt owed by Baxter to third parties; or
(ii) greater than the Debt True-Up Amount, Baxter shall, within 10 days
of the delivery of the Debt True-Up Notice, pay to Edwards the difference
between the Debt True-Up and the Aggregate Amount Received by wire transfer
of immediately available funds to the account designated by Edwards.
(h) Simultaneously with or promptly after the payment to Baxter Limited
by Edwards Lifesciences Finance Limited for its investment in the Japanese
contractual joint venture referred to in Section 9.3, if the U.S. dollar amount
-----------
of such payment plus the payment made under a related agreement, each calculated
using the Foreign Exchange Rate in effect on the date of payment, is (i) less
than the U.S. dollar amount of such payments calculated using a foreign exchange
rate equal to 107 Japanese yen per U.S. dollar, then Edwards shall pay to Baxter
such difference, or (ii) more than the U.S. dollar amount of such payments
calculated using a foreign exchange rate equal to 107 Japanese yen per U.S.
dollar, then Baxter shall pay to Edwards such difference in U.S. dollars.
(i) For purposes of this Section 9.6, the Edwards Business shall not
-----------
include any assets or liabilities that are Retained Assets or Retained
Liabilities.
9.7. Collection of Accounts Receivable. (a) Baxter and its
---------------------------------
Subsidiaries shall be entitled to control all collection actions related to the
Retained Assets, including the determination of what actions are necessary or
appropriate and when and how to take any such action.
(b) Subject to Section 9.7(d), Edwards and its Subsidiaries shall be
--------------
entitled to control all collection actions related to the Transferred Assets,
including the determination of what actions are necessary or appropriate and
when and how to take any such action.
(c) If, after the Distribution Date, Edwards or any of its
Subsidiaries shall receive any remittance from any account debtors with respect
to the accounts receivable arising out of the Retained Assets or other amounts
due Baxter or its Subsidiaries in respect of services rendered or products sold
by Baxter or its Subsidiaries after the Distribution Date, or Baxter or any of
its Subsidiaries shall receive any remittance from any account debtors with
respect to the accounts receivable arising out of the Transferred Assets or
other amounts due Edwards or its Subsidiaries in respect of services rendered or
products sold by Edwards or its Subsidiaries after the Distribution Date, such
Party shall receive and deposit such remittance and deliver cash in an amount
equal thereto to the other Party as soon as practicable. In the absence of any
designation of the specific invoice being paid by a customer thereby, payments
from account debtors shall be applied to the earliest invoice outstanding with
respect to indebtedness of such account debtor owing to either Baxter or
Edwards.
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(d) The Parties acknowledge that certain accounts receivable and
accounts payable are not capable of being specifically separated between Baxter
and its Subsidiaries, on the one hand, and Edwards and its Subsidiaries, on the
other hand. Accordingly, the Parties agree that, notwithstanding the foregoing,
Baxter shall cause one or more of its Subsidiaries to administer the collection
of such accounts receivable and the payment of such accounts payable. Baxter
shall pay or cause to be paid to Edwards or its appropriate Subsidiary an
allocable portion of the amounts collected with respect to such accounts
receivable determined by Baxter in accordance with Baxter's past practices.
Edwards shall pay or cause to be paid to Baxter or its appropriate Subsidiary an
allocable portion of the amounts paid with respect to such accounts payable
determined by Baxter in accordance with Baxter's past practices.
(e) Each Party shall deliver to the other such schedules and other
information with respect to the accounts receivable included in the Transferred
Assets and those not included therein as each shall reasonably request from time
to time in order to permit such Parties to reconcile their respective records
and to monitor the collection of all accounts receivable (whether or not
Transferred Assets). Each Party shall afford the other reasonable access to its
books and records relating to any accounts receivable.
(f) (i) Within a reasonable period of time after the Distribution
Date, Baxter shall prepare a report of the accounts receivable relating
Exclusively to the Edwards Business included in the Retained Assets (the
"Accounts Receivable Report" As soon as practicable after the first anniversary
--------------------------
of the Distribution Date, Baxter shall notify Edwards in writing (the "Refund
------
Notice") of the aggregate amount paid to and received by Baxter in respect of
- ------
such accounts receivable from the Distribution Date through the first
anniversary of the Distribution Date and the following amount (the "Refund
------
Amount"): (A) the time value of money to Baxter of financing such collected
- ------
accounts receivable from the Distribution Date through the date of the
respective payment of such accounts, plus or minus, as the case may be, (B) the
---- -----
loss or gain, if any, to Baxter on such collected accounts receivable, due to
fluctuations in foreign currency exchange rates, calculated by comparing the
Foreign Exchange Rate for the relevant currency as of the date of receipt of
payment in respect of an account receivable to the Foreign Exchange Rate as of
the Distribution Date, plus interest on such loss or gain at a rate equal to
Baxter's time value of money, plus (C) the aggregate face value in U.S. dollars,
----
using, for accounts receivable denominated in a currency other than the U.S.
dollar, the Foreign Exchange Rate as of the Distribution Date, of the accounts
receivable that had not been paid to and received by Baxter prior to such first
anniversary plus (D) the time value of money to Baxter of financing such
----
uncollected accounts receivable. If the Refund Amount is a positive number,
within 10 days of the delivery of the Refund Notice, Edwards shall pay to Baxter
the Refund Amount. If the Refund Amount is a negative number, within 10 days of
the delivery of the Refund Notice, Baxter shall pay to Edwards the absolute
value of the Refund Amount.
(ii) If any of the accounts receivable that were not paid to and
received by Baxter prior to the first anniversary of the Distribution Date
are in fact subsequently collected by Baxter, the amount so collected shall
be paid by Baxter to Edwards within 15 business days of collection.
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(iii) Invoices to which the uncollected accounts receivable referred
to in Section 9.7(f)(i)(C) relate shall be assigned to Edwards or the
--------------------
appropriate Subsidiary of Edwards by Baxter or the appropriate Subsidiary
of Baxter.
9.8. Agreements Relating to Baxter and Edwards. (a) Each of Baxter
-----------------------------------------
and Edwards shall use commercially reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things, reasonably
necessary, proper or advisable under applicable laws, regulations and agreements
to consummate, make effective and perform its or its Subsidiaries' allocable
portion of all purchase, distribution and other obligations under all Contracts
with customers, suppliers, vendors or other third parties relating to both the
Edwards Business and the Retained Business (the "Shared Agreements"), including
-----------------
those Shared Agreements set forth on Schedule 9.8 hereto. Each of Baxter and
------------
its Subsidiaries and Edwards and its Subsidiaries shall be entitled to the
rights and privileges of its allocable portion of the Shared Agreements.
(b) Each of Baxter and Edwards shall use commercially reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things reasonably necessary, proper or advisable under applicable
laws, regulations and agreements to afford the rights and privileges of the
allocable portion of the Shared Agreements to the other.
(c) If any of the Shared Agreements contains a minimum purchase
obligation or provides for the payment to Baxter and Edwards of a rebate or
similar payment or reimbursement based upon the volume of purchases, and if such
minimum purchase obligation or rebate or similar payment or reimbursement is not
allocated between Baxter and its Subsidiaries and Edwards and its Subsidiaries
pursuant to the terms of the Shared Agreement, then such minimum purchase
obligation or rebate or similar payment or reimbursement shall be allocated
between the Parties based upon the relative performance of the Retained Business
and the Edwards Business under such Shared Agreement during the twelve-month
period immediately prior to the Distribution Date.
(d) Liabilities pursuant to, arising under or relating to a Shared
Agreement shall be allocated between Baxter and its Subsidiaries, on the one
hand, and Edwards and its Subsidiaries, on the other hand, as follows:
(i) First, if a Liability is incurred exclusively in respect of a
benefit received by one Party, the Party receiving such benefit shall be
responsible for such Liability;
(ii) Second, if a Liability cannot be so allocated under clause (i),
such Liability shall be allocated between the Parties based on the relative
proportions of total benefit received (based upon the performance under
such Shared Agreement during the twelve-month period immediately prior to
the Distribution Date) under the relevant Shared Agreement.
Notwithstanding the foregoing, each Party shall be responsible for any and
all Liabilities arising out of or resulting from a breach of the relevant
Shared Agreement attributable to the Edwards Business, in the case of
Edwards, or the Retained Business, in the case of Baxter.
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(e) If either Baxter or its Subsidiaries, on the one hand, or
Edwards or its Subsidiaries, on the other hand, improperly receives any benefit
or payment under any Shared Agreement that was intended for the other, the Party
receiving such benefit or payment will use commercially reasonable efforts to
deliver, transfer or otherwise afford such benefit or payment to the other
Party.
9.9. Certain Releases. Baxter or one or more of its Subsidiaries is a
----------------
guarantor of certain obligations of the Edwards Business, including those
obligations set forth on Schedule 1.1(l). Edwards shall use commercially
---------------
reasonable efforts to release Baxter and its Subsidiaries from such guarantees
prior to the Distribution Date and shall indemnify and hold harmless Baxter and
its Subsidiaries from and against any Liabilities relating to such guarantees.
9.10. Litigation. (a) On or as of the Distribution Date, Edwards or
----------
its Subsidiaries, as appropriate, shall assume and pay all Liabilities that may
result from the Assumed Actions (as hereinafter defined) and all fees and costs
relating to the defense of the Assumed Actions, including attorneys' fees and
costs incurred after the Distribution Date. "Assumed Actions" shall mean those
---------------
cases, claims and investigations (on which Baxter or its Subsidiaries, other
than Edwards and its Subsidiaries, is a defendant or the party against whom the
claim or investigation is directed) relating to the Edwards Business, including
those listed on Schedule 9.10(a), but only to the extent that they relate to the
----------------
Edwards Business.
(b) Baxter and its Subsidiaries shall transfer the Transferred
Actions (as hereinafter defined) to Edwards, and Edwards shall receive and have
the benefit of all of the proceeds of such Transferred Actions. "Transferred
-----------
Actions" shall mean those cases and claims (on which Baxter or its Subsidiaries
- -------
is a plaintiff or claimant) relating to the Edwards Business, including those
listed on Schedule 9.10(b), but only to the extent that they relate to the
----------------
Edwards Business.
9.11. Liability for Previously Delivered Products. The following
-------------------------------------------
provisions shall apply to all Edwards Products sold or transferred prior to the
Distribution Date to the Retained Business for distribution (the "Products"):
--------
(a) Edwards warrants to Baxter that, at the time of delivery to
Baxter (or Baxter's designee): (i) the Products shall not be (A) adulterated or
misbranded within the meaning of the Federal Food, Drug and Cosmetic Act (as
amended) (the "Act") or the regulations issued thereunder, (B) products that may
---
not, under the provisions of Section 404, 505, 514 or 515 of the Act, be
introduced into interstate commerce, or (C) banned devices under Section 516 of
the Act; (ii) the Products shall not violate any other medical or health law,
statute, regulation or directive applicable to the Products; (iii) the Products
shall not violate any applicable customs, trade or environmental law, statute,
regulation or directive; and (iv) Edwards shall have good and marketable title
to all Products free and clear of all liens or encumbrances (other than any
created by Baxter). THE FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL
OTHER WARRANTIES OF ANY KIND, WHETHER STATUTORY, WRITTEN, ORAL, EXPRESS OR
IMPLIED, INCLUDING ANY WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND
MERCHANTABILITY. IN NO EVENT, WHETHER AS A RESULT OF BREACH OF CONTRACT, TORT
LIABILITY (INCLUDING NEGLIGENCE) OR OTHERWISE, SHALL EDWARDS BE LIABLE TO BAXTER
FOR
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<PAGE>
ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. ANY LIABILITY OF
EDWARDS TO BAXTER UNDER THE FOREGOING WARRANTY SHALL BE LIMITED TO THE TOTAL
PRICE PAID BY BAXTER FOR THE PRODUCTS THAT ARE THE SUBJECT OF SUCH LIABILITY
PLUS ALL COSTS FOR FREIGHT AND OTHER DIRECT EXPENSES INCURRED BY BAXTER WITH
RESPECT TO SUCH PRODUCTS. The obligations of Edwards under this Section 9.11
------------
are in addition to its obligations contained elsewhere herein, and the
limitations in this Section 9.11 shall in no way limit the obligations of
------------
Edwards under Article XV hereof.
----------
(b) Edwards shall indemnify and hold Baxter and the Baxter
Indemnified Parties (as hereinafter defined) harmless from and against, and in
respect of, any and all Expenses and Losses that result from a third-party claim
asserted against or incurred by Baxter or any of the Baxter Indemnified Parties
that arise out of or relate to: (i) any tort claim (including any claim for
personal injury, wrongful death or property damage) to the extent such claim
arises from any grossly negligent act or omission or willful misconduct by
Edwards (or its employees or other agents) in connection with the supply of
Products by Edwards or one of its Affiliates to Baxter or one of its Affiliates
for distribution; (ii) defects in the Products; (iii) any actual or alleged
patent, copyright or trademark infringement, or misappropriation or violation of
any other proprietary right related to a Product; (iv) any actual or alleged
breach of any warranty (including written warranties included within the Product
packaging) or obligation, if any, accompanying the Products, subject to the
limitations in Section 9.11(a) to the extent provided therein; and (v) any claim
---------------
for personal injury, wrongful death or property damage arising out of the use of
a Product; provided, however, that this Section 9.11(b) shall not apply to any
-------- ------- ---------------
Losses or Expenses: (A) to the extent that the parties agree; (B) to any actual
or alleged Patent, Copyright or Trademark infringement, or misappropriation or
violation of any other proprietary right, arising in connection with the supply
of Products by Edwards or one of its Affiliates to Baxter or one of its
Affiliates for distribution and the distribution of such Products by Baxter or
one of its Affiliates (but not arising out of or relating to any of the
proprietary rights in the Products as delivered); or (C) any tort claim
(including any claim for personal injury, wrongful death or property damage) to
the extent such claim arises from any grossly negligent act or omission or
willful misconduct by Baxter (or its employees or agents) in the course of its
performance pursuant to this Agreement, including any misrepresentation
concerning the characteristics or method of usage of Products or relating to the
storage, handling or delivery of Products. The "Baxter Indemnified Parties"
--------------------------
shall mean and include (I) Baxter and Baxter's Affiliates, (II) the respective
directors, officers, agents and employees of and counsel to Baxter and its
Affiliates, (III) each other person, if any, controlling Baxter or any of its
Affiliates, and (IV) the successors, assigns, heirs and personal representatives
of any of the foregoing. Expenses shall be reimbursed or advanced when and as
incurred promptly upon submission of statements by Baxter or any Baxter
Indemnified Party to Edwards.
9.12. Edwards Bank Accounts. On or prior to the Distribution Date,
---------------------
Baxter and its Subsidiaries shall transfer the bank accounts set forth on
Schedule 9.12 hereto to Edwards or one of its Subsidiaries. Edwards shall cause
- -------------
any amounts received, by mistake or otherwise, in such accounts after the
Distribution Date on account of the Retained Business to be transferred promptly
to Baxter and its Subsidiaries, as appropriate. Baxter shall cause any amounts
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<PAGE>
received, by mistake or otherwise, after the Distribution Date on account of the
Edwards Business to be transferred promptly to Edwards and its Subsidiaries, as
appropriate.
9.13. Informal, Nondocumented Real Estate Leases. Each Party and its
------------------------------------------
Subsidiaries may continue to occupy, from and after the Distribution Date, such
space in the facilities of the other Party and its Subsidiaries as is occupied
immediately prior to the Distribution Date, or such other space therein as may
be mutually agreed to from time to time by Baxter and Edwards, and which
occupancy is otherwise not documented by any written leasing agreement or
otherwise provided for in the Operating Agreements, on the following terms and
conditions:
(a) The occupying Party shall pay to the other Party rent with
respect to such occupied space for the period from and after the Distribution
Date during which such space is so occupied, which rent shall be determined by
the other Party on the same basis on which the other Party allocates rent with
respect to the occupancy of space by business units of the other Party or as the
occupying Party presently is paying, whichever is lower. Such rent shall be
payable from time to time by the occupying Party (but not more frequently than
monthly) promptly following delivery by the other Party to the occupying Party
of a statement therefor.
(b) The occupying Party may, at any time, upon not less than 15
days' prior written notice to Baxter's Director of Corporate Real Estate, with a
copy to Edwards, terminate its occupancy of any or all of such space.
(c) The other Party may, at any time, upon not less than 30 days'
prior written notice to the occupying Party, require the occupying Party to
cease occupancy of any or all of such space as designated in a notice sent to
the occupying Party.
9.14. Third Party Consents. To the extent that the transactions
--------------------
contemplated by this Agreement require any material consents, approvals or
waivers from third parties (the "Third Party Consents"), the Parties will use
--------------------
commercially reasonable efforts to obtain any such material Third Party
Consents.
9.15. Material Governmental Approvals and Consents. To the extent that
--------------------------------------------
the transactions contemplated by this Agreement require any approvals or
consents of any Governmental Authority, the Parties will use commercially
reasonable efforts to obtain any Material Governmental Approvals and Consents.
9.16. Late Payments. Any amount not paid when due pursuant to this
-------------
Agreement or any Implementation Agreement (and any amounts billed or otherwise
invoiced or demanded and properly payable that are not paid within thirty (30)
days of such bill, invoice or other demand) shall accrue interest at a rate per
annum equal to the Prime Rate plus 2%.
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<PAGE>
ARTICLE X
INTELLECTUAL PROPERTY LICENSES
------------------------------
10.1. License to Baxter of Transferred Intellectual Property.
------------------------------------------------------
(a) Grant of License. Edwards and its Subsidiaries hereby grant, and
----------------
Baxter and its Subsidiaries hereby accept, a perpetual, nonexclusive, fully
paid-up, worldwide right and license to use and otherwise practice under the
Transferred Intellectual Property in order to make, have made, import, offer for
sale, sell and distribute (i) any Baxter Products Actually Using the Transferred
Intellectual Property as of the Distribution Date, and (ii) any New Products
developed and manufactured by or for Baxter or its Subsidiaries during the
three-year period commencing on the Distribution Date. A Party will be deemed
to be "Actually Using" certain Intellectual Property if: (I) such Party or its
--------------
Subsidiaries is manufacturing (or has a third party manufacturing for it) a
product incorporating such Intellectual Property; or (II) a New Product
incorporating such Intellectual Property is Under Development by such Party or
its Subsidiaries; provided, however, that a Party will not be deemed to be
-------- -------
Actually Using any Intellectual Property the sole use of which is to manufacture
a product for the other Party. "Under Development" by a Party shall mean, with
-----------------
respect to a New Product, that it (1) is the subject of a funded research and
development project by such Party or its Subsidiaries as of the Distribution
Date; (2) is described by such Party or its Subsidiaries in a pending patent
application filed by such Party or its Subsidiaries prior to the Distribution
Date; (3) is described by such Party or its Subsidiaries in an invention record
that satisfies the enablement requirement of 35 U.S.C. (S) 112 and which is
submitted no less than three months prior to the Distribution Date; or (4) is
(A) described by such Party or its Subsidiaries in an invention record that
satisfies the enablement requirement of 35 U.S.C. (S) 112 and which is submitted
within the three-month period prior to the Distribution Date, and (B)
subsequently commercialized by such Party or its Subsidiaries. The license
granted pursuant to this Section 10.1(a) shall not include any rights to the
---------------
Transferred Intellectual Property related to (w) the Duraflo treatment and other
biocompatible coatings developed by the Edwards Business which shall be the
subject of a separate supply agreement; (x) Edwards' laser technology including
the laser technology utilized in Edwards' Transmyocardial Laser
Revascularization program; (y) the continuous renal replacement therapy
business; and (z) Edwards' angiogenesis technology including VEGF-B protein,
targeting peptides and zinc finger DNA binding proteins and genes. Any
Transferred Intellectual Property actually licensed pursuant to this Section
-------
10.1(a) shall be deemed to be "Licensed Edwards Intellectual Property."
- ------- --------------------------------------
(b) Ownership of the Licensed Edwards Intellectual Property. Baxter
-------------------------------------------------------
and its Subsidiaries acknowledge that, subject to the foregoing license, Edwards
and its Subsidiaries, as the case may be, are the sole and exclusive owners of
all right, title and interest in and to the Transferred Intellectual Property.
Baxter and its Subsidiaries agree that they will do nothing inconsistent with
Edwards' or its Subsidiaries' ownership of, or rights in, the Transferred
Intellectual Property. Notwithstanding the foregoing or Section 17.7, Baxter
------------
and its Subsidiaries shall have the right to disclose the Licensed Edwards
Intellectual Property to a third-party contract manufacturer in connection with
Baxter or its Subsidiaries exercising their right pursuant to Section 10.1(a) to
---------------
have products made, provided that such third-party contract manufacturer agrees
to be bound by obligations of confidentiality consistent with Section 17.7,
------------
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<PAGE>
and Baxter and its Subsidiaries remain liable for any breach of such obligations
by such third-party contract manufacturer. Edwards and its Subsidiaries shall
not allow any registration or other protection for any Licensed Edwards
Intellectual Property to lapse without notifying Baxter thereof at least one
month prior thereto. Upon Baxter's receipt of such notice, (i) Baxter and its
Subsidiaries shall have the right, but not the obligation, to take steps (at
Baxter's expense and in Edwards' and its Subsidiaries' names, if necessary) to
prevent such a lapse, and (ii) Edwards and its Subsidiaries shall cooperate with
Baxter and its Subsidiaries (at Baxter's or its Subsidiaries' reasonable request
and at Baxter's expense) to assign to Baxter or its Subsidiaries such Licensed
Edwards Intellectual Property.
(c) Marking and Notices. Baxter and its Subsidiaries shall ensure
-------------------
that any products that are made (by them or by third-party manufacturers),
imported, offered for sale, sold or distributed by them pursuant to the license
granted by Edwards and its Subsidiaries in this Section 10.1 shall bear a legal
------------
or proprietary rights notice in such form as may be reasonably requested by, and
to the extent directed by, Edwards from time to time.
(d) Termination of Licenses. The license granted pursuant to this
-----------------------
Section 10.1 may be terminated by Edwards only if Baxter or its Subsidiaries are
- ------------
in breach or default of a material term of this Section 10.1 which breach or
------------
default continues for sixty (60) days after written notice thereof from Edwards
to Baxter, Edwards may terminate the license granted pursuant to this Section
-------
10.1, provided that such termination shall be solely with respect to the
- ----
Licensed Edwards Intellectual Property that is the subject of such uncured
breach.
(e) Divestiture. If Baxter or its Subsidiaries sell, assign,
-----------
transfer or otherwise divest themselves of ownership of any business unit that
uses, or product line that uses or is manufactured under, the Licensed Edwards
Intellectual Property, the license granted in this Section 10.1 may be assigned
------------
without payment of additional consideration, but only with respect to such
business unit or product line and with the written consent of Edwards, which
consent shall not be unreasonably withheld.
10.2. License to Edwards of Retained Baxter Intellectual Property.
-----------------------------------------------------------
(a) Grant of License. Baxter and its Subsidiaries hereby grant, and
----------------
Edwards and its Subsidiaries hereby accept, a perpetual, nonexclusive, fully
paid-up, worldwide right and license to use and otherwise practice under the
Retained Baxter Intellectual Property (except for the Trademarks that are part
of the Retained Baxter Intellectual Property) in order to make, have made,
import, offer for sale, sell and distribute (i) any Edwards Products Actually
Using the Retained Baxter Intellectual Property as of the Distribution Date, and
(ii) any New Products developed and manufactured by or for Edwards or its
Subsidiaries during the three-year period commencing on the Distribution Date.
Any Baxter Retained Intellectual Property actually licensed pursuant to this
Section 10.2(a) shall be deemed to be "Licensed Baxter Intellectual Property."
- --------------- -------------------------------------
Schedule 10.2(a) contains a listing of (I) the Patents licensed by Baxter and
- ----------------
its Subsidiaries to Edwards hereunder; and (II) certain Edwards Products Under
Development as of the Distribution Date which may incorporate Licensed Baxter
Intellectual Property. The parties acknowledge that Schedule 10.2(a) may be
----------------
over- or underinclusive, and, accordingly, shall be amended, as necessary, to
include any additional Retained Baxter Intellectual Property that Edwards is
deemed to be Actually Using as of the Distribution Date or to exclude any
Retained
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<PAGE>
Baxter Intellectual Property that Edwards is not deemed to be Actually Using as
of the Distribution Date. Without limiting the terms of Section 7.4, the parties
-----------
shall cooperate and act reasonably in amending Schedule 10.2(a). The license
----------------
granted pursuant to this Section 10.2(a) shall not include any rights to the
---------------
Retained Baxter Intellectual Property related to the following:
(i) Fibrin sealant biopharmaceuticals and the associated delivery
devices which shall be the subject of a separate supply agreement;
(ii) The spinning membrane separation technology acquired by Baxter
through the HemaScience acquisition which shall be the subject of a
separate supply agreement;
(iii) Continuous renal replacement therapy which shall be the subject
of separate distribution agreements;
(iv) Hemoglobin Therapeutics technology, including human, bovine and
recombinant hemoglobin based biopharmaceuticals and perfluorocarbon-based
pharmaceuticals; and
(v) Non-polyvinylchloride based film, tubing, containers and
compositions developed as an alternative/replacement for PVC (only if
acquired from Bieffe and/or developed under the IV Systems Marc project)
which shall be the subject of a separate supply agreement.
(b) Ownership of the Licensed Baxter Intellectual Property. Edwards
------------------------------------------------------
and its Subsidiaries acknowledge that, subject to the foregoing license, Baxter
and its Subsidiaries, as the case may be, are the sole and exclusive owner of
all right, title and interest in and to the Retained Baxter Intellectual
Property. Edwards and its Subsidiaries agree that they will do nothing
inconsistent with Baxter's or its Subsidiaries' ownership of, or rights in, the
Retained Baxter Intellectual Property. Notwithstanding the foregoing or Section
-------
17.7, Edwards and its Subsidiaries shall have the right to disclose the Licensed
- ----
Baxter Intellectual Property to a third-party contract manufacturer in
connection with Edwards or its Subsidiaries exercising their right pursuant to
Section 10.2(a) to have products made, provided that such third-party contract
- ---------------
manufacturer agrees to be bound by obligations of confidentiality consistent
with Section 17.7, and Edwards and its Subsidiaries remain liable for any breach
------------
of such obligations by such third-party contract manufacturer. Baxter and its
Subsidiaries shall not allow any registration or other protection for any
Licensed Baxter Intellectual Property to lapse without notifying Edwards thereof
at least one month prior thereto. Upon Edwards' receipt of such notice, (i)
Edwards and its Subsidiaries shall have the right, but not the obligation, to
take steps (at Edwards' expense and in Baxter's and its Subsidiaries' names, if
necessary) to prevent such a lapse, and (ii) Baxter and its Subsidiaries shall
cooperate with Edwards and its Subsidiaries (at Edwards' or its Subsidiaries'
reasonable request and at Edwards' expense) to assign to Edwards or its
Subsidiaries such Licensed Baxter Intellectual Property.
(c) Marking and Notices. Edwards and its Subsidiaries shall ensure
-------------------
that any products that are made (by them or by a third-party manufacturer),
imported, offered for sale, sold or distributed by them pursuant to the license
granted by Baxter and its Subsidiaries in this
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<PAGE>
Section 10.2 shall bear a legal or proprietary rights notice in such form as may
- ------------
be reasonably requested by and to the extent directed by Baxter from time to
time.
(d) Termination of Licenses. The Licenses granted pursuant to this
-----------------------
Section 10.2 may be terminated by Baxter only if Edwards or its Subsidiaries are
- ------------
in breach or default of a material term of this Section 10.2 which breach or
------------
default continues for sixty (60) days after written notice from Baxter to
Edwards, Baxter may terminate the license granted pursuant to this Section 10.2,
------------
provided that such termination shall be solely with respect to the Licensed
Baxter Intellectual Property that is the subject of such uncured breach.
(e) Divestiture. If Edwards or its Subsidiaries sell, assign,
-----------
transfer or otherwise divest themselves of ownership of any business unit that
uses or product line that uses or is manufactured under the Licensed Baxter
Intellectual Property, the licenses granted in this Section 10.2 may be assigned
------------
without payment of additional consideration, but only with respect to such
business unit or product line and the written consent of Baxter, which consent
shall not be unreasonably withheld.
10.3. Licenses Related to Interlink(TM). In addition to the licenses
---------------------------------
granted in Section 10.1 or 10.2, the following shall apply with respect to the
------------ ----
Intellectual Property in the needleless access technology known as
Interlink(TM):
(a) The license granted by Edwards in Section 10.1 shall also apply
------------
to any Baxter Products incorporating such technology, excluding blood sampling
products, to the extent claimed in any United States or foreign patent filed by
Edwards which relies upon U.S. Patent Application Nos. 07/147,414, 07/217,004
and/or 07/325,617 for priority and such claims would be enabled under 35 U.S.C.
(S) 112 by the disclosure found in U.S. Patent Application No. 07/325,617, and
any such licensed Transferred Intellectual Property shall be deemed Licensed
Edwards Intellectual Property.
(b) The license granted by Baxter in Section 10.2 shall also apply
------------
to any Edwards AVA introducer, central venous catheter, pulmonary artery
catheter, pulmonary artery catheter introducers and hemofiltration device that
currently exists as of the Distribution Date, and New Products thereof, that
have one or more pre-slit injection sites integrally connected or permanently
attached thereto; provided that such pre-slit injection site(s) are covered by
the claims of any United States or foreign patent filed by Baxter which relies
upon U.S. Patent Application Nos. 07/147,414, 07/217,004, and/or 07/325,617 for
priority and such claims would be enabled under 35 U.S.C. (S) 112 by the
disclosure found in U.S. Patent Application No. 07/325,617, and any such
licensed Retained Baxter Intellectual Property shall be deemed Licensed Baxter
Intellectual Property. The license to Edwards shall exclude blunt cannula to the
extent that Intellectual Property for such blunt cannula has been exclusively
licensed to Becton, Dickinson and Company pursuant to the 1991 License Agreement
between BHC and Becton, Dickinson and Company. Pre-slit injection sites packaged
with an Edwards cardiovascular product in a kit or set will be the subject of a
separate supply agreement with Baxter.
10.4. Use by Edwards of Baxter's Trademarks. Edwards and its
-------------------------------------
Subsidiaries shall discontinue use of the names BAXTER, BAXTER HEALTHCARE,
BAXTER
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<PAGE>
INTERNATIONAL INC. and all other trademarks, service marks and trade names owned
by or licensed to Baxter (the "Baxter Marks") as follows:
------------
(a) Baxter hereby grants to Edwards and its Subsidiaries a
nonexclusive, royalty-free, fully paid-up right and license to use the Baxter
Marks on Edwards Products in all appropriate jurisdictions for only so long as
is reasonably necessary to transfer product registrations, deplete existing
inventory and complete labeling and reimbursement qualifications. Edwards and
its Subsidiaries shall use their commercially reasonable efforts to cease using
the Baxter Marks as soon as possible after the Distribution Date, but in no
event shall Edwards or its Subsidiaries use the Baxter Marks on Edwards Products
after December 31, 2001.
(b) Edwards and its Subsidiaries will use their commercially
reasonable efforts to cease the use of the Baxter Marks on or in connection with
materials other than labels of Edwards Products including signs, stationery,
trucks and customer brochures, as soon as reasonably practical, but in no event
later than December 31, 2001.
(c) If delays in obtaining regulatory approval require Edwards or
its Subsidiaries to use the Baxter Marks beyond the time limits set forth above,
Baxter shall be reasonable in granting extensions of the time limits as
necessary.
(d) Any use of the Baxter Marks by Edwards or its Subsidiaries
pursuant to the above terms and conditions shall inure to the benefit of Baxter
and shall be in the same form as existed prior to the Distribution Date. Any
products or processes offered by Edwards or its Subsidiaries for sale under the
Baxter Marks shall meet the same product specifications and quality assurance
standards as existed prior to the Distribution Date. Baxter shall have the
right to inspect any and all materials and products offered in connection with
the Baxter Marks including label copy and marketing and sales materials.
(e) Any use of the Baxter Marks by Edwards or its Subsidiaries shall
indicate that Baxter is the owner of the Baxter Marks and that such use is
pursuant to a license from Baxter.
(f) Edwards and its Subsidiaries shall do nothing to impair Baxter's
rights in the Baxter Marks. Edwards and its Subsidiaries shall inform Baxter
promptly of any infringement of the Baxter Marks.
10.5. Limitations on Requirements to Supply. Nothing in this Agreement
-------------------------------------
shall require either Party to supply any composition, formulation or product
that was not commercially available or was not being manufactured as of the
Distribution Date or that is not commercially available or is not being
manufactured at the time the above-referenced supply agreements are executed.
10.6. Fair Market Value. Baxter and Edwards agree that the reciprocal
-----------------
licenses granted under this Article X are in full and adequate fair market value
---------
consideration for each other.
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<PAGE>
ARTICLE XI
CONDITIONS TO THE DISTRIBUTION
------------------------------
The obligation of Baxter to effect the Distribution is subject to the
satisfaction or the waiver by Baxter, at or prior to the Distribution Date, of
each of the following conditions:
11.1. Approval by Baxter Board of Directors. This Agreement and the
-------------------------------------
transactions contemplated hereby, including the declaration of the Distribution,
shall have been duly approved by the Board of Directors of Baxter in accordance
with applicable law and the Amended and Restated Certificate of Incorporation
and Amended and Restated By-laws of Baxter.
11.2. Receipt of IRS Private Letter Tax Ruling. Baxter shall have
----------------------------------------
received a ruling from the IRS or, at Baxter's sole discretion, an opinion of
its tax counsel Skadden, Arps, Slate, Meagher & Flom, substantially to the
effect that the Distribution will qualify as a tax-free distribution for federal
income tax purposes under Section 355 of the Code and that no income, gain or
loss will be recognized by Baxter, Edwards or their respective stockholders
(other than with respect to cash received in lieu of fractional shares) upon the
distribution to Baxter's stockholders of Edwards Shares.
11.3. Compliance with State and Foreign Securities and "Blue Sky"
-----------------------------------------------------------
Laws. The Parties shall have taken all such action as may be necessary or
- ----
appropriate under state and foreign securities and "Blue Sky" laws in connection
with the Distribution.
11.4. SEC Filings and Approvals. The Parties shall have prepared and
-------------------------
Edwards shall, to the extent required under applicable law, have filed with the
SEC any such documentation and any requisite no action letters that Baxter
determines are necessary or desirable to effectuate the Distribution, and each
Party shall use commercially reasonable efforts to obtain all necessary
approvals from the SEC with respect thereto as soon as practicable.
11.5. Filing and Effectiveness of Registration Statement; No Stop
-----------------------------------------------------------
Order. The Registration Statement shall have been filed and declared effective
- -----
by the SEC, and no stop order suspending the effectiveness of the Registration
Statement shall have been initiated or, to the knowledge of either of the
Parties, threatened by the SEC.
11.6. Approval of NYSE Listing Application. The Edwards Common Stock
------------------------------------
and the accompanying rights granted pursuant to the Rights Plan shall have been
approved for listing on the NYSE, subject to official notice of distribution.
11.7. Receipt of Fairness Opinions of Financial Advisors. The Baxter
--------------------------------------------------
Board of Directors shall have received written opinions of Credit Suisse First
Boston and J.P. Morgan & Co. Incorporated, in form acceptable to Baxter, to the
effect that the Distribution is fair to Baxter's stockholders from a financial
point of view, which opinions shall not have been withdrawn or modified.
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<PAGE>
11.8. Ancillary Agreements. The Tax Sharing Agreement and each of the
--------------------
Conveyancing Instruments, Implementation Agreements and Operating Agreements
intended to be executed prior to the Distribution shall have been executed and
delivered, and each of such agreements shall be in full force and effect.
11.9. Resignations. On or prior to the Distribution Date, Baxter
------------
shall cause all of its designees to resign or to be removed as officers and from
all Boards of Directors or similar governing bodies of Edwards and its
Affiliates and any Subsidiary of Edwards on which they serve.
11.10. Election of Edwards Board. The Board of Directors of Edwards
-------------------------
as set forth on Exhibit H shall have been duly elected.
---------
11.11. Consents. (a) All Material Governmental Approvals and Consents
--------
required to permit the valid consummation of the Distribution shall have been
obtained without any conditions being imposed that would have a material adverse
effect on Baxter or Edwards.
(b) Baxter shall have obtained all Third Party Consents required in
connection with the Distribution, except those for which the failure to obtain
such Third Party Consents would not, in the reasonable opinion of Baxter,
individually or in the aggregate have a material adverse effect on Baxter,
Edwards or the consummation of the Distribution.
11.12. No Actions. No action, suit or proceeding shall have been
----------
instituted or threatened by or before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction or
before any arbitrator to restrain, enjoin or otherwise prevent the Distribution
or the other transactions contemplated by this Agreement (including a stop order
with respect to the effectiveness of the Registration Statement), and no order,
injunction, judgment, ruling or decree issued by any court of competent
jurisdiction shall be in effect restraining the Distribution or such other
transactions.
11.13. New Credit Facility. The definitive agreements governing the
-------------------
Edwards Credit Facility shall have been executed.
11.14. Consummation of Pre-Distribution Transactions. The
---------------------------------------------
pre-Distribution transactions contemplated by Articles III, IV and V of this
------------ -- -
Agreement shall have been consummated in all material respects.
11.15. No Other Events. No other events or developments shall have
---------------
occurred that, in the judgment of the Baxter Board of Directors, would result in
the Distribution having a material adverse effect on Baxter or its stockholders.
11.16. Satisfaction of Conditions. The satisfaction of the foregoing
--------------------------
conditions are for the sole benefit of Baxter and shall not give rise to or
create any duty on the part of Baxter or the Baxter Board of Directors to waive
or not waive any such condition, to effect the Distribution or in any way limit
Baxter's power of termination set forth in Section 18.13.
-------------
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<PAGE>
ARTICLE XII
EMPLOYEES AND EMPLOYEE BENEFIT MATTERS
--------------------------------------
12.1. Edwards Employees. Schedule 12.1 describes or otherwise
----------------- -------------
identifies the Parties' current estimate of all employees of the Edwards
Business as of the Distribution Date (the "Edwards Employees"). Within 60 days
-----------------
after the Distribution Date, the Parties shall amend Schedule 12.1 to include a
-------------
correct list of the Edwards Employees as of the Distribution Date.
12.2. Employment of Edwards Employees. Immediately following the
-------------------------------
Distribution Date, Edwards shall, or shall cause its Subsidiaries to, employ or
continue to employ each Edwards Employee. Edwards and Baxter (and their
respective Subsidiaries) shall use commercially reasonable efforts to accomplish
any transfers of employment required by this Section 12.2 in a timely manner.
------------
Active Edwards Employees shall be paid by Edwards or one of its Subsidiaries at
the same salary and wage rate levels (including bonus programs) paid by Baxter
or its Subsidiaries as in effect on the Distribution Date; provided, however,
-------- -------
that Edwards (or the applicable Edwards Subsidiary) retains the right to
determine the compensation of Edwards Employees after the Distribution Date.
12.3. Terminations/Layoff/Severance. (a) Edwards Employees shall not
-----------------------------
be eligible for any severance benefits from Baxter or its Subsidiaries or
Affiliates as a result of either their employment by Edwards or its Subsidiaries
or Affiliates or their subsequent termination of employment with Edwards or its
Subsidiaries or Affiliates.
(b) Any Edwards Employee who receives a written notice prior to the
Distribution Date regarding such employee's termination of employment on a fixed
date between the Distribution Date and one year after the Distribution Date from
Edwards or any of its Subsidiaries shall be eligible to receive from Edwards (or
the applicable Edwards Subsidiary) severance pay that is calculated pursuant to
the formula used under the Baxter Severance Pay Plan as in effect on the
Distribution Date. The manner in which this Section 12.3(b) is implemented
---------------
shall be governed by the terms of the Edwards Severance Pay Plan.
(c) Effective as of the Distribution Date, Edwards (or the
applicable Edwards Subsidiary) shall have the obligation to reimburse Baxter for
the severance benefits paid by Baxter under the Baxter Severance Pay Plan on or
after the Distribution Date to any employee who was terminated by Baxter prior
to the Distribution Date while employed in any Edwards Business unit. Edwards
(or the applicable Edwards Subsidiary) shall have the obligation to pay
severance benefits to any employee terminated by Edwards after the Distribution
Date who is eligible to receive severance benefits under the Edwards Severance
Pay Plan.
12.4. International Edwards Employees. Notwithstanding the remaining
-------------------------------
provisions of this Article XII, all issues, other than those addressed in
-----------
Sections 12.1 through 12.3, 12.5, 12.7, 12.8, 12.12, 12.14 and 12.17 through
- ------------- ---- ---- ---- ---- ----- ----- -----
12.20, relating to any Edwards Employee who, immediately prior to the
- -----
Distribution Date, is employed by an Edwards Subsidiary in a foreign
jurisdiction (the "Edwards Foreign Employees") shall be addressed in connection
-------------------------
with the Implementation Agreement applicable to such Edwards Subsidiary and are
outside the scope of this Agreement. Notwithstanding the foregoing, (i) the
amount of pension benefits earned by
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any Edwards Foreign Employees under any pension plan maintained by Baxter, or
its Subsidiaries or Affiliates, in a foreign jurisdiction (a "Baxter Foreign
--------------
Pension Plan") that are transferred to a pension plan maintained by Edwards
- ------------
shall be determined by the actuaries for the respective plans in accordance with
the methodology described in Schedule 12.4 and (ii) Schedule 12.4 describes or
------------- -------------
identifies all Baxter Foreign Pension Plans from which no pension benefits will
be transferred to any Edwards plan, as agreed upon by the Vice President of
Compensation, Benefits and Employee Services of Edwards and the Assistant
Treasurer of Baxter. As of the Distribution Date, Baxter shall retain all
liabilities associated with the Baxter Foreign Pension Plans from which no
pension benefits will be transferred, as identified in Schedule 12.4, with
-------------
respect to any Edwards Foreign Employee.
12.5. Employment Solicitation. During the period beginning on the
-----------------------
Distribution Date and ending one year after the Distribution Date, neither
Baxter nor Edwards shall, nor shall they permit any of their respective
Subsidiaries, Affiliates or agents to, directly or indirectly, except as
provided in the following sentence, actively solicit or recruit for employment
any then current employee of the other or of any of the other's Subsidiaries.
Nothing contained in this Article XII shall (i) prohibit the hiring of any
-----------
employee who in good faith is believed to be actively seeking employment on his
or her own initiative without prior contact initiated by any employee or agent
of the company where employment is sought, or any of such company's Affiliates;
provided, however, that such employee or the hiring company has obtained
- -------- -------
authorization from the Senior Vice President of Human Resources or the Corporate
Vice President of Human Resources, as the case may be, of his or her current
employer; or (ii) prohibit Baxter or Edwards or any of their respective
Subsidiaries from hiring any person who has terminated employment with the other
company. The foregoing restriction shall cease to apply one year after the
Distribution Date.
12.6. WARN Act. Edwards and its Subsidiaries agree that they shall
--------
not, at any time during the 90-day period following the Distribution Date, (i)
effectuate a "plant closing" as defined in the Worker Adjustment and Retraining
Notification Act of 1988 (the "WARN Act") affecting any site of employment or
--------
operating units within any site of employment of the Edwards Business, or (ii)
take any action to precipitate a "mass layoff" as defined in the WARN Act
affecting any site of employment of the Edwards Business, except, in either
case, after complying fully with the notice and other requirements of the WARN
Act. Edwards agrees to indemnify Baxter and its Subsidiaries and to defend and
hold harmless Baxter and its Subsidiaries from and against any and all claims,
losses, damages, expenses, obligations and liabilities (including attorney's
fees and other costs of defense) that Baxter and its Subsidiaries may incur in
connection with any suit or claim of violation brought against Baxter under the
WARN Act, which relates in whole or in part to actions taken by Edwards or its
Subsidiaries with regard to any site of employment of Edwards or operating units
within any site of employment of the Edwards Business.
12.7. Leave of Absence Policies. (a) Through the Distribution Date,
-------------------------
Baxter and its Subsidiaries shall be responsible for administering compliance
with the Baxter leave of absence policies with respect to Edwards Employees.
(b) No later than the Distribution Date: (i) Edwards shall adopt,
and shall cause each of its Subsidiaries to adopt, its own leave of absence
policies; (ii) Edwards shall
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honor, and shall cause each of its Subsidiaries to honor, all the terms and
conditions of leaves of absence that have been granted to any Edwards Employee
under a Baxter leave of absence policy before the Distribution Date by Baxter or
any of its Subsidiaries, including such leaves that are to commence after the
Distribution Date where Baxter or any of its Subsidiaries has approved such
leave or where an employee has submitted appropriate paperwork to Baxter or any
of its Subsidiaries for such leave prior to the Distribution Date; (iii) Edwards
and its Subsidiaries shall be solely responsible for administering leaves of
absence policies and compliance with all applicable laws with respect to the
Edwards Employees; and (iv) Edwards and its Subsidiaries shall recognize all
periods of service of Edwards Employees with Baxter or any of its Subsidiaries,
as applicable, to the extent such service is recognized by Baxter or its
Subsidiaries for the purpose of eligibility for leave entitlement under the
Baxter leave of absence policies; provided, however, that no duplication of
-------- -------
benefits shall be required by the foregoing.
(c) As soon as administratively possible after the Distribution
Date and upon request to Baxter's Senior Vice President of Human Resources,
Baxter shall provide to Edwards copies of all records pertaining to the Baxter
leave of absence policies with respect to all Edwards Employees to the extent
such records have not been provided previously to Edwards or one of its
Subsidiaries.
12.8. Withdrawal from Participation in Baxter Plans and
-------------------------------------------------
Establishment of Edwards Plans. (a) Except as otherwise specifically provided
- ------------------------------
in this Article XII, no later than the Distribution Date, Edwards Employees
-----------
shall cease to participate in the Baxter employee benefit plans and programs
(the "Baxter Plans").
------------
(b) No later than the Distribution Date, Edwards or any Edwards
Subsidiary shall establish its own employee benefit plans and programs for the
benefit of eligible employees of Edwards and its Subsidiaries, including, for
Edwards U.S. Employees, a 401(k) savings plan (the "Edwards Savings Plan"), a
--------------------
nonqualified executive deferred compensation plan (the "Edwards Deferred
----------------
Compensation Plan"), a medical and dental plan, a group vision care plan, a
- -----------------
cafeteria plan, a group term life and accidental death and dismemberment plan, a
long-term disability plan and a group legal expense plan (collectively, the
"Edwards Welfare Plans"), a severance plan (the "Edwards Severance Pay Plan")
--------------------- --------------------------
and the Edwards 2000 Incentive Compensation Program, all as described in the
Registration Statement. Notwithstanding the foregoing, Edwards shall not
establish a plan similar to the Baxter Pension Plan (as hereinafter defined).
12.9. Transfer of Account Balances and Accrued Benefits.
-------------------------------------------------
(a) Baxter Savings Plan. Subject to applicable law and the
-------------------
provisions of the Baxter International Inc. and Subsidiaries Incentive
Investment Plan (the "Baxter Savings Plan"), as soon as administratively
-------------------
practicable following the establishment of the Edwards Savings Plan, or
effective as of any other date as agreed to in writing by the plan administrator
for the Baxter Savings Plan and the plan administrator for the Edwards Savings
Plan, the account balances (including outstanding loans) of all Baxter Savings
Plan participants who are Edwards Employees whose place of employment is in the
U.S. ("Edwards U.S. Employees") shall be transferred from the Baxter Savings
----------------------
Plan to the Edwards Savings Plan (the "Transferred Accounts"). Each Edwards U.S.
--------------------
Employee shall receive credit for all purposes under the
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<PAGE>
Edwards Savings Plan for periods of service with Baxter or any of its
Subsidiaries or Affiliates. The plan administrator for the Edwards Savings Plan
shall distribute any amounts from such Transferred Accounts that may be
necessary in order for the Baxter Savings Plan to satisfy any requirements of
applicable law (including, nondiscrimination rules) as instructed by the plan
administrator for the Baxter Savings Plan. The plan administrator for the
Edwards Savings Plan shall take any other action reasonably requested by the
plan administrator for the Baxter Savings Plan that is necessary or advisable,
in the opinion of the plan administrator for the Baxter Savings Plan, to
maintain the tax-qualified status of the Baxter Savings Plan or to avoid the
imposition of any penalties with respect to such plan.
(b) Puerto Rico Savings Plan. Subject to applicable law and the
------------------------
provisions of the Baxter Healthcare Corporation of Puerto Rico Savings and
Investment Plan (the "Baxter PR Savings Plan"), as soon as administratively
----------------------
practicable following the establishment of the Edwards Lifesciences Corporation
of Puerto Rico Savings and Investment Plan (the "Edwards PR Savings Plan"), or
-----------------------
effective as of any other date as agreed to in writing by the plan administrator
for the Baxter PR Savings Plan and the plan administrator for the Edwards PR
Savings Plan, the account balances (including outstanding loans) of all Baxter
PR Savings Plan participants who are employees of Edwards Puerto Rico (936) or
Edwards Puerto Rico (MS&P) ("Edwards PR Employees") shall be transferred from
--------------------
the Baxter PR Savings Plan to the Edwards PR Savings Plan (the "PR Transferred
--------------
Accounts"). Each Edwards PR Employee shall receive credit for all purposes
- --------
under the Edwards PR Savings Plan for the periods of service with Baxter
Healthcare Corporation of Puerto Rico or any of its Subsidiaries or Affiliates.
The plan administrator for the Edwards PR Savings Plan shall distribute any
amounts from such Transferred Accounts that may be necessary in order for the
Baxter PR Savings Plan to satisfy any requirements of applicable law (including,
nondiscrimination rules) as instructed by the plan administrator for the Baxter
PR Savings Plan. The plan administrator for the Edwards PR Savings Plan shall
take any other action reasonably requested by the plan administrator for the
Baxter PR Savings Plan that is necessary or advisable, in the opinion of the
plan administrator for the Baxter PR Savings Plan, to maintain the tax-qualified
status of the Baxter PR Savings Plan or to avoid the imposition of any penalties
with respect to such plan.
(c) Puerto Rico Pension Plan. Subject to applicable law and the
------------------------
provisions of the Baxter Healthcare Corporation of Puerto Rico Pension Plan (the
"Baxter PR Pension Plan"), as soon as administratively practicable following the
----------------------
establishment of the Edwards Lifesciences Corporation of Puerto Rico Pension
Plan (the "Edwards PR Pension Plan"), or effective as of any other date as
-----------------------
agreed to in writing by the plan administrator for the Baxter PR Pension Plan
and the plan administrator for the Edwards PR Pension Plan, the accrued benefits
of all Baxter PR Pension Plan participants who are Edwards PR Employees shall be
transferred from the Baxter PR Pension Plan to the Edwards PR Pension Plan (the
"PR Transferred Accrued Benefits"). The amount of PR Transferred Accrued
-------------------------------
Benefits shall be determined by the actuaries for the respective plans in
accordance with the methodology described in Schedule 12.4. Each Edwards PR
-------------
Employee shall receive credit for all purposes under the Edwards PR Pension Plan
for the periods of service with Baxter Healthcare Corporation of Puerto Rico or
any of its Subsidiaries or Affiliates. The plan administrator for the Edwards
PR Pension Plan shall take any other action reasonably requested by the plan
administrator for the Baxter PR Pension Plan that is necessary or advisable, in
the opinion of the plan administrator for the Baxter PR Pension Plan,
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<PAGE>
to maintain the tax-qualified status of the Baxter PR Pension Plan or to avoid
the imposition of any penalties with respect to such plan.
12.10. Entitlement to Distributions Under Pension Plan. Each Edwards U.S.
-----------------------------------------------
Employee shall be treated as having terminated employment with an "Employer" as
defined in the Baxter International Inc. and Subsidiaries Pension Plan (the
"Baxter Pension Plan") effective as of the Distribution Date and shall be fully
-------------------
vested in his or her accrued benefit under the Baxter Pension Plan as of such
date. As of the Distribution Date, Baxter shall retain all liabilities
associated with the Baxter Pension Plan relating to any Edwards U.S. Employee.
12.11. Welfare Benefits Provided Under Edwards Plans. (a) Each Edwards
---------------------------------------------
U.S. Employee who becomes eligible to participate in the Edwards Welfare Plans
shall be credited under such plan with periods of service with any Baxter Group
Member for all purposes under such plan.
(b) Baxter (or the applicable Baxter Subsidiary) shall pay all costs
associated with the provision of disability benefits to any employee or former
employee of the Edwards Business whose place of employment is in the U.S. who as
of the Distribution Date is totally and permanently disabled. Edwards (or the
applicable Edwards Subsidiary) shall pay all costs associated with the provision
of disability benefits to any employee or former employee of the Edwards
Business whose place of employment is in the U.S. other than the persons
described in the first sentence of this Section 12.11(b) in an amount equal to
----------------
the benefits such persons would have received if they had remained covered under
the Baxter Plans during the period of such disability leave. Notwithstanding the
foregoing, any Edwards U.S. Employee receiving benefits under the Baxter Long-
Term Disability Plan on the Distribution Date shall continue to receive benefits
under the terms of such plan and the insurance contract used to fund such plan,
and neither Edwards nor any Edwards Subsidiary shall be charged for the payment
of such benefits. As of the Distribution Date, Edwards (or the applicable
Edwards Subsidiary) shall assume all Liabilities determined under FAS 112
relating to all Edwards U.S. Employees.
(c) Baxter (or the applicable Baxter Subsidiary) shall pay all claims
under the Baxter Medical Plan and the Baxter Dental Plan relating to Edwards
Employees that as of the Distribution Date have been incurred but not paid, but
only if claims for such costs are submitted in written form to the authorized
agents of Baxter (or the applicable Baxter Subsidiary) during the six-month
period beginning on the Distribution Date.
(d) Baxter (or the applicable Baxter Subsidiary) shall pay all costs
associated with the provision of benefits under the terms of the Baxter Retiree
Welfare Plan for all persons who as of the Distribution Date have satisfied the
age and service eligibility requirements for receiving benefits under such plan.
Edwards (or the applicable Edwards Subsidiary) shall assume and pay all costs,
if any, associated with the provision of retiree welfare benefits for all
Edwards U.S. Employees who after the Distribution Date satisfy the age and
service eligibility requirements under the corresponding Edwards plan, if any,
for receiving such benefits.
12.12. Stock Purchase Plans. Except as otherwise provided in the plan, on
--------------------
the Distribution Date, Edwards Employees shall cease to be eligible to purchase
Baxter Common Stock under the terms of the Baxter Stock Purchase Plans, and as
of the record date of the
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<PAGE>
Distribution, Edwards Employees may become eligible to participate in the
Edwards Stock Purchase Plans in accordance with the provisions of such plans.
12.13. Workers' Compensation. As soon as administratively practicable
---------------------
following the Distribution Date but in no event later than June 30, 2000, a Risk
Management Representative for each of the Parties shall agree upon the
allocation between the Parties of responsibility and liability for workers'
compensation claims and expenses relating to current and former employees of the
Parties and their respective Subsidiaries whose place of employment is in the
U.S. or Puerto Rico.
12.14. Vacation Pay Policy. After the Distribution Date, it is expected
-------------------
that Edwards shall maintain for its employees and employees of its Subsidiaries
a vacation pay policy, and Edwards (or the applicable Edwards Subsidiary) shall
be responsible for costs incurred to provide vacation pay to Edwards Employees
following such date. Edwards (or the applicable Edwards Subsidiary) shall
assume any and all Baxter Liabilities to provide to Edwards Employees vacation
that such persons accrued under the Baxter vacation pay policy as of the
Distribution Date, and no payment of such accrued vacation pay shall be made by
Baxter (or the applicable subsidiary) on the Distribution Date.
12.15. Non-Qualified Plans. As of the Distribution Date, Baxter (or the
-------------------
applicable Baxter Subsidiary) shall retain the Liability to provide benefits
accrued under the Baxter International Inc. and Subsidiaries Supplemental
Pension Plan with respect to all Edwards U.S. Employees and shall retain all
Liabilities associated with such plans with respect to any Edwards U.S.
Employee. Edwards (or the applicable Edwards Subsidiary) shall assume the
Liability to provide benefits accrued as of the Distribution Date under the
Baxter International Inc. and Subsidiaries Deferred Compensation Plan with
respect to Edwards U.S. Employees. No assets shall be transferred between the
Parties with respect to the plans listed in this Section 12.15.
-------------
12.16. Split-Dollar Life Insurance. As of the Distribution Date, Baxter
---------------------------
(or the applicable Baxter Subsidiary) shall retain all Liabilities associated
with the provision of all split-dollar life insurance policies relating to any
Edwards U.S. Employee.
12.17. Restricted Stock. All shares of Baxter Common Stock issued in the
----------------
form of restricted stock that were earned for 1999 performance and are held by
an Edwards Employee as of the Distribution Date will vest on December 31, 2000
as long as such Edwards Employee continues employment with either Edwards or
Baxter (or any of their respective Subsidiaries or Affiliates) through such
date.
12.18. Information to be Provided to Baxter. Edwards (or the applicable
------------------------------------
Edwards Subsidiary) shall provide any information that Baxter (or any Baxter
Subsidiary) may reasonably request, including information relating to dates of
termination of employment, in order to provide benefits to any eligible Edwards
Employee under the terms and conditions described herein or under the applicable
Baxter Plans. Any information relating to an employee's termination of
employment shall be provided by Edwards (or the applicable Edwards Subsidiary)
to Baxter as soon as available to Edwards or any of its Subsidiaries, but in any
event
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<PAGE>
no later than 30 days after such information is made available to Edwards
or any such Subsidiaries.
12.19. Corporate Action; Delegation of Authority. Any action taken by the
-----------------------------------------
Senior Vice President of Human Resources for Baxter or the Corporate Vice
President of Human Resources for Edwards shall be considered to be action taken
by either Baxter or Edwards or their respective Subsidiaries for purposes of
this Article XII. Without limiting the generality of the foregoing, the Chief
-----------
Executive Officer of Baxter or Edwards or their respective Subsidiaries may
delegate in writing to any other person the authority to act on behalf of Baxter
or Edwards, respectively, or their respective Subsidiaries, with respect to
actions required under the terms of this Article XII.
-----------
12.20. Transfer of Employee Files. By a specified date as agreed upon by
--------------------------
Edwards and Baxter following the Distribution Date, Baxter shall transfer to
Edwards the personnel files relating to all Edwards Employees.
ARTICLE XIII
INSURANCE MATTERS
-----------------
13.1. Insurance Prior to the Distribution Date. Edwards does hereby agree
----------------------------------------
that Baxter and its Subsidiaries shall not have any Liability whatsoever as a
result of the insurance policies and practices of Baxter and its Subsidiaries in
effect at any time prior to the Distribution Date, including any assistance
rendered to Edwards by Baxter in the placement of their insurance program,
including as a result of the level or scope of any such insurance, the
creditworthiness of any insurance carrier, the terms and conditions of any
policy and the adequacy or timeliness of any notice to any insurance carrier
with respect to any claim or potential claim or otherwise.
13.2. Ownership of Existing Policies and Programs. Baxter or one or more
-------------------------------------------
of its Subsidiaries shall continue to own all property, casualty and liability
insurance policies and programs, including primary and excess general liability,
errors and omissions, automobile, workers' compensation, property, fire, crime,
surety and other similar insurance policies, in effect on or before the
Distribution Date (collectively, the "Baxter Policies" and individually, a
---------------
"Baxter Policy"). Baxter shall use commercially reasonable efforts to maintain
-------------
the Baxter Policies in full force and effect up to and including the
Distribution Date, and, subject to the provisions of this Agreement, Baxter and
its Subsidiaries shall retain all of their respective rights, benefits and
privileges, if any, under the Baxter Policies. Nothing contained herein shall
be construed to be an attempt to assign or to change the ownership of the Baxter
Policies.
13.3. Procurement of Insurance for Edwards. To the extent not already
------------------------------------
provided for by the terms of the Baxter Policies, Baxter shall use commercially
reasonable efforts to cause Edwards and the appropriate Edwards Subsidiaries to
be named as additional insureds under Baxter Policies whose effective policy
periods include the Distribution Date, in respect of claims for which coverage
is available under the terms and conditions of Baxter's policies, arising out of
or relating to periods prior to the Distribution Date; provided, however, that
-------- -------
nothing contained herein shall be construed to require Baxter or any of its
Subsidiaries to
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<PAGE>
pay any additional premium or other charges in respect to, or waive or otherwise
limit any of its rights, benefits or privileges under, any Baxter Policy in
order to effect the naming of Edwards and its Subsidiaries as such additional
insureds.
13.4. Acquisition and Maintenance of Post-Distribution Edwards Insurance
------------------------------------------------------------------
Policies and Programs. Commencing on and as of the Distribution Date, Edwards
- ---------------------
shall be responsible for establishing and maintaining separate property,
casualty and liability insurance policies and programs (including primary and
excess general liability, errors and omissions, automobile, workers'
compensation, property, fire, crime, surety and other similar insurance
policies) for activities and claims involving Edwards or any of its Subsidiaries
or Affiliates. Edwards will exercise commercially reasonable efforts to secure
liability insurance to avoid potential gaps in coverage for claims arising from
events prior to the Distribution Date, which gap would not exist had the Edwards
Business continued to be covered with the same retroactive dates existing in the
Baxter Policies in effect on the Distribution Date. Edwards and each of its
Subsidiaries and Affiliates, as appropriate, shall be responsible for all
administrative and financial matters relating to insurance policies established
and maintained by Edwards and its Subsidiaries or Affiliates for claims relating
to any period on or after the Distribution Date involving Edwards or any of its
Subsidiaries or Affiliates. Notwithstanding any other agreement or
understanding to the contrary, except as set forth in Article XIII with respect
------------
to claims administration and financial administration of the Baxter Policies,
neither Baxter nor any of its Subsidiaries or Affiliates shall have any
responsibility for or obligation to Edwards or any of its Subsidiaries or
Affiliates relating to property and casualty insurance matters for any period,
whether prior to, on or after the Distribution Date.
13.5. Edwards Directors' and Officers' Insurance. Baxter shall use
------------------------------------------
commercially reasonable efforts to cause the persons currently serving as
officers and/or directors of Baxter or any of its Subsidiaries to be covered for
a period of six (6) years from the Distribution Date by the directors' and
officers' liability insurance policy maintained by Baxter (including corporate
reimbursement) (provided that Baxter may substitute therefor policies of at
--------
least the same coverage and amounts containing terms and conditions that are not
less advantageous than such policy) with respect to matters covered under the
existing policy occurring prior to the Distribution Date that were committed by
such officers and/or directors in their capacity as such; provided, however,
-------- -------
that in no event shall Baxter be required to expend with respect to any year
more than 200% of the current annual premium expended by Baxter (the "Insurance
---------
Amount") to maintain or procure insurance coverage pursuant hereto; and
- ------
provided, further, that if Baxter is unable to maintain or obtain the insurance
- -------- -------
called for by this Section 13.5, Baxter shall use commercially reasonable
------------
efforts to obtain as much comparable insurance as available for the Insurance
Amount. In the event Baxter or any of its successors or assigns (i) consolidates
with or merges into any other Person and shall 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, proper
provision shall be made so that the successors and assigns of Baxter
assume the obligations set forth in this Section 13.5. The provisions of this
------------
Section 13.5 are intended to be for the benefit of, and shall be enforceable by,
- ------------
each such officer and director and his or her heirs and representatives. As
provided in Section 15.5, any amount Edwards or any of its Subsidiaries is
------------
required to pay to Baxter as an indemnity under this Agreement is reduced to
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<PAGE>
the extent Baxter receives insurance proceeds from the above coverage, but only
to the extent such proceeds are actually received by Baxter.
13.6. Pre-Distribution Insurance Claims Administration. Edwards and its
------------------------------------------------
Subsidiaries and Affiliates acknowledge that Baxter has previously experienced
losses and received claims that were, or might have been, covered by one or more
Baxter Policies, and prior to the Distribution Date will have made decisions and
commitments regarding administration of such claims, including reaching
agreements and stipulations regarding such claims and proceeds of such claims
(collectively, "Pre-Distribution Claims Administration"). Edwards and its
--------------------------------------
Subsidiaries and Affiliates covenant not to contest or challenge in any manner
any action taken by Baxter prior to the Distribution Date in connection with or
relating to Pre-Distribution Claims Administration, or to interfere with the
performance of any agreement, commitment or stipulation so made by Baxter in
connection with or relating to Pre-Distribution Claims Administration.
13.7. Post-Distribution Insurance Claims Administration. Baxter and its
-------------------------------------------------
Subsidiaries shall have the primary right, responsibility and authority for
claims administration and financial administration of claims that relate to or
affect the Baxter Policies. Upon notification by Edwards or one of its
Subsidiaries or Affiliates of a claim relating to Edwards or a Subsidiary or
Affiliate thereof under one or more of the Baxter Policies, Baxter shall
cooperate with Edwards in asserting and pursuing coverage and payment for such
claim by the appropriate insurance carrier(s). In asserting and pursuing such
coverage and payment, Baxter shall have sole power and authority to make binding
decisions, determinations, commitments and stipulations on its own behalf and on
behalf of Edwards and its Subsidiaries and Affiliates, which decisions,
determinations, commitments and stipulations shall be final and conclusive if
made to maximize the overall economic benefit for Baxter and Edwards of the
Baxter Policies. Edwards and its Subsidiaries and Affiliates assume
responsibility for, and shall pay to the appropriate insurance carriers or
otherwise, any premiums, retrospectively-rated premiums, defense costs,
indemnity payments, deductibles, retentions or other charges (collectively,
"Insurance Charges") whenever arising, which shall become due and payable under
-----------------
the terms and conditions of any applicable Baxter Policy in respect of any
liabilities, losses, claims, actions or occurrences, whenever arising or
becoming known, involving or relating to any of the assets, businesses,
operations or liabilities of Edwards or any of its Subsidiaries or Affiliates,
whether the same relate to the period prior to, on or after the Distribution
Date. To the extent that the terms of any applicable Baxter Policy provide that
Baxter or any of its Subsidiaries shall have an obligation to pay or guarantee
the payment of any Insurance Charges relating to Edwards or any of its
Subsidiaries, Baxter shall be entitled to demand that Edwards make such payment
directly to the Person or entity entitled thereto. In connection with any such
demand, Baxter shall submit to Edwards a copy of any invoice received by Baxter
pertaining to such Insurance Charges together with appropriate supporting
documentation, to the extent available. In the event that Edwards fails to pay
any such Insurance Charges when due and payable, whether at the request of the
party entitled to payment or upon demand by Baxter, Baxter and its Subsidiaries
may (but shall not be required to) pay such insurance charges for and on behalf
of Edwards and, thereafter, Edwards shall forthwith reimburse Baxter for such
payment. Subject to the other provisions of this Article XIII, the retention by
------------
Baxter of the Baxter Policies and the responsibility for claims administration
and financial administration of such policies are in no way intended to limit,
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<PAGE>
inhibit or preclude any right of Edwards, Baxter or any other insured to
insurance coverage for any Insured Claims under the Baxter Policies.
13.8. Non-Waiver of Rights to Coverage. An insurance carrier that
--------------------------------
otherwise would be obligated to pay any claim shall not be relieved of the
responsibility with respect thereto, or, solely by virtue of the provisions of
this Article XIII, have any subrogation rights with respect thereto, it being
------------
expressly understood and agreed that no insurance carrier or any third-party
shall be entitled to a windfall (i.e., a benefit they would not be entitled to
----
receive had no Distribution occurred or in the absence of the provisions of this
Article XIII) by virtue of the provisions hereof.
- ------------
13.9. Scope of Affected Policies of Insurance. The provisions of this
---------------------------------------
Article XIII relate solely to matters involving liability, casualty and workers'
- ------------
compensation insurance, and shall not be construed to affect any obligation of
or impose any obligation on the Parties with respect to any life, health and
accident, dental or medical insurance policies applicable to any of the
officers, directors, employees or other representatives of the Parties or their
Affiliates.
ARTICLE XIV
EXPENSE AND TAX MATTERS
-----------------------
14.1. Allocation of Expenses. (a) Except as otherwise provided in this
----------------------
Agreement or any other agreement contemplated hereby, or as otherwise agreed to
in writing by the Parties, all fees and expenses incurred in connection with the
transactions contemplated hereby or thereby shall be paid by Baxter.
Specifically, (i) Baxter shall absorb all the costs associated with the
dedication of internal resources and personnel to such transaction at all times
prior to the Distribution Date, and (ii) Baxter shall pay all fees and expenses
that are related directly to the implementation of the Distribution transactions
incurred on or prior to the Distribution Date.
(b) Notwithstanding Section 14.1(a) above, Baxter shall be solely
---------------
responsible for the following costs incurred in connection with the transactions
contemplated hereby: (i) the reasonable fees and expenses of Sidley & Austin in
connection with its representation of Baxter; (ii) the reasonable fees and
expenses of Skadden, Arps, Slate, Meagher & Flom in connection with its
representation of Baxter relating to the tax ruling and the opinion of counsel
on tax matters; (iii) the reasonable fees and expenses of foreign counsel to
Baxter or Edwards in connection with the transactions contemplated by this
Agreement; (iv) the reasonable fees and expenses of Credit Suisse First Boston
and J.P. Morgan & Co. Incorporated relating to their financial advisory services
rendered to Baxter; (v) the reasonable fees and expenses of
PricewaterhouseCoopers LLP in connection with its audit and tax services
rendered to Baxter; (vi) the reasonable fees and expenses of Ernst & Young in
connection with their consulting services relating to the Commissionaire
structure; (vii) the reasonable fees and expenses of Towers, Perrin and Hewitt
Associates in connection with their consulting services relating to benefits
plans rendered to Baxter; (viii) all SEC registration and "blue sky" filing fees
associated with the Registration Statement; (ix) the printing, mailing and
distribution of the Information Statement to Baxter's stockholders; (x) the
reasonable fees and expenses of Edwards' transfer
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<PAGE>
agent and registrar relating to the initial issuance of Edwards Shares as a
dividend to Baxter's stockholders; (xi) the NYSE listing fees for the Edwards
Shares; (xii) the design and initial printing of certificates of the Edwards
Shares; (xiii) the initial distribution of the certificates of Edwards Common
Stock as a dividend to Baxter stockholders; (xiv) the development, search and
registration of the name "Edwards"; and (xv) various other international
professional services related directly to the Distribution, such as valuation
services, legal services and tax services.
(c) Notwithstanding Section 14.1(a)(i) above, Edwards shall be solely
------------------
responsible for all fees, expenses and other costs incurred in connection with
the transactions contemplated hereby related to: (i) the reasonable fees and
expenses of the commercial lenders under the Edwards Credit Facility relating to
their syndication and arrangement of such facility; (ii) the reasonable fees and
expenses of any financial advisors retained by Edwards in connection with any
"road shows" or presentations to investors; (iii) recruiting fees, signing
bonuses and relocation expenses for new and existing Edwards Employees; (iv)
severance payments to Edwards Employees terminated as a result of the
Distribution; (v) fees and expenses related to execution of new company identity
and media launch activities; and (vi) product re-registration fees and product
re-labeling costs.
14.2. Allocation of Taxes. Sales, transfer, V.A.T. or other similar Taxes
-------------------
or fees payable in connection with the transactions contemplated by this
Agreement shall be determined and paid as provided in the Tax Sharing Agreement.
ARTICLE XV
RELEASE AND INDEMNIFICATION
---------------------------
15.1. Release of Pre-Distribution Claims. (a) Except as provided in
----------------------------------
Section 15.1(b), effective as of the Distribution Date, each of Baxter and
- ---------------
Edwards does hereby, on behalf of itself and its respective Subsidiaries,
Affiliates, successors and assigns and all Persons who at any time prior to the
Distribution Date have been shareholders, directors, officers, agents or
employees of either Party (in each case, in their respective capacities as
such), remise, release and forever discharge the other Party, its Subsidiaries,
Affiliates, successors and assigns and all Persons who at any time prior to the
Distribution Date have been shareholders, directors, officers, agents or
employees of such Party (in each case, in their respective capacities as such),
and their respective heirs, executors, administrators, successors and assigns,
from any and all Liabilities whatsoever, whether at law or in equity (including
any right of contribution), whether arising under any contract or agreement, by
operation of law or otherwise, existing or arising from any acts or events
occurring or failing to occur or alleged to have occurred or to have failed to
occur or any conditions existing or alleged to have existed on or before the
Distribution Date, including in connection with the transactions and all other
activities to implement the Distribution.
(b) Notwithstanding the foregoing, nothing contained in Section 15.1(a)
---------------
shall release any Party from:
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(i) any Liability transferred, assigned or allocated to, or assumed
or retained by, a Party in accordance with this Agreement, any Conveyancing
Instrument, any Implementation Agreement, any Operating Agreement or the
Tax Sharing Agreement;
(ii) any Liability provided in or resulting from this Agreement, any
Conveyancing Instrument, any Implementation Agreement, any Operating
Agreement, the Tax Sharing Agreement or any agreement between any of Baxter
and its Subsidiaries, on the one hand, and Edwards and its Subsidiaries, on
the other hand, that is not to terminate pursuant to the Distribution or
any other agreement between any of the Parties entered into in
contemplation that such agreement would remain in effect after the
Distribution;
(iii) any Liability for unpaid amounts for the sale, lease,
construction or receipt of goods, property or services purchased, obtained
or used in the ordinary course of business by one Party from the other
Party prior to the Distribution Date;
(iv) any Liability for unpaid amounts for products or services or
refunds owing on products or services due on a value-received basis for
work done by one Party at the request or on behalf of the other Party;
(v) any Liability that the Parties may have with respect to
indemnification or contribution pursuant to this Agreement for claims
brought against the Parties by third Persons, which Liability shall be
governed by the provisions of this Article XV and, if applicable, the
----------
appropriate provisions of any Conveyancing Instrument, any Implementation
Agreement or the Tax Sharing Agreement;
(vi) the Liability for the payable from Edwards Lifesciences AG to
Baxter Belgium in respect of the inventory transferred pursuant to Section
-------
3.22(c) or
-------
(vii) any Liability the release of which would result in the release
of any party other than a Person released pursuant to this Section 15.1;
------------
provided, however, that the Parties agree not to bring suit or permit any
-------- -------
of their Subsidiaries or Affiliates to bring suit against any Person with
respect to any Liability to the extent that such Person would be released
with respect to such Liability by this Section 15.1 but for the provisions
------------
of this clause (vi).
(c) Neither Party shall make, nor permit any of its Subsidiaries or
Affiliates to make, any claim or demand, or commence any Action asserting any
claim or demand, including any claim of contribution or indemnification, against
the other Party, or any other Person released pursuant to Section 15.1(a), with
---------------
respect to any Liability released pursuant to Section 15.1(a).
---------------
(d) It is the intent of each of the Parties by virtue of the
provisions of this Section 15.1 to provide for a full and complete release and
------------
discharge of all Liabilities existing or arising from all acts and events
occurring or failing to occur or alleged to have occurred or to have failed to
occur and all conditions existing or alleged to have existed on or before the
Distribution Date, between the Parties (including any contractual agreements or
arrangements
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existing or alleged to have existed between the Parties on or before the
Distribution Date), except as expressly set forth in Section 15.1(b). At any
---------------
time, at the request of either Party, the other Party shall execute and deliver
releases reflecting the provisions hereof.
15.2. Indemnification by Edwards. Except as provided in Section 15.5,
-------------------------- ------------
Edwards shall indemnify and hold harmless the Baxter Indemnified Parties from
and against any and all Expenses or Losses incurred or suffered by Baxter
(and/or one or more of the Baxter Indemnified Parties), in connection with,
relating to, arising out of or due to, directly or indirectly, any of the
following items:
(a) any claim that the information included in the Registration
Statement or the Information Statement that relates to the Edwards Business, or
any other information relating to the Edwards Business provided to Baxter or
distributed to third parties by employees of Edwards or individuals who were
employees of the Edwards Business prior to the Distribution Date, is or was
false or misleading with respect to any material fact or omits or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, regardless of whether the occurrence, action or other
event giving rise to the applicable matter took place prior or subsequent to the
Distribution Date;
(b) the Edwards Business as conducted by Baxter or its Subsidiaries,
Affiliates or predecessors on or at any time prior to the Distribution Date;
(c) the Transferred Assets;
(d) the Assumed Liabilities;
(e) the Transferred Subsidiaries;
(f) the breach by Edwards or any of its Subsidiaries of any covenant or
agreement set forth in this Agreement, any Conveyancing Instrument, any
Implementation Agreement or the Tax Sharing Agreement, regardless of when or
where the loss, claim, accident, occurrence, event or happening giving rise to
the Expense or Loss took place, or whether any such loss, claim, accident,
occurrence, event or happening is known or unknown, or reported or unreported;
(g) the employee benefits provided or the actions taken or omitted to be
taken with respect thereto in connection with this Agreement or otherwise
relating to the provision of employee benefits to employees or former employees
of Edwards (or its Subsidiaries), their beneficiaries, alternate payees or any
other person claiming benefits through them (except to the extent such Expenses
or Losses are specifically allocated to Baxter pursuant to Section 15.3(f)),
---------------
including Expenses or Losses arising in connection with (i) Edwards' reduction,
elimination or failure to provide any benefit accrued by its employees or
employees of any of its Subsidiaries (including benefits accrued prior to the
Distribution Date) and (ii) the transfer of account balances and accrued
benefits as described in Section 12.9 where such Expenses or Losses are incurred
------------
as a result of (A) any act or omission by Edwards (or Edwards' representative)
or (B) a determination by the IRS that the transferee plan is not a tax-
qualified plan;
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(h) the Indemnifiable matters set forth in Sections 7.3, 9.4(b) and
------------ ------
9.11(b) and Article XII; or
- ------- ------------
(i) any use of, access to or reliance upon the technical information
or data made available to Edwards or its Subsidiaries pursuant to Section 17.1.
------------
15.3. Indemnification by Baxter. Except as provided in Section 15.5,
------------------------- ------------
Baxter shall indemnify and hold harmless Edwards and each of its Subsidiaries,
Affiliates, directors, officers, employees, agents and counsel, and each of the
heirs, executors, successors, assigns and personal representatives of any of the
foregoing (collectively, the "Edwards Indemnified Parties"), from and against
---------------------------
any and all Expenses or Losses incurred or suffered by Edwards (and/or one or
more of the Edwards Indemnified Parties) in connection with, relating to,
arising out of or due to, directly or indirectly, any of the following items:
(a) any claim that the information included in the Registration
Statement or the Information Statement that relates to Baxter or the Retained
Business is or was false or misleading with respect to any material fact or
omits or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, regardless of whether the
occurrence, action or other event giving rise to the applicable matter took
place prior or subsequent to the Distribution Date;
(b) the business (other than the Edwards Business) conducted by
Baxter or its Subsidiaries, Affiliates or predecessors on or at any time prior
to the Distribution Date;
(c) the assets owned by Baxter or its Subsidiaries other than the
Transferred Assets and the Shared Agreements;
(d) the Liabilities (including the Retained Liabilities) of Baxter
or its Subsidiaries other than the Assumed Liabilities;
(e) the breach by Baxter or any of its Subsidiaries of any covenant
or agreement set forth in this Agreement, any Conveyancing Instrument, any
Implementation Agreement or the Tax Sharing Agreement, regardless of when or
where the loss, claim, accident, occurrence, event or happening giving rise to
the Expense or Loss took place, or whether any such loss, claim, accident,
occurrence, event or happening is known or unknown, or reported or unreported;
or
(f) Baxter's reduction, elimination or failure to provide any
benefit previously provided to its employees (or employees of its Subsidiaries),
other than a benefit assumed by Edwards pursuant to Article XII or an Assumed
-----------
Liability, or any act or omission by Baxter in connection with the transfer of
assets and liabilities as described in Section 12.9.
------------
15.4. Applicability of and Limitation on Indemnification. (a) EXCEPT
--------------------------------------------------
AS EXPRESSLY PROVIDED HEREIN, THE INDEMNITY OBLIGATIONS UNDER THIS ARTICLE XV
----------
SHALL APPLY NOTWITHSTANDING ANY INVESTIGATION MADE BY OR ON BEHALF OF ANY
INDEMNIFIED PARTY AND SHALL APPLY WITHOUT
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<PAGE>
REGARD TO WHETHER THE LOSS, LIABILITY, CLAIM, DAMAGE, COST OR EXPENSE FOR WHICH
INDEMNITY IS CLAIMED HEREUNDER IS BASED ON STRICT LIABILITY, ABSOLUTE LIABILITY
OR ARISES AS AN OBLIGATION FOR CONTRIBUTION.
(b) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN
NO EVENT SHALL BAXTER BE LIABLE TO EDWARDS (OR ANY EDWARDS INDEMNIFIED PARTY),
OR EDWARDS BE LIABLE TO BAXTER (OR ANY BAXTER INDEMNIFIED PARTY), UNDER THIS
AGREEMENT FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE
DAMAGES, INCLUDING LOSS OF ANTICIPATED PROFITS OR LOSS OR DIMINUTION OF
REVENUES, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT OR
OTHERWISE, EXCEPT TO THE EXTENT THAT SUCH LIABILITY HAS BEEN ASSERTED BY A THIRD
PARTY AGAINST A PARTY ENTITLED TO INDEMNIFICATION HEREUNDER.
15.5. Adjustment of Indemnifiable Losses. (a) The amount that any
----------------------------------
Party (an "Indemnifying Party") is required to pay to any Person entitled to
------------------
indemnification hereunder (an "Indemnified Party") shall be reduced (including
-----------------
retroactively) by any Insurance Proceeds and other amounts actually recovered by
or on behalf of such Indemnified Party in reduction of the related Expense or
Loss. If an Indemnified Party receives a payment (an "Indemnity Payment")
-----------------
required by this Agreement from an Indemnifying Party in respect of any Expense
or Loss and subsequently actually receives Insurance Proceeds or other amounts
in respect of such Expense or Loss, then such Indemnified Party shall pay to the
Indemnifying Party a sum equal to the lesser of (i) the amount of such Insurance
Proceeds or other amounts actually received or (ii) the net amount of Indemnity
Payments actually received previously. The Indemnified Party agrees that the
Indemnifying Party shall be subrogated to such Indemnified Party under any
insurance policy.
(b) An insurer who otherwise would be obligated to pay any claim
shall not be relieved of the responsibility with respect thereto, or, solely by
virtue of the indemnification provisions hereof, have any subrogation rights
with respect thereto, it being expressly understood and agreed that no insurer
or any other third-party shall be entitled to a "windfall" (i.e., a benefit he
----
or she would not be entitled to receive in the absence of the indemnification
provisions) by virtue of the indemnification provisions hereof.
(c) If any Indemnified Party realizes a Tax benefit or detriment in
one or more Tax periods by reason of having incurred an Expense or a Loss for
which such Indemnified Party receives an Indemnity Payment from an Indemnifying
Party (or by reason of the receipt of any Indemnity Payment), then such
Indemnified Party shall pay to such Indemnifying Party an amount equal to the
Tax benefit or such Indemnifying Party shall pay to such Indemnified Party an
additional amount equal to the Tax detriment (taking into account, without
limitation, any Tax detriment resulting from the receipt of such additional
amounts), as the case may be. The amount of any Tax benefit or any Tax detriment
for a Tax period realized by an Indemnified Party by reason of having incurred
an Expense or a Loss (or by reason of the receipt of any Indemnity Payment)
shall be deemed to equal the product obtained by multiplying (i) the amount of
any deduction or loss or inclusion in income for such period resulting from such
Expense or
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<PAGE>
Loss (or the receipt of any Indemnity Payment or additional amount), as the case
may be (without regard to whether such deduction or loss or such inclusion in
income results in any actual decrease or increase in Tax liability for such
period), by (ii) the highest applicable marginal Tax rate for such period
(provided, however, that the amount of any Tax benefit attributable
-------- -------
to an amount that is creditable shall be deemed to equal the amount of such
creditable item). Any payment due under this Section 15.5(c) with respect to a
---------------
Tax benefit or Tax detriment realized by an Indemnified Party in a Tax period
shall be due and payable within 30 days from the time the return for such Tax
period is due, without taking into account any extension of time granted to the
Party filing such return.
(d) In the event that an Indemnity Payment shall be denominated in a
currency other than United States dollars, the amount of such payment shall be
translated into United States dollars using the Foreign Exchange Rate for such
currency determined in accordance with the following rules:
(i) with respect to an Expense or a Loss arising from payment by a
financial institution under a guarantee, comfort letter, letter of credit,
foreign exchange contract or similar instrument, the Foreign Exchange Rate
for such currency shall be determined as of the date on which such
financial institution shall have been reimbursed;
(ii) with respect to an Expense or a Loss covered by insurance, the
Foreign Exchange Rate for such currency shall be the Foreign Exchange Rate
employed by the insurance company providing such insurance in settling such
Expense or Loss with the Indemnifying Party; and
(iii) with respect to an Expense or a Loss not covered by clause (i)
or (ii) above, the Foreign Exchange Rate for such currency shall be
determined as of the date that notice of the claim with respect to such
Expense or Loss shall be given to the Indemnified Party.
15.6. Procedures for Indemnification of Third Party Claims. (a) If any
----------------------------------------------------
third-party shall make any claim or commence any arbitration proceeding or suit
(collectively, a "Third Party Claim") against any one or more of the Indemnified
-----------------
Parties with respect to which an Indemnified Party intends to make any claim for
indemnification against Edwards under Section 15.2 or against Baxter under
------------
Section 15.3, such Indemnified Party shall promptly give written notice to the
- ------------
Indemnifying Party describing such Third Party Claim in reasonable detail, and
the following provisions shall apply. Notwithstanding the foregoing, the
failure of any Indemnified Party to provide notice in accordance with this
Section 15.6(a) shall not relieve the related Indemnifying Party of its
- ---------------
obligations under this Article XV, except to the extent that such Indemnifying
----------
Party is actually prejudiced by such failure to provide notice.
(b) The Indemnifying Party shall have 20 business days after receipt
of the notice referred to in Section 15.6(a) to notify the Indemnified Party
---------------
that it elects to conduct and control the defense of such Third Party Claim. If
the Indemnifying Party does not give the foregoing notice, the Indemnified Party
shall have the right to defend, contest, settle or compromise such Third Party
Claim in the exercise of its exclusive discretion subject to the provisions of
Section 15.6(c), and the Indemnifying Party shall, upon request from any of the
- ---------------
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<PAGE>
Indemnified Parties, promptly pay to such Indemnified Parties in accordance with
the other terms of this Section 15.6(b) the amount of any Expense or Loss
---------------
resulting from their liability to the third-party claimant. If the Indemnifying
Party gives the foregoing notice, the Indemnifying Party shall have the right to
undertake, conduct and control, through counsel reasonably acceptable to the
Indemnified Party, and at its sole expense, the conduct and settlement of such
Third Party Claim, and the Indemnified Party shall cooperate with the
Indemnifying Party in connection therewith, provided that (i) the Indemnifying
--------
Party shall not thereby permit any lien, encumbrance or other adverse charge to
thereafter attach to any asset of any Indemnified Party; (ii) the Indemnifying
Party shall not thereby permit any injunction against any Indemnified Party;
(iii) the Indemnifying Party shall permit the Indemnified Party and counsel
chosen by the Indemnified Party and reasonably acceptable to the Indemnifying
Party to monitor such conduct or settlement and shall provide the Indemnified
Party and such counsel with such information regarding such Third Party Claim as
either of them may reasonably request (which request may be general or
specific), but the fees and expenses of such counsel (including allocated costs
of in-house counsel and other personnel) shall be borne by the Indemnified Party
unless (A) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (B) the named parties to any such
Third Party Claim include the Indemnified Party and the Indemnifying Party and
in the reasonable opinion of counsel to the Indemnified Party representation of
both parties by the same counsel would be inappropriate due to actual or likely
conflicts of interest between them, in either of which cases the reasonable fees
and disbursements of counsel for such Indemnified Party (including allocated
costs of in-house counsel and other personnel) shall be reimbursed by the
Indemnifying Party to the Indemnified Party; and (iv) the Indemnifying Party
shall agree promptly to reimburse to the extent required under this Article XV
----------
the Indemnified Party for the full amount of any Expense or Loss resulting from
such Third Party Claim and all related expenses incurred by the Indemnified
Party. In no event shall the Indemnifying Party, without the prior written
consent of the Indemnified Party, settle or compromise any claim or consent to
the entry of any judgment that does not include as an unconditional term thereof
the giving by the claimant or the plaintiff to the Indemnified Party a release
from all Liability in respect of such claim.
If the Indemnifying Party shall not have undertaken the conduct and
control of the defense of any Third Party Claim as provided above, the
Indemnifying Party shall nevertheless be entitled through counsel chosen by the
Indemnifying Party and reasonably acceptable to the Indemnified Party to monitor
the conduct or settlement of such claim by the Indemnified Party, and the
Indemnified Party shall provide the Indemnifying Party and such counsel with
such information regarding such Third Party Claim as either of them may
reasonably request (which request may be general or specific), but all costs and
expenses incurred in connection with such monitoring shall be borne by the
Indemnifying Party.
(c) So long as the Indemnifying Party is contesting any such Third
Party Claim in good faith, the Indemnified Party shall not pay or settle any
such Third Party Claim. Notwithstanding the foregoing, the Indemnified Party
shall have the right to pay or settle any such Third Party Claim, provided that
--------
in such event the Indemnified Party shall waive any right to indemnity therefor
by the Indemnifying Party, and no amount in respect thereof shall be claimed as
an Expense or a Loss under this Section 15.6(c).
---------------
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<PAGE>
If the Indemnifying Party shall have undertaken the conduct and
control of the defense of any Third Party Claim as provided above, the
Indemnified Party, on not less than 30 days prior written notice to the
Indemnifying Party, may make settlement (including payment in full) of such
Third Party Claim, and such settlement shall be binding upon the Parties for the
purposes hereof, unless within said 30-day period the Indemnifying Party shall
have requested the Indemnified Party to contest such Third Party Claim at the
expense of the Indemnifying Party. In such event, the Indemnified Party shall
promptly comply with such request and the Indemnifying Party shall have the
right to direct the defense of such claim or any litigation based thereon
subject to all the conditions of Section 15.6(b). Notwithstanding anything in
---------------
this Section 15.6(c) to the contrary, if the Indemnified Party, in the belief
---------------
that a claim may materially and adversely affect it other than as a result of
money damages or other money payments, advises the Indemnifying Party that it
has determined to settle a claim, the Indemnified Party shall have the right to
do so at its own cost and expense, without any requirement to contest such claim
at the request of the Indemnifying Party, but without any right under the
provisions of this Section 15.6(c) for indemnification by the Indemnifying
---------------
Party.
(d) The provisions of this Section 15.6 and Section 15.7 shall not
------------ ------------
apply to Taxes (which are covered by the Tax Sharing Agreement).
15.7. Procedures for Indemnification of Direct Claims. Any claim for
-----------------------------------------------
indemnification on account of an Expense or a Loss made directly by the
Indemnified Party against the Indemnifying Party and that does not result from a
Third Party Claim shall be asserted by written notice from the Indemnified Party
to the Indemnifying Party specifically claiming indemnification hereunder. Such
Indemnifying Party shall have a period of 30 business days after the receipt of
such notice within which to respond thereto. If such Indemnifying Party does
not respond within such 30 business-day period, such Indemnifying Party shall be
deemed to have accepted responsibility to make payment and shall have no further
right to contest the validity of such claim. If such Indemnifying Party does
respond within such 30 business-day period and rejects such claim in whole or in
part, such Indemnified Party shall be free to pursue resolution as provided in
Article XVI.
- -----------
15.8. Contribution. If the indemnification provided for in this
------------
Article XV is unavailable to an Indemnified Party in respect of any Expense or
- ----------
Loss arising out of or related to information contained in the Registration
Statement or the Information Statement, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Expense or Loss in such
proportion as is appropriate to reflect the relative fault of the Edwards
Indemnified Parties, on the one hand, or the Baxter Indemnified Parties, on the
other hand, in connection with the statements or omissions that resulted in such
Expense or Loss. The relative fault of any Edwards Indemnified Party, on the one
hand, and of any Baxter Indemnified Party, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission of a
material fact relates to information about or supplied by the Edwards Business
or an Edwards Indemnified Party, on the one hand, or about or by the Retained
Business or a Baxter Indemnified Party, on the other hand.
15.9. No Third-Party Beneficiaries. Except to the extent expressly
----------------------------
provided otherwise in this Article XV, the indemnification provided for in this
----------
Agreement, the Tax
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Sharing Agreement, any Implementation Agreement or any Operating Agreement shall
not inure to the benefit of any third-party or parties and shall not relieve any
insurer or other third-party who otherwise would be obligated to pay any claim
or assume the responsibility with respect thereto, or, solely by virtue of the
indemnification provisions hereof, provide any subrogation rights with respect
thereto, and each Party agrees to waive such rights against the other to the
fullest extent permitted.
15.10. Remedies Cumulative. The remedies provided in this Article XV
------------------- ----------
shall be cumulative and, subject to the provisions of Article XVI below, shall
-----------
not preclude assertion by an Indemnified Party of any other rights or the
seeking of any and all other remedies against any Indemnifying Party.
15.11. Survival. All covenants and agreements of the Parties
--------
contained in this Agreement relating to indemnification shall survive the
Distribution Date indefinitely, unless a specific survival or other applicable
period is expressly set forth herein.
ARTICLE XVI
DISPUTE RESOLUTION
------------------
16.1. General. Any dispute arising out of or relating to this
-------
Agreement, any of the Implementation Agreements or any of the Conveyancing
Instruments shall be resolved in accordance with the procedures specified in
this Article XVI, which shall be the sole and exclusive procedures for the
-----------
resolution of any such disputes.
16.2. Escalation. The Parties will attempt in good faith to resolve
----------
expeditiously any dispute, claim or controversy arising out of or relating to
the execution, interpretation and performance of this Agreement, any of the
Implementation Agreements or any of the Conveyancing Instruments or the breach,
termination or validity (including the validity, scope and enforceability of
this mediation and arbitration provision) of this Agreement, any Implementation
Agreement or any Conveyancing Instrument (a "Dispute") promptly by negotiations
-------
between executives who have authority to settle the controversy and who are at a
higher level of management than the persons with direct responsibility for the
administration of this Agreement. Either Party may give the other Party written
notice (an "Escalation Notice") of any Dispute not resolved in the normal course
-----------------
of business. Within fifteen days after delivery of the Escalation Notice, the
receiving Party shall submit to the other a written response. The Escalation
Notice and the response thereto shall include (a) a statement of each Party's
position and a summary of arguments supporting that position, and (b) the name
and title of the executive who will represent that Party and of any other person
who will accompany the executive. Within 30 days after delivery of the
Escalation Notice, the executives of both Parties shall meet at a mutually
acceptable time and place, and thereafter as often as they reasonably deem
necessary, to attempt to resolve the Dispute. All reasonable requests for
information made by one Party to the other will be honored. All negotiations
pursuant to this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of applicable rules of evidence.
16.3. Arbitration. Any Dispute which has not been resolved by the
-----------
specified non-binding procedure set forth in Section 16.2 within 90 days of the
------------
date of delivery of the
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Escalation Notice shall be settled by binding arbitration in accordance with the
CPR Non-Administered Arbitration Rules in effect on the date of this Agreement,
by three independent and impartial arbitrators, none of whom shall be appointed
by either Party. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. (S)(S) 1-16, as the same may be amended from time to
time, and judgment upon the award rendered by the arbitrators may be entered by
any court having jurisdiction thereof. The place of the arbitration shall be
Lake County, Illinois or Orange County, California, and shall be determined by
the Party that initiated the dispute resolution process. The arbitrators may
award attorneys' fees in their discretion. Otherwise, the arbitrators are not
empowered to award damages in excess of compensatory damages, and each Party
hereby irrevocably waives any right to recover such damages.
16.4. Procedures. The Parties may request limited discovery in
----------
accordance with the Federal Rules of Civil Procedure of the United States (the
"F.R.C.P.") for a period of 120 days after the initiation of the arbitration
--------
process. All issues regarding compliance with discovery requests shall be
decided by the arbitrators pursuant to the F.R.C.P. The Parties agree that the
recipient of a discovery request shall have 10 business days after the receipt
of such request to object to any or all portions of such request and shall
respond to any portions of such request not so objected within 30 business days
of the receipt of such request. All objections shall be in writing and shall
indicate the reasons for such objections. The objecting Party shall ensure that
all objections and responses are received by the other Party within the above
time periods; failure to comply with the specified time period shall be
addressed as set forth in F.R.C.P. 37. Any Party seeking to compel discovery
following receipt of an objection shall file with the other Party and the
arbitrators a motion to compel, including a copy of the initial request and the
objection. The arbitrators shall allow 10 business days for the responses to the
motion to compel before ruling. Claims of privilege and other objections shall
be determined as they would be in United States federal court in a case applying
Illinois law. The arbitrators may grant or deny the motion to compel, in whole
or in part, concluding that the discovery request is or is not appropriate under
the circumstances, taking into account the needs of the Parties and the
desirability of making discovery expeditious and cost-effective. The statute of
limitations of the State of Illinois applicable to the commencement of a lawsuit
shall apply to the date of initial written notification of a dispute and shall
be extended until commencement of arbitration if all interim deadlines have been
complied with by the notifying Party.
16.5. Injunctive Relief. Nothing contained in this Article XVI shall
----------------- -----------
prevent either Party from resorting to judicial process if injunctive or other
equitable relief from a court is necessary to prevent serious and irreparable
injury to one Party or to others. The use of arbitration procedures will not be
construed under the doctrine of laches, waiver or estoppel to affect adversely
either Party's right to assert any claim or defense.
ARTICLE XVII
ACCESS TO INFORMATION AND SERVICES
----------------------------------
17.1. Access to Financial Information. (a) At all times from and
-------------------------------
after the Distribution Date for a period of ten (10) years, as soon as
reasonably practicable after written request: (i) Baxter shall afford to
Edwards, its Subsidiaries and their authorized accountants,
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counsel and other designated representatives reasonable access during normal
business hours to, or, at Edwards' expense, provide copies of, all records,
books, contracts, instruments, data, documents and other information
(collectively, "Information") in the possession or under the control of Baxter
-----------
immediately following the Distribution Date that relates to Edwards, the Edwards
Business or the Edwards Employees; and (ii) Edwards shall afford to Baxter, its
Subsidiaries and their authorized accountants, counsel and other designated
representatives reasonable access during normal business hours to, or, at
Baxter's expense, provide copies of, all Information in the possession or under
the control of Edwards immediately following the Distribution Date that relates
to Baxter, the Retained Business or the employees of Baxter; provided, however,
-------- -------
that in the event that either Party determines that any such provision of or
access to Information could be commercially detrimental, violate any law or
agreement or waive any attorney-client privilege, the Parties shall take all
reasonable measures to permit the compliance with such obligations in a manner
that avoids any such harm or consequence.
(b) Either Party may request Information under Section 17.1(a) (i) to
---------------
comply with reporting, disclosure, filing or other requirements imposed on the
requesting party (including under applicable securities or tax laws) by a
Governmental Authority having jurisdiction over the requesting party, (ii) for
use in any other judicial, regulatory, administrative, Tax or other proceeding
or in order to satisfy audit, accounting, claims defense, regulatory filings,
litigation, Tax or other similar requirements, (iii) for use in compensation,
benefit or welfare plan administration or other bona fide business purposes or
(iv) to comply with its obligations under this Agreement, any Conveyancing
Instrument, any Implementation Agreement, any Operating Agreement or the Tax
Sharing Agreement.
(c) After the Distribution Date, (i) Edwards shall maintain in effect
at its own cost and expense adequate systems and controls to the extent
necessary to enable Baxter and its Subsidiaries to satisfy their respective
reporting, accounting, audit and other obligations, and (ii) Edwards shall
provide, or cause to be provided, to Baxter in such form as Baxter shall
request, at no charge to Baxter, all financial and other data and information as
Baxter determines necessary or advisable in order to prepare Baxter financial
statements and reports or filings with any Governmental Authority.
17.2. Ownership of Information. Any Information owned by one Party
------------------------
that is provided to a requesting Party pursuant to Section 17.1 shall be deemed
------------
to remain the property of the providing Party. Unless specifically set forth
herein, nothing contained in this Agreement shall be construed to grant or
confer rights of license or otherwise in any such Information.
17.3. Compensation for Providing Information. The Party requesting
--------------------------------------
Information agrees to reimburse the providing Party for the reasonable costs, if
any, of creating, gathering and copying such Information, to the extent that
such costs are incurred for the benefit of the requesting Party. Except as
otherwise specifically provided in this Agreement, such costs shall be computed
in accordance with the providing Party's standard methodology and procedures.
17.4. Retention of Records. To facilitate the possible exchange of
--------------------
Information pursuant to this Article XVII after the Distribution Date, the
------------
Parties agree to use commercially reasonable efforts to retain all Information
in their respective possession or control on the
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Distribution Date in accordance with the policies and procedures of Baxter as in
effect on the Distribution Date. No party will destroy, or permit any of its
Subsidiaries or Affiliates to destroy, any Information that the other Party may
have the right to obtain pursuant to this Agreement prior to the tenth
anniversary of the date hereof, and thereafter without first using commercially
reasonable efforts to notify the other Party of the proposed destruction and
giving the other Party the opportunity to take possession of such Information
prior to such destruction; provided, however, that in the case of any
-------- -------
Information relating to Taxes, such period shall be extended to the expiration
of the applicable statute of limitations (giving effect to any extensions
thereof).
17.5. Limitations. (a) Baxter and Edwards make no representations
-----------
or warranties, express or implied, about the accuracy, completeness, adequacy or
sufficiency of the financial and technical information and data compilations and
EXPRESSLY DISCLAIM ALL WARRANTIES WHATSOEVER, WHETHER STATUTORY, WRITTEN, ORAL,
EXPRESS OR IMPLIED, AND EXPRESSLY DISCLAIM EACH SUCH WARRANTY, INCLUDING ANY
WARRANTY OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. Except as
provided in Article X hereof, the rights of access pursuant to Section 17.1
--------- ------------
shall not include, however, such Information of either Party and its
Subsidiaries relating to (i) products, materials and components under
development; (ii) Information pertaining to potential acquisitions, divestitures
and other business arrangements; (iii) studies and investigations being
undertaken by either Party and its Subsidiaries for its or their own benefit or
for the benefit of a third party; and (iv) information and data either Party and
its Subsidiaries are obligated to a third party to maintain in confidence.
(b) No Party shall have any liability to the other Party (i) if any
Information exchanged or provided pursuant to this Agreement that is an estimate
or forecast, or that is based on an estimate or forecast, is found to be
inaccurate, in the absence of willful misconduct by the Party providing such
Information, or (ii) if any Information is destroyed after commercially
reasonable efforts to comply with the provisions of Section 17.4.
------------
17.6. Production of Witnesses. At all times from and after the
-----------------------
Distribution Date, each Party shall use commercially reasonable efforts to make
available to the other Party (without cost (other than reimbursement of actual
out-of-pocket expenses) to, and upon prior written request of, the other Party)
its directors, officers, employees and agents as witnesses to the extent that
the same may reasonably be required by the other Party in connection with any
legal, administrative or other proceeding in which the requesting Party may from
time to time be involved with respect to the Edwards Business, the Retained
Business or any transactions contemplated hereby.
17.7. Confidentiality. (a) From and after the Distribution Date,
---------------
each of Baxter and Edwards shall hold, and shall cause their respective
Subsidiaries, directors, officers, employees, agents, consultants, advisors and
other representatives to hold, in strict confidence, with at least the same
degree of care that applies to Baxter's confidential and proprietary information
pursuant to policies in effect as of the Distribution Date, all non-public
information concerning the other Party or any of its Subsidiaries or Affiliates
obtained by it prior to the Distribution Date, accessed by it pursuant to
Section 17.1 hereof, or furnished to it by the other Party or any of its
- ------------
Subsidiaries or Affiliates pursuant to this Agreement or any agreement or
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document contemplated hereby, including any trade secrets, technology, know-how
and other non-public, proprietary intellectual property rights licensed pursuant
to Sections 10.1 and 10.2 hereof, and shall not release or disclose such
------------- ----
information to any other Person, except its representatives, who shall be bound
by the provisions of this Section 17.7; provided, however, that Baxter and
------------ -------- -------
Edwards and their respective Subsidiaries, directors, officers, employees,
agents, consultants, advisors and other representatives may disclose such
information if, and only to the extent that, (i) a disclosure of such
information is compelled by judicial or administrative process or, in the
opinion of such Party's counsel, by other requirements of law (in which case the
disclosing Party will provide, to the extent practicable under the
circumstances, advance written notice to the other Party of its intent to make
such disclosure), or (ii) such Party can show that such information (A) is
published or is or otherwise becomes available to the general public as part of
the public domain without breach of this Agreement; (B) has been furnished or
made known to the recipient without any obligation to keep it confidential by a
third party under circumstances that are not known to the recipient to involve a
breach of the third party's obligations to a Party hereto; (C) was developed
independently of information furnished to the recipient under this Agreement; or
(D) in the case of information furnished after the Distribution Date, was known
to the recipient at the time of receipt thereof from the other Party.
(b) Each Party acknowledges that the other Party would not have an
adequate remedy at law for the breach by the acknowledging Party of any one or
more of the covenants contained in this Section 17.7 and agrees that, in the
------------
event of such breach, the other Party may, in addition to the other remedies
that may be available to it, apply to a court for an injunction to prevent
breaches of this Section 17.7 and to enforce specifically the terms and
------------
provisions of this Section. Notwithstanding any other Section hereof, the
provisions of this Section 17.7 shall survive the Distribution Date
------------
indefinitely.
17.8. Privileged Matters. (a) Each of Baxter and Edwards agrees to
------------------
maintain, preserve and assert all privileges, including privileges arising under
or relating to the attorney-client relationship (which shall include without
limitation the attorney-client and work product privileges), not heretofore
waived, that relate to the Edwards Business and the Transferred Assets for any
period prior to the Distribution Date ("Privilege" or "Privileges"). Each Party
--------- ----------
agrees that it shall not waive any Privilege that could be asserted under
applicable law without the prior written consent of the other Party. The rights
and obligations created by this Section 17.8 shall apply to all information
------------
relating to the Edwards Business as to which, but for the Distribution, either
Party would have been entitled to assert or did assert the protection of a
Privilege ("Privileged Information"), including (i) any and all information
----------------------
generated prior to the Distribution Date but which, after the Distribution, is
in the possession of either Party; and (ii) all information generated, received
or arising after the Distribution Date that refers to or relates to Privileged
Information generated, received or arising prior to the Distribution Date.
(b) Upon receipt by either Party of any subpoena, discovery or other
request that may call for the production or disclosure of Privileged Information
or if either Party obtains knowledge that any current or former employee of
Baxter or Edwards has received any subpoena, discovery or other request that may
call for the production or disclosure of Privileged Information, such Party
shall notify promptly the other Party of the existence of the request and shall
provide the other Party a reasonable opportunity to review the information and
to assert any rights it may have under this Section 17.8 or otherwise to prevent
------------
the production or disclosure of
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Privileged Information. Each Party agrees that it will not produce or disclose
any information that may be covered by a Privilege under this Section 17.8
------------
unless (i) the other Party has provided its written consent to such production
or disclosure (which consent will not be unreasonably withheld), or (ii) a court
of competent jurisdiction has entered a final, nonappealable order finding that
the information is not entitled to protection under any applicable Privilege.
(c) Baxter's transfer of books and records and other information to
Edwards, and Baxter's agreement to permit Edwards to possess Privileged
Information existing or generated prior to the Distribution Date, are made in
reliance on Edwards' agreement, as set forth in Sections 17.7 and 17.8, to
------------- ----
maintain the confidentiality of Privileged Information and to assert and
maintain all applicable Privileges. The access to information being granted
pursuant to Section 17.1, the agreement to provide witnesses and individuals
------------
pursuant to Section 17.6 and the transfer of Privileged Information to Edwards
------------
pursuant to this Agreement shall not be deemed a waiver of any Privilege that
has been or may be asserted under this Section 17.8 or otherwise. Nothing in
------------
this Agreement shall operate to reduce, minimize or condition the rights granted
to Baxter in, or the obligations imposed upon Edwards by, this Section 17.8.
------------
ARTICLE XVIII
MISCELLANEOUS
-------------
18.1. Entire Agreement. This Agreement, the Conveyancing Instruments,
----------------
the Implementation Agreements, the Operating Agreements and the Tax Sharing
Agreement, including the Schedules and Exhibits referred to herein and therein
and the documents delivered pursuant hereto and thereto, constitute the only
agreements between the Parties with respect to the subject matter contained
herein or therein, and supersede all prior agreements, negotiations,
discussions, understandings, writings and commitments between the Parties with
respect to such subject matter.
18.2. Choice of Law and Forum. This Agreement shall be governed by
-----------------------
and construed and enforced in accordance with the substantive laws (except for
any otherwise applicable conflicts of law provisions) of the State of Illinois
and the federal laws of the United States of America applicable therein, as
though all acts and omissions related hereto occurred in Illinois. Subject to
Article XVI, any lawsuit arising from or related to this Agreement, any of the
- -----------
Conveyancing Instruments, Implementation Agreements or Operating Agreements, or
the Tax Sharing Agreement shall be brought only in the United States District
Court for the Northern District of Illinois, the Circuit Court of Lake County,
Illinois, the United States District Court for the Central District of
California or the Superior Court of Orange County, California, and the specific
choice from among the foregoing shall be determined by the Party initiating such
lawsuit. To the extent permissible by law, the Parties hereby consent to the
jurisdiction and venue of such courts. Each Party hereby waives, releases and
agrees not to assert, and agrees to cause its Affiliates to waive, release and
not to assert, any rights such Party or its Affiliates may have under any
foreign law or regulation that would be inconsistent with the terms of this
Agreement as governed by Illinois law.
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18.3. Amendment. This Agreement shall not be amended, modified or
---------
supplemented except by a written instrument signed by an authorized
representative of each of the Parties.
18.4. Waiver. Any term or provision of this Agreement may be waived,
------
or the time for its performance may be extended, by the Party or Parties
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently given for the purposes of this Agreement if, as to any Party, it is
in writing signed by an authorized representative of such Party. The failure of
any Party to enforce at any time any provision of this Agreement shall not be
construed to be a waiver of such provision, or in any way to affect the validity
of this Agreement or any part hereof or the right of any Party thereafter to
enforce each and every such provision. No waiver of any breach of this Agreement
shall be held to constitute a waiver of any other or subsequent breach.
18.5. Partial Invalidity. Wherever possible, each provision hereof
------------------
shall be interpreted in such a manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision or provisions shall be ineffective to the extent, but
only to the extent, of such invalidity, illegality or unenforceability without
invalidating the remainder of such provision or provisions or any other
provisions hereof, unless such a construction would be unreasonable.
18.6. Execution in Counterparts. This Agreement may be executed in
-------------------------
one or more counterparts, each of which shall be deemed an original instrument,
but all of which shall be considered one and the same agreement, and shall
become binding when one or more counterparts have been signed by and delivered
to each of the Parties.
18.7. Successors and Assigns. This Agreement shall be binding upon
----------------------
inure to the benefit of the Parties and their respective successors and
permitted assigns; provided, however, that the rights of either Party under this
-------- -------
Agreement shall not be assignable by such Party without the prior written
consent of the other Party. The successors and permitted assigns hereunder
shall include, without limitation, any permitted assignee as well as the
successors in interest to such permitted assignee (whether by merger,
liquidation (including successive mergers or liquidations) or otherwise).
18.8. Third Party Beneficiaries. Except to the extent otherwise
-------------------------
provided in Section 13.5 or Article XV hereof the provisions of this Agreement
------------ ----------
are solely for the benefit of the Parties and their respective Affiliates,
successors and permitted assigns and shall not confer upon any third Person any
remedy, claim, liability, reimbursement or other right in excess of those
existing without reference to this Agreement. Nothing in this Agreement, the Tax
Sharing Agreement or any Operating Agreement shall obligate Baxter or Edwards to
assist any Edwards Employee to enforce any rights such employee may have with
respect to any of the employee benefits described in this Agreement.
18.9. Notices. All notices, requests, claims, demands and other
-------
communications required or permitted hereunder shall be in writing and shall be
deemed given or delivered (i) when delivered personally, (ii) if transmitted by
facsimile when confirmation of
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transmission is received, (iii) if transmitted by electronic mail when
confirmation of such transmission is received, (iv) if sent by registered or
certified mail, postage prepaid, return receipt requested, on the third business
day after mailing or (v) if sent by private courier when received; and shall be
addressed as follows:
If to Baxter, to:
Baxter International Inc.
One Baxter Parkway
Deerfield, IL 60015-4633
Attention: General Counsel
Facsimile: (847) 948-2450
If to Edwards, to:
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, CA 92614
Attention: General Counsel
Facsimile: (949) 250-6868
or to such other address as such Party may indicate by a notice delivered to the
other Party.
18.10. Performance. Each Party shall cause to be performed, and
-----------
hereby guarantees the performance of, all actions, agreements and obligations
set forth herein to be performed by any Subsidiary or Affiliate of such Party.
18.11. Force Majeure. No Party shall be deemed in fault of this
-------------
Agreement, any Conveyancing Instrument, any Implementation Agreement, any
Operating Agreement or the Tax Sharing Agreement to the extent that any delay or
failure in the performance of its obligations under this Agreement, any
Conveyancing Instrument, any Implementation Agreement, any Operating Agreement
or the Tax Sharing Agreement results from any cause beyond its reasonable
control and without its fault or negligence, including acts of God, acts of
civil or military authority, embargoes, epidemics, war, riots, insurrections,
fires, explosions, earthquakes, floods, unusually severe weather conditions,
labor problems or unavailability of parts, or, in the case of computer systems,
any failure in electrical or air conditioning equipment. In the event of any
such excused delay, the time for performance shall be extended for a period
equal to the time lost by reason of the delay.
18.12. No Public Announcement. Neither Baxter nor Edwards shall,
----------------------
without the approval of the other, make any press release or other public
announcement concerning the transactions contemplated by this Agreement, except
as and to the extent that any such Party shall be so obligated by law or the
rules of any stock exchange or quotation system, in which case the other Party
shall be advised and the Parties shall use commercially reasonable efforts to
cause a mutually agreeable release or announcement to be issued; provided,
--------
however, that the foregoing shall not preclude communications or disclosures
- -------
necessary to implement the
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provisions of this Agreement or to comply with the accounting and SEC disclosure
obligations or the rules of any stock exchange.
18.13. Termination. Notwithstanding any provision hereof, this
-----------
Agreement may be terminated and the Distribution abandoned at any time prior to
the Distribution Date by and in the sole discretion of the Board of Directors of
Baxter without the approval of any Person. In the event of such termination,
this Agreement shall forthwith become void and no Party shall have any liability
to any Person by reason of this Agreement, except that Baxter shall be liable
for any costs and expenses, including attorneys' fees, incurred by Edwards or
its Subsidiaries prior to or arising out of such termination.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their authorized representatives as of the date first above written.
BAXTER INTERNATIONAL INC.
By: /s/ Harry M. Jansen Kraemer, Jr.
--------------------------------
Harry M. Jansen Kraemer, Jr.
Chairman and Chief Executive Officer
EDWARDS LIFESCIENCES CORPORATION
By: /s/ Michael A. Mussallem
------------------------
Michael A. Mussallem
Chairman and Chief Executive Officer
Signature Page
to the
Reorganization Agreement
<PAGE>
TAX SHARING AGREEMENT
DATED AS OF MARCH 31, 2000
BY AND BETWEEN
BAXTER INTERNATIONAL INC.
AND
EDWARDS LIFESCIENCES CORPORATION
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
----
<S> <C>
Article I Definitions 2
Article II Preparation and Filing of Tax Returns 9
2.01 Manner of Preparation 9
2.02 Pre-Distribution Consolidated U.S. Federal Income Tax 9
2.03 Pre-Distribution U.S. State Income Tax Returns 10
2.04 International Tax Returns - Edwards Entities 11
2.05 Other Pre-Distribution Tax Returns 12
2.06 Sales, Use or Property Tax Returns 12
2.07 Franchise Tax Returns 12
2.08 Tax Packages and Other Information 13
2.09 Post-Distribution Date Tax Returns 13
2.10 Allocation of Tax Attributes 13
2.11 Employee Stock Incentives Other Than Restricted Stock 14
2.12 Restricted Stock 15
2.13 Abandoned/Unclaimed Property 15
Article III Tax Deficiencies and Overpayments 16
3.01 General Rule 16
3.02 Payments by Edwards 16
3.03 Payments by Baxter 20
3.04 Manner of Payments - Legal Entities 22
3.05 Transaction Taxes 22
3.06 Puerto Rico Filing Obligations 22
3.07 Harbor Maintenance Taxes 23
3.08 No Other Payments 23
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Article IV Tax Audits and Administrative Matters 24
4.01 Tax Audits and Controversies 24
4.02 Retention of Books and Records 25
4.03 Cooperation Regarding Return Filing, Examinations And Controversies 26
4.04 Interest on Late Payments 28
4.05 Character and Effect of Payments 28
4.06 Agency 28
Article V Miscellaneous 28
5.01 Severability 28
5.02 Modification of Agreement 28
5.03 Conflict with the Reorganization Agreement or Other Tax Agreements 29
5.04 Notices 29
5.05 Application to Present and Future Subsidiaries 30
5.06 Term 30
5.07 Titles and Headings 30
5.08 Singular and Plural 30
5.09 Governing Law 31
5.10 Dispute Resolution 31
5.11 Counterparts 31
</TABLE>
3
<PAGE>
TAX SHARING AGREEMENT
Tax Sharing Agreement (the "Agreement"), dated as of March 31, 2000 by and
between Baxter International Inc., a Delaware corporation ("Baxter") and,
Edwards Lifesciences Corporation, a Delaware corporation (Edwards):
WHEREAS, Baxter and Edwards have entered into an Agreement and Plan of
Reorganization dated as of March 15, 2000 (the "Reorganization Agreement");
WHEREAS, pursuant to the Reorganization Agreement all the issued and
outstanding common stock of Edwards will be distributed by Baxter (pro rata) to
the holders of its common stock (the "Distribution"); and
WHEREAS, the parties hereto desire to provide for the payment of tax
liabilities and entitlement to tax refunds for the taxable periods ending
before, on or after the date of the Distribution, to allocate responsibility and
provide for cooperation in the preparation and filing of tax returns with
respect to such taxable periods, and to provide for certain other related
matters:
NOW, THEREFORE, Baxter, on behalf of itself and members of the Baxter Group
(as hereinafter defined), and Edwards, on behalf of itself and members of the
Edwards Group (as hereinafter defined), in consideration of the mutual covenants
contained herein, agree as follows:
4
<PAGE>
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and the
plural forms of the terms defined):
"Baxter Businesses" means the present and former subsidiaries, divisions
and businesses of any member of the Baxter Group, other than the Edwards
Business.
"Baxter Employee" means any employee of the Baxter Group who is not an
Edwards Employee.
"Baxter Group" means Baxter and its past and present subsidiaries, except
for: (1) members of the Edwards Group, (2) the Edwards Business, and (3) any
past or present subsidiaries, divisions or businesses of Baxter (or of any of
its past or present subsidiaries) which (i) relate to the Edwards Business and
(ii) which are not, or are not contemplated by the Reorganization Agreement to
be, part of the Baxter Group after the Distribution.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
"Disqualifying Disposition" means any disposition of Section 423 Edwards
Stock or Section 423 Baxter Stock which does not meet the requirements of
section 423(a) of the Code.
"Distribution Date" has the meaning set forth in the Reorganization
Agreement for "Distribution Date". For all purposes of this Agreement, the
5
<PAGE>
Distribution shall be deemed effective as of the close of business on the
Distribution Date.
"Edwards" means the present and future subsidiaries, divisions and
businesses and former divisions and businesses of any member of the Edwards
Group which are not, or are not contemplated by the Reorganization Agreement to
be, part of the Baxter Group immediately after the Distribution, including
former divisions or subsidiaries described as the Divested Businesses in the
Reorganization Agreement.
"Edwards Business" has the meaning set forth in the Reorganization
Agreement for "Edwards Business" but shall also be defined to include any
operations, entities or contractual arrangements in which Edwards has a majority
participating interest.
"Edwards Employee" has the meaning set forth in section 12.1 of the
Reorganization Agreement.
"Edwards Group" means the "Edwards Business" as defined in the
Reorganization Agreement and its direct and indirect subsidiaries on and after
the Distribution Date, including former divisions and subsidiaries described as
the Divested Businesses as defined in the Reorganization Agreement.
"Edwards Distribution Date Balance Sheet" means the Edwards balance sheet
as of the Distribution Date.
"Edwards 1999 Currently Payable Federal Income Tax Expense" means the
amount of U.S. Baxter consolidated federal income tax liability attributable to
the Edwards Business for items reported in Baxter's 1999 consolidated federal
6
<PAGE>
income tax return as filed, computed at a 35% tax rate. This amount shall be
determined in good faith by Baxter, after consulting with Edwards, on the basis
of Edwards Business items as such items are reported (or should properly have
been reported) on the tax packages and other information provided by Edwards
under section 2.08 of this Agreement.
"Edwards 1999 Estimated Currently Payable Federal Income Tax Expense" means
the U.S. Baxter 1999 consolidated federal income tax expense attributable to the
Edwards Business for the taxable year ended December 31 1999, less the net
increase (or plus the net decrease) in the deferred federal income tax
liabilities attributable to the Edwards Business through December 31, 1999, as
reported in Edwards' consolidated balance sheet as of the December 31, 1999 and
consolidated income statement through December 31, 1999. Any adjustments to
Edwards' deferred tax liabilities for periods ending prior to January 1, 1999
shall be disregarded for this purpose.
"Edwards 1999 Currently Payable State Income Tax Expense" means the amount
of U.S. state income tax liability attributable to the Edwards Business for
items reported in Baxter's 1999 state income tax returns as filed, computed at
an 8% tax rate. This amount shall be determined in good faith by Baxter, after
consulting with Edwards, on the basis of Edwards Business items as such items
are reported (or should properly have been reported) on the tax packages and
other information provided by Edwards under section 2.05 of this Agreement.
"Edwards 1999 Estimated Currently Payable State Income Tax Expense" means
the U.S. state income tax expense attributable to the Edwards Business through
December 31, 1999, less the net increase (or plus the net decrease) in the
deferred state income tax liabilities attributable to the Edwards Business
through December 31, 1999, as reported in Edwards' consolidated balance sheet as
of December 31, 1999 and consolidated income statement through
7
<PAGE>
December 31, 1999. Any adjustments to Edwards' deferred tax liabilities for
periods ending prior to January 1, 1999 shall be disregarded for this purpose.
"Edwards 2000 Currently Payable Federal Income Tax Expense" means the
amount of U.S. Baxter consolidated federal income tax liability attributable to
the Edwards Business for items reported in Baxter's 2000 consolidated federal
income tax return as filed, computed at a 35% tax rate. This amount shall be
determined in good faith by Baxter, after consulting with Edwards, on the basis
of Edwards Business items as such items are reported (or should properly have
been reported) on the tax packages and other information provided by Edwards
under section 2.08 of this Agreement.
"Edwards 2000 Estimated Currently Payable Federal Income Tax Expense" means
the U.S. Baxter 2000 consolidated federal income tax expense attributable to the
Edwards Business through the Distribution Date, less the net increase (or plus
the net decrease) in the deferred federal income tax liabilities attributable to
the Edwards Business through the Distribution Date, as reported in Edwards'
consolidated balance sheet as of the Distribution Date and consolidated income
statement through the Distribution Date. Any adjustments to Edwards' deferred
tax liabilities for periods ending prior to January 1, 2000 shall be disregarded
for this purpose.
"Edwards 2000 Currently Payable State Income Tax Expense" means the amount
of U.S. state income tax liability attributable to the Edwards Business for
items reported in Baxter's 2000 state income tax returns as filed, computed at
an 8% tax rate. This amount shall be determined in good faith by Baxter, after
consulting with Edwards, on the basis of Edwards Business items as such items
are reported (or should properly have been reported) on the tax packages and
other information provided by Edwards under section 2.05 of this Agreement.
8
<PAGE>
"Edwards 2000 Estimated Currently Payable State Income Tax Expense" means
the U.S. state income tax expense attributable to the Edwards Business through
the Distribution Date, less the net increase (or plus the net decrease) in the
deferred state income tax liabilities attributable to the Edwards Business
through the Distribution Date, as reported in Edwards' consolidated balance
sheet as of the Distribution Date and consolidated income statement through the
Distribution Date. Any adjustments to Edwards' deferred tax liabilities for
periods ending prior to January 1, 2000 shall be disregarded for this purpose.
"Final Determination" means, with respect to any issue or item for any
taxable period the earliest to occur of the following: (i) a decision by a court
of competent jurisdiction, but only after such decision has become final and
unappealable; (ii) the expiration of the time for filing a claim for refund or,
if a refund claim has been timely filed, the time for instituting a suit in
respect of such refund claim, provided that no further adjustment to the items
of income, gain, loss, deduction or credit for such period may thereafter be
made; (iii) the execution by or on behalf of the taxpayer and the IRS of a
closing agreement under Section 7121 of the Code or comparable agreements under
the laws of other jurisdictions; (iv) the acceptance by the IRS or its counsel
of a tender pursuant to an offer in compromise under Section 7122 of the Code,
or comparable agreements under the laws of other jurisdictions; (v) the
execution of a Form 870 or Form 870AD and the subsequent payment of the tax
deficiency or the receipt of the refund reflected therein; or (vi) any other
final and irrevocable determination of the tax liability of a party to this
Agreement for any taxable period.
"IRS Adjustments" means any adjustments made by the Internal Revenue
Service ("IRS") with respect to any United States ("U.S.") Federal income Tax
Returns of Baxter (or any member of the Baxter Group) in which any part of
Edwards is included for taxable periods beginning before the Distribution Date.
9
<PAGE>
"Sales, Use, or Property Tax" means any sales, use, or property tax (and
any related interest or penalties) relating to the Edwards Businesses conducted
in the United States.
"Section 423 Edwards Stock" means Edwards Stock received as a distribution
on Section 423 Baxter Stock pursuant to the Reorganization Agreement.
"Section 423 Baxter Stock" means Baxter stock acquired pursuant to the
Baxter Qualified Employee Stock Purchase Plan, adopted pursuant to the 1987
Incentive Compensation Program.
"Tax" means any of the Taxes.
"Taxes" means taxes arising from all forms of taxation, whenever created or
imposed, and whether of the United States of America or elsewhere, and whether
imposed by a local, municipal, governmental, state, federation or other body,
and without limiting the generality of the foregoing, shall include income,
sales, use, ad valorem, gross receipts, value added, franchise, transfer, stamp,
recording, withholding, payroll, employment, excise, occupation, premium or
property taxes, together with any related interest, penalties and additions to
tax, or additional amounts imposed by any taxing authority (domestic or foreign)
upon the Edwards Group, the Baxter Group or any of their respective members or
divisions or branches.
A "Tax Benefit" arises whenever a member's liability for Taxes may be
reduced in future periods as a result of an adjustment by a taxing authority in
the year under examination, whether or not such reduction is presently assured.
Examples of a Tax Benefit include the Taxes associated with an increase in the
10
<PAGE>
basis of an asset or the deferral of a deduction or the reallocation upon audit
of a deduction within the same taxable period between Edwards and Baxter. A Tax
Benefit does not include a change in the amount of a tax credit available. The
amount of any Tax Benefit shall be computed using a tax rate of 35% for federal
income tax purposes and 5.2% (8% state income tax rate less a 35% federal
benefit) for state income tax purposes.
A "Tax Detriment" arises whenever a member's liability for Taxes may be
increased in future periods as a result of an adjustment by a taxing
jurisdiction in the year under examination, whether or not such increase is
presently assured. Examples of a Tax Detriment include the Taxes associated with
a decrease in the basis of an asset or the acceleration of a deduction or the
reallocation upon audit of a deduction within the same taxable period between
Edwards and Baxter. A Tax Detriment does not include a change in the amount of a
tax credit available. The amount of a Tax Detriment shall be computed using a
tax rate of 35% for federal income tax purposes and 5.2% (8% state income tax
rate less a 35% federal benefit) for state income tax purposes.
"Tax Return" means any return, filing, questionnaire or other document
required to be filed, including amended returns that may be filed, for any
period with any taxing authority (whether domestic or foreign) in connection
with any Tax or Taxes (whether or not a payment is required to be made with
respect to such filing).
"Transaction Taxes" means all sales, use, transfer, VAT, stamp,
registration, capital gains, income tax, ad valorem, gross receipts, recording,
withholding (other than payroll tax withholding), and similar taxes or fees
(including, without limitation, all real estate, patent, copyright and trademark
transfer taxes and recording fees) payable in connection with the transactions
11
<PAGE>
contemplated in the Reorganization Agreement and the transfer of the Edwards
Business, together with any related interest, penalties, or additions to tax.
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS
-------------------------------------
Section 2.01. Manner of Preparation. All Tax Returns for taxable periods
---------------------
beginning before the Distribution Date which are filed after the Distribution
Date shall be prepared on a basis consistent with prior return treatment
(provided such basis does not have an adverse effect on the elections,
accounting methods, conventions, and principles of taxation used for any taxable
period ending on or before the Distribution Date), and shall be filed on a
timely basis by the party responsible for such filing under this Agreement.
Subject to the provisions of this Agreement, all decisions relating to the
preparation and filing of Tax Returns and any audit or other review of such Tax
Returns shall be made in the sole discretion of the party responsible under this
Agreement for such filing.
Section 2.02. Pre-Distribution Consolidated U.S. Federal Income Tax
-----------------------------------------------------
Returns. Baxter shall prepare and file all consolidated U.S. federal income
- -------
Tax Returns that include both a member of the Baxter Group and part of the
Edwards Business, and that are required to be filed for periods beginning before
the Distribution Date. Baxter agrees to pay to the IRS the consolidated U.S.
federal income tax liabilities reported on these returns on a timely basis.
Baxter shall refund to Edwards any excess of: (i) Edwards 1999 Estimated
Currently Payable Federal Income Tax Expense, over (ii) Edwards 1999 Currently
Payable Federal Income Tax Expense. Edwards shall refund to Baxter
12
<PAGE>
any excess of: (i) Edwards 1999 Currently Payable Federal Income Tax Expense,
over (ii) Edwards 1999 Estimated Currently Payable Federal Income Tax Expense.
Payments under this section shall be due within 30 days after the due date
(including extensions) of Baxter's 1999 consolidated U.S. federal income tax
return.
Baxter shall refund to Edwards any excess of: (i) Edwards 2000 Estimated
Currently Payable Federal Income Tax Expense, over (ii) Edwards 2000 Currently
Payable Federal Income Tax Expense. Edwards shall refund to Baxter any excess
of: (i) Edwards 2000 Currently Payable Federal Income Tax Expense, over (ii)
Edwards 2000 Estimated Currently Payable Federal Income Tax Expense. Payments
under this section shall be due within 30 days after the due date (including
extensions) of Baxter's 2000 consolidated U.S. federal income tax return.
Section 2.03 Pre-Distribution U.S. State Income Tax Returns. All U.S.
----------------------------------------------
state income tax returns (whether consolidated, unitary, combined, or separate)
of a member of the Baxter Group which:
(i) include part of the Edwards Business, and
(ii) are required to be filed for periods beginning before the Distribution Date
shall be filed by the Baxter member. The Baxter member shall also be responsible
for paying the tax liability shown on the return to the appropriate taxing
authority.
Baxter shall refund to Edwards any excess of: (i) Edwards 1999 Estimated
Currently Payable State Income Tax Expense, over (ii) Edwards 1999 Currently
Payable State Income Tax Expense. Edwards shall refund to Baxter any excess of:
(i) Edwards 1999 Currently Payable State Income Tax Expense, over (ii)
13
<PAGE>
Edwards 1999 Estimated Currently Payable State Income Tax Expense. Payments
under this section shall be due within 30 days after the due date (including
extensions) of the relevant state income tax return.
Baxter shall refund to Edwards any excess of: (i) Edwards 2000 Estimated
Currently Payable State Income Tax Expense, over (ii) Edwards 2000 Currently
Payable State Income Tax Expense. Edwards shall refund to Baxter any excess of:
(i) Edwards 2000 Currently Payable State Income Tax Expense, over (ii) Edwards
2000 Estimated Currently Payable State Income Tax Expense. Payments under this
section shall be due within 30 days after the due date (including extensions) of
the relevant state income tax return.
Section 2.04 International Tax Returns- Edwards Entities. Except as
-------------------------------------------
provided in Section 3.03(c) Edwards shall be responsible for filing Tax
Returns and paying all Tax Liabilities with respect to the following entities
and their successors for all taxable periods:
Baxter Participacoes e Commercial Ltda. (Brazil)
Macchi Engenharia Ltda. (Brazil)
Baxter Cardiovascular Private Limited (India)
Xenomedica A.G
PAS Palzer GmbH and Co. KG
PAS Palzer Verwaltungs GmbH
Edwards shall also be responsible for filing Tax Returns and paying all Tax
Liabilities with respect to Edwards entities that are formed pursuant to the
Reorganization Agreement.
14
<PAGE>
Section 2.05 Other Pre-Distribution Tax Returns. All Tax Returns (except
----------------------------------
as provided hereunder or in Sections 2.02, 2.03 or 2.04 above) which:
(i) include or are filed by a member of the Baxter Group or the Edwards
Group, and
(ii) are required to be filed for periods beginning before the Distribution Date
shall be filed by the appropriate Baxter or Edwards member in accordance with
local law or custom as finally determined in good faith by Baxter after
consultation with Edwards. The party filing such return shall also be
responsible for paying the tax liability shown on the return to the appropriate
taxing authority.
Section 2.06 Sales, Use, or Property Tax Returns. Sales, Use, or Property
-----------------------------------
Tax Returns and all liability for payment of Sales, Use or Property Tax relating
to the Edwards Business for all periods shall be the responsibility of the
Edwards Group. $600,000 of existing Sales Use and Property tax reserves relating
to the Edwards Group will be transferred to Edwards.
Section 2.07 Franchise Tax Returns. U.S. state franchise taxes and tax
---------------------
returns for all periods beginning before the Distribution Date shall be the
responsibility of the Baxter Group. Notwithstanding the foregoing, U.S. state
franchise taxes and tax returns for entities formed pursuant to the
Reorganization Agreement shall be the responsibility of the Edwards Group.
Section 2.08 Tax Packages and Other Information. Edwards shall provide
----------------------------------
Baxter with: (i) domestic and foreign income tax packages prepared for 1999 and
2000 on a basis consistent with prior treatment, (ii) any and all information,
documentation, working papers and schedules relating to the Edwards Businesses
and the Edwards Group reasonably requested by Baxter for use in connection with
the preparation and filing of any Tax Return required to be filed
15
<PAGE>
by Baxter, and (iii) a reconciliation of book income to U.S. federal taxable
income for the Edwards Businesses for 1999 and the period January 1, 2000
through the Distribution Date.
Edwards shall use its best efforts to provide Baxter with such tax
packages, information, documentation, working papers, schedules and book-tax
reconciliation on or before the first day of the fourth month following the end
of the period to which they relate, but in any event shall provide them no
later than the fifteenth day of the sixth month following the end of the period
to which they relate.
Section 2.09. Post-Distribution Date Tax Returns. To the extent not
----------------------------------
covered above, all Tax Returns and liability for payment of Taxes for periods
ending after the Distribution Date shall be the responsibility of the Baxter
Group if such Tax Returns or Taxes relate to Baxter Businesses, and shall be the
responsibility of the Edwards Group if such Tax Returns or Taxes relate to the
Edwards Business.
Section 2.10. Allocation of Tax Attributes.
----------------------------
(a) Foreign Tax Credit Related Items. Earnings and profits and foreign
--------------------------------
taxes paid shall be allocated between Baxter and Edwards in accordance with
applicable Treasury Regulations as interpreted in good faith by Baxter.
(b) Research Credit Base. For purposes of the research and
--------------------
experimentation tax credit under section 41 of the Code, the parties agree to
allocate a portion of the Baxter Group's gross receipts and qualified research
expenses to the Edwards Group as set forth in the attached schedule, pursuant to
section 41(f)(3)(B) of the Code. No adjustments or payments shall be made if a
subsequent audit or other event results in a determination that this allocation
16
<PAGE>
was not correct. Baxter has provided documentation to Edwards to support such
gross receipts and qualified research expenses, and will provide Edwards with
access to the original tax packages and Tax Returns as necessary for audit
purposes.
(c) Other Tax Attributes. All other tax attributes of the Baxter Group
--------------------
(including, but not limited to, net operating loss carryforwards) shall remain
with the Baxter Group and shall not be allocated in whole or in part to the
Edwards Group If pursuant to a Final Determination, any portion of the
consolidated AMT credit or other tax attribute is allocated to Edwards (the
"Excess Item"), an amount equal to the Excess Item shall be paid by Edwards to
Baxter at the time of such Final Determination.
Section 2.11. Employee Stock Incentives Other Than Restricted Stock.
-----------------------------------------------------
Baxter shall be entitled to all tax deductions arising by reason of any
Disqualifying Disposition by: (i) Baxter Employees of Section 423 Edwards Stock
or Section 423 Baxter Stock, or (ii) Edwards Employees of Section 423 Baxter
Stock. Edwards shall be entitled to all tax deductions arising by reason of any
Disqualifying Disposition by Edwards Employees of Section 423 Edwards Stock.
Baxter shall be responsible to make all reports required to be made to the
relevant tax authorities with respect to Disqualifying Dispositions where Baxter
is entitled to the corresponding tax deductions hereunder. Edwards shall be
responsible to make all reports required to be made to the relevant tax
authorities with respect to Disqualifying Dispositions where Edwards is entitled
to the corresponding tax deductions hereunder.
17
<PAGE>
Edwards shall report to Baxter, in no case later than 30 days after the end
of each calendar month, any Disqualifying Disposition made by Baxter Employees
during such month of Section 423 Edwards Stock.
Baxter shall be entitled to all tax deductions arising by reason of any
exercises of nonqualified stock options to purchase Baxter shares of stock.
The party entitled to tax deductions under this Section 2.11 shall also be
responsible for any employment related taxes and governmental filings associated
with the tax deduction being claimed.
If, pursuant to a Final Determination, all or any part of a tax deduction
described in this section is disallowed to Baxter, then Edwards shall reimburse
Baxter for any additional Taxes owed by reason of such disallowance, but only to
the extent that, as a result of such disallowance, Edwards is allowed a tax
deduction attributable to such Disqualifying Disposition. In such case, Edwards
shall report the allowed tax deduction and shall reimburse Baxter at the time
Edwards receives a refund attributable to such deduction or otherwise realizes
the economic benefit thereof.
Section 2.12 Restricted Stock. Baxter shall be entitled to all tax
----------------
deductions arising with respect to the vesting of, or the release of
restrictions upon, on or after the Distribution Date any shares of Baxter
restricted stock which are owned by Baxter Employees or Edwards Employees.
Section 2.13 Abandoned/Unclaimed Property. Baxter will retain liability
----------------------------
for abandoned and unclaimed property reported to it by Edwards as of the
Distribution Date in accordance with the Baxter corporate policy for reporting
18
<PAGE>
unclaimed property. Edwards will retain liability for abandoned and unclaimed
property of Edwards not reported to Baxter as of the Distribution Date.
ARTICLE III
TAX DEFICIENCIES AND OVERPAYMENTS
---------------------------------
Section 3.01. General Rule. Except as otherwise provided in this
------------
Agreement, Baxter is responsible for paying all Taxes (and entitled to receive
all refunds and interest) resulting from any adjustment made by any taxing
authority with respect to any Tax Return of Baxter (or any member of the Baxter
Group) in which any member of the Edwards Group is included.
Pursuant to Sections 3.02 through 3.08 hereof, Baxter is entitled to cash
reimbursements from Edwards, or must make cash payments to Edwards, in certain
circumstances described below.
No cash reimbursements or payments are required with respect to adjustments
made by any taxing authority relating to the returns of any member of the
Edwards Group which do not include Baxter or a member of the Baxter Group.
Section 3.02. Payments by Edwards.
-------------------
(a) U.S. Federal or State Income Tax Adjustments-Pre Distribution Date
------------------------------------------------------------------
Taxable Periods. To the extent that any IRS Adjustment or similar adjustment by
- ---------------
a state tax authority of a Tax Return filed by a member of the Baxter Group that
includes any part of the Edwards Business for taxable periods beginning before
the Distribution Date 1.) results in a Tax Benefit to any member of the Edwards
Group, or 2.) results in additional Taxes to Baxter and is attributable
19
<PAGE>
solely to Edwards failure to provide timely sufficient documentation under
Section 4.03 of this Agreement, Edwards shall pay Baxter the amount of such Tax
Benefit or additional Taxes as the case may be. Where any such adjustment is
attributable solely to Edwards failure to provide timely documentation pursuant
to the request of the IRS or any state tax authority, Edwards shall also pay
Baxter any interest, penalties, or additions to tax attributable to such
adjustment (per Section 3.02(a)(2)). The amount of such Tax Benefit shall be
determined in good faith by Baxter, after consulting with Edwards.
(b.) U.S. Federal or State Income Tax Adjustments- Post Distribution
---------------------------------------------------------------
Date Taxable Periods. To the extent that any IRS Adjustment or similar
- --------------------
adjustment by a state tax authority of a Tax Return filed by a member of the
Baxter Group for taxable periods ending after the Distribution Date results in a
Tax Benefit to any member of the Edwards Group. Edwards shall pay Baxter the
amount of such Tax Benefit. The amount of such Tax Benefit shall be determined
in good faith by Baxter, after consulting with Edwards.
(c) Other Tax Adjustments-Pre Distribution Date Taxable Periods. If any
------------------------------------------------------------
adjustments (including the filing of an amended return to reflect any such
adjustments) are made by any taxing authority with respect to any Tax Returns
(other than U.S. federal or state income tax returns) of Baxter (or any member
of the Baxter Group) in which any part of the Edwards Business is included for
taxable periods beginning before the Distribution Date, then to the extent that
such adjustments:
i) are attributable to part of the Edwards Business; or
ii.) the transfer thereof, and
20
<PAGE>
iii.) may decrease the net taxable income of, or increase the net taxable loss
or tax credits of, any member of the Edwards Business for taxable
periods beginning on or after the Distribution Date, and
iv.) result in a greater Tax liability for Baxter or any member of the Baxter
Group (in either case without regard to any offsetting adjustments to
other members of the Baxter Group),
Edwards and each other member of the Edwards Group shall pay Baxter the
difference between the Tax liability on the respective Baxter Tax Return before
and after taking into account the adjustment, determined without regard to any
interest, penalties, or additions to tax, unless such interest, penalties, or
additions to tax are attributable to failure to provide timely sufficient
documentation under Section 4.03 of this Agreement by any member of the Edwards
Group. The amount of such adjustment shall be determined in good faith by
Baxter, after consulting with Edwards, and be payable under Section 3.02(e)
except for any amounts payable pursuant to Section 3.02(c)(ii) which shall be
payable under Section 3.02(f).
(d) Other Tax Adjustments-Post Distribution Date Taxable Periods. If
------------------------------------------------------------
any adjustments (including the filing of an amended return to reflect any such
adjustments) are made by any taxing authority with respect to any Tax Returns
(other than U.S. federal or state income tax returns) of Baxter (or any member
of the Baxter Group) in which any part of the Edwards Business is included for
taxable periods ending after the Distribution Date, then to the extent that such
adjustments:
i.) are attributable to the transfer of the Edwards Business; or
21
<PAGE>
ii.) are attributable to the operations of the Edwards Business after the
Distribution Date, and
iii.) result in a greater Tax liability for Baxter or any member of the Baxter
Group (in either case without regard to any offsetting adjustments to
other members of the Baxter Group),
Edwards shall pay Baxter the difference between the Tax liability on the
respective Baxter Tax Return before and after taking into account the
adjustment, determined without regard to any interest, penalties, or additions
to tax. Also, in the event that any joint venture governed by this paragraph is
the subject of an income tax audit, the parties agree to allocate any resulting
taxable income adjustment in proportion to their profit allocation percentages
in the relevant operations. In either case, the amount of such adjustment shall
be determined in good faith by Baxter, after consulting with Edwards and be
payable under Section 3.02(e) except for any amounts payable pursuant to Section
3.02(d)(i) which shall be payable under Section 3.02(f).
(e) Manner of Payment. If Edwards shall have any liability as a result
------------------
of this Section 3.02, the amount thereof shall be paid by Edwards to Baxter
within thirty (30) days after the receipt by Edwards of written notice of such
liability, together with a computation of the amount due and supporting
documentation in such detail as Edwards may reasonably request to verify the
computation of the amount due. Baxter may give such written notice to Edwards
only after a Final Determination has occurred.
(f) Timing of Reimbursement-Exception. Notwithstanding Paragraph
---------------------------------
3.02(e) above, any liability of Edwards to Baxter arising under Paragraph
3.02(c)(ii) or Paragraph 3.02(d)(i) shall be payable by Edwards only at such
time as it realizes the economic benefit of any increase in tax basis arising
from
22
<PAGE>
the transfer of the Edwards Business (Basis Increase). For purposes of
determining the amount of any economic benefit (Tax Reduction) under this
Section, Edwards shall prepare three separate income tax returns for the
jurisdiction in which the relevant Basis Increase is available. One return shall
be prepared in accordance with local law and filed with the local tax
authorities (Actual Return). A proforma return shall be prepared on the same
basis as the Actual Return but which shall also exclude any tax deductions or
credits arising out of tax strategies which occur after the Distribution Date
(such as material changes in accounting policies, changes in capital structure
to increase leverage, and acquisitions or reorganizations which produce tax
deductions greater than their operating income) (First Pro Forma Return).
Another pro forma return shall be prepared on the same basis as the First Pro
Forma Return but which shall also exclude any tax deductions or credits
associated with the Basis Increase (Second Pro Forma Return). The excess of the
tax liability on the Second Pro Forma Return over the tax liability on the First
Pro Forma Return shall be considered as the Tax Reduction under this Section.
The Tax Reduction shall be determined in good faith by Edwards, after consulting
with Baxter and shall be reimbursed by Edwards to Baxter within 30 days after
the last extended legal due date for filing of the Actual Return. Edwards'
liability to Baxter hereunder shall continue until the Basis Increase no longer
constitutes an allowable deduction for tax purposes in the relevant
jurisdiction.
The delayed timing of reimbursement provided by this Section as an
exception to Section 3.02(e) shall apply only to those Tax liabilities otherwise
subject to reimbursement hereunder which individually (i.e. on a per country
basis) exceed $3,000,000.
Section 3.03. Payments by Baxter. (a) U.S. Federal or State Income Tax
------------------ --------------------------------
Adjustments. To the extent that any IRS Adjustment or similar adjustment by a
- -----------
state tax authority of a Tax Return filed by a member of the Baxter Group
23
<PAGE>
that includes any part of the Edwards Business for taxable periods beginning
before the Distribution Date results in a Tax Detriment to any member of the
Edwards Group, Baxter shall remit to Edwards the amount of such Tax Detriment,
determined without regard to any interest, penalties, or additions to tax. The
amount of such Tax Detriment shall be determined in good faith by Baxter, after
consulting with Edwards.
(b) Other Tax Adjustments-Pre Distribution Date Taxable Periods. If any
-----------------------------------------------------------
adjustments (including the filing of an amended return to reflect any such
adjustments) are made by any taxing authority with respect to any Tax Returns
(other than U.S. federal or state tax returns) of Baxter (or any member of the
Baxter Group) in which any part of the Edwards Business is included for taxable
periods beginning before the Distribution Date, then to the extent that such
adjustments are attributable to part of the Edwards Business;
i) result in a reduced Tax liability for Baxter (without regard to any
offsetting adjustments to other members of the Baxter Group),and
ii.) may increase the net taxable income of, or decrease the net taxable loss or
tax credits of, any member of the Edwards Business for taxable periods
beginning on or after the Distribution Date,
then Baxter shall pay to Edwards the difference between the Tax liability on the
respective Tax Return before and after taking into account the adjustment,
determined without regard to any interest, penalties, or additions to tax. The
amount of such adjustment shall be determined in good faith by Baxter, after
consulting with Edwards.
24
<PAGE>
(c) Other Income Tax Adjustments- Brazil. Notwithstanding Section 3.04,
------------------------------------
if any adjustments (including the filing of an amended return to reflect any
such adjustments) are made by Brazilian taxing authorities with respect to
income Tax Returns of Baxter Participacoes e Commercial Ltda. (Brazil) or Macchi
Engenharia Ltda. or their successors for taxable periods up to the Distribution
Date; such adjustments do not result in a Tax Benefit to Edwards; and such
adjustments exceed the total net operating losses available for carryforward
against such adjustments, Baxter will pay to Edwards an amount equal to the
product of: 1.) the excess of such adjustments over the net operating loss
carryforwards and 2.) the statutory tax rate in Brazil in effect for the taxable
period in which such adjustments exceed the net operating loss carryforwards.
(d) Manner of Payment. Baxter shall pay amounts due from it to Edwards
-----------------
as a result of this Section 3.03 within thirty (30) days after a Final
Determination. Such payments shall be accompanied by a computation of the amount
due and supporting documentation in such detail as Baxter may reasonably request
to verify the computation of the amount due.
Section 3.04 Manner of Payments-Legal Entities. Any reimbursements
---------------------------------
made pursuant to this Article III with respect to income tax liabilities shall
be made between the legal entities of Baxter International Inc. and Edwards
Lifesciences Corporation (including their respective successors, if any) and
shall be considered as an adjustment to the assets transferred to Edwards
Lifesciences Corporation by Baxter International Inc. pursuant to the
Reorganization Agreement.
Section 3.05. Transaction Taxes. Except as otherwise provided in this
-----------------
Agreement, Edwards is responsible for the payment of all Transaction Taxes,
25
<PAGE>
provided however that patent, copyright and trademark transfer taxes and
recording fees shall be the responsibility of Baxter.
Section 3.06. Puerto Rico Filing Obligations. During the course of
------------------------------
preparing for the Distribution, Baxter and Edwards became aware of heretofore
unsatisfied filing obligations with respect to the operations of Edwards
perfusion business in Puerto Rico. The purpose of this Section 3.06 is to
allocate responsibility between Edwards and Baxter for such filing obligations
and associated taxes.
(a) Edwards will prepare local Tax Returns for its perfusion business in
Puerto Rico, pay the appropriate taxes, interest and penalties, if any, to
Puerto Rico and provide Baxter with copies of the local Tax Returns and
underlying documentation. Edwards shall file such returns within 6 months
following the Distribution Date.
(b) Baxter will refund to Edwards any increase in foreign tax credits
(Extra Credits) allowable to Baxter as a result of taxes paid pursuant to the
local Tax Returns prepared by Edwards under Section 3.06(a).
(c) Any amounts payable by Baxter hereunder shall be paid to Edwards
within seven months after Edwards files related Tax Returns under Section
3.06(a).
(d) Edwards and Baxter agree to share equally professional fees incurred
in the preparation of local Tax Returns under Section 3.05(a) above.
(e) If, pursuant to a Final Determination, any Extra Credits are
disallowed to Baxter on the basis that the Extra Credits are attributable to
Edwards,
26
<PAGE>
Edwards shall reimburse Baxter an amount equal to the Extra Credits so
disallowed within 30 days after the related Final Determination.
Section 3.07 Harbor Maintenance Taxes Baxter and Edwards agree to
------------------------
cooperate with each other in filing for refund claims to which they may be
entitled with respect to Harbor Maintenance Taxes. Any refunds received pursuant
to such claims shall be allocated to Baxter and CVG in proportion to their
respective original tax payments with respect to which the refund claims are
allowed.
Section 3.08. No Other Payments. Anything to the contrary notwithstanding,
-----------------
except as provided in this Article III or the Reorganization Agreement, no
member of the Edwards Group shall be entitled to any payment from any member of
the Baxter Group, and no member of the Baxter Group shall be entitled to any
payment from any member of the Edwards Group, as a result of any IRS Adjustment
or adjustment by any other taxing authority.
ARTICLE IV
TAX AUDITS AND ADMINISTRATIVE MATTERS
-------------------------------------
Section 4.01. Tax Audits and Controversies. (a) U.S. Federal Income Taxes.
---------------------------- -------------------------
Except as otherwise provided in this Section 4.01, Baxter shall have the
exclusive authority and obligation to represent each member of the Edwards Group
before the IRS or any other governmental agency or authority or before any court
with respect to any matter affecting the U.S. federal income tax liability of
any member of either the Baxter Group or the Edwards Group for any tax period
beginning before the Distribution Date, in each such case (i) consulting with
Edwards with regard to any such administrative or judicial proceeding and any
proposed compromise or settlement thereof, and (ii) acting in good faith.
27
<PAGE>
Such representation shall include, but shall not be limited to exclusive control
over (i) any response to any examination by the IRS of U.S. federal income Tax
Returns and (ii) any contest through a Final Determination of any issue included
in any U.S. federal income Tax Return that includes a member of the Baxter
Group, including, but not limited to (A) whether and in what forum to conduct
such contest, and (B) whether and on what basis to settle such contest.
Baxter shall give timely notice to Edwards of any inquiry, the assertion
of any claim or the commencement of any suit, action or proceeding in respect of
which any member of the Edwards Group may incur any then known (by Baxter)
future U.S. federal income Tax liability or in respect of which indemnity for
U.S. federal corporate income taxes may be sought under this Agreement against
Edwards or any member of the Edwards Group and will give Edwards such
information with respect thereto as Edwards may reasonably request.
(b) Other Taxes. Except as otherwise provided in this Section 4.01,
------------
the party responsible for filing any Tax Return (other than U.S. federal income
Tax Returns) pursuant to Sections 2.03 through 2.07 hereof shall, at its own
expense, have the exclusive authority to represent each member of the Baxter
Group and of the Edwards Group before any governmental agency or authority or
before any court with respect to any matter affecting the Tax liability of 1.)
any member of either the Baxter Group or the Edwards Group for any tax period
beginning before the Distribution Date and ending after the Distribution Date
and 2.) any member of the Baxter group which includes part of the Edwards
Business for periods after the Distribution Date, in each case (i) consulting
with the other group and the other group's tax counsel with regard to any such
administrative or judicial proceeding and any proposed compromise or settlement
thereof, and (ii) acting in good faith. The Baxter Group shall have, at its own
expense, the exclusive authority as described above to represent each member of
the Edwards Group for periods ending on or before the Distribution Date.
However,
28
<PAGE>
with respect to taxable periods after the Distribution Date Baxter's actions
under this Section 4.01 shall be subject to dispute resolution under Section
5.10.
Section 4.02. Retention of Books and Records. In accordance with
-------------------------------
Baxter's records retention guidelines as of the date hereof, Edwards will retain
(for 10 years or longer as required) all information with respect to Baxter in
the possession of any member of the Edwards Group on the Distribution Date which
is needed to support Tax Returns and Tax audits. Edwards shall ensure that it
retains access to any equipment necessary to read any of the information to be
retained by Edwards pursuant to this section 4.02. Edwards will provide Baxter
(and afford Baxter full access to, and the right to inspect and copy at any
reasonable time) such information and use of such equipment upon Baxter's
reasonable request, at no cost to Baxter (other than reasonable out-of-pocket
expenses of Edwards). At the expiration of the applicable records retention
period, Edwards may dispose of the information upon prior notice to Baxter. For
a period of 45 days immediately following such notice, Baxter shall have the
right to remove and take title to all such information (in any form including,
without limitation, books, records, computer tapes, and computer disks).
This section 4.02 is in addition to any records retention requirements
contained in the Reorganization Agreement. In the event of any conflict, the
provisions of this Tax Sharing Agreement shall govern.
Section 4.03. Cooperation regarding Return Filing, Examinations and
-----------------------------------------------------
Controversies. (a) Edwards Obligations. In addition to any obligations
- -------------- --------------------
imposed pursuant to the Reorganization Agreement, Edwards and each other member
of the Edwards Group shall fully cooperate with Baxter and its representatives,
in a prompt and timely manner, in connection with the preparation and filing of
and any inquiry, audit, examination, investigation, dispute, or litigation
involving any Tax Return filed or required to be filed by or
29
<PAGE>
for any member of the Baxter Group for any taxable period beginning before the
Distribution Date, and relating to issues involving the Edwards Business. Such
cooperation shall include, but not be limited to, making available to Baxter,
during normal business hours, and within thirty (30) days after any request
therefor, all books, records and information, and the assistance of all officers
and employees, necessary or useful in connection with any tax inquiry, audit,
examination, investigation, dispute, litigation, or any other matter. Baxter and
Edwards will share on an equitable basis professional fees with respect to
audits of post Distribution Date taxable periods of any Baxter legal entity that
includes part of the Edwards Business. The sharing shall be based upon the
proportionate amount of professional time spent on matters relating to the
Edwards Business.
Edwards agrees on behalf of itself and each member of the Edwards Group
to execute and deliver to Baxter, when so requested by Baxter, any power of
attorney required to allow Baxter and its counsel to represent Edwards or such
other Edwards Group member in any controversy which Baxter shall have the right
to control pursuant to the terms of Section 4.01 of this Agreement.
(b) Baxter's Obligations. In addition to any obligations imposed
---------------------
pursuant to the Reorganization Agreement, Baxter shall fully cooperate with
Edwards and its representatives, in a prompt and timely manner, in connection
with (i) the preparation and filing of and (ii) any inquiry, audit, examination,
investigation, dispute, or litigation involving, any Tax Return filed or
required to be filed by or for any member of the Edwards Group. Such
cooperation shall include, but not be limited to, making available to Edwards,
during normal business hours, and within thirty (30) days after any request
therefor, all books, records and information, and the assistance of all officers
and employees, necessary or useful in connection with any tax inquiry, audit,
examination, investigation, dispute, litigation or any other matter.
30
<PAGE>
Baxter agrees on behalf of itself and each member of the Baxter Group to
execute and deliver to Edwards, when so requested by Edwards, any power of
attorney required to allow Edwards and its counsel to represent Baxter or such
other Baxter Group member in any controversy which Edwards shall have the right
to control pursuant to the terms of Section 4.01(b) of this Agreement.
(c) Remedy for Failure to Comply. If Baxter reasonably determines
-----------------------------
that Edwards is not for any reason fulfilling its obligations under Section 4.03
(a), or if Edwards reasonably determines that Baxter is not for any reason
fulfilling its obligations under Section 4.03(b), then Baxter or Edwards, as the
case may be, shall have the right to appoint, at the expense of the other, an
independent entity such as a nationally-recognized public accounting firm to
assist the other in meeting its obligations under this Section 4.03. Such
entity shall have complete access to all books, records and information, and the
complete cooperation of all officers and employees, of Edwards or Baxter, as the
case may be.
Section 4.04. Interest on Late Payments. Any amount payable under
--------------------------
this Agreement by Edwards to Baxter, or by Baxter to Edwards, shall (if not paid
within ten (10) business days after the due date specified in this Agreement)
bear interest from such due date until the date paid, at the rate of one percent
(1%) per month, or portion thereof, until received.
Section 4.05. Character and Effect of Payments. All amounts paid
---------------------------------
pursuant to this Agreement by one party to another party (other than interest
payable under Section 4.04, above) shall be treated by such parties as
intercompany settlements or liabilities existing on the Distribution Date for
income tax and other tax purposes.
31
<PAGE>
Section 4.06. Agency. It is understood and acknowledged that in
-------
accordance with Reg. 1.1502-77, Baxter shall be the agent for the Baxter Group
(including the Edwards Group with respect to taxable years ending on or before
the Distribution Date) with respect to all matters referred to therein.
ARTICLE V
MISCELLANEOUS
-------------
Section 5.01. Severability. In case any one or more of the
-------------
provisions contained in this Agreement should be invalid, illegal or
unenforceable, the enforceability of the remaining provisions contained herein
shall not in any way be affected or impaired thereby.
Section 5.02. Modification of Agreement. No modification, amendment
--------------------------
or waiver of any provision of this Agreement shall be effective unless the same
shall be in writing and signed by each of the parties hereto and then such
modification, amendment or waiver shall be effective only in the specific
instance and for the purpose for which given.
Section 5.03. Conflict with the Reorganization Agreement or Other
---------------------------------------------------
Tax Agreements. Anything in the Reorganization Agreement to the contrary
- ---------------
notwithstanding, in the event and to the extent that there shall be a conflict
between the provisions of this Agreement and the Reorganization Agreement or any
other agreement, the provisions of this Agreement shall control. This Agreement
supersedes any tax sharing, tax indemnity or similar agreement that may have
previously existed between any member of the Baxter Group and any member of the
Edwards Group.
32
<PAGE>
Section 5.04. Notices. All notices or other communications
--------
required or permitted under this Agreement shall be delivered by hand, mailed by
certified or registered mail, postage prepaid and return receipt requested, or
sent by cable, telegram, telex or telecopy (confirmed by regular, first-class
mail), to the parties at the following addresses (or at such other addresses for
a party as shall be specified by like notice) and shall be deemed given on the
date on which such notice is received:
(a) In the case of Baxter, to:
Baxter International Inc.
One Baxter Parkway
Deerfield, IL 60015
Attn: Vice President - Taxes
(b) In the case of Edwards, to:
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, CA 92614
Attn: Vice President or Director - Taxes
Section 5.05. Application to Present and Future Subsidiaries. This
-----------------------------------------------
Agreement is being entered into by Baxter and Edwards on behalf of themselves
and each member of the Baxter Group and the Edwards Group, respectively. This
Agreement shall constitute a direct obligation of each such member and shall be
deemed to have been readopted and affirmed on behalf of any corporation which
becomes a member of the Baxter Group or the Edwards Group in the future. Baxter
and Edwards hereby guarantee the performance of
33
<PAGE>
all actions, agreements and obligations provided for under this Agreement of
each member of the Baxter Group and the Edwards Group, respectively. Baxter and
Edwards shall, upon the written request of the other, cause any of their
respective group members formally to execute this Agreement. This Agreement
shall be binding upon, and shall inure to the benefit of, the successors,
assigns and persons controlling any of the corporations bound hereby.
Section 5.06. Term. This Agreement shall commence on the date of
-----
execution indicated above and shall continue in effect until otherwise agreed to
in writing by Baxter and Edwards, or their successors.
Section 5.07. Titles and Headings. Titles and headings to sections
--------------------
herein are inserted for the convenience of reference only and are not intended
to be a part of to affect the meaning or interpretation of this Agreement.
Section 5.08. Singular and Plural. As used herein, the singular
--------------------
shall include the plural and vice versa.
Section 5.09. Governing Law. This Agreement shall be governed by
--------------
the laws of the state of Illinois, without regard to the principles of conflicts
of laws thereof.
Section 5.10 Dispute Resolution. Dispute Resolution under this Tax
-------------------
Sharing Agreement shall be governed by the provisions of Article XVI of the
Reorganization Agreement.
Section 5.11. Counterparts. This Agreement may be executed in one
-------------
or more counterparts, all of which shall be considered one and the same
34
<PAGE>
agreement, and shall become a binding agreement when one or more counterparts
have been signed by each party and delivered to the other parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers, all on the day and year first
above written.
BAXTER INTERNATIONAL INC.
By:____________________________
Its
Edwards Lifesciences Corporation
By________________________
Its
35
<PAGE>
Exhibit 10.9
Edwards Lifesciences Corporation
and
Equiserve Trust Company, N.A.
as
Rights Agent
Rights Agreement
Dated as of March 31, 2000
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of March 31, 2000 (the "Agreement"),
between Edwards Lifesciences Corporation, a Delaware corporation (the
"Company"), and Equiserve Trust Company, N.A., a federally chartered trust
company (the "Rights Agent").
W I T N E S S E T H:
WHEREAS, on March 10, 2000 (the "Rights Dividend Declaration Date"),
the Board of Directors of the Company authorized and declared a dividend
distribution of one Right (as hereinafter defined) for each share of Common
Stock (as hereinafter defined) of the Company outstanding at the Close of
Business on March 31, 2000, after giving effect to the distribution of shares of
Common Stock by Baxter International Inc. to its stockholders (the "Record
Date"), each Right initially representing the right to purchase one one-
hundredth of a share of Series A Junior Participating Preferred Stock of the
Company having the rights, powers and preferences set forth in the form of
Certificate of Designations attached hereto as Exhibit A, upon the terms and
subject to the conditions hereinafter set forth (the "Rights"), and has further
authorized the issuance of one Right (as such number may hereinafter be adjusted
pursuant to the provisions of Section 11(p) hereof) for each share of Common
Stock of the Company issued between the Record Date and the earlier of the
Distribution Date or the Expiration Date (as such terms are hereinafter defined)
or, in certain circumstances provided in Section 22 hereof, after the
Distribution Date (as hereinafter defined);
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
-------------------
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial
Owner of 15% or more of the shares of Common Stock then outstanding, but
shall not include the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company, or any
Person organized, appointed and acting in such appointed capacity, or
established by the Company for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, no Person shall become an "Acquiring Person"
as the result of an acquisition of shares of Common Stock by the Company
which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 15% or
more of the shares of Common Stock then outstanding; provided, however,
-------- -------
that if a Person shall become the Beneficial Owner of 15% or more of the
shares of Common Stock then outstanding by reason of share purchases by the
Company and shall, after such share purchases by the Company, become the
Beneficial Owner of any additional shares of Common Stock, then such Person
shall be deemed to be an "Acquiring Person". Notwithstanding the
foregoing, no Person shall become an "Acquiring Person" if (i) such Person
has reported or is required to report such ownership on Schedule 13G under
the Securities Exchange Act of 1934, as amended and in effect on the date
of this Agreement (the "Exchange Act") (or any comparable or successor
report) or on Schedule 13D under the Exchange Act (or any comparable or
successor report) which Schedule 13D does not state any intention to or
reserve the right to control or influence the management or policies of the
Company or engage in any of the actions specified in Item 4 of such
schedule (other than the
<PAGE>
(j) "Section 11(a)(ii) Event" shall mean the event described
in Section 11(a)(ii) hereof.
(k) "Section 13 Event" shall have the meaning set forth in
Section 13(a) hereof.
(l) "Stock Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to
Section 13(d) under the Exchange Act) by the Company or an
Acquiring Person that an Acquiring Person has become such.
(m) "Subsidiary" shall mean, with reference to any Person,
any corporation or other entity of which an amount of voting
securities sufficient to elect at least a majority of the
directors, or other Persons acting in a capacity similar to
directors, of such corporation or other entity is beneficially
owned, directly or indirectly, by such Person, or otherwise
controlled by such Person.
(n) "Triggering Event" shall mean any Section 11(a)(ii)
Event or any Section 13 Event.
In addition, for purposes of this Agreement, the following terms have
the meanings indicated in specified sections of this Agreement: (i) "Adjustment
Shares" shall have the meaning set forth in Section 11(a)(ii) hereof; (ii)
"common stock equivalents" shall have the meaning set forth in Section
11(a)(iii) hereof; (iii) "current market price" shall have the meaning set forth
in Section 11(d) hereof; (iv) "Current Value" shall have the meaning set forth
in Section 11(a)(iii) hereof; (v) "Distribution Date" shall have the meaning set
forth in Section 3(a) hereof; (vi) "equivalent preferred stock" shall have the
meaning set forth in Section 11(b) hereof; (vii) "Exchange Ratio" shall have the
meaning set forth in Section 24(a) hereof; (viii) "Expiration Date" shall have
the meaning set forth in Section 7(a) hereof; (ix) "Final Expiration Date" shall
have the meaning set forth in Section 7(a) hereof; (x) "Nasdaq" shall have the
meaning set forth in Section 11(d)(i) hereof; (xi) "Principal Party" shall have
the meaning set forth in Section 13(b) hereof; (xii) "Purchase Price" shall have
the meaning set forth in Section 4(a); (xiii) "Record Date" shall have the
meaning set forth in the recitals hereof; (xiv) "Redemption Price" shall have
the meaning set forth in Section 23(a) hereof; (xv) "Rights" shall have the
meaning set forth in the recitals hereof; (xvi) "Rights Certificates" shall have
the meaning set forth in Section 3(a) hereof; (xvii) "Section 11(a)(ii) Trigger
Date" shall have the meaning set forth in Section 11(a)(iii) hereof; (xviii)
"Spread" shall have the meaning set forth in Section 11(a)(iii) hereof; (xix)
"Substitution Period" shall have the meaning set forth in Section 11(a)(iii)
hereof; (xx) "Summary of Rights" shall have the meaning set forth in Section
3(b) hereof; and (xxi) "Trading Day" shall have the meaning set forth in Section
11(d)(i) hereof.
Section 2. Appointment of Rights Agent. The Company hereby appoints
---------------------------
the Rights Agent to act as agent for the Company in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable upon ten (10) days' prior written notice to the Rights
Agent. The Rights Agent shall have no duty to supervise, and shall in no event
be liable for the acts or omissions of any such co-Rights Agent.
Section 3. Issue of Rights Certificates.
----------------------------
(a) Until the earlier of (i) the Close of Business on the tenth day
after the Stock Acquisition Date (or, if the tenth day after the Stock
Acquisition Date occurs before the Record Date,
4
<PAGE>
the Close of Business on the Record Date) or (ii) the Close of Business on the
tenth Business Day (or such later date as may be determined by action of the
Board of Directors of the Company prior to such time as any Person becomes an
Acquiring Person) after the date that a tender or exchange offer by any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company, or any Person
organized, appointed or established by the Company for or pursuant to the terms
of any such plan) is first published or sent or given within the meaning of Rule
14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon
consummation thereof, such Person would be the Beneficial Owner of 15% or more
of the shares of Common Stock then outstanding, (the earlier of (i) and (ii)
being herein referred to as the "Distribution Date"), (x) the Rights will be
evidenced (subject to the provisions of paragraph (b) of this Section 3) by the
certificates for the Common Stock registered in the names of the holders of the
Common Stock (which certificates for Common Stock shall be deemed also to be
certificates for Rights) and not by separate certificates and (y) the Rights
will be transferable only in connection with the transfer of the underlying
shares of Common Stock (including a transfer to the Company). The Company shall
give the Rights Agent prompt written notice of the Distribution Date. As soon as
practicable after the Distribution Date, and receipt of written notice of the
Distribution Date from the Company, the Rights Agent will, at the Company's
expense, send by first-class, insured, postage prepaid mail, to each record
holder of the Common Stock as of the Close of Business on the Distribution Date,
at the address of such holder shown on the records of the Company, one or more
Rights certificates, in substantially the form of Exhibit B hereto (the "Rights
Certificates"), evidencing one Right for each share of Common Stock so held,
subject to adjustment as provided herein. In the event that an adjustment in the
number of Rights per share of Common Stock has been made pursuant to Section
11(p) hereof, at the time of distribution of the Rights Certificates, the
Company shall make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) so that Rights Certificates representing
only whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Rights. As of and after the Distribution Date, the Rights will be
evidenced solely by such Rights Certificates.
(b) As promptly as practicable following the Record Date, the Company
will send a copy of a Summary of Rights to Purchase Preferred Stock, in
substantially the form attached hereto as Exhibit C (the "Summary of Rights"),
by first-class, postage prepaid mail, to each record holder of the Common Stock
as of the Close of Business on the Record Date, at the address of such holder
shown on the records of the Company. With respect to certificates for the
Common Stock outstanding as of the Record Date, until the Distribution Date, the
Rights will be evidenced by such certificates registered in the names of the
holders thereof together with a copy of the Summary of Rights attached thereto.
Until the earlier of the Distribution Date or the Expiration Date, the surrender
for transfer of any certificate representing shares of Common Stock in respect
of which Rights have been issued, with or without a copy of the Summary of
Rights attached thereto, shall also constitute the transfer of the Rights
associated with such shares of Common Stock.
(c) Rights shall be issued in respect of all shares of Common Stock
which are issued after the Record Date but prior to the earlier of the
Distribution Date or the Expiration Date or, in certain circumstances provided
in Section 22 hereof, after the Distribution Date. Certificates representing
such shares of Common Stock shall also be deemed to be certificates for Rights,
and shall bear a legend substantially in the following form:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in the Rights Agreement between Edwards
Lifesciences Corporation (the "Company") and Equiserve Trust Company, N.A.
(the "Rights Agent") dated as of March 31, 2000 (the "Rights Agreement"),
the terms of
5
<PAGE>
one one-hundredths of a share of Preferred Stock (or, following a Triggering
Event, Common Stock, other securities, cash or other assets, as the case may be)
as the Rights Certificate or Certificates surrendered then entitled such holder
(or former holder in the case of a transfer) to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Rights Certificate or
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Rights Certificate or Certificates to be transferred,
split up, combined or exchanged at the principal office or offices of the Rights
Agent designated for such purpose. Neither the Rights Agent nor the Company
shall be obligated to take any action whatsoever with respect to the transfer of
any such surrendered Rights Certificate until the registered holder shall have
completed and signed the certificate contained in the form of assignment on the
reverse side of such Rights Certificate and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company or the Rights Agent shall
reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b),
Section 7(e), Section 14 and Section 24 hereof, countersign and deliver to the
Person entitled thereto a Rights Certificate or Rights Certificates, as the case
may be, as so requested. The Company may require payment by the holders of
Rights of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificates if
mutilated, the Company will execute and deliver a new Rights Certificate of like
tenor to the Rights Agent for countersignature and delivery to the registered
owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
------------------------------------------------------
Rights.
- ------
(a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price with respect to
the total number of one one-hundredths of a share of Preferred Stock (or other
securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then exercisable, at or prior to the earliest of (i) the
Close of Business on March 31, 2010 (the "Final Expiration Date"), (ii) the time
at which the Rights are redeemed as provided in Section 23 hereof or (iii) the
time at which such Rights are exchanged pursuant to Section 24 hereof (the
earliest of (i), (ii) and (iii) being herein referred to as the "Expiration
Date"). Notwithstanding anything in this Agreement to the contrary, the Rights
shall not be exercisable prior to the Distribution Date.
(b) The Purchase Price for each one one-hundredth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be $80,
and shall be subject to adjustment from time to time as provided in Sections 11
and 13(a) hereof and shall be payable in accordance with paragraph (c) below.
8
<PAGE>
Equiserve Trust Company, N.A.
------------------------------
525 Washington Blvd.
------------------------------
3rd Floor
------------------------------
Jersey City, N.J. 07310
------------------------------
Attention: Mike Duncan
--------------------
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed to such holder at the address of such
holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments.
--------------------------
Prior to the Distribution Date, the Company and the Rights Agent
shall, if the Company so directs, supplement or amend any provision of this
Agreement without the approval of any holders of certificates representing
shares of Common Stock. From and after the Distribution Date, the Company and
the Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Rights Certificates in order
(i) to cure any ambiguity, (ii) to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period hereunder, or (iv) to change or
supplement the provisions hereunder in any manner which in the opinion of the
Company may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Rights Certificates (other than an Acquiring Person
or an Affiliate or Associate of an Acquiring Person); provided, this Agreement
--------
may not be supplemented or amended to lengthen, pursuant to clause (iii) of this
sentence, (A) a time period relating to when the Rights may be redeemed at such
time as the Rights are not then redeemable, or (B) any other time period unless
such lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to, the holders of Rights. Upon the delivery of
a certificate from an appropriate officer of the Company which states that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock.
Section 28. Successors.
----------
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Rights Agent shall bind and inure to the benefit
of their respective successors and assigns hereunder.
Section 29. Determination and Actions by the Board of Directors,
----------------------------------------------------
etc.
- ---
For all purposes of this Agreement, any calculation of the number of
shares of Common Stock outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding shares of
Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(l)(i) of the General Rules
and Regulations under the Exchange Act. The Board of Directors of the Company
shall have the exclusive power and authority to administer this Agreement and to
exercise all rights and powers specifically granted to the Board of Directors of
the Company or to the Company, or as may be necessary or advisable in the
administration of this Agreement, including, without limitation,
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
EDWARDS LIFESCIENCES CORPORATION
By: /s/ Bruce P. Garren
--------------------------------------
Name: Bruce P. Garren
Title: Corporate Vice President, General
Counsel and Secretary
FIRST CHICAGO TRUST COMPANY OF NEW YORK,
A DIVISION OF EQUISERVE
---------------------------------------
AS RIGHTS AGENT
By: /s/ Michael S. Duncan
--------------------------------------
Name: Michael S. Duncan
Title: Director, Corporate Actions
34
<PAGE>
Exhibit A
---------
FORM OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
EDWARDS LIFESCIENCES CORPORATION
Pursuant to Section 151 of the
Delaware General Corporation Act
RESOLVED, that pursuant to the authority vested in the board of
directors (the "Board of Directors") of Edwards Lifesciences Corporation, a
Delaware corporation (the "Corporation"), by the Amended and Restated
Certificate of Incorporation (the "Charter"), the Board of Directors does hereby
create, authorize and provide for the issue of a series of Preferred Stock, par
value $.01 per share, of the Corporation, to be designated "Series A Junior
Participating Preferred Stock" (hereinafter referred to as the "Series A
Preferred Stock"), initially consisting of 3,500,000 shares, and to the extent
that the designations, powers, preferences and relative and other special rights
and the qualifications, limitations or restrictions of the Series A Preferred
Stock are not stated and expressed in the Charter, does hereby fix and herein
state and express such designations, powers, preferences and relative and other
special rights and the qualifications, limitations and restrictions thereof, as
follows (all terms used herein which are defined in the Charter shall be deemed
to have the meanings provided therein):
Section 1. Designation and Amount. The shares of such series shall
----------------------
be designated as "Series A Junior Participating Preferred Stock" and the number
of shares constituting such series shall be 3,500,000. Such number of shares
may be increased or decreased by resolution of the Board of Directors; provided,
--------
that no decrease shall reduce the number of shares of Series A Preferred Stock
to a number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into shares of Series A Preferred Stock.
1
<PAGE>
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first business day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $.01 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, par
value $1.00 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. In the event the Corporation
shall at any time after March 10, 2000 (the "Rights Declaration Date") (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided, however, that, in the event no
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dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, subject to the prior and superior rights of the
holders of any shares of any series of Preferred Stock ranking prior to and
superior to the shares of Series A Preferred Stock with respect to dividends, a
dividend of $.01 per share on the Series A Preferred Stock shall nevertheless by
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
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Exhibit B
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[Form of Rights Certificate]
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER MARCH 31, 2010 OR EARLIER IF REDEEMED OR EXCHANGED BY
THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY,
AT $.01 PER RIGHT, AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY
SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS
REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A
PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY
BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH
AGREEMENT.]/1/
___________________
/1/ The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
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RIGHTS CERTIFICATE
Edwards Lifesciences Corporation
This certifies that _______________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of March 31, 2000 (the "Rights Agreement"), between Edwards
Lifesciences Corporation, a Delaware corporation (the "Company"), and Equiserve
Trust Company, N.A. (the "Rights Agent"), to purchase from the Company at any
time prior to 5:00 P.M. (New York time) on March 31, 2010 at the office or
offices of the Rights Agent designated for such purpose, or its successors as
Rights Agent, one one-hundredth of a fully paid, nonassessable share of Series A
Junior Participating Preferred Stock, par value $.01 per share (the "Preferred
Stock"), of the Company, at a purchase price of $80 per one one-hundredth of a
share (the "Purchase Price"), upon presentation and surrender of this Rights
Certificate with the Form of Election to Purchase and related Certificate duly
executed. The number of Rights evidenced by this Rights Certificate (and the
number of shares which may be purchased upon exercise thereof) set forth above,
and the Purchase Price per share set forth above, are the number and Purchase
Price as of March 31, 2000, based on the Preferred Stock as constituted at such
date. The Company reserves the right to require prior to the occurrence of a
Triggering Event (as such term is defined in the Rights Agreement) that, upon
any exercise of Rights, a number of Rights be exercised so that only whole
shares of Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Associate or
Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person or an Affiliate or Associate of such Person, such Rights shall
become null and void and no holder hereof shall have any right with respect to
such Rights from and after the occurrence of such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities which may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are subject
to modification and adjustment upon the happening of certain events, including
Triggering Events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Company.
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Exhibit C
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SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
On March 10, 2000, the Board of Directors of Edwards Lifesciences
Corporation (the "Company") declared a dividend distribution of one Right for
each outstanding share of the Company's common stock, par value $1.00 per share
("Common Stock"), to stockholders of record at the Close of Business on
March 31, 2000. Each Right entitles the registered holder to purchase from
the Company a unit consisting of one one-hundredth of a share (a "Unit") of
Series A Junior Participating Preferred Stock, par value $.01 per share (the
"Preferred Stock"), at a Purchase Price of $80 per Unit, subject to adjustment.
The following is a summary description of the Rights and is qualified in its
entirety by the Rights Agreement (the "Rights Agreement") dated as of March 31,
2000 between the Company and Equiserve Trust Company, N.A., as Rights Agent.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Rights
certificates will be distributed. The Rights will separate from the Common
Stock and the Distribution Date will occur upon the earlier of (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of the outstanding shares of
Common Stock (the "Stock Acquisition Date") or (ii) 10 business days (or such
later date as may be determined by action of the Board of Directors prior to
such time as any person or group becomes an Acquiring Person) following the
commencement of a tender offer or exchange offer which, if consummated, would
result in a person or group beneficially owning 15% or more of the outstanding
shares of Common Stock.
Until the Distribution Date, (i) the Rights will be evidenced by the
Common Stock certificates and will be transferred with and only with such Common
Stock certificates, (ii) new Common Stock certificates issued after March 31,
2000, will contain a notation incorporating the Rights Agreement by reference
and (iii) the surrender for transfer of any certificates for Common Stock
outstanding will also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate.
Pursuant to the Rights Agreement, the Company reserves the right to
require prior to the occurrence of a Triggering Event (as defined below) that,
upon any exercise of Rights, a number of Rights be exercised so that only whole
shares of Preferred Stock will be issued.
The Rights are not exercisable until the Distribution Date and will
expire at the Close of Business on March 31, 2010, unless earlier redeemed by
the Company as described below.
As soon as practicable after the Distribution Date, Rights
certificates will be mailed to holders of record of the Common Stock as of the
Close of Business on the Distribution Date and, thereafter, the separate Rights
certificates alone will represent the Rights. Except as otherwise provided in
the Rights Agreement, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
In the event that, at any time following the Distribution Date, a
person or group becomes an Acquiring Person, each holder of a Right will
thereafter have the right to receive, upon
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exercise, Common Stock having a value equal to two times the exercise price of
the Right. If an insufficient number of shares of Common Stock is authorized for
issuance, then the Board would be required to substitute cash, property or other
securities of the Company for the Common Stock. Notwithstanding any of the
foregoing, following the occurrence of the event set forth in this paragraph,
all Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person will be null and
void. However, Rights are not exercisable following the occurrence of the event
set forth in this paragraph until such time as the Rights are no longer
redeemable by the Company as set forth below.
For example, at an exercise price of $80 per Right, each Right not
owned by an Acquiring Person (or by certain related parties) following an event
set forth in the preceding paragraph would entitle its holder to purchase $160
worth of Common Stock (or other consideration, as noted above) for $80.
Assuming that the Common Stock had a per share value of $40 at such time, the
holder of each valid Right would be entitled to purchase 4 shares of Common
Stock for $80.
In the event that, at any time following the Stock Acquisition Date,
(i) the Company is acquired in a merger or other business combination
transaction in which the Company is not the surviving corporation, (ii) the
Company is acquired in a merger or other business combination transaction in
which the Company is the surviving corporation and all or part of the Common
Stock is converted into securities of another entity, cash or other property, or
(iii) 50% or more of the Company's assets, cash flow or earning power is sold or
transferred, each holder of a Right (except Rights which previously have been
voided as set forth above) shall thereafter have the right to receive, upon
exercise, common stock of the acquiring company having a value equal to two
times the exercise price of the Right. The events set forth in this paragraph
and in the second preceding paragraph are referred to as the "Triggering
Events."
The purchase price payable, and the number of Units of Preferred Stock
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) if holders of the Preferred Stock are granted certain
rights, options or warrants to subscribe for Preferred Stock or convertible
securities at less than the current market price of the Preferred Stock, or
(iii) upon the distribution to holders of the Preferred Stock of evidences of
indebtedness or assets (excluding regular periodic cash dividends) or of
subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment
in cash will be made based on the market price of the Preferred Stock on the
last trading day prior to the date of exercise.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding shares of Common Stock, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by such person or group which will
have become void), in whole or in part, at an exchange ratio of one share of
Common Stock, or one one-hundredth of a share of Preferred Stock (or of a share
of a class or series of the Company's preferred stock having equivalent rights,
preferences and privileges), per Right (subject to adjustment).
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EXHIBIT 10.16
TOKUMEI KUMIAI AGREEMENT
This Tokumei Kumiai Agreement is made this 1st day of April, 2000, between
Baxter Limited, a company organized under the laws of Japan having its head
office at 4, Rokubancho, Chiyoda-ku, Tokyo, Japan, as Eigyo-sha (the
"Operator"), and Edwards Lifesciences Finance Limited, a company established
under the laws of Japan having its head office at 2-8 Rokubancho, Chiyoda-ku,
Tokyo, Japan, as Tokumei Kumiai-In (the "Investor").
WITNESSETH:
WHEREAS, the Operator has been engaged in various businesses in Japan,
including: (i) the cardiovascular business described in Exhibit A hereto("CV
Business"); (ii) the renal business to manufacture, import, and distribute
products and provide services to improve therapies to treat and combat kidney
disease; (iii) the biotechnology business to import and distribute products and
therapies and to provide services in transfusion medicine; and (iv) the
intravenous business described in Exhibit B hereto ("IV Business").
AND WHEREAS, the Operator has established the CV Business in Japan, possesses
all relevant CV Business import licenses in Japan, has established effective
distribution channels in Japan, has employees fully dedicated to the success of
the CV
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Business in Japan, and desires to increase the value of the CV Business in
Japan;
AND WHEREAS, the Operator has established the IV Business in Japan, possesses
all relevant IV Business import licenses in Japan, has established effective
distribution channels in Japan, has employees fully dedicated to the success of
the IV Business in Japan, and desires to increase the value of the IV Business
in Japan but such business is currently too small to operate economically unless
it can share staff and other resources with the CV Business;
AND WHEREAS, the Operator desires current access to capital, for purposes of the
CV Business and IV Business and for purposes of a one-time loan of unused funds
to certain Affiliates of Operator, in a form which will complement its future
financing options and decisions, and which will not inhibit its ability to
engage in future financing related to any of its businesses;
AND WHEREAS, the Operator wishes to increase the value of its CV Business and IV
Business in Japan, but also desires to reduce its overall exposure to the annual
variability in the profitability of the CV Business, and wishes to grow the
small IV Business to a size where it can economically operate as a stand alone
division independent of the CV Business;
AND WHEREAS, as an eigyo sha of a tokumei kumiai ("TK") as described in Articles
535 through 542 of the Japanese Commercial Code, the Operator is willing to
provide the Investor, as a tokumei kumiai'in of a TK, with a share of the
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annual profits or losses of the CV Business and the IV Business, in recognition
of the following consideration from the Investor:
* the amount of the TK contribution under this Agreement;
* the willingness of the Investor to forego any right to share in any
appreciation in the value of the CV Business and the IV Business over the term
of this Agreement;
* the willingness of the Investor to grant the Operator the right to withdraw
the IV Business from the TK Business pursuant to Article 11 hereof;
AND WHEREAS, the Investor desires to provide financing, through the contribution
as the Investor, to the Operator and to receive profits or losses realized from
the CV Business and IV Business, subject to the risks and rewards of the CV
Business and IV Business, in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants contained
herein and other good consideration, the parties hereto agree as follows:
Article 1. Definitions
In this Agreement the following expressions shall, except where the context
otherwise requires, have the following respective meanings:
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"Account" shall mean the deposit account in the name of the Operator established
at the head office of The Bank of Tokyo Mitsubishi, Ltd. or such other bank
accounts as may be established by the Operator from time to time and notified to
the Investor.
"Affiliate" shall mean, with respect to either party, a juridical person (i)
that owns, directly or indirectly, at least fifty percent (50%) of the voting
shares or ownership interest in such party, or (ii) at least fifty percent (50%)
of the voting shares or ownership interest of which are owned, directly or
indirectly, by an Affiliate as defined in item (i).
"Agreement" shall mean this Tokumei Kumiai Agreement, as originally executed by
the parties hereto and as the same may be amended, modified or supplemented from
time to time in accordance with the terms hereof.
"Auditor" shall mean PricewaterhouseCoopers or such successor firm (also serving
as general corporate auditor for the Operator) as may be appointed by the
Operator.
"Capital Contribution" shall mean the amount that the Investor shall contribute
to the Operator pursuant to Article 4 herein. The parties hereto hereby confirm
that the Capital Contribution has been determined after considering (i) the fair
market value of the CV Business and the IV Business of the Operator, which have
been appraised by PricewaterhouseCoopers as of February 29, 2000, and (ii) the
value of the one time loans included within the TK Business.
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"CV Business" shall have the meaning set forth in the first recital and shall
include, after the date hereof, all activities conducted by Operator pursuant to
the Japan Distribution Agreement.
"Effective Date" shall mean the date first written above or such other date as
the parties hereto agree.
"Fiscal Period" shall mean each month following the Effective Date. The first
Fiscal Period shall commence on the Effective Date and end on April 30, 2000.
"IV Business" shall have the meaning set forth in the first recital.
"Investor's Allocation Formula" shall mean 90% of the "Net Profits" or "Net
Losses", as the case may be, plus 10% of the "Notional Yield" and, in accordance
with Article 5, Paragraph 3, below, shall not include Profits or Losses
attributable to realized or unrealized appreciation or depreciation of the TK
Business or the Property upon expiration or termination of this Agreement.
"Japan Distribution Agreement" shall mean the Japan Distribution Agreement dated
as of April 1, 2000 between Operator and Edwards Lifesciences LLC, an Affiliate
of Investor, as the same may be amended from time to time.
"Losses" shall mean the Net Loss Before Income Tax, if any, of the Operator
arising from the operation of the TK Business as shall be determined by the
Operator in accordance with generally accepted accounting principles applicable
in Japan,
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subject to audit review rights as set forth in Article 8 below.
"Net Losses" shall mean, for any Fiscal Period, (i) the excess, if any, of the
"Notional Yield" over the "Profits" for such Fiscal Period or (ii) the "Losses"
less the "Notional Yield" (i.e. the Notional Yield amount will increase the Net
Losses) for such Fiscal Period.
"Net Profits" shall mean, for any Fiscal Period, the excess, if any, of the
"Profits", over the "Notional Yield" for such Fiscal Period.
"Notional Yield" shall mean the monthly return on a notional investment of (Yen)
23.2 billion, paying a rate of return equivalent to the annual coupon rate as of
April 3, 2000 on ten-year Japanese Government Bonds plus 50 basis points;
provided that Notional Yield for the first month under this Agreement shall be
calculated from April 3, 2000 forward.
"Operator's Allocation Formula" shall mean 10% of the "Net Profits" or "Net
Losses", as the case may be, plus 90% of the "Notional Yield".
"Payment Date" shall mean April 3, 2000.
"Profits" shall mean the Net Income Before Income Taxes, if any, of the Operator
arising from the operation of the TK Business as shall be determined by the
Operator in accordance with generally accepted accounting principles applicable
in Japan, subject to audit review rights as set forth in Article 8 below.
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"Property" shall mean all of the assets and property of the Operator which are
utilized by the Operator in the operation of the TK Business.
"TK Business" shall mean the CV Business, the IV Business and the one-time loan
of unused funds to certain Affiliates (Baxter World Trade S.A., a Belgium
company and Baxter Holdings Limited) of Operator.
"Tokumei Kumiai" shall mean the tokumei kumiai relationship established pursuant
to the terms of this Agreement and Articles 535 through 542 of the Commercial
Code of Japan.
Article 2. The Tokumei Kumiai
(1) The purpose of the Tokumei Kumiai shall be to achieve the business
objectives of the Operator and the Investor as summarized above, and to
allocate and distribute the Profits or Losses of the TK Business between
the Investor and the Operator in accordance with the terms of this
Agreement.
(2) The Operator shall use the Capital Contribution for purposes of the TK
Business.
(3) The Operator shall use reasonable care in the conduct of the TK Business
with the intention of preserving the Property and maximizing the Profits,
but shall not be deemed to have breached this Article 2(3) in the absence
of gross negligence or willful or wanton misconduct.
(4) The TK Business shall be conducted by and under the name of the Operator as
a separate division.
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(5) The Investor acknowledges and agrees that it shall have no ownership rights
or claims whatsoever in respect of the Property and shall have no right to
participate in the operation or management of the TK Business, which in all
respects shall be conducted solely by the Operator, and to participate in
the results thereof in the manner and to the extent as provided herein.
(6) The Operator acknowledges and agrees that this Agreement does not
constitute the Operator as an agent or legal representative of the Investor
for any purpose and that the Operator is not authorized to assume or create
any obligation or responsibility, expressed or implied, on behalf or in the
name of the Investor, or to bind the Investor in any manner.
Article 3. Representations and Warranties of the Operator
The Operator hereby represents and warrants to the Investor as follows:
(1) Authority of Operator
The Operator has full power, authority and legal right to enter into this
Agreement, to perform its obligations hereunder and to conduct the TK Business.
(2) Government and Third Party Consents
No material consent, authorization, license, permit, registration or approval
of, or other action by, or notice to, any governmental or public body or
authority or any other party is required in connection with the Operator's
execution
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and delivery of this Agreement or the performance by the Operator of its
obligations hereunder.
(3) Effect of Agreement
The Operator's execution and delivery of this Agreement, performance of the
Operator's obligations hereunder and consummation of the transactions
contemplated hereby will not (a) violate any provision of any material statute,
law, act, ordinance, or other code, decree, order, rule, regulation, license,
permit, authorization of any governmental body or court to which Operator is
subject; or (b) violate any material judgment, order, writ, injunction or decree
of any court applicable to the Operator.
(4) Restrictive Documents
The Operator is not subject to, or a party to, any material mortgage, lien,
lease, license, permit, agreement, contract, instrument, law, rule, ordinance,
regulation, order, judgment or decree, or any other material restriction of any
kind or character, which would prevent consummation of the transactions
contemplated by this Agreement, compliance by the Operator with the terms,
conditions and provisions hereof or the continued operation of the Operator's
business after the date hereof on substantially the same basis as heretofore
operated, aside from that certain Option Agreement dated March 31, 2000 between
Operator and Edwards Lifesciences Limited, which has been disclosed to the
Investor.
(5) Financial Statements
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The Operator has heretofore furnished the Investor with copies of (1) the income
statement of the Operator for the period from April 1, 1998 through March 31,
1999, and (2) the balance sheet of the Operator as of March 31, 1999, both of
which financial statements have been attached as Exhibit C hereto (the
"Financial Statements"). The Financial Statements fairly present the financial
condition and results of operations of the Operator as of the dates and for the
periods therein specified in conformity with generally accepted accounting
principles applicable in Japan, except for the absence of footnotes and for
normal year-end audit adjustments.
(6) No Adverse Changes
Since March 31, 1999 there has not been (a) any material adverse change in the
financial condition or in the results of operations, business, prospects,
Property or assets of the Operator not provided for or disclosed in the
Operator's business plan provided to the Investor; (b) any material loss,
damage, destruction or other casualty to the Property or assets of the Operator
not covered by insurance; (c) any material change in any material method of
accounting or accounting practice; (d) any material adverse change in the
relationships of the Operator with its principal suppliers, customers or
employees; (e) any material capital expenditure by the Operator or commitment
therefor not provided for in the Operator's business plan provided to the
Investor; (f) except as contemplated by the Japan Distribution Agreement, any
amendment or termination of any material contract, lease or other instrument to
which it is a party or any agreement
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to amend or terminate any such contract, lease or instrument; and (g) any sale,
assignment or transfer of any material asset or Property of the Operator.
(7) Litigation
Except for the case of Nippon Zion v. Baxter Limited, currently pending in the
Tokyo District Court and previously disclosed to Investor, there are no material
actions, suits, proceedings or investigations pending or, to the best knowledge
of the Operator, threatened against the Operator which might materially
adversely affect the CV Business, the IV Business, the Property, or any other
assets or rights of the Operator.
Article 4. Capital Contributions
(1) The Investor shall transfer 23.2 billion yen ((Yen) 23,200,000,000) in
immediately available funds to the Account as its original Capital
Contribution to the Operator on the Payment Date.
(2) The Investor shall make additional Capital Contributions to the Operator on
a monthly basis, if and as required by Article 5(5), such that the
remaining balance of the Investor's original Capital Contribution shall not
be diminished by the portion of Net Losses allocable to the Investor under
the Investor's Allocation Formula.
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Article 5. Distribution and Allocation of Profits and Losses
(1) The Operator shall compute the Profits or Losses, as the case may be, and
Notional Yield for each Fiscal Period, and notify the Investor of the same
within 10 days after the end of such Fiscal Period. The Profits and Losses
shall include actual interest earned from the one-time loan of unused funds
to certain Affiliates and shall be determined after allocating the costs
and expenses of the Operator among the CV Business, the IV Business and its
other businesses in a reasonable manner to be separately determined between
the Operator and the Investor. If any subsequent adjustments are required
(by reason of audit or otherwise) to the Profits or Losses computed for any
particular Fiscal Period, those adjustments shall be taken into account in
determining Profits or Losses for the Fiscal Period in which such
adjustments are made.
(2) The Operator shall allocate the Net Profits, Net Losses, and Notional Yield
for each Fiscal Period to the Investor in accordance with the Investor's
Allocation Formula.
(3) Profits or Losses attributable to unrealized appreciation or depreciation
of the CV Business, the IV Business or the Property (or to appreciation or
depreciation realized as a result of the expiration or termination, or any
event that causes the expiration or termination, of this Tokumei Kumiai
Agreement, below),
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shall, upon expiration or termination of this Tokumei Kumiai Agreement
pursuant to Article 12, be allocated wholly to the Operator.
(4) The amount of the Net Profits and Notional Yield allocated to the Investor
pursuant to Article 5(2) shall be distributed to the Investor within 25
days after the end of the applicable Fiscal Period, by remitting cash to
the bank account of the Investor notified to the Operator. For avoidance
of doubt, unused funds lent out under the TK Business shall be deemed
available for remittance up to the amount of any such distribution. The
remaining Net Profits and Notional Yield, being those allocated to the
Operator, shall be deemed to be distributed to the Operator at the same
time.
(5) If, for any Fiscal Period, Net Losses are allocated to the Investor
pursuant to Article 5(2), the Investor shall make an additional Capital
Contribution equal to the amount of such allocated Net Loss to the Operator
within 25 days after the end of the applicable Fiscal Period.
Article 6. Liability of the Operator
All obligations and liabilities of any kind incurred with respect to the TK
Business shall be liabilities of the Operator and not the Investor. However,
liabilities incurred by the Operator with respect to the CV Business or (subject
to Article 11) the IV Business, including product liabilities attributable to
the CV Business or IV Business, will be
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included within the computation of Profits and Losses herein for the periods in
which they accrue.
Article 7. Rights of Investor
The Investor, its employees, directors or agents, may after giving prior written
notice to the Operator, during the Operator's regular business hours, examine
the condition of the Property and the activities of the Tokumei Kumiai and audit
the Tokumei Kumiai's books of account and other records at its own cost.
Article 8. Accounting
(1) The Operator shall prepare and maintain accurate books of account and
records covering all transactions relating to the TK Business.
(2) The Operator shall, within 10 days after the end of each Fiscal Period,
prepare and deliver to the Investor financial statements of the Tokumei
Kumiai for the relevant Fiscal Period.
(3) The Operator shall, within 90 days after the end of each calendar year,
provide to the Investor audited financial statements of the Tokumei Kumiai
for that calendar year.
(4) The Operator shall, within 90 days after the expiration or the termination
of this Agreement, provide to the Investor audited financial statements
with respect to the Tokumei Kumiai for the period commencing the day
following the end of its immediately preceding calendar
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<PAGE>
year and ending as of the date of the expiration or the termination.
(5) The Investor shall be entitled (i) to request that the Operator produce
audited financial statements, and/or (ii) to conduct its own audit of the
financial statements, in each case for any Fiscal Period or Fiscal Periods.
If the Investor does not agree with the results of any such audited
financial statements produced by the Operator pursuant to (i) above, or if
the Operator does not agree with the results of any such audit conducted by
the Investor pursuant to (ii) above, such dispute will be resolved pursuant
to Article 21. The cost of any such audits performed by or for the
Operator pursuant to (i) above shall be charged to the Tokumei Kumiai. The
cost of any such audits performed by or for the Investor pursuant to (ii)
above shall be borne by the Investor; provided, however that if a
discrepancy of more than 5% of the reported Profit or Loss for the Fiscal
Period or Fiscal Periods subject to such audit is ultimately found to exist
between the audit performed by or for the Investor (as adjusted pursuant to
the dispute resolution procedures of Article 21) and the financial
information provided to the Investor by the Operator, the cost of the audit
shall be borne by the Operator.
Article 9. Assignment
(1) The Operator shall not be permitted to assign any of its rights, duties or
obligations under this Agreement to
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<PAGE>
any non-Affiliates without the prior written consent of the Investor.
(2) The Investor shall be permitted to assign any or all of its rights under
this Agreement to any third party without the consent of the Operator.
Article 10. Term
This Agreement shall take effect on the Effective Date and shall continue in
force for a period of ten years, subject to the termination provisions described
in Article 12, below. At the expiration of such term, the parties may mutually
agree to renew this Agreement with such changes as may be warranted by changes
in circumstances during the initial ten year term.
Article 11. Modification of TK Business
(1) The Operator retains the right, within its sole discretion, to modify the
definition of the TK Business to exclude the IV Business. If the Operator
does not exercise such rights under this Article, the IV Business will
continue to be part of the definition of the TK Business.
(2) The Operator will not modify the definition of the TK Business to exclude
the IV Business for a period of twenty-one (21) months from the Effective
Date of this Agreement, except subject to the notice and modification fee
clauses described within this Article.
(3) If the Operator wishes to modify the definition of the TK Business to
exclude the IV Business, it must provide
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<PAGE>
written notice to the Investor at least six months prior to the effective
date of such modification under this Article.
(4) If the Operator provides such notice such that the effective date of such
modification is within the period described in Clause 2 of this Article,
the Operator will pay to Investor a modification fee equal to the expected
allocation to Investor related to the IV Business for the remaining portion
of the twenty-one month period, based on an expected allocation of (Yen)
20,000,000 per month, which expected amount may not become fixed or
conclusive prior to the time of the exclusion of the IV Business, and may
be subject to any amendment through reasonable consultations between the
Operator and Investor.
(5) The expenses relating to the modification of the TK Business pursuant to
this Article will not be reflected in the financial statements of the
Tokumei Kumiai.
Article 12. Termination
(1) The Investor may terminate this Agreement in the event of any material
breach by the Operator of a term of this Agreement occurs which is not
rectified within 60 days after receipt by Operator of written notice of
breach from the Investor; provided, however, that if Operator disputes such
termination, this Agreement shall remain in full force and effect until
completion of the dispute resolution procedures in Article 21.
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<PAGE>
(2) The Agreement shall terminate in the event either party 1) enters
bankruptcy, corporate reorganization or similar proceedings or 2) is
dissolved or liquidated, unless the relevant party assigns its rights and
obligations to another entity as permitted under the terms of Article 9.
(3) This Agreement shall terminate immediately prior to the disposition by the
Operator of any substantial portion of the CV Business outside of the
ordinary course of business, unless the Investor provides written consent
to an assignment of the Operator's rights and obligations under this
Agreement to the Purchaser pursuant to the terms of Article 9.
(4) The provisions of Article 10 of this Agreement notwithstanding, if Operator
shall provide notice in writing of a desire to terminate this Agreement at
any time prior to the tenth anniversary of the Effective Date, then this
Agreement shall be terminated on the date that falls six months following
the Investor's receipt of such notice.
(5) The provisions of Article 10 of this Agreement notwithstanding, this
Agreement may be terminated at any time by the written mutual agreement of
the parties specifying the effective date of such termination.
Article 13. Consequences of Expiration or Termination
(1) In the event of the expiration of this Agreement or the termination of this
Agreement pursuant to Article 10 or
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<PAGE>
12 herein, the Operator shall (i) distribute to the Investor, within five
(5) days after such expiration or termination, cash in an amount equal to
the original Capital Contribution made pursuant to Article 4(1), and (ii)
provide to the Investor, within ninety (90) days after the date of such
expiration or termination, audited financial statements with respect to the
Tokumei Kumiai and a full and proper accounting of Profits, Losses and
Notional Yield as of the date of the expiration or the termination in
accordance with Article 8(4). Within five (5) days after the audited
financial statements are provided pursuant to the preceding sentence, (i)
the Operator shall distribute to the Investor the Investor's share of Net
Profits (excluding any and all unrealized appreciation or depreciation in
the value of the CV Business and the IV Business) and Notional Yield
accrued under the principles of Article 5(2) as of the date of such
expiration or termination and to the extent not previously distributed to
the Investor and/or (ii) the Investor shall pay to Operator any Net Losses
allocated to the Investor pursuant to this Agreement which have not been
followed by additional Capital Contributions, as prescribed in Article 4,
above. In no event shall the Investor acquire any right or interest in the
Property (including any appreciation in the value thereof) or in the CV
Business or the IV Business.
(2) If, at any time following the expiration or termination of this Agreement,
the Operator shall pay any liability
-19-
<PAGE>
arising from the operation of the TK Business during the term of this
Agreement (including, without limitation, contingent liabilities incurred
during the term of this Agreement) and that was not taken into account in
determining Net Profits and Net Losses hereunder, the Investor shall
reimburse the Operator for 90% of such amount within ten (10) business days
after receipt of notice thereof from the Operator.
(3) If, at any time following the expiration or termination of this Agreement,
the Operator shall receive any payment that results from the operation of
the TK Business (other than the one-time loan of cash to Affiliates of the
Operator) during the term of this Agreement (including, without limitation,
any reimbursement of liabilities pursuant to the Japan Distribution
Agreement) and that was not taken into account in determining Net Profits
and Net Losses hereunder, the Operator shall pay 90% of such amount to
Investor within ten (10) business days after Operator's receipt of such
payment.
(4) The provisions of Clauses (2) and (3) of this Article 13 shall survive the
expiration or termination of this Agreement.
Article 14. Notices
All notices, requests, demands or other communications that shall or may be
given hereunder shall be in writing in the
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<PAGE>
English language and shall be deemed to have been duly given or made:
(a) at the time of delivery to a duly authorized person, if delivered by
hand;
(b) upon receipt, if made by letter, or
(c) if given by telefax when confirmed by telephone or return telefax.
Such notices, requests, demands or other communications shall be
dispatched to or given at:
If to Investor:
Edwards Lifesciences Finance Limited
2-8 Rokubancho, Chiyoda-ku
Tokyo, 102-0085 Japan
Attention: President, Director
with a copy to:
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, California 92614
USA
Attention: International Counsel
Telefax: 949-250-6868
If to Operator:
Baxter Limited
4, Rokubancho, Chiyoda-ku
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<PAGE>
Tokyo 102-8468 Japan
Attention: President
Telefax: 81-3-5213-5111
with a copy to:
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
USA
Attention: International Counsel
Facsimile: 847-948-4634
or such other person, address or number as either party may designate in writing
to the other by a similar notice.
Article 15. Amendments
This Agreement may not be renewed, amended or modified in any manner, except by
an instrument in writing signed by an authorized representative of Investor and
the President of Operator.
Article 16. Waiver
The waiver, express or implied, by either of the parties hereto of any right
hereunder or of any failure to perform any term of this Agreement or breach
hereof by the other party hereto shall not constitute or be deemed a waiver of
any other right hereunder or of any other failure to perform any term of this
Agreement or breach hereof by such other party, whether of a similar or
dissimilar nature thereto.
-22-
<PAGE>
Article 17. Severability
Should any provision of this Agreement be held in whole or in part invalid or
unenforceable, such provision or part thereof shall be deemed deleted from this
Agreement and, to the extent not so held invalid or unenforceable, each
provision hereof shall remain in full force and effect. In the event any
provision deleted hereunder is deemed by either party to be a material provision
hereof, the parties shall negotiate in good faith a mutually acceptable
substitute provision that gives full effect to the spirit and intent of this
Agreement.
Article 18. Confidentiality
Neither the Operator nor the Investor may divulge the contents of this Agreement
or any information with respect to the operation of the Tokumei Kumiai or the
other party; provided that this restriction shall not apply in the event (i)
disclosure is requested by appropriate authorities pursuant to statutory
authority or (ii) either party determines, with the advice of counsel, that such
disclosure is required pursuant to applicable securities laws or regulations or
stock exchange requirements.
Article 19. Late Interest
In the event the Operator or the Investor shall be late in the payment of money
provided for in this Agreement, such party shall pay interest at the rate of 3%
over the then-effective Japanese long-term prime rate per annum in respect to
the relevant outstanding amount for the period from and
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<PAGE>
including the date payment thereof was due until and including the date full
payment thereof is made.
Article 20. Governing Law
This Agreement shall be executed in the English language and shall be governed
by and construed in accordance with the laws of Japan.
Article 21. Dispute Resolution
(1) Any dispute arising out of or relating to this Agreement shall be resolved
in accordance with the procedures specified in this Article 21 which shall
be the sole and exclusive procedures for the resolution of any such
disputes.
(2) The parties will attempt in good faith to resolve expeditiously any
dispute, claim or controversy arising out of or relating to the execution,
interpretation and performance of this Agreement (including the validity,
scope and enforceability of this arbitration provision) promptly by
negotiations between executives who have authority to settle the
controversy and who are at a higher level of management than the persons
with direct responsibility for the administration of this Agreement. Either
party may give the other party written notice (an "Escalation Notice") of
any dispute not resolved in the normal course of business. Within fifteen
days after delivery of the Escalation Notice, the receiving party shall
submit to the other a written response. The Escalation Notice and the
response thereto shall include
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<PAGE>
(a) a statement of each party's position and a summary of arguments
supporting that position, and (b) the name and title of the executive who
will represent that party and of any other person who will accompany the
executive. Within 30 days after delivery of the Escalation Notice, the
executives of both parties shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to
attempt to resolve the dispute. All reasonable requests for information
made by one party to the other will be honored. All negotiations pursuant
to this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of applicable rules of evidence.
(3) Any dispute, claim or controversy arising out of or relating to this
Agreement or its breach, termination or validity which has not been
resolved by the specified non-binding procedure set forth in clause (2)
above within 90 days of the date of delivery of the Escalation Notice shall
be finally settled by arbitration in Tokyo pursuant to the Commercial
Arbitration Rules of the Japan Commercial Arbitration Association.
Article 22. Section Headings
The headings in this Agreement are inserted for convenience and identification
only, and are in no way intended to describe, interpret, define, or limit the
scope, extent, or intent of this Agreement or any provision thereof.
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<PAGE>
Article 23. Copies
This Agreement shall be executed in two (2) original copies, with the Operator
and the Investor each retaining one original.
*****
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first written above.
Baxter Limited Edwards Lifesciences
Finance Limited
/s/ James Robert Hurley /s/ Bruce P. Garren
- ----------------------- -------------------
Name: James Robert Hurley Name: Bruce P. Garren
Title: President and Title: General Counsel
Representative Director
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<PAGE>
Exhibit A
---------
CV Business
-----------
The Cardiovascular Group sells or is engaged in the development of following
product categories in Japan through its three business units (Cardiovascular
Surgery, or CVS, Anesthesia and Medication Delivery, or AMD, and Vascular and
Interventional Cardiology, or VIC):
. Tissue and mechanical heart valves and rings, pericardial patches,
oxygenators, and cardiopulmonary bypass circuits including reservoirs and
arterial filters, cardioplegia devices, heart-lung machines, centrifugal
pumps, arterial and venous cannulae, CDI oxygen monitor cells, Novacor left
ventricular assist devices
. Thermo-dilution (Swan-Ganz) catheters, pacing catheters, central venous
catheters, venous introducers, Invos cerebral tissue oxygen monitor devices,
VIA continuous arterial blood gas monitor devices, Lifespan PTFE endovascular
grafts, Fogarty atraumatic occlusion clips and clamps, Intramed angioscopy
equipment, Thombex PMT clot extraction catheters
. Direct blood pressure monitor kit, disposable pressure transducers,
Embolectomy (Fogarty) catheters, Lifepath abdominal aortic aneurysm
endovascular graft system, Datascope intra-aortic balloon pumps and
catheters, VasoSeal collagen hemostasis devices, UniCath percutaneous
<PAGE>
transluminal coronary angioplasty balloon catheters and stents, Medtronic
pacemakers
The Cardiovascular Group in Japan also manufacturers Custom Pac cardiopulmonary
circuits and direct blood pressure monitor kits at the Miyazaki plant.
<PAGE>
Exhibit B
---------
IV Business
-----------
The IV Business consists of the importation and distribution of the products
that Operator currently sells or plans to sell in Japan in the following product
categories:
. Infusors, TUR solutions and sets, EIS infusion pumps and Interlink
products, epidural trays and Sabratek pumps,
together with any improved versions of such products introduced after date
hereof. For the avoidance of doubt, the IV Business shall not include any
products subsequently acquired by Operator or its Affiliates as a result of an
acquisition or similar transaction that closes after date hereof.
<PAGE>
Exhibit C
---------
Financial Statements
--------------------
See attached.
<PAGE>
Exhibit 10.17
OPTION AGREEMENT
Dated As Of
March 31, 2000
RELATING TO
JAPANESE EDWARDS BUSINESS
<PAGE>
Table of Contents
-----------------
(continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I DEFINITIONS.........................................................1
1.1. Definitions...........................................................1
ARTICLE II GRANT OF OPTION....................................................6
2.1. Grant of Option.......................................................6
2.2. Exercise Period.......................................................6
2.3. Manner of Exercise....................................................6
2.4. Transfer of Purchased Business........................................6
ARTICLE III DETERMINATION OF STRIKE PRICE.....................................7
3.1. Strike Price..........................................................7
3.2. Opening Net Worth.....................................................7
3.3. Closing Date Net Worth ...............................................8
3.4. Access to Information.................................................9
ARTICLE IV PURCHASE AND SALE..................................................9
4.1. Purchased Business....................................................9
4.2. Excluded Assets......................................................10
4.3. Assumed Liabilities..................................................11
4.4. Excluded Liabilities.................................................12
ARTICLE V CLOSING; POST-CLOSING ADJUSTMENT...................................12
5.1. Conditions to Closing................................................12
5.2. Closing Date.........................................................13
5.3. Edwards Optionholder's Deliveries at Closing........................13
5.4. Baxter Japan's Deliveries at Closing.................................13
5.5. Post Closing Adjustment..............................................13
5.6. Non-Assignable Contracts.............................................14
5.7. Further Assurances...................................................14
5.8. Novation of Assumed Liabilities......................................15
ARTICLE VI REPRESENTATIONS AND WARRANTIES....................................16
6.1. Organization, Good Standing and Authority of Baxter Japan............16
6.2. Organization, Good Standing and Authority of Edwards Optionholder....16
6.3. No Other Representations or Warranties...............................16
ARTICLE VII PRE-CLOSING COVENANTS............................................17
7.1. Operation of Japanese Edwards Business...............................17
7.2. Consents of Third Parties; Governmental Approvals....................18
7.3. Services.............................................................19
7.4. Financial Statements.................................................19
</TABLE>
i
<PAGE>
Table of Contents
-----------------
(continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE VIII POST-CLOSING COVENANTS..........................................19
8.1. Collection of Accounts Receivable....................................19
8.2. Agreements Relating to Edwards Optionholder and Baxter Japan.........20
8.3. Informal, Nondocumented Real Estate Leases...........................21
ARTICLE IX [INTENTIONALLY OMITTED]...........................................21
ARTICLE X EMPLOYEES AND EMPLOYEE BENEFIT MATTERS.............................21
10.1. Employment of Edwards Employees......................................21
10.2. Terminations/Layoff/Severance........................................22
10.3. Employee Benefit Plans...............................................22
10.4. Transfer of Account Balances and Accrued Benefits....................22
10.5. Stock Purchase Plans.................................................23
10.6. Workers' Compensation................................................23
10.7. Vacation Pay Policy..................................................23
10.8. Information to be Provided to Baxter Japan...........................23
10.9. Transfer of Employee Files...........................................23
10.10. Employment Solicitation..............................................23
ARTICLE XI INSURANCE MATTERS.................................................24
11.1. Insurance Prior to the Closing Date..................................24
11.2. Ownership of Existing Policies and Programs..........................24
11.3. Procurement of Insurance for Edwards Optionholder....................24
11.4. Acquisition and Maintenance of Post-Closing Edwards Optionholder's
Insurance Policies and Programs......................................24
11.5. Edwards Optionholder Directors' and Officers' Insurance..............25
11.6. Pre-Closing Insurance Claims Administration..........................25
11.7. Post-Closing Insurance Claims Administration.........................25
11.8. Non-Waiver of Rights to Coverage.....................................26
11.9. Scope of Affected Policies of Insurance..............................26
ARTICLE XII INDEMNIFICATION..................................................27
12.1. Indemnification by Edwards Optionholder..............................27
12.2. Indemnification by Baxter Japan......................................27
12.3. Applicability of and Limitation on Indemnification...................28
12.4. Adjustment of Indemnifiable Losses...................................28
12.5. Procedures for Indemnification of Third Party Claims.................29
12.6. Procedures for Indemnification of Direct Claims......................31
12.7. Remedies Cumulative..................................................31
ARTICLE XIII DISPUTE RESOLUTION..............................................31
13.1. General..............................................................31
</TABLE>
ii
<PAGE>
Table of Contents
-----------------
(continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
13.2. Escalation...........................................................31
13.3. Arbitration..........................................................32
13.4. Procedures...........................................................32
13.5. Injunctive Relief....................................................33
ARTICLE XIV GENERAL PROVISIONS...............................................33
14.1. Notices..............................................................33
14.2. Successors and Assigns...............................................34
14.3. Access to Records after Closing......................................34
14.4. Entire Agreement; Amendments.........................................35
14.5. Interpretation.......................................................35
14.6. Waivers..............................................................35
14.7. Expenses.............................................................35
14.8. Partial Invalidity...................................................35
14.9. Execution in Counterparts............................................35
14.10. Governing Law........................................................36
14.11. Submission to Jurisdiction...........................................36
14.12. Termination..........................................................36
14.13. Survival of Obligations..............................................36
14.14. Currency.............................................................36
</TABLE>
iii
<PAGE>
EXHIBITS
A Description of Japanese Edwards Business
B Form of Instrument of Assignment
C Form of Instrument of Assumption
D Valuation Date Balance Sheet
E Description of IV Business
SCHEDULES
1.1 Agreed Accounting Policies and Allocation Methodology
4.1(iv) Governmental Permits
4.1(v) Real Estate Leases
4.1(vi) Personal Property
4.1(vii) Contracts
7.3 Services/Facilities
10.4 Allocation of Pension Plan Assets
<PAGE>
OPTION AGREEMENT
OPTION AGREEMENT, dated as of March 31, 2000 (this "Agreement"),
between Baxter Limited, a Japanese corporation ("Baxter Japan"), and Edwards
Lifesciences (Japan) Limited, a Japanese corporation ("Edwards Optionholder").
WHEREAS, Baxter Japan currently conducts all of the business of the
Cardiovascular Group of Baxter International Inc. in Japan, all as more
specifically described in Exhibit A hereto (the "Japanese Edwards Business");
and
WHEREAS, Baxter Japan desires to grant to Edwards Optionholder, and
Edwards Optionholder desires to acquire from Baxter Japan, an irrevocable option
to purchase, on a going concern basis, the Japanese Edwards Business, all on the
terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, it is hereby agreed between Baxter Japan and
Edwards Optionholder as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. In this Agreement, the following terms have the
meanings specified or referred to in this Section 1.1 and shall be equally
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
"Action" means any action, claim, suit, arbitration, inquiry,
subpoena, discovery request, proceeding or investigation by or before any court
or grand jury, any governmental or other regulatory or administrative entity,
agency or commission or any arbitration tribunal.
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"Agreed Accounting Policies and Allocation Methodology" means Japanese
generally accepted accounting principles consistently applied, provided that,
with respect to any matter as to which there is more than one Japanese generally
accepted accounting principle, Agreed Accounting Policies and Allocation
Methodology means the generally accepted accounting principles applied in the
preparation of the Valuation Date Balance Sheet; provided further that,
notwithstanding the foregoing, Agreed Accounting Policies and Allocation
Methodology shall include the accounting policies and be subject to the
allocation methodology and direct accounts described in Schedule 1.1; and
provided further that, for purposes of the Agreed Accounting Policies and
Allocation Methodology, no known adjustments for items or matters, regardless of
the amount thereof, shall be deemed to be immaterial.
<PAGE>
"Agreed Interest Rate" means, for any date, the sum of (i) the average
rate at which overnight deposits in Yen are offered to prime banks in the Tokyo
interbank market, as determined by reference to a mutually agreed-upon source,
plus (ii) 2.00%.
"Assumed Liabilities" has the meaning specified in Section 4.3.
"Baxter" means Baxter International Inc., a Delaware corporation.
"Baxter Japan" has the meaning specified in the first paragraph of
this Agreement.
"Baxter Japan Change in Control" shall mean (i) the acquisition,
directly or indirectly, by any Person or Persons of more than 30% of the voting
stock of Baxter Japan or any Person that controls Baxter Japan, other than an
acquisition by Baxter of, or a Person or Persons that are controlled by Baxter
of, Baxter Japan, (ii) any merger or consolidation involving Baxter or any
Affiliate of Baxter that requires a vote of the stockholders of Baxter, or (iii)
the sale, assignment, transfer or other disposition (including any disposition
through a merger) of all or substantially all of the business and assets of any
Person that controls Baxter Japan.
"Baxter Japan Group Member" means Baxter Japan and its Affiliates and
their respective successors and assigns.
"Baxter Japan Pension Plan" has the meaning specified in Section 10.4.
"Baxter Plans" has the meaning specified in Section 10.3(a).
"Closing" has the meaning specified in Section 5.2.
"Closing Date" has the meaning specified in Section 5.2.
"Closing Date Balance Sheet" means the balance sheet established
pursuant to the provisions of Section 3.3.
"Contracts" means all contracts, agreements, arrangements, leases
(other than Real Estate Leases), manufacturers' warranties, memoranda,
understandings and offers open for acceptance of any nature, whether written or
oral.
"Divested Business" means any portion of the Japanese Edwards Business
that is divested by Baxter Japan between the date hereof and the Closing Date.
"Edwards" means Edwards Lifesciences Corporation, a Delaware
corporation.
"Edwards Lifesciences Division President" means any person appointed
as President of the Edwards Lifesciences division of Baxter Japan and approved
in writing by Edwards.
2
<PAGE>
"Edwards Employees" means the employees of Baxter Japan who are
assigned to the Edwards Lifesciences division of Baxter Japan, including those
employees of the Edwards Lifesciences division at the Miyazaki plant.
"Edwards Japan Pension Plan" has the meaning specified in Section
10.3(b).
"Edwards Optionholder" has the meaning specified in the first
paragraph of this Agreement.
"Edwards Optionholder Change in Control" shall mean (i) the
acquisition, directly or indirectly, by any Person or Persons of more than 30%
of the voting stock of Edwards Optionholder or any Person that controls Edwards
Optionholder, other than an acquisition by Edwards of, or a Person or Persons
that are controlled by Edwards of, Edwards Optionholder, (ii) any merger or
consolidation involving Edwards or any Affiliate of Edwards that requires a vote
of the stockholders of Edwards, or (iii) the sale, assignment, transfer or other
disposition (including any disposition through a merger) of all or substantially
all of the business and assets of any Person that controls Edwards Optionholder.
"Edwards Optionholder Group Member" means Edwards Optionholder and its
Affiliates and their respective successors and assigns.
"Edwards Products" means the products referred to in Exhibit A,
together with any additional products manufactured, imported or distributed by
the Japanese Edwards Business after the date hereof.
"Encumbrance" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, covenant or other restriction of any kind.
"Estimated Strike Price" shall mean an amount equal to (Yen)26.41
billion.
"Excluded Assets" has the meaning specified in Section 4.2.
"Excluded Liabilities" has the meaning specified in Section 4.4.
"Exercise Period" shall mean the period during which the Option is
exercisable, as specified in Section 2.2.
"Expense" means any and all expenses incurred in connection with
investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter indemnified against hereunder (including, without
limitation, court filing fees, court costs, arbitration fees or costs, witness
fees, and reasonable fees and disbursements of legal counsel, investigators,
expert witnesses, consultants, accountants and other professionals).
"Final TK Balance Sheet" shall mean the balance sheet delivered by
Baxter Japan as part of its full accounting as of the date of expiration or
termination of the TK Agreement.
3
<PAGE>
"Governmental Body" means any foreign, federal, state, local or other
governmental authority or regulatory body.
"Governmental Permits" means all licenses, franchises, permits,
privileges, immunities, approvals and other authorizations from a Governmental
Body.
"Indemnified Party" shall have the meaning specified in Section 12.4.
"Indemnifying Party" shall have the meaning specified in Section 12.4.
"Indemnity Payment" shall have the meaning specified in Section 12.5.
"Instrument of Assignment" means an Instrument of Assignment in the
form of Exhibit B.
"Instrument of Assumption" means an Instrument of Assumption in the
form of Exhibit C.
"Insurance Amount" has the meaning specified in Section 11.5.
"Insurance Charges" has the meaning specified in Section 11.7.
"IV Business" has the meaning specified in Exhibit E hereto.
"Japan Distribution Agreement" means the Japan Distribution Agreement
to be dated as of April 1, 2000 between Baxter Japan and Edwards Lifesciences
LLC.
"Japanese Edwards Business" has the meaning specified in the first
recital and shall include, after the date hereof, all activities conducted by
Baxter Japan pursuant to the Japan Distribution Agreement.
"Liability" means any and all debts, liabilities and obligations,
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising (unless otherwise
specified in this Agreement), including all costs and expenses relating thereto,
and including, without limitation, those debts, liabilities and obligations
arising under any law, rule, regulation, Action, threatened Action, order or
consent decree of any Governmental Body or any award of any arbitrator of any
kind, and those arising under any contract, commitment or undertaking.
"Loss" means any and all losses, costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, expenses,
deficiencies or other charges.
"Net Worth Adjustment" means (i) the Closing Date Net Worth (as
defined in Section 3.3) minus (ii) the Opening Net Worth (as defined in Section
3.2).
"New Subsidiary" has the meaning specified in Section 2.4.
"Notice of Exercise" has the meaning specified in Section 2.3.
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"Opening Balance Sheet" means the balance sheet established pursuant
to the provisions of Section 3.2.
"Operating Agreements" shall mean the agreements referred to in
Section 7.3.
"Option" has the meaning specified in Section 2.1.
"Owned Real Property" means each parcel of real property owned by
Baxter Japan and used in or relating to the Japanese Edwards Business.
"Permitted Encumbrances" means (a) liens for taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable and (c) other liens or imperfections on property
which are not material in amount or do not materially detract from the value or
materially impair the existing use of the property affected by such lien or
imperfection.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or Governmental Body.
"Pre-Closing Claims Administration" has the meaning specified in
Section 11.6.
"Purchased Business" has the meaning specified in Section 4.1.
"Real Estate Leases" has the meaning specified in Section 4.1(v).
"Retained Business" means all businesses of Baxter Japan other than
the Japanese Edwards Business.
"Shared Agreements" has the meaning specified in Section 8.2(a).
"Software" means computer software programs and software systems,
including, without limitation, all databases, compilations, tool sets,
compilers, higher level or "proprietary" languages, related documentation and
materials, whether in source code, object code or human readable form.
"Strike Price" has the meaning specified in Section 3.1.
"Subsidiary" means, when used with reference to any Person, any
corporation or other organization whether incorporated or unincorporated of
which at least a majority of the securities or interests having by the terms
thereof ordinary voting power to elect at least a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such Person or by any one or more of its Subsidiaries, or by such Person and
one or more of its Subsidiaries; provided, however, that no Person that is not
directly or indirectly wholly-owned by any other
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Person shall be a Subsidiary of such other Person unless such other Person
controls, or has the right, power or ability to control, that Person.
"Tax" means any net income, alternative or add-on minimum, gross
income, gross receipts, consumption, property, sales, use, transfer, gains,
license, excise, employment, payroll, withholding or minimum tax, or any other
tax custom, duty, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Body.
"TK Agreement" means a Tokumei Kumiai Agreement to be dated April 1,
2000, between Baxter Japan and Edwards Lifesciences Finance Limited.
"Transferred Employee" has the meaning specified in Section 10.1.
"Valuation Date Balance Sheet" means the December 31, 1999 balance
sheet of the Japanese Edwards Business attached as Exhibit D hereto.
ARTICLE II
GRANT OF OPTION
2.1. Grant of Option. In consideration of the payment by Edwards
Optionholder of (Yen)1,337,500,000 and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Baxter Japan hereby grants and issues to Edwards Optionholder, upon the terms
and conditions set forth herein, an irrevocable option (the "Option") to
purchase all, but not less than all, of the Purchased Business in exchange for
(i) cash in an amount equal to the Strike Price, and (ii) the assumption by
Edwards Optionholder of the Assumed Liabilities.
2.2. Exercise Period. The Option may be exercised at any time (i)
from and including August 1, 2002 through and including the earlier of (x) March
31, 2005 and (y) 180 days after the occurrence of an Edwards Optionholder Change
in Control, (ii) in the event of a Baxter Japan Change in Control, during a
period of 180 days thereafter, and (iii) in the event Baxter Japan provides a
notice of termination under Article 12(4) of the TK Agreement, during a period
of 180 days after such notice is given; provided, however, that if Edwards
provides a notice of termination under Article 12(1) of the TK Agreement, the
Option may be exercised only during a period of 180 days after such notice is
given, and clauses (i), (ii) and (iii) above shall no longer apply.
2.3. Manner of Exercise. Edwards Optionholder may exercise the
Option at any time during the Exercise Period by delivering a written notice of
exercise (the "Notice of Exercise") to Baxter Japan.
2.4. Transfer of Purchased Business. Edwards Optionholder agrees
that Baxter Japan may, at its option, at any time prior to the exercise of the
Option, transfer all of the Purchased Business and Assumed Liabilities,
determined as of the date of transfer, to a subsidiary of Baxter Japan (the "New
Subsidiary"). If so, the parties will amend this Agreement
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to provide for Edwards Optionholder to have the option to purchase all of the
capital stock of the New Subsidiary in exchange for cash in an amount equal to
the Strike Price, and the remainder of this Agreement shall be amended to the
extent necessary or advisable as a result of such change in structure.
ARTICLE III
DETERMINATION OF STRIKE PRICE
3.1. Strike Price. (a) The "Strike Price" shall be an amount equal
to (i) (Yen)26.41 billion plus (ii) the Net Worth Adjustment.
3.2. Opening Net Worth.
(a) The term "Opening Net Worth" shall mean (i) the sum of all assets
reflected in the Opening Balance Sheet minus (ii) the sum of all liabilities
reflected in the Opening Balance Sheet.
(b) As promptly as practicable following the date hereof, Baxter
Japan shall prepare, in accordance with the Agreed Accounting Policies and
Allocation Methodology, a balance sheet as of the date hereof with respect to
the Purchased Business and the Assumed Liabilities, as if the Closing Date were
March 31, 2000 (the "Preliminary Opening Balance Sheet"), and shall deliver same
to Edwards Optionholder.
(c) Promptly following receipt of the Preliminary Opening Balance
Sheet, Edwards Optionholder may review the same and, within 30 days after the
date of such receipt, may deliver to Baxter Japan a certificate (signed by its
chief financial officer or its chief accounting officer) setting forth its
objections to the Preliminary Opening Balance Sheet, together with a summary of
the reasons therefor and calculations which, in its view, are necessary to
eliminate such objections. In the event Edwards Optionholder does not so object
within such 30-day period, the Preliminary Opening Balance Sheet shall be final
and binding as the Opening Balance Sheet for purposes of this Agreement.
(d) In the event Edwards Optionholder so objects within such 30-day
period, Edwards Optionholder and Baxter Japan shall use their reasonable efforts
to resolve by written agreement (the "Opening Agreed Adjustments") any
differences as to the Opening Balance Sheet and, in the event Baxter Japan and
Edwards Optionholder so resolve all such differences, the Preliminary Opening
Balance Sheet, as adjusted by the Opening Agreed Adjustments, shall be final and
binding as the Opening Balance Sheet for purposes of this Agreement.
(e) If all such differences are not resolved by Opening Agreed
Adjustments within the 30-day period next following such 30-day objection
period, then Edwards Optionholder and Baxter Japan shall submit the objections
that are then unresolved to an international accounting firm acceptable to both
Baxter Japan and Edwards Optionholder and such firm (the "Accounting Firm")
shall be directed by Edwards Optionholder and Baxter Japan to resolve the
unresolved objections (based solely on the presentations by Edwards Optionholder
and by Baxter Japan as to whether any disputed matter had been determined in a
manner
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consistent with the Agreed Accounting Policies and Allocation Methodology) as
promptly as reasonable practicable and to deliver written notice to each of
Edwards Optionholder and Baxter Japan setting forth its resolution of the
disputed matters. The Preliminary Opening Balance Sheet, after giving effect to
any Opening Agreed Adjustments and to the resolution of disputed matters by the
Accounting Firm, shall be final and binding as the Opening Balance Sheet for
purposes of this Agreement.
3.3. Closing Date Net Worth.
(a) The term "Closing Date Net Worth" shall mean (i) the sum of all
assets reflected in the Closing Date Balance Sheet minus (ii) the sum of all
liabilities reflected in the Closing Date Balance Sheet.
(b) As promptly as practicable following the Closing Date (but not
later than 30 days after the Closing Date), Baxter Japan shall prepare, in
accordance with the Agreed Accounting Policies and Allocation Methodology, a
balance sheet as of the Closing Date with respect to the Purchased Business and
the Assumed Liabilities (the "Preliminary Closing Date Balance Sheet") and shall
deliver same to Edwards Optionholder.
(c) Promptly following receipt of the Preliminary Closing Date
Balance Sheet, Edwards Optionholder may review the same and, within 30 days
after the date of such receipt, may deliver to Baxter Japan a certificate
(signed by its chief financial officer or its chief accounting officer) setting
forth its objections to the Preliminary Closing Date Balance Sheet, together
with a summary of the reasons therefor and calculations which, in its view, are
necessary to eliminate such objections. In the event Edwards Optionholder does
not so object within such 30-day period, the Preliminary Closing Date Balance
Sheet shall be final and binding as the Closing Date Balance Sheet for purposes
of this Agreement.
(d) In the event Edwards Optionholder so objects within such 30-day
objection period, Edwards Optionholder and Baxter Japan shall use their
reasonable efforts to resolve by written agreement (the "Closing Agreed
Adjustments") any differences as to the Preliminary Closing Date Balance Sheet
and, in the event Baxter Japan and Edwards Optionholder so resolve all such
differences, the Preliminary Closing Date Balance Sheet as adjusted by the
Closing Agreed Adjustments shall be final and binding as the Closing Date
Balance Sheet for purposes of this Agreement.
(e) If all such differences are not resolved by the Closing Agreed
Adjustments within the 30-day period next following such 30-day period, then
Edwards Optionholder and Baxter Japan shall submit the objections that are then
unresolved to the Accounting Firm and such firm shall be directed by Edwards
Optionholder and Baxter Japan to resolve the unresolved objections (based solely
on the presentations by Edwards Optionholder and by Baxter Japan as to whether
any disputed matter had been determined in a manner consistent with the Agreed
Accounting Policies and Allocation Methodology) as promptly as reasonably
practicable and to deliver written notice to each of Edwards Optionholder and
Baxter Japan setting forth its resolution of the disputed matters. The
Preliminary Closing Date Balance Sheet, after giving effect to any Closing
Agreed Adjustments and to the resolution of disputed matters by the
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Accounting Firm, shall be final and binding as the Closing Date Balance Sheet
for purposes of this Agreement.
3.4. Access to Information. The parties hereto shall make available
to each other and, if applicable, the Accounting Firm, such books, records and
other information (including work papers) as any of the foregoing may reasonably
request to prepare or review the Preliminary Opening Balance Sheet, the
Preliminary Closing Date Balance Sheet or any matters submitted to the
Accounting Firm pursuant to the terms hereof. The fees and expenses of the
Accounting Firm hereunder shall be paid 50% by Edwards Optionholder and 50% by
Baxter Japan.
ARTICLE IV
PURCHASE AND SALE
4.1. Purchased Business. In the event that Edwards Optionholder
exercises the Option, upon the terms and subject to the conditions of this
Agreement, on the Closing Date, Baxter Japan shall sell, transfer, assign,
convey and deliver to Edwards Optionholder, and Edwards Optionholder shall
purchase from Baxter Japan, on a going concern basis, all of Baxter Japan's
right, title and interest in and under the Japanese Edwards Business and all of
the assets and properties of Baxter Japan of every kind and description,
wherever located, real, personal or mixed, tangible or intangible, relating
exclusively to the Japanese Edwards Business as the same shall exist on the
Closing Date (herein collectively called the "Purchased Business"), including,
without limitation, all right, title and interest of Baxter Japan in, to and
under:
(i) all notes, accounts and other receivables generated by the
Japanese Edwards Business;
(ii) all prepayments relating exclusively to the Japanese Edwards
Business;
(iii) all raw materials, supplies, work-in-process, spare parts and
other materials relating exclusively to the Japanese Edwards Business,
other than items of inventory relating to products to be supplied by Baxter
Japan to Edwards Optionholder after the Closing under Operating Agreements
entered into pursuant to Section 7.3;
(iv) all Governmental Permits, including all product registrations
and import licenses, that relate exclusively to the Japanese Edwards
Business, including those listed or described in Schedule 4.1(iv);
(v) the real estate leases and leasehold improvements that relate
exclusively to the Japanese Edwards Business including those listed or
described in Schedule 4.1(v) (the "Real Estate Leases");
(vi) all machinery, equipment, vehicles, furniture and other personal
property that relate exclusively to the Japanese Edwards Business including
those listed or described in Schedule 4.1(vi);
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(vii) all Contracts that relate exclusively to the Japanese Edwards
Business, including the Japan Distribution Agreement and the Contracts
listed or described in Schedule 4.1(vii);
(viii) all trade secrets and other proprietary or confidential
information used exclusively in connection with the Japanese Edwards
Business;
(ix) all (x) Software that relates exclusively to the Japanese
Edwards Business, (y) PC-based Software located on hardware included in the
assets of the Purchased Business and (z) Contracts related to the
aforementioned Software;
(x) all of Baxter Japan's rights, claims or causes of action
against third parties relating exclusively to the Japanese Edwards
Business;
(xi) all books and records (including all data and other information
stored on discs, tapes or other media) of Baxter Japan relating exclusively
to the Japanese Edwards Business;
(xii) all office supplies, production supplies, purchase orders,
forms, labels, shipping material, art work, catalogues, sales brochures,
operating manuals and advertising and promotional material and all other
printed or written material that relate exclusively to the Japanese Edwards
Business;
(xiii) Baxter Japan's interest in and to all telephone, telex and
telephone facsimile numbers, domain names and other directory listings
utilized exclusively in connection with the Japanese Edwards Business; and
(xiv) all other assets, tangible or intangible, including all
goodwill and all deposits or other security from customers of the Japanese
Edwards Business, that are exclusive to the operations of, or otherwise
relate exclusively to, the Japanese Edwards Business;
provided, however, that the Purchased Business shall not include any assets
listed in Schedules 4.1(iv), 4.1(v), 4.1(vi) or 4.1(vii) that are disposed of or
converted into cash after the date hereof.
4.2. Excluded Assets. Notwithstanding the provisions of Section 4.1,
the Purchased Business shall not include the following (herein referred to as
the "Excluded Assets"):
(i) all cash, bank deposits and cash equivalents, except for (i) all
deposits or other security from customers of the Japanese Edwards Business,
(ii) deposits securing bonds, letters of credit, leases and all other
obligations related exclusively to the Japanese Edwards Business and (iii)
petty cash and impressed funds related exclusively to the Japanese Edwards
Business;
(ii) the name "Baxter" or any related or similar trade names,
trademarks, service marks or logos to the extent the same incorporate the
name "Baxter" or any variation thereof;
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(iii) Baxter Japan's rights, claims or causes of action against third
parties relating to the Japanese Edwards Business which may arise in
connection with the discharge by Baxter Japan of the Excluded Liabilities;
(iv) all contracts of insurance;
(v) all corporate minute books, stock transfer books, the
corporate seal and all hanko of Baxter Japan;
(vi) any right, title or interest of Baxter Japan in any tax refund,
credit or benefit (including any income with respect thereto) relating to
the operations of the Japanese Edwards Business prior to the Closing Date;
(vii) all assets relating to all employee benefit plans of Baxter
Japan, other than as provided in Article X;
(viii) all real estate owned or leased by Baxter Japan at its Miyazaki
plant and all leasehold improvements thereon except for those leasehold
improvements specifically listed or described in Schedule 4.1(v);
(ix) the IV Business; and
(x) All other assets, properties and rights of Baxter Japan not
used exclusively in the conduct of the Japanese Edwards Business and not
specifically included in the Purchased Business.
4.3. Assumed Liabilities. On the Closing Date, Edwards Optionholder
shall assume and agree to discharge, in accordance with their respective terms
and subject to the respective conditions thereof, all contractual and other
Liabilities of Baxter Japan arising out of or related to the Japanese Edwards
Business, any Divested Business and/or any of the past or present facilities of
Baxter Japan used primarily in connection with the Japanese Edwards Business or
any Divested Business, including, without limitation:
(i) All Liabilities in respect of Taxes except income Taxes;
(ii) All accounts payable and accrued liabilities of the Japanese
Edwards Business;
(iii) All Liabilities of Baxter Japan under the Contracts and Real
Estate Leases included in the Purchased Business;
(iv) All Liabilities of Baxter Japan under the TK Agreement, other
than payment obligations under Articles 5, 11 and 13 of the TK Agreement;
(v) All warranty, performance and similar obligations entered into
or made prior to the Closing Date with respect to the products or services
of the Japanese Edwards Business;
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(vi) All Liabilities related to any and all Actions asserting a
violation of any law, rule or regulation related to or arising out of the
operations of the Japanese Edwards Business, whether before or after the
Closing Date;
(vii) All Liabilities arising under any laws regarding the
management, control and clean-up of hazardous materials (including off-site
waste disposal liabilities) relating to or arising out of the operations of
the Japanese Edwards Business, whether before or after the Closing Date;
(viii) All Liabilities in connection with workers' compensation claims
of past, current or prospective employees of the Japanese Edwards Business,
whether incurred prior to, on or after the Closing Date;
(ix) All Liabilities relating to severance or termination of any
Edwards Employees whether before or after the Closing Date, and including
any Edwards Employees who do not accept employment by Edwards Optionholder
at the Closing Date;
(x) All Liabilities associated with the transfer of assets from the
Baxter Japan Pension Plan to the Edwards Japan Pension Plan; and
(xi) All other Liabilities relating to the Japanese Edwards
Business, whether existing on the Closing Date or arising at any time or
from time to time after the Closing Date, and whether based on
circumstances, events or actions arising before or after the Closing Date,
whether or not such Liabilities shall have been disclosed herein, and
whether or not reflected on the books and records of Baxter Japan.
All of the foregoing liabilities and obligations to be assumed by Edwards
Optionholder hereunder (excluding any Excluded Liabilities) are referred to
herein as the "Assumed Liabilities."
4.4. Excluded Liabilities. Edwards Optionholder shall not assume or
be obligated to pay, perform or otherwise discharge any Liability of Baxter
Japan not expressly assumed by Edwards Optionholder pursuant to Section 4.3 (all
such liabilities and obligations not being assumed being herein called the
"Excluded Liabilities") and, notwithstanding anything to the contrary in Section
4.3, none of the following shall be Assumed Liabilities for purposes of this
Agreement:
(i) any Liabilities in respect of income Taxes; and
(ii) any Liabilities or obligations in respect of any Excluded
Assets.
ARTICLE V
CLOSING; POST-CLOSING ADJUSTMENT
5.1. Conditions to Closing. (a) Following exercise of the Option, the
obligation of Baxter Japan to close the transactions contemplated hereby is
subject to the satisfaction or the waiver by Baxter Japan of each of the
following conditions:
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(i) The absence of any material statutory, regulatory or
judicial prohibition to the consummation of the transactions
contemplated hereby; and
(ii) The completion of the transfer from Baxter Japan to Edwards
Optionholder of all material Japanese import approvals and product
registrations for the Edwards Products or the receipt by Baxter Japan
of an agreement by Edwards, in form and substance satisfactory to
Baxter Japan in its sole discretion, to indemnify Baxter Japan and its
Affiliates for any failure to complete such transfer.
(b) Following exercise of the Option, the obligation of Edwards
Optionholder to close the transactions contemplated hereby is subject to the
satisfaction or the waiver by Edwards Optionholder of each of the following
conditions:
(i) The absence of any material statutory, regulatory or
judicial prohibition to the consummation of the transactions
contemplated hereby; and
(ii) The completion of the transfer of all material Japanese
import approvals and product registrations for the Edwards Products
from Baxter Japan to Edwards Optionholder.
5.2. Closing Date. The closing of the transactions contemplated by
this Agreement (the "Closing") shall be consummated at 10:00 A.M., local time,
as soon as practicable after satisfaction or waiver of the conditions set forth
in Section 5.1(a) (ii) and 5.1(b)(ii), or at such other date and time as may be
agreed upon by Edwards Optionholder and Baxter Japan, at the offices of Baxter,
One Baxter Parkway, Deerfield, Illinois 60015, USA, or at such other place or at
such other time as shall be agreed upon by Edwards Optionholder and Baxter
Japan. The time and date on which the Closing is actually held are sometimes
referred to herein as the "Closing Date".
5.3. Edwards Optionholder's Deliveries at Closing. Subject to
fulfillment or waiver by Edwards Optionholder of the conditions set forth in
Section 5.1(b), at Closing Edwards Optionholder shall (i) pay Baxter Japan an
amount equal to the Estimated Strike Price by wire transfer of immediately
available funds to the account designated in writing by Baxter Japan and (ii)
deliver to Baxter Japan a duly executed Instrument of Assumption and duly
executed counterparts of the Operating Agreements.
5.4. Baxter Japan's Deliveries at Closing. Subject to fulfillment or
waiver by Baxter Japan of the conditions set forth in Section 5.1(a), at Closing
Baxter Japan shall deliver to Edwards Optionholder (i) a duly executed
Instrument of Assignment and duly executed counterparts of the Operating
Agreements and (ii) such other certificates and documents of title, assignment,
transfer and conveyance as the parties shall reasonably deem necessary to
transfer title in and to the Purchased Business.
5.5. Post Closing Adjustment. Promptly (but not later than five
days) after the Closing Date Balance Sheet becomes final and binding pursuant to
Section 3.3:
(a) if the Strike Price exceeds the Estimated Strike Price,
Edwards
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Optionholder shall pay to Baxter Japan, by wire transfer of
immediately available funds to such bank account of Baxter Japan as
Baxter Japan shall designate in writing to Edwards Optionholder, the
amount of such excess, plus interest on such amount from the Closing
Date to the date of payment thereof at a floating rate equal to the
Agreed Interest Rate in effect from time to time; or
(b) if the Estimated Strike Price exceeds the Strike Price,
Baxter Japan shall pay to Edwards Optionholder, by wire transfer of
immediately available funds to such bank account of Edwards
Optionholder as Edwards Optionholder shall designate in writing to
Baxter Japan, the amount of such excess, plus interest on such excess
from the Closing Date to the date of payment thereof at a floating
rate equal to the Agreed Interest Rate in effect from time to time.
5.6. Non-Assignable Contracts. In the event and to the extent that
the parties are unable to obtain any consent, approval or amendment to any
Contract, lease, license or other rights relating to the Japanese Edwards
Business that otherwise would be transferred or assigned to Edwards Optionholder
or one of its Subsidiaries as contemplated by this Agreement or any other
agreement or document contemplated hereby, (i) Baxter Japan shall continue to be
bound thereby and the purported transfer or assignment to Edwards Optionholder
shall automatically be deemed deferred until such time as all legal impediments
are removed and/or all necessary consents have been obtained, and (ii) unless
not permitted by the terms thereof or by law, Edwards Optionholder shall pay,
perform and discharge fully all the obligations of Baxter Japan thereunder from
and after the Closing Date, and indemnify Baxter Japan and its Affiliates for
all indemnifiable Losses arising out of such performance by Edwards
Optionholder. Baxter Japan shall, without further consideration therefor, pay
and remit to Edwards Optionholder promptly all monies, rights and other
considerations received in respect of such performance. Baxter Japan shall
exercise or exploit its rights and options under all such Contracts, leases,
licenses and other rights and commitments referred to in this Section 5.6 only
as reasonably directed by Edwards Optionholder and at Edwards Optionholder's
expense. If and when any such consent shall be obtained or such Contract, lease,
license or other right shall otherwise become assignable or be able to be
novated, Baxter Japan shall promptly assign and novate (to the extent
permissible) all of its rights and obligations thereunder to Edwards
Optionholder without payment of further consideration, and Edwards Optionholder
shall, without the payment of any further consideration therefor, assume such
rights and obligations. To the extent that the assignment of any Contract,
lease, license or other right (or the proceeds thereof) pursuant to this Section
5.6 is prohibited by law, the assignment provisions of this Section 5.6 shall
operate to create a subcontract with Edwards Optionholder to perform each
relevant unassignable Contract, lease or license of Baxter Japan at a
subcontract price equal to the monies, rights and other considerations received
by Baxter Japan with respect to the performance by Edwards Optionholder under
such subcontract.
5.7. Further Assurances. (a) In addition to the actions specifically
provided for elsewhere in this Agreement, each of the parties shall use
commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable laws, regulations and agreements to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement and the other agreements and documents
contemplated hereby. Without limiting the generality of the foregoing, each
party shall cooperate with the other party to execute and
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deliver, or use commercially reasonable efforts to cause to be executed and
delivered, all instruments, including instruments of conveyance, assignment and
transfer, and to make all filings with, and to obtain all consents, approvals or
authorizations of, any Governmental Body or any other Person under any permit,
license, Contract or other instrument, and to take all such other actions as
such party may reasonably be requested to take by the other party from time to
time, consistent with the terms of this Agreement, in order to confirm the title
of Edwards Optionholder to all of the Japanese Edwards Business, to put Edwards
Optionholder in actual possession and operating control of the Purchased
Business and to permit Edwards Optionholder to exercise all rights with respect
thereto and to effectuate the provisions and purposes of this Agreement, and the
other agreements and documents contemplated hereby; provided, however, that
Edwards Optionholder shall be solely liable for the payment of any costs
associated with transferring any import approvals and product registrations for
the Edwards Products; and provided further, that except as stated in the
previous proviso, neither party shall be obligated to pay any consideration to
any third party in connection with any of the foregoing. In addition, Baxter
Japan shall use reasonable efforts to remove or cause to be removed any liens
for borrowed money existing on the Purchased Business immediately prior to the
Closing Date other than liens securing Assumed Liabilities or liens incurred in
connection with the transactions contemplated by this Agreement.
(b) If, as a result of mistake, oversight or otherwise, any asset
reasonably necessary to the conduct of the Japanese Edwards Business is not
transferred to Edwards Optionholder, or any asset reasonably necessary to the
conduct of the Retained Business is transferred to Edwards Optionholder, Edwards
Optionholder and Baxter Japan shall negotiate in good faith after the Closing
Date to determine whether such asset should be transferred to Edwards
Optionholder or Baxter Japan, as the case may be, and/or the terms and
conditions upon which such asset shall be made available to Edwards Optionholder
or Baxter Japan, as the case may be. Unless expressly provided to the contrary
in this Agreement and the other agreements and documents contemplated hereby, if
as a result of mistake, oversight or otherwise, any Liability arising out of or
relating to the Japanese Edwards Business is retained by Baxter Japan, or any
Liability arising out of or relating to the Retained Business is assumed by
Edwards Optionholder, Edwards Optionholder and Baxter Japan shall negotiate in
good faith after the Closing Date to determine whether such Liability should be
transferred to Edwards Optionholder or Baxter Japan, as the case may be, and/or
the terms and conditions upon which any such Liability shall be transferred.
(c) If either party identifies any commercial or other service that
is needed to assure a smooth and orderly transition of the Japanese Edwards
Business in connection with the consummation of the transactions contemplated
hereby, and that is not otherwise governed by the provisions of this Agreement
or the Operating Agreements, the parties will cooperate in determining whether
there is a mutually acceptable arm's-length basis on which one party will
provide such service to the other party.
5.8. Novation of Assumed Liabilities. (a) It is expressly understood
and agreed to by the parties that upon the assumption by Edwards Optionholder of
the Assumed Liabilities, Baxter Japan and its officers, directors, and employees
shall be released unconditionally by Edwards Optionholder from any and all
Liability, whether joint, several or
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joint and several, for the discharge, performance or observance of any of the
Assumed Liabilities, so that Edwards Optionholder will be solely responsible for
such Assumed Liabilities.
(b) Edwards Optionholder shall, at the request of Baxter Japan, use
commercially reasonable efforts to obtain, or cause to be obtained, any consent,
approval, release, substitution or amendment required to novate (including with
respect to any government contract) or assume all obligations under the Assumed
Liabilities, or to obtain in writing the unconditional release of all parties to
such arrangements other than Edwards Optionholder and its Affiliates; provided,
however, that Edwards Optionholder shall not be obligated to pay any
consideration therefor to any third party from whom such consents, approvals,
releases, substitutions or amendments are requested.
(c) In the event that the Parties are unable to obtain a novation or
assignment and release with respect to a particular Contract included in the
Purchased Business, at the expiration of the base term of such Contract, Edwards
Optionholder agrees that it will not exercise any option to renew such Contract
or, to the extent such Contract provides for automatic renewal, Edwards
Optionholder agrees that it will not allow such Contract to enter an auto-
renewal period unless Edwards Optionholder obtains the prior written consent of
Baxter Japan to such extension or auto-renewal.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1. Organization, Good Standing and Authority of Baxter Japan.
Baxter Japan hereby represents and warrants to Edwards Optionholder as follows:
Baxter Japan is a corporation duly organized and validly existing and in good
standing under the laws of Japan. Baxter Japan has full power and authority to
execute, deliver and perform this Agreement. The execution, delivery and
performance of this Agreement by Baxter Japan have been duly authorized and
approved by Baxter Japan's board of directors and stockholders. This Agreement
has been duly authorized, executed and delivered by Baxter Japan.
6.2. Organization, Good Standing and Authority of Edwards
Optionholder. Edwards Optionholder represents and warrants to Baxter Japan as
follows: Edwards Optionholder is a corporation duly organized and validly
existing under the laws of Japan. Edwards Optionholder has full power and
authority to execute, deliver and perform this Agreement. The execution,
delivery and performance of this Agreement by Edwards Optionholder has been duly
authorized and approved by Edwards Optionholder's board of directors and do not
require the further authorization or consent of Edwards Optionholder or its
stockholder. This Agreement has been duly authorized, executed and delivered by
Edwards Optionholder.
6.3. No Other Representations or Warranties. Baxter Japan does not
represent or warrant in any way (i) as to the value or freedom from encumbrance
of, or any other matter concerning, any of the Purchased Business or (ii) as to
the legal sufficiency to convey title to any part of the Purchased Business on
the execution, delivery and filing of the Instrument of Assignment. ALL ASSETS
INCLUDED IN THE PURCHASED BUSINESS ARE BEING TRANSFERRED ON AN "AS IS, WHERE IS"
BASIS WITHOUT ANY REPRESENTATION
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OR WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, MARKETABILITY,
TITLE, VALUE, FREEDOM FROM ENCUMBRANCE OR ANY OTHER REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, and Edwards Optionholder shall bear the economic and legal
risks that any conveyances of such assets shall prove to be insufficient or that
Edwards Optionholder's title to any such assets shall be other than good and
marketable and free of encumbrances. Baxter Japan does not make any
representation or warranty with respect to whether the consents, approvals, or
filings and applications obtained or made prior to consummation of the
transactions contemplated by this Agreement shall satisfy the provisions of all
applicable agreements or the requirements of all applicable laws or judgments,
and, subject to Section 5.6, Edwards Optionholder shall bear the economic and
legal risk that any necessary consents or approvals are not obtained or that any
requirements of law or judgments are not complied with.
ARTICLE VII
PRE-CLOSING COVENANTS
7.1. Operation of Japanese Edwards Business. (a) Until either (i) the
Closing Date (if the Option is exercised) or (ii) the end of the Exercise Period
(if the Option is not exercised), Baxter Japan shall operate and carry on the
Japanese Edwards Business (pursuant to the terms of the TK Agreement (if
applicable)) only in the ordinary course and substantially as presently operated
and shall not, without the express written approval of Edwards Optionholder:
(i) change the primary line of business of the Japanese Edwards
Business; or
(ii) sell, lease (as lessor), transfer or otherwise dispose of, or
mortgage or pledge, any of the assets of the Japanese Edwards Business
that, upon exercise of the Option, would constitute part of the Purchased
Business (including, without limitation, Baxter Japan's rights under the
Distribution Agreement), other than accounts receivable, inventory and
other property sold or otherwise disposed of for fair value in the ordinary
course of the Japanese Edwards Business consistent with past practice;
provided, however, that this clause (ii) shall not apply to any transfer of
all of the assets of the Japanese Edwards Business to an Affiliate of
Baxter Japan in which case all of such transferred assets shall remain
subject to the Option.
(b) If the Option is exercised, then from and after the date it
receives the Notice of Exercise through and including the Closing Date, Baxter
Japan shall not, without the approval of the Edwards Lifesciences Division
President:
(i) make any change in the Japanese Edwards Business or its
operations or make any capital expenditure in respect of the Japanese
Edwards Business which shall exceed the amount budgeted therefor;
(ii) enter into any contract for the purchase or sale of real
property that would be included in the Purchased Business or exercise any
option to extend a Real Estate Lease;
(iii) sell, lease (as lessor), transfer or otherwise dispose of (other
than to an Affiliate of Baxter Japan), or mortgage or pledge, or impose or
suffer to be imposed any
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lien, charge, security interest, mortgage, pledge or other defect in title
on, any part of the Purchased Business, other than accounts receivable,
inventory and minor amounts of personal property sold or otherwise disposed
of for fair value in the ordinary course of the Japanese Edwards Business
consistent with past practice and other than Permitted Encumbrances;
provided, however, that this clause (iii) shall not apply to any transfer
of all of the assets of the Japanese Edwards Business to an Affiliate of
Baxter Japan in which case all of such transferred assets shall remain
subject to the Option;
(iv) cancel any debts owed to or claims held by Japanese Edwards
Business (including the settlement of any claims or litigation) other than
in the ordinary course of the Japanese Edwards Business consistent with
past practice;
(v) create, incur or assume, or agree to create, incur or assume,
any indebtedness for borrowed money in respect of the Japanese Edwards
Business or enter into, as lessee, any capitalized lease obligations (as
defined in Statement of Financial Accounting Standards No. 13) in respect
of the Japanese Edwards Business;
(vi) accelerate or delay collection of any notes or accounts
receivable generated by the Japanese Edwards Business in advance of or
beyond their regular due dates or the dates when the same would have been
collected in the ordinary course of the Japanese Edwards Business
consistent with past practice;
(vii) delay or accelerate payment of any account payable or other
liability of the Japanese Edwards Business beyond or in advance of its due
date or the date when such liability would have been paid in the ordinary
course of the Japanese Edwards Business consistent with past practice;
(viii) allow the levels of raw materials, supplies, work-in-process or
other materials included in the inventory of the Japanese Edwards Business
to vary in any material respect from the levels customarily maintained;
(ix) institute any increase in any profit-sharing, bonus, incentive,
deferred compensation, insurance, pension, retirement, medical, hospital,
disability, welfare or other employee benefit plan with respect to
employees of the Japanese Edwards Business; or
(x) make any change in the compensation of the employees of the
Japanese Edwards Business other than changes made in accordance with normal
compensation practices and consistent with past compensation practices.
7.2. Consents of Third Parties; Governmental Approvals. (a) If the
Option is exercised, Baxter Japan and Edwards Optionholder will act diligently
and reasonably to secure the consent, approval or waiver of any third party that
is reasonably required for the consummation of transactions contemplated by this
Agreement; provided, however, that neither party shall have any obligation to
offer or pay any consideration in order to obtain any such consents, approvals
or waivers; and provided further, that Baxter Japan shall not make any agreement
or understanding affecting the Purchased Business or the Japanese Edwards
Business
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as a condition for obtaining any such consents, approvals or waivers except with
the prior written consent of Edwards Optionholder.
(b) If the Option is exercised, Baxter Japan and Edwards Optionholder
shall act diligently and reasonably, and shall cooperate with each other, to
secure any consents and approvals of any Governmental Body required to be
obtained by them in order to assign or transfer any Governmental Permits to
Edwards Optionholder or to permit the consummation of the transactions
contemplated by this Agreement; provided, however, that Edwards Optionholder
shall be solely liable for the payment of any costs associated with transferring
any import approvals and product registrations for the Edwards Products; and
provided further, that except as stated in the previous proviso, neither party
shall have any obligation to offer or pay any consideration in order to obtain
any such consents or approvals; and provided further, that Baxter Japan shall
not make any agreement or understanding affecting the Purchased Business or the
Japanese Edwards Business as a condition for obtaining any such consents or
approvals except with the prior written consent of Edwards Optionholder.
7.3. Services. If the Option is exercised, Edwards Optionholder and
Baxter Japan will work together to identify any services (including those
relating to occupation and use of facilities) that are needed to assure a smooth
and orderly transition of the Japanese Edwards Business and, to the extent
practicable, negotiate and prepare mutually acceptable agreements to govern the
provision of such services after the Closing Date (the "Operating Agreements").
Schedule 7.3 sets forth a non-exclusive list of services and facilities for
which Operating Agreements may be required.
7.4. Financial Statements. Until either (i) the Closing Date (if the
Option is exercised) or (ii) the end of the Exercise Period (if the Option is
not exercised), Baxter Japan will deliver to Edwards Optionholder, within 25
days after the end of each fiscal quarter, an unaudited balance sheet, income
statement with respect to the Japanese Edwards Business, all prepared in
accordance with the Agreed Accounting Policies and Allocation Methodology.
ARTICLE VIII
POST-CLOSING COVENANTS
The following covenants shall apply from and after the Closing Date:
8.1. Collection of Accounts Receivable.
(a) Baxter Japan shall be entitled to control all collection actions
related to the Retained Business, including the determination of what actions
are necessary or appropriate and when and how to take any such action.
(b) Edwards and its Subsidiaries shall be entitled to control all
collection actions related to the Purchased Business, including the
determination of what actions are necessary or appropriate and when and how to
take any such action.
(c) If, after the Closing Date, Edwards Optionholder or any of its
Affiliates shall receive any remittance from any account debtors with respect to
the accounts receivable arising out of the Retained Business or other amounts
due Baxter Japan in respect of services
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rendered or products sold by Baxter Japan after the Closing Date, or Baxter
Japan or any of its Affiliates shall receive any remittance from any account
debtors with respect to the accounts receivable arising out of the Purchased
Business or other amounts due Edwards Optionholder or its Affiliates in respect
of services rendered or products sold by Edwards Optionholder or its Affiliates
after the Closing Date, such party shall receive and deposit such remittance and
deliver cash in an amount equal thereto to the other party as soon as
practicable. In the absence of any designation of the specific invoice being
paid by a customer thereby, payments from account debtors shall be applied to
the earliest invoice outstanding with respect to indebtedness of such account
debtor owing to either Edwards Optionholder or Baxter Japan.
(d) Each party shall deliver to the other such schedules and other
information with respect to the accounts receivable included in the Purchased
Business and those not included therein as each shall reasonably request from
time to time in order to permit such parties to reconcile their respective
records and to monitor the collection of all accounts receivable (whether or not
included in the Purchased Business). Each party shall afford the other
reasonable access to its books and records relating to any accounts receivable.
8.2. Agreements Relating to Edwards Optionholder and Baxter Japan.
(a) Each of Edwards Optionholder and Baxter Japan shall use commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things, reasonably necessary, proper or advisable under
applicable laws, regulations and agreements to consummate, make effective and
perform its or its Subsidiaries' allocable portion of all purchase, distribution
and other obligations under all Contracts with customers, suppliers, vendors or
other third parties relating to both the Japanese Edwards Business and the
Retained Business (the "Shared Agreements"). Each of Baxter Japan and Edwards
Optionholder shall be entitled to the rights and privileges of its allocable
portion of the Shared Agreements.
(b) Each of Edwards Optionholder and Baxter Japan shall use
commercially reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable laws, regulations and agreements to afford the rights and
privileges of the allocable portion of the Shared Agreements to the other.
(c) Liabilities pursuant to, arising under or relating to Shared
Agreements shall be allocated between Baxter Japan, on the one hand, and Edwards
Optionholder on the other hand, as follows:
(i) First, if a Liability is incurred exclusively in respect of
a benefit received by one party, the party receiving such benefit
shall be responsible for such Liability; and
(ii) Second, if a Liability cannot be so allocated under clause
(i), such Liability shall be allocated between the parties based on
the relative proportions of total benefit received (based upon the
performance under such Shared Agreement during the twelve-month period
immediately prior to the Closing Date) under the relevant Shared
Agreement. Notwithstanding the foregoing, each party shall be
responsible for any and all Liabilities arising out of or resulting
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from a breach of the relevant Shared Agreement attributable to the
Japanese Edwards Business, in the case of Edwards Optionholder, or the
Retained Business, in the case of Baxter Japan.
(d) If either Baxter Japan, on the one hand, or Edwards Optionholder,
on the other hand, improperly receives any benefit or payment under any Shared
Agreement that was intended for the other, the party receiving such benefit or
payment will use commercially reasonable efforts to deliver, transfer or
otherwise afford such benefit or payment to the other party.
8.3. Informal, Nondocumented Real Estate Leases. Each party may
continue to occupy, from and after the Closing Date, such space in the
facilities of the other party as is occupied immediately prior to the Closing
Date, or such other space therein as may be mutually agreed to from time to time
by Edwards Optionholder and Baxter Japan, and which occupancy is otherwise not
documented by any written leasing agreement or otherwise provided for in the
Operating Agreements, on the following terms and conditions:
(a) The occupying party shall pay to the other party rent with
respect to such occupied space for the period from and after the Closing Date
during which such space is so occupied, which rent shall be determined by the
other party on the same basis on which the other party allocates rent with
respect to the occupancy of space by business units of the other party or as the
occupying party presently is paying, whichever is lower. Such rent shall be
payable from time to time by the occupying party (but not more frequently than
monthly) promptly following delivery by the other party to the occupying party
of a statement therefor.
(b) The occupying party may, at any time, upon not less than 15 days'
prior written notice to Baxter Japan, with a copy to Edwards Optionholder,
terminate its occupancy of any or all of such space.
(c) The other party may, at any time, upon not less than 30 days'
prior written notice to the occupying party, require the occupying party to
cease occupancy of any or all of such space as designated in a notice sent to
the occupying party.
ARTICLE IX
[INTENTIONALLY OMITTED]
ARTICLE X
EMPLOYEES AND EMPLOYEE BENEFIT MATTERS
10.1. Employment of Edwards Employees. On the Closing Date, Edwards
Optionholder shall make an offer to employ each Edwards Employee at the same
salary and wage rate levels (including bonus programs) paid by Baxter Japan as
in effect on the Closing Date; provided, however, that Edwards Optionholder and
its Affiliates retain the right to determine the compensation of all such
Edwards Employees after the Closing Date. Edwards Optionholder and Baxter Japan
shall use commercially reasonable efforts to accomplish any
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transfers of employment required by this Section 10.1 in a timely manner. Each
Edwards Employee who accepts this offer of employment is referred to as a
"Transferred Employee".
10.2. Terminations/Layoff/Severance. Edwards Employees shall not be
eligible for any severance benefits from Baxter Japan as a result of either
their employment by Edwards Optionholder or its Affiliates or any subsequent
termination of employment with Edwards Optionholder or its Affiliates.
10.3. Employee Benefit Plans. (a) Except as otherwise specifically
provided in this Article X, all Transferred Employees shall cease to participate
in the Baxter Japan employee benefit plans and programs (the "Baxter Plans") as
of the Closing Date.
(b) No later than the Closing Date, Edwards Optionholder and/or its
Affiliates shall establish its own employee benefit plans and programs for the
benefit of eligible Transferred Employees including, but not limited to, a
pension plan (the "Edwards Japan Pension Plan"), a long-term disability plan, a
group life insurance plan and an overseas travel insurance plan (collectively,
the "Edwards Plans"). Additionally, Edwards Optionholder shall continue to
contribute to the "Kosei Nenkin" Old Age Employees' Pension Plan and the "Tokyo
Yakugyo" Health Insurance on behalf of Transferred Employees. Notwithstanding
the foregoing, Edwards Optionholder shall not contribute on behalf of the
Transferred Employees to the multiemployer fund entitled the Employee Pension
Fund ("EPF"); provided, however, that Edwards Optionholder shall pay cash or
stock allowances similar to premiums paid under EPF to the Transferred Employees
until Edwards Optionholder establishes or contributes to a program to replace
EPF for such Transferred Employees.
(c) Each Transferred Employee who becomes eligible to participate in
the Edwards Plans shall be credited under such plans with periods of service
with any Baxter Japan Group Member for all purposes under such plans.
(d) Baxter Japan shall pay all costs associated with the provision of
disability benefits to any Edwards Employee or former Edwards Employee who as of
the Closing Date is receiving disability benefits from Baxter Japan.
10.4. Transfer of Account Balances and Accrued Benefits. Subject to
applicable law and the provisions of the Baxter Tax Qualified Pension Plan (the
"Baxter Japan Pension Plan"), as soon as administratively practicable following
the Closing Date, or effective as of any other date as agreed to in writing by
the plan administrator for the Baxter Japan Pension Plan and the plan
administrator for the Edwards Japan Pension Plan, the accrued benefits (the
"Transferred Accrued Benefits") of all Baxter Japan Pension Plan participants
who are Transferred Employees shall be transferred from the Baxter Japan Pension
Plan to the Edwards Japan Pension Plan. The amount of Transferred Accrued
Benefits shall be determined by the actuaries for the respective plans by the
Closing Date in accordance with the methodology described in Schedule 10.4. Each
Transferred Employee shall receive credit for all purposes under the Edwards
Japan Pension Plan for the periods of service with Baxter Japan or any of its
Subsidiaries or Affiliates. The plan administrator for the Edwards Japan Pension
Plan shall take any other action reasonably requested by the plan administrator
for the Baxter Japan Pension Plan that is necessary or advisable, in the opinion
of the plan administrator for the Baxter
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Pension Plan, to maintain the tax-qualified status of the Baxter Japan Pension
Plan or to avoid the imposition of any penalties with respect to such plan.
10.5. Stock Purchase Plans. Except as otherwise provided in the
Baxter Stock Purchase Plan, on the Closing Date, all Transferred Employees shall
cease to be eligible to purchase Baxter Common Stock under the terms of the
Baxter International Inc. Employees Stock Purchase Plan for International
Employees.
10.6. Workers' Compensation. As soon as administratively practicable
following the Closing Date, a risk management representative for each of the
parties shall agree upon the allocation between the parties of responsibility
and liability for workers' compensation claims and expenses relating to current
and former Edwards Employees.
10.7. Vacation Pay Policy. After the Closing Date, it is expected
that Edwards Optionholder shall maintain for its employees a vacation pay
policy, and Edwards Optionholder shall be responsible for costs incurred to
provide vacation pay to Transferred Employees following such date. Edwards
Optionholder shall assume any and all Baxter Japan Liabilities to provide to
Transferred Employees vacation that such persons accrued under the Baxter Japan
vacation pay policy as of the Closing Date, and no payment of such accrued
vacation pay shall be made by Baxter Japan on the Closing Date.
10.8. Information to be Provided to Baxter Japan. Edwards
Optionholder (or its applicable Affiliate) shall provide any information that
Baxter Japan may reasonably request, including information relating to dates of
termination of employment, in order to provide benefits to any eligible
Transferred Employee under the terms and conditions described herein or under
the applicable Baxter Plans. Any information relating to an employee's
termination of employment shall be provided by Edwards Optionholder to Baxter
Japan as soon as available to Edwards Optionholder or any of its Affiliates, but
in any event no later than 30 days after such information is made available to
Edwards Optionholder or any such Affiliates.
10.9. Transfer of Employee Files. By a specified date as agreed upon
by Edwards Optionholder and Baxter Japan following the Closing Date, Baxter
Japan shall transfer to Edwards Optionholder complete copies of the personnel
files relating to all Transferred Employees.
10.10. Employment Solicitation. During the period beginning on the
Closing Date and ending one year after the Closing Date, neither Baxter Japan
nor Edwards Optionholder shall, nor shall they permit any of their respective
Subsidiaries, Affiliates or agents to, directly or indirectly, except as
provided in the following sentence, actively solicit or recruit for employment
any then current employee of the other or of any of the other's Subsidiaries.
Nothing contained in this Section 10.10 shall (i) prohibit the hiring of any
employee who in good faith is believed to be actively seeking employment on his
or her own initiative without prior contact initiated by any employee or agent
of the company where employment is sought, or any of such company's Affiliates;
provided, however, that such employee or the hiring company has obtained
authorization from the Department Manager of Human Resources of his or her
current employer; or (ii) prohibit Baxter Japan or Edwards Optionholder or any
of their respective
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Subsidiaries from hiring any person who has terminated employment with the other
company. The foregoing restriction shall cease to apply one year after the
Closing Date.
ARTICLE XI
INSURANCE MATTERS
11.1. Insurance Prior to the Closing Date. Edwards Optionholder does
hereby agree that neither Baxter nor Baxter Japan shall have any Liability
whatsoever as a result of the insurance policies and practices of Baxter or
Baxter Japan in effect at any time prior to the Closing Date, including any
assistance rendered to Edwards Optionholder by Baxter or Baxter Japan in the
placement of its insurance program, including as a result of the level or scope
of any such insurance, the creditworthiness of any insurance carrier, the terms
and conditions of any policy and the adequacy or timeliness of any notice to any
insurance carrier with respect to any claim or potential claim or otherwise.
11.2. Ownership of Existing Policies and Programs. Unless otherwise
agreed by the parties, Baxter or Baxter Japan, as the case may be, shall
continue to own all property, casualty and liability insurance policies and
programs, including primary and excess general liability, errors and omissions,
automobile, workers' compensation, property, fire, crime, surety and other
similar insurance policies, in effect on or before the Closing Date relating to
the Japanese Edwards Business (collectively, the "Baxter Policies" and
individually, a "Baxter Policy"). Between the date hereof and the Closing Date,
Baxter shall not discriminate between the insurance coverage applicable to the
Japanese Edwards Business and similar coverage applicable to Baxter Japan's
other businesses. Nothing contained herein shall be construed to be an attempt
to assign or to change the ownership of the Baxter Policies.
11.3. Procurement of Insurance for Edwards Optionholder. To the
extent not already provided for by the terms of the Baxter Policies, Baxter
shall use commercially reasonable efforts to cause Edwards Optionholder and its
Affiliates to be named as additional insureds under Baxter Policies whose
effective policy periods include the Closing Date, in respect of claims for
which coverage is available under the terms and conditions of the Baxter
Policies, arising out of or relating to periods prior to the Closing Date;
provided, however, that nothing contained herein shall be construed to require
Baxter to pay any additional premium or other charges in respect to, or waive or
otherwise limit any of its rights, benefits or privileges under, any Baxter
Policy in order to effect the naming of Edwards Optionholder or its Affiliates
as such additional insureds.
11.4. Acquisition and Maintenance of Post-Closing Edwards
Optionholder's Insurance Policies and Programs. Commencing on and as of the
Closing Date, Edwards Optionholder shall be responsible for establishing and
maintaining separate property, casualty and liability insurance policies and
programs (including primary and excess general liability, errors and omissions,
automobile, workers' compensation, property, fire, crime, surety and other
similar insurance policies) for activities and claims involving Edwards
Optionholder and the Japanese Edwards Business. Edwards Optionholder will
exercise commercially reasonable efforts to secure liability insurance to avoid
potential gaps in coverage for claims arising from events prior to the Closing
Date, which gap would not exist had the Japanese Edwards Business continued to
be covered with the same retroactive dates existing in the Baxter Policies in
effect
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on the Closing Date. Edwards Optionholder shall be responsible for all
administrative and financial matters relating to insurance policies established
and maintained by Edwards Optionholder for claims relating to any period on or
after the Closing Date involving Edwards Optionholder. Notwithstanding any other
agreement or understanding to the contrary, except as set forth in Section 11.7
with respect to claims administration and financial administration of the Baxter
Policies, neither Baxter nor Baxter Japan shall have any responsibility for or
obligation to Edwards or any of its Affiliates relating to property and casualty
insurance matters for any period, whether prior to, on or after the Closing
Date.
11.5. Edwards Optionholder Directors' and Officers' Insurance.
Baxter shall use commercially reasonable efforts to cause the persons serving as
officers and/or directors of Baxter Japan at the Closing Date to be covered for
a period of six (6) years from the Closing Date by the directors' and officers'
liability insurance policy maintained by Baxter as of the Closing Date
(including corporate reimbursement) (provided that Baxter may substitute
therefor policies of at least the same coverage and amounts containing terms and
conditions that are not less advantageous than such policy) with respect to
matters covered under the existing policy occurring prior to the Closing Date
that were committed by such officers and/or directors in their capacity as such;
provided, however, that in no event shall Baxter be required to expend with
respect to any year more than 200% of the current annual premium expended by
Baxter (the "Insurance Amount") to maintain or procure insurance coverage
pursuant hereto; and provided, further, that if Baxter is unable to maintain or
obtain the insurance called for by this Section 11.5, Baxter shall use
commercially reasonable efforts to obtain as much comparable insurance as
available for the Insurance Amount. In the event Baxter or any of its successors
or assigns (i) consolidates with or merges into any other Person and shall 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,
proper provision shall be made so that the successors and assigns of Baxter
assume the obligations set forth in this Section 11.5. The provisions of this
Section 11.5 are intended to be for the benefit of, and shall be enforceable by,
each such officer and director and his or her heirs and representatives. As
provided in Section 12.4, any amount Edwards Optionholder is required to pay to
Baxter as an indemnity under this Agreement is reduced to the extent Baxter
receives insurance proceeds from the above coverage, but only to the extent such
proceeds are actually received by Baxter.
11.6. Pre-Closing Insurance Claims Administration. Edwards
Optionholder acknowledges that Baxter has and will continue to experience losses
and receive claims that are, or might be, covered by one or more Baxter
Policies, and prior to the Closing Date will make decisions and commitments
regarding administration of such claims, including reaching agreements and
stipulations regarding such claims (collectively, "Pre-Closing Claims
Administration"). Edwards Optionholder covenants not to contest or challenge in
any manner any action taken by Baxter prior to the Closing Date in connection
with or relating to Pre-Closing Claims Administration, or to interfere with the
performance of any agreement, commitment or stipulation so made by Baxter in
connection with or relating to Pre-Closing Claims Administration.
11.7. Post-Closing Insurance Claims Administration. Baxter shall
have the primary right, responsibility and authority for claims administration
and financial administration
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of claims that relate to or affect the Baxter Policies. Upon notification by
Edwards Optionholder of a claim relating to Edwards Optionholder or an Affiliate
thereof under one or more of the Baxter Policies, Baxter shall cooperate with
Edwards Optionholder in asserting and pursuing coverage and payment for such
claim by the appropriate insurance carrier(s). In asserting and pursuing such
coverage and payment, Baxter shall have sole power and authority to make binding
decisions, determinations, commitments and stipulations on its own behalf and on
behalf of Edwards Optionholder, which decisions, determinations, commitments and
stipulations shall be final and conclusive if made to maximize the overall
economic benefit of the Baxter Policies. Edwards Optionholder assumes
responsibility for, and shall pay to the appropriate insurance carriers or
otherwise, any premiums, retrospectively-rated premiums, defense costs,
indemnity payments, deductibles, retentions or other charges (collectively,
"Insurance Charges") whenever arising, which shall become due and payable under
the terms and conditions of any applicable Baxter Policy in respect of any
liabilities, losses, claims, actions or occurrences, whenever arising or
becoming known, involving or relating to any of the assets, businesses,
operations or liabilities of the Japanese Edwards Business, whether the same
relate to the period prior to, on or after the Closing Date. To the extent that
the terms of any applicable Baxter Policy provide that Baxter shall have an
obligation to pay or guarantee the payment of any Insurance Charges relating to
Edwards Optionholder, Baxter shall be entitled to demand that Edwards
Optionholder make such payment directly to the Person or any of its Affiliates
entitled thereto. In connection with any such demand, Baxter shall submit to
Edwards Optionholder a copy of any invoice received by Baxter pertaining to such
Insurance Charges together with appropriate supporting documentation, to the
extent available. In the event that Edwards Optionholder fails to pay any such
Insurance Charges when due and payable, whether at the request of the party
entitled to payment or upon demand by Baxter, Baxter may (but shall not be
required to) pay such insurance charges for and on behalf of Edwards
Optionholder and, thereafter, Edwards Optionholder shall forthwith reimburse
Baxter for such payment. Subject to the other provisions of this Article XI, the
retention by Baxter of the Baxter Policies and the responsibility for claims
administration and financial administration of such policies are in no way
intended to limit, inhibit or preclude any right of Edwards Optionholder, Baxter
or any other insured to insurance coverage for any Insured Claims under the
Baxter Policies.
11.8. Non-Waiver of Rights to Coverage. An insurance carrier that
otherwise would be obligated to pay any claim shall not be relieved of the
responsibility with respect thereto, or, solely by virtue of the provisions of
this Article XI, have any subrogation rights with respect thereto, it being
expressly understood and agreed that no insurance carrier or any third-party
shall be entitled to a windfall (i.e., a benefit they would not be entitled to
receive had the Closing not occurred or in the absence of the provisions of this
Article XI) by virtue of the provisions hereof.
11.9. Scope of Affected Policies of Insurance. The provisions of
this Article XI relate solely to matters involving liability, casualty and
workers' compensation insurance, and shall not be construed to affect any
obligation of or impose any obligation on the parties with respect to any life,
health and accident, dental or medical insurance policies applicable to any of
the officers, directors, employees or other representatives of the parties or
their Affiliates.
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ARTICLE XII
INDEMNIFICATION
12.1. Indemnification by Edwards Optionholder. From and after the
Closing Date, Edwards Optionholder shall indemnify and hold harmless each Baxter
Japan Group Member from and against any and all Loss and Expense incurred or
suffered by such Baxter Japan Group Member in connection with, relating to,
arising out of or due to, directly or indirectly, any of the following items:
(a) the Japanese Edwards Business as conducted on or at any time
prior to the Closing Date (other than Excluded Liabilities);
(b) the Purchased Business;
(c) the Assumed Liabilities;
(d) the breach by Edwards Optionholder of any covenant or agreement
set forth in this Agreement or the Instrument of Assumption, regardless of when
or where the loss, claim, accident, occurrence, event or happening giving rise
to the Expense or Loss took place, or whether any such loss, claim, accident,
occurrence, event or happening is known or unknown, or reported or unreported;
(e) the employee benefits provided or the actions taken or omitted to
be taken with respect thereto in connection with this Agreement or otherwise
relating to the provision of employee benefits to Edwards Employees, their
beneficiaries, alternate payees or any other person claiming benefits through
them (except to the extent such Expenses or Losses are specifically allocated to
Baxter Japan pursuant to Section 12.2(e)), including Expenses or Losses arising
in connection with (i) Edwards Optionholders' reduction, elimination or failure
to provide any benefit accrued by its employees (including benefits accrued
prior to the Closing Date) and (ii) the transfer of account balances and accrued
benefits as described in Section 10.4 where such Expenses or Losses are incurred
as a result of any act or omission by Edwards Optionholder (or a representative
of Edwards Optionholder);
(f) the indemnifiable matters set forth in Section 5.6 and Article X;
and
(g) Baxter Japan's inability to terminate the employment of any
Edwards Employees following the termination or expiration of this Agreement.
12.2. Indemnification by Baxter Japan. From and after the Closing
Date, Baxter Japan shall indemnify and hold harmless each Edwards Optionholder
Group Member from and against any and all Loss and Expense incurred or suffered
by such Edwards Optionholder Group Member in connection with, relating to,
arising out of or due to, directly or indirectly, any of the following items:
(a) the business (other than the Japanese Edwards Business) conducted
by Baxter Japan on or at any time prior to the Closing Date;
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(b) the assets owned by Baxter Japan (other than assets included in
the Purchased Business and the Shared Agreements);
(c) the Liabilities (including the Excluded Liabilities) of Baxter
Japan other than the Assumed Liabilities;
(d) the breach by Baxter Japan of any covenant or agreement set forth
in this Agreement or the Instrument of Assignment, regardless of when or where
the loss, claim, accident, occurrence, event or happening giving rise to the
Expense or Loss took place, or whether any such loss, claim, accident,
occurrence, event or happening is known or unknown, or reported or unreported;
and
(e) any act or omission by Baxter Japan in connection with the
transfer of assets and liabilities as described in Section 10.4.
12.3. Applicability of and Limitation on Indemnification.
(a) EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE INDEMNITY OBLIGATIONS
UNDER THIS ARTICLE XII SHALL APPLY NOTWITHSTANDING ANY INVESTIGATION MADE BY OR
ON BEHALF OF ANY INDEMNIFIED PARTY AND SHALL APPLY WITHOUT REGARD TO WHETHER THE
LOSS, LIABILITY, CLAIM, DAMAGE, COST OR EXPENSE FOR WHICH INDEMNITY IS CLAIMED
HEREUNDER IS BASED ON STRICT LIABILITY, ABSOLUTE LIABILITY OR ARISES AS AN
OBLIGATION FOR CONTRIBUTION.
(b) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN
NO EVENT SHALL BAXTER JAPAN BE LIABLE TO ANY EDWARDS OPTIONHOLDER GROUP MEMBER,
OR EDWARDS OPTIONHOLDER BE LIABLE TO ANY BAXTER JAPAN GROUP MEMBER, UNDER THIS
AGREEMENT FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE
DAMAGES, INCLUDING LOSS OF ANTICIPATED PROFITS OR LOSS OR DIMINUTION OF
REVENUES, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT OR
OTHERWISE, EXCEPT TO THE EXTENT THAT SUCH LIABILITY HAS BEEN ASSERTED BY A THIRD
PARTY AGAINST A PARTY ENTITLED TO INDEMNIFICATION HEREUNDER.
12.4. Adjustment of Indemnifiable Losses.
(a) The amount that either party (an "Indemnifying Party") is
required to pay to any Person entitled to indemnification hereunder (an
"Indemnified Party") shall be reduced (including retroactively) by any Insurance
Proceeds and other amounts actually recovered by or on behalf of such
Indemnified Party in reduction of the related Expense or Loss. If an Indemnified
Party receives a payment (an "Indemnity Payment") required by this Agreement
from an Indemnifying Party in respect of any Expense or Loss and subsequently
actually receives Insurance Proceeds or other amounts in respect of such Expense
or Loss, then such Indemnified Party shall pay to the Indemnifying Party a sum
equal to the lesser of (i) the amount of
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such Insurance Proceeds or other amounts actually received or (ii) the net
amount of Indemnity Payments actually received previously. The Indemnified Party
agrees that the Indemnifying Party shall be subrogated to such Indemnified Party
under any insurance policy.
(b) An insurer who otherwise would be obligated to pay any claim
shall not be relieved of the responsibility with respect thereto, or, solely by
virtue of the indemnification provisions hereof, have any subrogation rights
with respect thereto, it being expressly understood and agreed that no insurer
or any other third-party shall be entitled to a "windfall" (i.e., a benefit he
or she would not be entitled to receive in the absence of the indemnification
provisions) by virtue of the indemnification provisions hereof.
(c) If any Indemnified Party realizes a Tax benefit or detriment in
one or more Tax periods by reason of having incurred an Expense or a Loss for
which such Indemnified Party receives an Indemnity Payment from an Indemnifying
Party (or by reason of the receipt of any Indemnity Payment), then such
Indemnified Party shall pay to such Indemnifying Party an amount equal to the
Tax benefit or such Indemnifying Party shall pay to such Indemnified Party an
additional amount equal to the Tax detriment (taking into account, without
limitation, any Tax detriment resulting from the receipt of such additional
amounts), as the case may be. The amount of any Tax benefit or any Tax detriment
for a Tax period realized by an Indemnified Party by reason of having incurred
an Expense or a Loss (or by reason of the receipt of any Indemnity Payment)
shall be deemed to equal the product obtained by multiplying (i) the amount of
any deduction or loss or inclusion in income for such period resulting from such
Expense or Loss (or the receipt of any Indemnity Payment or additional amount),
as the case may be (without regard to whether such deduction or loss or such
inclusion in income results in any actual decrease or increase in Tax liability
for such period), by (ii) the highest applicable marginal Tax rate for such
period (provided, however, that the amount of any Tax benefit attributable to an
amount that is creditable shall be deemed to equal the amount of such creditable
item). Any payment due under this Section 12.4(c) with respect to a Tax benefit
or Tax detriment realized by an Indemnified Party in a Tax period shall be due
and payable within 30 days from the time the return for such Tax period is due,
without taking into account any extension of time granted to the party filing
such return.
12.5. Procedures for Indemnification of Third Party Claims.
(a) If any third-party shall make any claim or commence any
arbitration proceeding or suit (collectively, a "Third Party Claim") against any
one or more of the Indemnified Parties with respect to which an Indemnified
Party intends to make any claim for indemnification against Edwards Optionholder
under Section 12.1 or against Baxter Japan under Section 12.2, such Indemnified
Party shall promptly give written notice to the Indemnifying Party describing
such Third Party Claim in reasonable detail, and the following provisions shall
apply. Notwithstanding the foregoing, the failure of any Indemnified Party to
provide notice in accordance with this Section 12.5(a) shall not relieve the
related Indemnifying Party of its obligations under this Article XII, except to
the extent that such Indemnifying Party is actually prejudiced by such failure
to provide notice.
(b) The Indemnifying Party shall have the right to assume the defense
of any such Third Party Claim. If the Indemnifying Party elects not to conduct
and control the defense of such Third Party Claim, the Indemnified Party shall
have the right to defend, contest, settle or
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<PAGE>
compromise such Third Party Claim in the exercise of its exclusive discretion
subject to the provisions of Section 12.5(c), and the Indemnifying Party shall,
upon request from any of the Indemnified Parties, promptly pay to such
Indemnified Parties in accordance with the other terms of this Section 12.5(b)
the amount of any Expense or Loss resulting from their liability to the third-
party claimant. If the Indemnifying Party assumes the defense of the Third Party
Claim, the Indemnifying Party shall have the right to undertake, conduct and
control, through counsel reasonably acceptable to the Indemnified Party, and at
its sole expense, the conduct and settlement of such Third Party Claim, and the
Indemnified Party shall cooperate with the Indemnifying Party in connection
therewith, provided that (i) the Indemnifying Party shall not thereby permit any
lien, encumbrance or other adverse charge to thereafter attach to any asset of
any Indemnified Party; (ii) the Indemnifying Party shall not thereby permit any
injunction against any Indemnified Party; (iii) the Indemnifying Party shall
permit the Indemnified Party and counsel chosen by the Indemnified Party and
reasonably acceptable to the Indemnifying Party to monitor such conduct or
settlement and shall provide the Indemnified Party and such counsel with such
information regarding such Third Party Claim as either of them may reasonably
request (which request may be general or specific), but the fees and expenses of
such counsel (including allocated costs of in-house counsel and other personnel)
shall be borne by the Indemnified Party unless (A) the Indemnifying Party and
the Indemnified Party shall have mutually agreed to the retention of such
counsel or (B) the named parties to any such Third Party Claim include the
Indemnified Party and the Indemnifying Party and in the reasonable opinion of
counsel to the Indemnified Party representation of both parties by the same
counsel would be inappropriate due to actual or likely conflicts of interest
between them, in either of which cases the reasonable fees and disbursements of
counsel for such Indemnified Party (including allocated costs of in-house
counsel and other personnel) shall be reimbursed by the Indemnifying Party to
the Indemnified Party; and (iv) the Indemnifying Party shall agree promptly to
reimburse to the extent required under this Article XII the Indemnified Party
for the full amount of any Expense or Loss resulting from such Third Party Claim
and all related expenses incurred by the Indemnified Party. In no event shall
the Indemnifying Party, without the prior written consent of the Indemnified
Party, settle or compromise any claim or consent to the entry of any judgment
that does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the Indemnified Party a release from all Liability
in respect of such claim.
If the Indemnifying Party shall not have undertaken the conduct and
control of the defense of the Third Party Claim as provided above, the
Indemnifying Party shall nevertheless be entitled through counsel chosen by the
Indemnifying Party and reasonably acceptable to the Indemnified Party to monitor
the conduct or settlement of such claim by the Indemnified Party, and the
Indemnified Party shall provide the Indemnifying Party and such counsel with
such information regarding such Third Party Claim as either of them may
reasonably request (which request may be general or specific), but all costs and
expenses incurred in connection with such monitoring shall be borne by the
Indemnifying Party.
(c) So long as the Indemnifying Party is contesting any such Third
Party Claim in good faith, the Indemnified Party shall not pay or settle any
such Third Party Claim. Notwithstanding the foregoing, the Indemnified Party
shall have the right to pay or settle any such Third Party Claim, provided that
in such event the Indemnified Party shall waive any right to indemnity therefor
by the Indemnifying Party, and no amount in respect thereof shall be claimed as
an Expense or a Loss under this Section 12.5(c).
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If the Indemnifying Party shall have undertaken the conduct and
control of the defense of any Third Party Claim as provided above, the
Indemnified Party, on not less than 30 days prior written notice to the
Indemnifying Party, may make settlement (including payment in full) of such
Third Party Claim, and such settlement shall be binding upon the parties for the
purposes hereof, unless within said 30-day period the Indemnifying Party shall
have requested the Indemnified Party to contest such Third Party Claim at the
expense of the Indemnifying Party. In such event, the Indemnified Party shall
promptly comply with such request and the Indemnifying Party shall have the
right to direct the defense of such claim or any litigation based thereon
subject to all the conditions of Section 12.5(b). Notwithstanding anything in
this Section 12.5(c) to the contrary, if the Indemnified Party, in the belief
that a claim may materially and adversely affect it other than as a result of
money damages or other money payments, advises the Indemnifying Party that it
has determined to settle a claim, the Indemnified Party shall have the right to
do so at its own cost and expense, without any requirement to contest such claim
at the request of the Indemnifying Party, but without any right under the
provisions of this Section 12.5(c) for indemnification by the Indemnifying
Party.
12.6. Procedures for Indemnification of Direct Claims. Any claim for
indemnification on account of an Expense or a Loss made directly by the
Indemnified Party against the Indemnifying Party and that does not result from a
Third Party Claim shall be asserted by written notice from the Indemnified Party
to the Indemnifying Party specifically claiming indemnification hereunder. Such
Indemnifying Party shall have a period of 30 business days after the receipt of
such notice within which to respond thereto. If such Indemnifying Party does
not respond within such 30 business day period, such Indemnifying Party shall be
deemed to have accepted responsibility to make payment and shall have no further
right to contest the validity of such claim. If such Indemnifying Party does
respond within such 30 business-day period and rejects such claim in whole or in
part, such Indemnified Party shall be free to pursue resolution as provided in
Article XIII.
12.7. Remedies Cumulative. The remedies provided in this Article XII
shall be cumulative and, subject to the provisions of Article XIII below, shall
not preclude assertion by an Indemnified Party of any other rights or the
seeking of any and all other remedies against any Indemnifying Party.
ARTICLE XIII
DISPUTE RESOLUTION
13.1. General. Any dispute arising out of or relating to this
Agreement, the Instrument of Assignment or the Instrument of Assumption shall be
solved in accordance with the procedures specified in this Article XIII which
shall be the sole and exclusive procedures for the resolution of any such
disputes.
13.2. Escalation. The parties will attempt in good faith to resolve
expeditiously any dispute, claim or controversy arising out of or relating to
the execution, interpretation and performance of this Agreement (including the
validity, scope and enforceability of this arbitration provision) promptly by
negotiations between executives who have authority to settle the controversy and
who are at a higher level of management than the persons with direct
responsibility for the administration of this Agreement. Either party may give
the other party
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written notice (an "Escalation Notice") of any dispute not resolved in the
normal course of business. Within fifteen days after delivery of the Escalation
Notice, the receiving party shall submit to the other a written response. The
Escalation Notice and the response thereto shall include (a) a statement of each
party's position and a summary of arguments supporting that position, and (b)
the name and title of the executive who will represent that party and of any
other person who will accompany the executive. Within 30 days after delivery of
the Escalation Notice, the executives of both parties shall meet at a mutually
acceptable time and place, and thereafter as often as they reasonably deem
necessary, to attempt to resolve the dispute. All reasonable requests for
information made by one party to the other will be honored. All negotiations
pursuant to this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of applicable rules of evidence.
13.3. Arbitration. Any dispute, claim or controversy arising out of
or relating to this Agreement or its breach, termination or validity which has
not been resolved by the specified non-binding procedure set forth in Section
13.2 within 90 days of the date of delivery of the Escalation Notice shall be
settled by binding arbitration in accordance with the CPR Non-Administered
Arbitration Rules in effect on the date of this Agreement, by three independent
and impartial arbitrators, none of whom shall be appointed by either party. The
arbitration shall be governed by the United States Arbitration Act, 9 U. S. C.
(S) (S) 1- 16, as the same may be amended from time to time, and judgment upon
the award rendered by the arbitrators may be entered by any court having
jurisdiction thereof. The place of the arbitration shall be Lake County,
Illinois or Orange County, California, and shall be determined by the party that
initiated the dispute resolution process. The arbitrators may award attorneys'
fees in their discretion. Otherwise, the arbitrators are not empowered to award
damages in excess of compensatory damages, and each party hereby irrevocably
waives any right to recover such damages.
13.4. Procedures. The parties may request limited discovery in
accordance with the Federal Rules of Civil Procedure of the United States (the
"F.R.C.P.") for a period of 120 days after the initiation of the arbitration
process. All issues regarding compliance with discovery requests shall be
decided by the arbitrators pursuant to the F.R.C.P. The parties agree that the
recipient of a discovery request shall have 10 business days after the receipt
of such request to object to any or all portions of such request and shall
respond to any portions of such request not so objected within 30 business days
of the receipt of such request. All objections shall be in writing and shall
indicate the reasons for such objections. The objecting party shall ensure that
all objections and responses are received by the other party within the above
time periods; failure to comply with the specified time period shall be
addressed as set forth in F.R.C.P. 37. Any party seeking to compel discovery
following receipt of an objection shall file with the other party and the
arbitrators a motion to compel, including a copy of the initial request and the
objection. The arbitrators shall allow 10 business days for the responses to the
motion to compel before ruling. Claims of privilege and other objections shall
be determined as they would be in United States federal court in a case applying
Illinois law. The arbitrators may grant or deny the motion to compel, in whole
or in part, concluding that the discovery request is or is not appropriate under
the circumstances, taking into account the needs of the parties and the
desirability of making discovery expeditious and cost-effective. The statute of
limitations of the State of Illinois applicable to the commencement of a lawsuit
shall apply to the date of initial written notification of a dispute and shall
be extended until commencement of arbitration if all interim deadlines have been
complied with by the notifying party.
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13.5. Injunctive Relief. Nothing contained in this Article XIII
shall prevent either party from resorting to judicial process if injunctive or
other equitable relief from a court is necessary to prevent serious and
irreparable injury to one party or to others. The use of arbitration procedures
will not be construed under the doctrine of laches, waiver or estoppel to affect
adversely either party's right to assert any claim or defense.
ARTICLE XIV
GENERAL PROVISIONS
14.1. Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be deemed given or delivered
when delivered personally, or when sent by registered or certified mail or by
private courier or facsimile transmission (provided that in the case of
facsimile transmission, a confirmation copy of the notice shall be delivered by
hand or sent by courier within two days of transmission) addressed as follows:
If to Edwards Optionholder, to:
Edwards Lifesciences (Japan) Limited
Rokubancho 2-8, Chiyoda-ku
Tokyo 102-0085 Japan
Attention: Chairman and Representative Director
Facsimile: 81-3-5213-5802
with a copy to:
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, California 92614
USA
Attention: International Counsel
Facsimile: 949-250-6868
If to Baxter Japan, to:
Baxter Limited
4, Rokubancho, Chiyoda-ku
Tokyo 102-8468 Japan
Attention: President and Representative Director
Facsimile: 81-3-5213-5111
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with a copy to:
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
USA
Attention: International Counsel
Facsimile: 847-948-4634
or to such other address as such party may indicate by a notice delivered to the
other party hereto.
14.2. Successors and Assigns. (a) Either party may assign any of its
rights under this Agreement, but no such assignment shall relieve such party of
its obligations hereunder.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their successors and permitted assigns. The successors
and permitted assigns hereunder shall include without limitation, in the case of
Edwards Optionholder, any permitted assignee as well as the successors in
interest to such permitted assignee (whether by merger, liquidation (including
successive mergers or liquidations) or otherwise). Except to the extent
otherwise provided in Section 11.5 or Article XII, nothing in this Agreement,
expressed or implied, is intended or shall be construed to confer upon any
Person other than the parties and successors and assigns permitted by this
Section 14.2 any right, remedy or claim under or by reason of this Agreement.
14.3. Access to Records after Closing. (a) For a period of ten years
after the Closing Date, Baxter Japan and its representatives shall have
reasonable access to all of the books and records of the Japanese Edwards
Business transferred to Edwards Optionholder hereunder to the extent that such
access may reasonably be required by Baxter Japan in connection with matters
relating to or affected by the operations of the Japanese Edwards Business prior
to the Closing Date. Such access shall be afforded by Edwards Optionholder upon
receipt of reasonable advance notice and during normal business hours. Baxter
Japan shall be solely responsible for any costs or expenses incurred by it
pursuant to this Section 14.3(a). If Edwards Optionholder shall desire to
dispose of any of such books and records prior to the expiration of such ten-
year period, Edwards Optionholder shall, prior to such disposition, give Baxter
Japan a reasonable opportunity, at Baxter Japan's expense, to segregate and
remove such books and records as Baxter Japan may select.
(b) For a period of ten years after the Closing Date, Edwards
Optionholder and its representatives shall have reasonable access to all of the
books and records relating to the Japanese Edwards Business which Baxter Japan
or any of its Affiliates may retain after the Closing Date. Such access shall be
afforded by Baxter Japan and its Affiliates upon receipt of reasonable advance
notice and during normal business hours. Edwards Optionholder shall be solely
responsible for any costs and expenses incurred by it pursuant to this Section
14.3(b). If Baxter Japan or any of its Affiliates shall desire to dispose of any
of such books and records prior
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to the expiration of such ten-year period, Baxter Japan shall, prior to such
disposition, give Edwards Optionholder a reasonable opportunity, at Edwards
Optionholder's expense, to segregate and remove such books and records as
Edwards Optionholder may select.
14.4. Entire Agreement; Amendments. This Agreement and the Exhibits
and Schedules referred to herein and the documents delivered pursuant hereto
contain the entire understanding of the parties hereto with regard to the
subject matter contained herein or therein, and supersede all prior agreements,
understandings or letters of intent between or among any of the parties hereto.
This Agreement shall not be amended, modified or supplemented except by a
written instrument signed by an authorized representative of Edwards
Optionholder and by the President of Baxter Japan.
14.5. Interpretation. Article titles and headings to sections herein
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement. The Schedules
and Exhibits referred to herein shall be construed with and as an integral part
of this Agreement to the same extent as if they were set forth verbatim herein.
14.6. Waivers. Any term or provision of this Agreement may be
waived, or the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently authorized for the purposes of this Agreement if, as to any party,
it is authorized in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.
14.7. Expenses. All costs and expenses incident to its negotiation
and preparation of this Agreement will be paid by Baxter Japan. Each party will
pay all costs and expenses incident to its performance and compliance with all
agreements and conditions contained herein on its part to be performed or
complied with.
14.8. Partial Invalidity. Wherever possible, each provision hereof
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.
14.9. Execution in Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement, and
shall become binding when one or more counterparts have been signed by each of
the parties hereto and delivered to each of Baxter Japan and Edwards
Optionholder.
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14.10. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws (as opposed to the conflicts of
law provisions) of the State of Illinois.
14.11. Submission to Jurisdiction. Baxter Japan and Edwards
Optionholder hereby irrevocably submit in any suit, action or proceeding arising
out of or related to this Agreement or any of the transactions contemplated
hereby or thereby to the jurisdiction of the United States District Court for
the Northern District of Illinois and the jurisdiction of any court of the State
of Illinois located in Chicago and waive any and all objections to jurisdiction
that they may have under the laws of the State of Illinois or the United States.
14.12. Termination. (a) Anything contained in this Agreement to the
contrary notwithstanding, this Agreement may be terminated at any time by mutual
written consent of Edwards Optionholder and Baxter Japan. This Agreement shall
terminate automatically if the Exercise Period expires prior to exercise of the
Option.
(b) If this Agreement is terminated pursuant to this Section 14.12,
all further obligations of the parties under this Agreement shall be terminated
without further liability of any party to the other, provided that nothing
herein shall relieve any party from liability for its willful breach of this
Agreement.
14.13. Survival of Obligations. All representations, warranties,
covenants and obligations contained in this Agreement shall survive the
consummation of the transactions contemplated by this Agreement.
14.14. Currency. All payments under this Agreement shall be
denominated in Yen.
******
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed the day and year first above written.
BAXTER LIMITED
By: /s/ James Robert Hurley
------------------------
Name: James Robert Hurley
Title: President and
Representative Director
EDWARDS LIFESCIENCES (JAPAN)
LIMITED
By: /s/ Takashi Tsumori
-------------------
Name: Takashi Tsumori
Title: Chairman and
Representative Director
For purposes of Article XI only:
BAXTER INTERNATIONAL INC.
By: /s/ Thomas J. Sabatino, Jr.
----------------------------
Name: Thomas J. Sabatino, Jr.
Title: General Counsel and
Corporate Vice President
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Exhibit A
---------
Japanese Edwards Business
The Cardiovascular Group sells or is engaged in the development of following
product categories in Japan through its three business units (Cardiovascular
Surgery, or CVS, Anesthesia and Medication Delivery, or AMD, and Vascular and
Interventional Cardiology, or VIC):
. Tissue and mechanical heart valves and rings, pericardial patches,
oxygenators, and cardiopulmonary bypass circuits including reservoirs and
arterial filters, cardioplegia devices, heart-lung machines, centrifugal
pumps, arterial and venous cannulae, CDI oxygen monitor cells, Novacor left
ventricular assist devices
. Thermo-dilution (Swan-Ganz) catheters, pacing catheters, central venous
catheters, venous introducers, Invos cerebral tissue oxygen monitor devices,
VIA continuous arterial blood gas monitor devices, Lifespan PTFE endovascular
grafts, Fogarty atraumatic occlusion clips and clamps, Intramed angioscopy
equipment, Thrombex PMT clot extraction catheters
. Direct blood pressure monitor kit, disposable pressure transducers,
Embolectomy (Fogarty) catheters, Lifepath abdominal aortic aneurysm
endovascular graft system, Datascope intra-aortic balloon pumps and
catheters, VasoSeal collagen hemostasis devices, UniCath percutaneous
transluminal coronary angioplasty balloon catheters and stents, Medtronic
pacemakers
The Cardiovascular Group in Japan also manufacturers Custom Pac cardiopulmonary
circuits and direct blood pressure monitor kits at the Miyazaki plant.
<PAGE>
Exhibit B
---------
BILL OF SALE AND ASSIGNMENT
Pursuant to that certain Option Agreement dated as of March 31, 2000
(the "Option Agreement") by and between Baxter Limited, a Japanese corporation
("Baxter Japan"), and Edwards Lifesciences (Japan) Limited, a Japanese
corporation ("Edwards Optionholder"), for good and valuable consideration paid
to Baxter Japan by or on behalf of Edwards Optionholder, the receipt of which is
hereby acknowledged by Baxter Japan, Baxter Japan does hereby sell, transfer,
assign, convey and deliver to Edwards Optionholder the Purchased Business (all
capitalized terms not defined herein shall have the meanings specified in the
Option Agreement); provided, however, as to any lease, contract, agreement,
permit or other authorization or rights included in the Purchased Business that
cannot be conveyed, assigned, transferred, contributed, set over or delivered
effectively without the consent of a third party, which consent has not been
obtained, this Bill of Sale and Assignment shall be of no force or effect until
such requisite consent is obtained, whereupon this Bill of Sale and Assignment
shall become of full force and effect with respect thereto.
EXCEPT FOR THE REPRESENTATIONS, WARRANTIES AND OTHER AGREEMENTS
SPECIFICALLY PROVIDED FOR IN THE OPTION AGREEMENT, ALL OF THE ASSETS SOLD
HEREUNDER ARE SOLD TO EDWARDS OPTIONHOLDER "AS IS" WITHOUT ANY IMPLIED WARRANTY
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, MARKETABILITY, TITLE,
VALUE, FREEDOM FROM ENCUMBRANCE OR ANY REPRESENTATION OR WARRANTY, EXPRESSED OR
IMPLIED.
This Bill of Sale and Assignment shall be binding upon Baxter Japan,
its successors and assigns, and shall inure to the benefit of Edwards
Optionholder, its successors and assigns.
IN WITNESS WHEREOF, Baxter Japan has caused this instrument to be duly
executed and delivered as of ____________________.
BAXTER LIMITED
By: _____________________________
Name:
Title:
<PAGE>
Exhibit C
---------
INSTRUMENT OF ASSUMPTION
------------------------
Pursuant to that certain Option Agreement dated as of March 31, 2000
(the "Option Agreement") by and between Baxter Limited, a Japanese corporation
("Baxter Japan"), and Edwards Lifesciences (Japan) Limited, a Japanese
corporation ("Edwards Optionholder"), for good and valuable consideration paid
to Edwards Optionholder by or on behalf of Baxter Japan, the receipt of which is
hereby acknowledged by Edwards Optionholder, Edwards Optionholder does hereby
assume and agree to pay, perform or otherwise discharge, in accordance with
their terms and subject to the respective conditions thereof, the Assumed
Liabilities (all capitalized terms not defined herein shall have the meanings
specified in the Option Agreement).
This Instrument of Assumption shall be binding upon the successors and
assigns of Edwards Optionholder and shall inure to the benefit of the successors
and assigns of Baxter Japan.
IN WITNESS WHEREOF, Edwards Optionholder has caused this instrument to
be duly executed and delivered as of ____________.
EDWARDS LIFESCIENCES (JAPAN) LIMITED
By:__________________________
Name:
Title:
<PAGE>
Exhibit D
---------
VALUATION DATE BALANCE SHEET
----------------------------
See attached.
<PAGE>
Exhibit E
---------
DESCRIPTION OF IV BUSINESS
--------------------------
The IV Business consists of the importation and distribution of the products
that Operator currently sells or plans to sell in Japan in the following
product categories:
. Infusors, TUR solutions and sets, EIS infusion pumps and Interlink
products, epidural trays and Sabratek pumps,
together with any improved versions of such products introduced after date
hereof. For the avoidance of doubt, the IV Business shall not include any
products subsequently acquired by Operator or its Affiliates as a result of an
acquisition or similar transaction that closes after date hereof.
<PAGE>
EXHIBIT 10.18
JAPAN DISTRIBUTION AGREEMENT
dated as of April 1, 2000
by and between
BAXTER LIMITED
and
EDWARDS LIFESCIENCES LLC
<PAGE>
Page
----
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION............................ 1
ARTICLE II DISTRIBUTION OF PRODUCTS..................................... 7
ARTICLE III RESTRICTIONS ON EDWARDS; EXCLUSIVITY........................ 7
ARTICLE IV TERM......................................................... 8
ARTICLE V PRICES AND FEES............................................... 8
ARTICLE VI INVOICING AND PAYMENTS....................................... 9
ARTICLE VII BAXTER'S DUTIES............................................. 11
ARTICLE VIII EDWARDS' DUTIES............................................ 11
ARTICLE IX STANDARD OF CARE; CONSULTATION............................... 11
ARTICLE X TRANSFER OF TITLE AND RISK OF LOSS............................ 12
ARTICLE XI WARRANTIES................................................... 12
ARTICLE XII TRADEMARKS.................................................. 13
ARTICLE XIII TERMINATION................................................ 14
ARTICLE XIV INDEMNITY................................................... 15
ARTICLE XV COMPLIANCE WITH LAWS......................................... 21
ARTICLE XVI INSURANCE................................................... 23
ARTICLE XVII FORCE MAJEURE.............................................. 23
ARTICLE XVIII CONFIDENTIALITY........................................... 23
ARTICLE XIX LIMITATION OF LIABILITY AND REMEDIES........................ 25
ARTICLE XX DISPUTE RESOLUTION........................................... 26
ARTICLE XXI ASSIGNMENT.................................................. 28
ARTICLE XXII MISCELLANEOUS PROVISIONS................................... 28
</TABLE>
i
<PAGE>
EXHIBITS AND SCHEDULES
Exhibits
- --------
Exhibit A -- Japanese Edwards Business
Exhibit B - Direct Reporting Positions
Schedules
- ---------
Schedule A -- Baxter's Duties
Schedule B -- Edwards' Duties
Schedule C -- Products
Schedule D -- Product Prices
Schedule E -- Service Levels
Schedule F - Agreed Accounting Policies and Allocation Methodology
ii
<PAGE>
JAPAN DISTRIBUTION AGREEMENT
THIS JAPAN DISTRIBUTION AGREEMENT (this "Agreement"), dated as of April 1,
---------
2000 (the "Effective Date"), is by and between Baxter Limited, a Japanese
--------------
corporation with its principal offices at 4, Rokubancho, Chiyoda-ku, Tokyo 102-
8468 Japan ("Baxter Japan"), and Edwards Lifesciences LLC, a Delaware limited
------------
liability company with its principal offices at 17221 Red Hill Avenue, Irvine,
CA 92614 USA ("Edwards").
-------
RECITALS
Prior to the Effective Date, Baxter Japan performed certain sales,
marketing, customer service, and distribution functions in connection with
Edwards' business.
Baxter (as defined below) is willing to continue to perform such functions
without interruption commencing as of the Effective Date, provided that Edwards
is willing to commit to supplying Edwards' products to Baxter on a long-term
basis.
Baxter and Edwards desire that Baxter continue to perform such functions as
Edwards' distributor pursuant to the terms and conditions set forth in this
Agreement.
AGREEMENT
In consideration of the mutual undertakings contained herein, and for other
good and valuable consideration, the receipt and sufficiency of which are
acknowledged, Baxter and Edwards agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. As used in this Agreement:
(a) "Action" shall mean any action, claim, suit, arbitration,
------
inquiry,subpoena, discovery request, proceeding or investigation by or before
any court or grand jury, any governmental or other regulatory or administrative
entity, agency or commission or any arbitration tribunal.
(b) "Administrative and Legal Requirements" shall mean any applicable
-------------------------------------
laws, statues, regulations, rules, codes (including the Fair Competition Code
approved by the Japan Fair Trade Commission), ordinances or orders enacted,
adopted, issued or promulgated by any court or Governmental Body.
(c) "Affiliate" shall mean any Person controlling, controlled by, or
---------
under common control with another Person. For the purpose of this definition and
Section 13.1(b), the term "control" means the power to direct the management of
-------
a Person, directly or indirectly, whether solely through the ownership of
voting securities (as in the case of a subsidiary), by contract, or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to
----------- ----------
1
<PAGE>
the foregoing. Edwards Lifesciences Corporation and Baxter International shall
not be deemed to be Affiliates of each other.
(d) "Agreed Accounting Policies and Allocation Methodology" shall mean
-----------------------------------------------------
Japanese generally accepted accounting principles consistently applied, provided
--------
that, with respect to any matter as to which there is more than one generally
accepted accounting principle, Agreed Accounting Policies and Allocation
Methodology means the generally accepted accounting principles applied in the
preparation of the Valuation Date Balance Sheet attached to the Japan Option
Agreement; provided further that, notwithstanding the foregoing, Agreed
-------- -------
Accounting Policies and Allocation Methodology shall include the accounting
policies and be subject to the allocation methodology and direct accounts
described in Schedule F; and provided further that, for purposes of the Agreed
-------- -------
Accounting Policies and Allocation Methodology, no known adjustments for items
or matters, regardless of the amount thereof, shall be deemed to be immaterial.
(e) "Annual Operating Plan" shall mean, with respect to any business
---------------------
of Baxter Japan, the operating plan for such business approved pursuant to the
normal annual budgeting process.
(f) "Baxter" shall mean whichever of the following is the party-in-
------
interest hereunder at any given time: (i) Baxter Japan, (ii) Baxter Japan's
direct or indirect successor-in-interest, or (iii) Baxter Japan's direct or
indirect assignee pursuant to ARTICLE XXI.
(g) "Baxter International" shall mean Baxter International Inc., a
--------------------
Delaware corporation.
(h) "Baxter Japan" shall have the meaning set forth in the preamble to
------------
this Agreement.
(i) "Baxter Japan Employee" means any employee of Baxter Japan who is
---------------------
not an Edwards Japan Employee.
(j) "Baxter Japan Officer or Director" shall mean any officer or
--------------------------------
director of Baxter Japan who is not an Edwards Japan Employee.
(k) "Competitor" shall mean, with respect to Edwards, any Person to
----------
whom a Transfer of the exclusive distribution rights hereunder would violate the
prohibitions on such relationships set forth in Part 3, Chapter 1 (Sole
Distributorship Contract Between Competitors) of the Japan Antimonopoly Act
Guidelines Concerning Distribution Systems and Business Practices.
(l) "Contract Year" means the period from the Effective Date through
-------------
March 31, 2001, and each twelve-month period commencing upon April 1 of the year
2001 and each year thereafter during the Term.
2
<PAGE>
(m) "Edwards Japan Employee" shall mean the employees of Baxter Japan
----------------------
who are assigned to the Edwards Lifesciences division of Baxter Japan, including
those employees of the Edwards Lifesciences division at the Miyazaki plant.
(n) "Edwards" shall have the meaning set forth in the preamble to this
-------
Agreement.
(o) "Edwards Lifesciences Corporation" shall mean Edwards Lifesciences
--------------------------------
Corporation, a Delaware corporation.
(p) "Edwards Optionholder" shall mean Edwards Lifesciences Limited, a
--------------------
Japanese corporation.
(q) "Expenses" shall mean any and all expenses incurred in connection
--------
with investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter indemnified against hereunder (including, without
limitation, court filing fees, court costs, arbitration fees or costs, witness
fees, and reasonable fees and disbursements of legal counsel, investigators,
expert witnesses, consultants, accountants and other professionals).
(r) "Governmental Body" shall mean any national, prefectural, or other
-----------------
governmental authority or regulatory body.
(s) "Harm to Reputation" shall mean a loss in the fair value of the
------------------
goodwill associated with the Japanese Edwards Business or the Other Japanese
Businesses, as the case may be, but not including any loss in value attributable
to Lost Profits for which indemnification is available pursuant to clause (a) or
(b) of Section 14.1 or clause (i) or (ii) of Section 14.2(a), as the case may
be.
(t) "Insurance Proceeds" shall mean those monies (i) received by an
------------------
insured from an insurance carrier, (ii) paid by an insurance carrier on behalf
of the insured or (iii) received from any third Person in the nature of
insurance, contribution or indemnification in respect of any Liability, in each
such case net of any applicable premium adjustments (including reserves and
retrospectively rated premium adjustments) and net of any costs or expenses
(including allocated costs of in-house counsel and other personnel) incurred in
the collection thereof.
(u) "Japan Option Agreement" shall mean the Option Agreement dated as
----------------------
of March 31, 2000, by and between Baxter Japan and Edwards Optionholder.
(v) "Liability" shall mean any and all debts, liabilities and
---------
obligations, absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising (unless
otherwise specified in this Agreement), including all costs and expenses
relating thereto, and including those debts, liabilities and obligations arising
under any law, rule, regulation, Action, threatened Action, order or consent
decree of any Governmental Authority or any award of any arbitrator of any kind,
and those arising under any contract, commitment or undertaking.
3
<PAGE>
(w) "Japanese Edwards Business" shall mean the business of the
-------------------------
Cardiovascular Group of Baxter International Inc. in Japan, all as more
specifically described in Exhibit A hereto, together with any additional
---------
businesses undertaken after the date hereof by the Edwards Lifesciences division
of Baxter Japan.
(x) "Losses" shall mean any and all losses, costs, obligations,
------
liabilities, settlement payments, awards, judgments, fines, penalties, damages,
expenses, deficiencies or other charges, and shall include (i) for the purpose
of clauses (a) and (b) of Section 14.1 and clauses (i) and (ii) of Section
14.2(a) only, Lost Profits for any period during which the sales activities of
Baxter Japan are suspended or restricted by any Governmental Body, and (ii) for
the purpose of clauses (a) and (b) of Section 14.1 and clauses (i) and (ii) of
Section 14.2(a) only, Harm to Reputation.
(y) "Lost Profits" shall mean, for any period during which the sales
------------
activities of the Japanese Edwards Business or the Other Japanese Businesses are
suspended or restricted by any Governmental Body, the amount by which (i) its
Projected Profit for such period exceeds (ii) its actual Income (Loss) Before
Income Taxes for such period, determined in accordance with the Agreed
Accounting Policies and Allocation Methodology.
(z) "Mutually Approved President" shall mean any person appointed as
---------------------------
President of the Edwards Lifesciences division of Baxter Japan and approved in
writing by Edwards.
(aa) "Notice" shall mean notice given in accordance with Section 22.1.
------
(bb) "Other Japanese Businesses" shall mean all businesses of Baxter
-------------------------
Japan other than the Japanese Edwards Business.
(cc) "Person" shall mean an individual, corporation, partnership,
------
limited liability company, unincorporated syndicate, association or
organization, trust, trustee, executor, administrator or other legal
representative, governmental authority or agency, or any group of Persons acting
in concert.
(dd) "Products" shall mean the products manufactured by or on behalf
--------
of Edwards and set forth in Schedule C (as amended from time to time in
accordance with the terms of this Agreement) together with the parts and
components necessary for the repair and replacement thereof.
(ee) "Product Line" shall mean a group of Products in Schedule C
------------
designated as a product line.
(ff) "Projected Profit" shall mean, for any period and business, the
----------------
projected Income (Loss) Before Income Taxes of such business for such period, as
shown in the most recent Annual Operating Plan for such business (the "Budgeted
--------
Profit") multiplied by a fraction, the numerator of which shall be the actual
- ------
Income (Loss) Before Income Taxes for such business for the most recent twelve
months ending prior to such period and the denominator of which
4
<PAGE>
shall be the Budgeted Profit for such twelve months; provided, however, that if,
-------- -------
as a result of an event (such as a material acquisition or disposition)
occurring after the approval of the Annual Operating Plan for any business, the
projected Income (Loss) Before Income Taxes shown in such Annual Operating Plan
is no longer representative of the expected Income (Loss) Before Income Taxes of
such business, the Projected Profit shall be an amount that fairly represents
the Income (Loss) Before Income Taxes that such business would have earned in
the relevant period if the event or state of facts giving rise to the claim for
Lost Profits had not occurred. If Projected Profit is determined pursuant to
foregoing proviso, all relevant factors, including the Annual Operating Plan,
-------
any updated forecasts and the actual performance of the relevant business prior
to the relevant period, shall be taken into account. Any dispute will respect
to the calculation of Projected Profits shall be resolved pursuant to the
procedures set forth in ARTICLE XX. For the avoidance of doubt, Projected
Profit shall not take into account any event or state of facts that gives rise
to the claim for which Lost Profits are sought.
(gg) "Tax" shall mean:
---
(i) any federal, state, local or foreign net income, gross income,
gross receipts, consumption, windfall profit, severance, property,
production, sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add-on minimum, ad valorem, value-added,
transfer, stamp or environmental tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty, addition to tax or additional amount
imposed by any Governmental Body; and
(ii) any liability of either party for the payment of amounts with
respect to payments of a type described in clause (i) above as a result of
being a member of an affiliated, consolidated, combined or unitary group,
or as a result of any obligation of either party under a tax sharing
arrangement or tax indemnity arrangement.
(hh) "Term" shall mean the period of time provided in ARTICLE IV
----
hereof, including any and all extensions thereof.
(ii) "Territory" shall mean the country of Japan.
---------
(jj) "Third-Party Claims" shall mean any and all Actions by, and
------------------
liabilities to, third parties.
(kk) "Transfer" shall mean any assignment, transfer, sale or other
--------
disposition to a Person that is not an Affiliate of the transferor, including
any transfer by way of merger or consolidation or otherwise by operation of law.
1.2 Other Terms. Terms defined in other Sections (or in any Schedule)
will have the meanings therein provided.
1.3 Rules of Construction. In this Agreement, unless a clear, contrary
intention appears:
5
<PAGE>
(a) the singular number includes the plural number and vice versa;
(b) reference to any Person includes such Person's successors and
assigns that are permitted by this Agreement;
(c) reference to any gender includes the other gender;
(d) reference to any Section or Schedule means such Section of this
Agreement or such Schedule to this Agreement, as the case may be, and reference
in any Section or other provision to any clause means such clause of such
Section or provision;
(e) "herein," "hereunder," "hereof," "hereto," and words of similar
import shall be deemed references to this Agreement as a whole and not to any
particular Section or other provision hereof;
(f) "including" (and with correlative meaning "include") means
"including but not limited to";
(g) relative to the determination of any period of time, "from" means
"from and including," "to" means "to but excluding," and "through" means
"through and including";
(h) reference to any law (including statutes and ordinances) means
such law (including all rules and regulations promulgated thereunder) as
amended, modified, codified or reenacted, in whole or in part, and in effect at
the time of determining compliance or applicability;
(i) accounting terms used herein shall have the meanings historically
attributed to them by Baxter International and its subsidiaries based upon
Baxter International's internal financial policies and procedures in effect
prior to the date of this Agreement;
(j) the provisions contained in the Schedules shall control over any
conflicting provisions contained in the body of this Agreement; and
(k) the headings contained in this Agreement are for reference only
and are not to be used in construing this Agreement.
1.4 Construction. The parties acknowledge that they negotiated this
Agreement with the benefit of legal representation, and no rule of construction
or interpretation otherwise requiring this Agreement to be construed or
interpreted against either party shall apply. Subject to Section 22.5, this
Agreement shall be interpreted and construed to the maximum extent possible so
as to uphold the enforceability of each of the terms and provisions hereof, it
being understood and acknowledged that this Agreement was entered into by the
parties after substantial negotiations and with full awareness by the parties of
the terms and provisions hereof and the consequences thereof.
6
<PAGE>
ARTICLE II
DISTRIBUTION OF PRODUCTS
2.1 Grant of Distribution Rights. With respect to sales of all Products in
the Territory, Edwards hereby grants to Baxter and Baxter hereby accepts the
right (which shall be exclusive except as provided herein) to distribute the
Products to customers in the Territory. In connection therewith, Baxter shall
perform sales support, marketing support, customer service, physical
distribution, and distribution-related activities as set forth in ARTICLE VII.
2.2 Exceptions and Limitations. Edwards reserves all rights not expressly
granted to Baxter hereunder. Subject to Section 21.3, Baxter may appoint
subagents or subdistributors to fulfill its obligations hereunder, provided that
Baxter shall be responsible for the acts and omissions of such subagents and
subdistributors, if any, as if such subagents and subdistributors were employees
of Baxter.
2.3 Relationship. Baxter shall maintain the principal contractual
relationship with the customer for sales, sales support, credit, collections,
and customer service in connection with the provision of the Products. Edwards
shall use reasonable efforts to cooperate with Baxter and to facilitate Baxter's
fulfillment of its obligations hereunder.
ARTICLE III
RESTRICTIONS ON EDWARDS; EXCLUSIVITY
3.1 Restrictions on Edwards.
(a) Edwards and Edwards Lifesciences shall not, and shall cause their
Affiliates, and any other Person acting on behalf of any of them or their
Affiliates, not to distribute or grant, directly or indirectly, to any Person
other than Baxter the right to distribute the Products to customers in the
Territory, provided that Edwards shall have the right:
(i) to distribute Products to customers within the Territory other
than through Baxter if and to the extent Baxter is unable to so distribute
the Products due to (A) regulatory requirements; or (B) Baxter being
otherwise prohibited or prevented from selling and/or distributing the
Products to any customer or class of customers other than by customer
decision; and
(ii) to sell and distribute Products to customers within the Territory
other than through Baxter if (A) Baxter's rights under this Agreement are
assigned to a Competitor, or (B) Baxter becomes a Competitor by selling
products other than the Products.
(iii) except as set forth in Section 3.3, sell and distribute products
that are not Products as defined herein through relationships that do not
include Baxter.
(b) This Agreement shall in no way limit the right of Edwards and its
Affiliates to market, sell, or otherwise distribute the Products outside the
Territory.
7
<PAGE>
3.2 Exceptions. Edwards shall have the right to request exceptions to the
foregoing restrictions on a case-by-case basis in connection with sales to
specific customers. Such exceptions shall require written approval of Baxter's
President, but such approval shall not be unreasonably withheld.
3.3 Product Exclusivity.
(a) Prior to directly or indirectly selling or distributing to
customers in the Territory any product (other than a Product) developed by
Edwards or manufactured by or on behalf of Edwards, Edwards shall notify
Baxter's President regarding Edwards' intent with respect to such product.
Baxter shall have the right, but not the obligation, to add such product to
Schedule C and this Agreement, and if so added, such product shall be deemed to
be one of the Products. Edwards may delete from Schedule C and this Agreement
any Product, the manufacture and sale of which has been generally discontinued
by Edwards. On or before November 30 of each Contract Year, Edwards shall
provide to Baxter an updated version of Schedule C including any Product
additions or deletions expected to occur in the subsequent Contract Year. In
addition, Edwards shall notify Baxter at least 90 days prior to generally
discontinuing the manufacture and sale of any Product.
(b) If Edwards or Edwards Lifesciences is Transferred, then, in
connection with any product of the transferee (or any of its Affiliates) that is
directly or indirectly sold or distributed to customers in the Territory and is
in the same domestic market (as such term is used in the Japan Antimonopoly Act
Guidelines Concerning Sole Distributorship) as the Products (each a "Transferee
----------
Product"), Baxter shall have the right, but not the obligation, to add such
- -------
Transferee Product to Schedule C and this Agreement, and if so added, such
Transferee Product shall be deemed to be one of the Products. Notwithstanding
the foregoing, if a Transferee Product is subject to sale or distribution to
customers in the Territory pursuant to an agreement between a third-party
distributor and the transferee (or its Affiliate), then the foregoing right of
Baxter shall not apply to such Transferee Product during the term of such
agreement provided that (i) such agreement was entered into by such third-party
distributor and such transferee (or its Affiliate) more than 90 days prior to
such Transfer; (ii) such transferee (or its Affiliate) shall not extend or renew
the term of such agreement during or after the 90-day period immediately prior
to such Transfer; and (iii) such transferee shall exercise any right of
termination or nonrenewal in connection with such agreement to be effective as
soon as possible after such Transfer.
ARTICLE IV
TERM
The term of this Agreement (the "Term") shall commence on the Effective
----
Date and, except as otherwise provided herein, expire at the end of the day on
March 31, 2015.
ARTICLE V
PRICES AND FEES
5.1 Product Prices. For each Product ordered by Baxter and supplied by
Edwards, Baxter shall pay to Edwards the applicable purchase price set forth in
Schedule D.
8
<PAGE>
5.2 Price Changes.
(a) The purchase prices that Baxter shall pay to Edwards for the
Products shall be adjusted effective on January 1 of each Contract Year and
shall apply to all Products purchased by Baxter during such Contract Year. The
purchase price for each Product shall be set using a resale price method
pursuant to which the purchase price to be paid by Baxter to Edwards shall be
determined by applying a discount (the "Percentage Discount") to an estimate of
-------------------
the Average Sales Price ("ASP") charged by Baxter to a third-party customer
---
during the Term.
(b) The Percentage Discount shall be calculated for each Contract
Year and shall be set at a level designed to yield to Baxter an overall net
operating profit with respect to such sales of the Products by the Edwards
Lifesciences division of Baxter Japan that will be equivalent, as a percentage
of sales, to the simple average of the net operating profit of the
cardiovascular division of Baxter Japan for the years 1990 through 1997. The
Percentage Discount may vary from Product to Product, as mutually agreed by the
parties, so long as the overall projected result is consistent with this target.
For each Contract Year, Edwards, in consultation with Baxter, shall prepare the
estimates of the ASP for each Product and the sales volume for each Product. For
each Contract Year, Baxter, in consultation with Edwards and based upon Edwards'
estimates of sales volumes, shall prepare the estimates of Baxter's Costs to
distribute the Products and the total sales discounts, returns and allowances
for the Products.
(c) The purchase prices paid by Baxter for the Products shall be
subject to a quarterly adjustment to produce a margin to Baxter that is
equivalent to that which would have resulted if the actual ASPs for such quarter
were equal to the estimated ASPs used in determining the Percentage Discount.
5.3 Other Fees. Edwards shall pay or reimburse Baxter for any other fees,
costs or expenses set forth in this Agreement including paying to Baxter any
agreed-upon amounts in connection with the FCA services described in Section 6.3
of Schedule A.
ARTICLE VI
INVOICING AND PAYMENTS
6.1 Invoicing. Edwards shall bill Baxter by submitting invoices to Baxter
for payment of amounts due under this Agreement. Such invoices will specify the
Products ordered and Baxter's purchase order number and will be accompanied by
or be followed by such other supporting detail as Baxter may reasonably request.
6.2 Payment. Baxter will pay or cause its Affiliates to pay all amounts
due pursuant to this Agreement within 60 days after the date of each invoice
hereunder.
6.3 Overdue Payments. If any amounts due hereunder have not been received
by the due date, such overdue amounts shall bear interest from the due date at
the rate of 1% per month, or portion thereof, until received.
6.4 Disputed Amounts. Either party shall have the right to withhold any
amounts due hereunder if such party in good faith disputes the amount claimed by
the other party to be due
9
<PAGE>
hereunder and such party notifies the other party of such dispute on or before
the applicable due date. The foregoing right to withhold payment of disputed
amounts shall be limited to amounts disputed in good faith, and interest will
accrue in accordance with Section 6.3 and be payable on the net amount
determined to be due. Any such dispute shall be resolved in accordance with
ARTICLE XX.
6.5 Suspension of Performance. In addition to any other rights available
to it at law or in equity, upon ten days' prior Notice to Baxter, Edwards may
cease acceptance of orders and suspend supply of Products hereunder if an
undisputed amount due hereunder has not been paid by Baxter within 30 days after
its due date, and such suspension may continue until such payment has been made.
6.6 No Acknowledgement. Neither payments made by Baxter nor the
acceptance of payments by Edwards in the amount of or less than the amount shown
on any invoice from Edwards shall be construed as an acceptance or agreement
with the amount so stated or the amount received. Either party may recover from
the other the amount of any overpayment or underpayment. Without limiting the
generality of the foregoing, Edwards may supplement any invoice it renders to
Baxter hereunder for less than the full amount to which it is entitled; provided
that such supplement is made within a reasonable time after the date of the
invoice being supplemented.
6.7 Audit. Either party may audit the other party's books and records to
the extent necessary to determine such other party's compliance with the terms
of this Agreement. In addition, Baxter may inspect or review Edwards' production
and quality control processes and records, and such inspection or review shall
be deemed to be an "audit" subject to the terms of this Section 6.7. The party
performing the audit may use independent auditors who may participate fully in
such audit. If an audit is proposed with respect to information which the party
to be audited wishes not to disclose to the other party ("Restricted
----------
Information"), then on the written demand of the party to be audited, the
- -----------
individuals conducting the audit with respect to Restricted Information will be
limited to the independent auditors of the party requesting the audit. In such
event, the party to be audited shall pay the costs of the independent auditors
conducting such audit, but only with respect to that portion of the audit
relating to the Restricted Information. Such independent auditors shall enter
into an agreement with the parties hereto, on terms that are agreeable to both
parties hereto, under which such independent auditors shall agree to maintain
the confidentiality of the information obtained during the course of such audit
and establishing what information such auditors will be permitted to disclose to
report the results of any audit of Restricted Information to the party
requesting the audit. Any such audit shall be conducted during regular business
hours and in a manner that does not interfere unreasonably with the operations
of the party being audited. Each party may perform such an audit one time in
each twelve-month period during the Term; provided that a party may perform an
additional audit at any time if the preceding audit reveals a failure to conform
to the terms of this Agreement. Each audit shall begin upon the date specified
by the auditing party in a Notice to the other party a minimum of 30 days prior
to the commencement of the audit and shall be performed diligently and in good
faith and shall be completed within a reasonable period of time.
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ARTICLE VII
BAXTER'S DUTIES
During the Term, Baxter shall maintain the facilities and personnel
necessary to fulfill its obligations and responsibilities hereunder including
the duties set forth in Schedule A.
ARTICLE VIII
EDWARDS' DUTIES
During the Term, Edwards shall maintain the facilities and personnel
necessary to fulfill its obligations and responsibilities hereunder including
the duties set forth in Schedule B.
ARTICLE IX
STANDARD OF CARE; CONSULTATION
9.1 General. Each party will use (and will cause its Affiliates to use)
commercially reasonable efforts in the performance of its obligations hereunder
and will do so with the same degree of care, skill and prudence customarily
exercised when engaged in similar activities for itself and its Affiliates.
Subject to the provisions of ARTICLE XIX, if a party's performance is
inaccurate, incomplete, or untimely, such party shall, if practicable, promptly
perform or reperform such obligations. In performing its responsibilities
hereunder, each party shall accord the other party and such other party's
Affiliates the same priority as it provides itself and its Affiliates under
comparable circumstances. Without limiting the generality of the foregoing, in
connection with its performance hereunder, neither party will discriminate
against the other party or any of such other party's Affiliates solely because
the other party or one of such other party's Affiliates is the recipient of such
performance. The parties shall consult with each other with respect to
performance of their obligations hereunder. Each party shall give due
consideration to any suggestion by the other to improve performance.
9.2 Overall Level of Service. Each party will use commercially reasonable
efforts to perform its obligations with the same levels of efficiency, accuracy
and effectiveness as such obligations were performed immediately prior to the
effective date of this Agreement. In addition, Baxter will use commercially
reasonable efforts to perform its obligations in accordance with the service
levels set forth in Schedule E but shall not be liable for damages caused by any
failure to meet the specified service levels in the absence of gross negligence
or willful misconduct. The parties agree to consult with each other with respect
to such service levels and their respective performance in attaining same. Each
party shall consider any suggestion by the other to improve such party's
performance, but such party shall have no obligation to accept or implement any
such suggestion that it does not, in its sole discretion, deem advisable and in
its best interests.
9.3 Annual Meetings. Baxter and Edwards shall hold an annual meeting to
discuss (a) the performance of the Japanese Edwards Business as well as product
and market developments relevant to the coming year's operations, and (b) budget
projections affecting the projected price discounts. The annual meeting shall be
held at Edwards Lifesciences headquarters in Irvine, California, or at such
other location as the parties may agree, and shall be
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attended by the CEO and General Counsel of each of Baxter International and
Edwards Lifesciences (or their respective designees) and the Representative
Directors of Baxter Japan. The date of the annual meeting shall be determined by
mutual agreement of the parties.
ARTICLE X
TRANSFER OF TITLE AND RISK OF LOSS
Title to the Products and the risk of loss of such Products shall transfer
from Edwards to Baxter at the time that Baxter or Baxter's designee takes
delivery of the Products from Edwards DDU at the port of entry in Japan.
ARTICLE XI
WARRANTIES
11.1 Product Warranty. The following shall apply to all Products sold or
transferred to Baxter Japan prior to or after the Effective Date. Edwards
warrants to Baxter that, at the time of delivery to Baxter (or Baxter's
designee): (a) the Products have been manufactured by Edwards in accordance with
Good Manufacturing Practices as required by the United States Food and Drug
Administration and Edwards quality control processes and standards which
processes and standards shall meet the minimum requirements of the Ministry of
Health and Welfare of Japan for medical devices and associated products; (b) the
Products conform to the Product specifications in all material respects; (c) the
Products will be free from defects in materials and workmanship under normal use
and service for a period of twelve months commencing on the date that such
Products are received by Baxter Japan; (d) the Products shall not be subject to
expiration for a minimum of nine months thereafter; (e) the design and material
of product packaging (and the quality systems and procedures governing packaging
and transportation operations) are adequate to prevent damage to the Products
including moisture damage, insect damage, and/or contamination with dust or
dirt; and (f) Edwards shall have good and marketable title to all Products free
and clear of all liens or encumbrances (other than any created by Baxter).
11.2 Disclaimer. THE FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL
OTHER WARRANTIES OF ANY KIND, WHETHER STATUTORY, WRITTEN, ORAL, EXPRESS OR
IMPLIED, INCLUDING ANY WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND
MERCHANTABILITY. IN NO EVENT, WHETHER AS A RESULT OF BREACH OF CONTRACT, TORT
LIABILITY (INCLUDING NEGLIGENCE) OR OTHERWISE, SHALL EDWARDS BE LIABLE TO BAXTER
FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
11.3 Limitation of Liability. ANY LIABILITY OF EDWARDS TO BAXTER UNDER THE
WARRANTY CONTAINED IN THIS ARTICLE XI SHALL BE LIMITED TO THE TOTAL PRICE PAID
BY BAXTER FOR THE PRODUCTS THAT ARE THE SUBJECT OF SUCH LIABILITY PLUS ALL COSTS
FOR FREIGHT AND OTHER DIRECT EXPENSES INCURRED BY BAXTER WITH RESPECT TO SUCH
PRODUCTS. SUBJECT TO THE FOREGOING, IF, AT THE TIME OF DELIVERY TO BAXTER (OR
BAXTER'S DESIGNEE), A PRODUCT FAILS TO CONFORM IN ALL MATERIAL RESPECTS TO THE
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PRODUCT SPECIFICATIONS, THEN EDWARDS SHALL EITHER (AT EDWARDS' OPTION) (a)
REPLACE SUCH PRODUCT WITHOUT ANY ADDITIONAL CHARGE TO BAXTER, OR (b) REFUND TO
BAXTER THE PURCHASE PRICE PLUS ALL COSTS FOR FREIGHT AND OTHER DIRECT EXPENSES
INCURRED BY BAXTER.
ARTICLE XII
TRADEMARKS
12.1 Ownership. Baxter acknowledges that Edwards or its Affiliates are the
owners or licensees of the trademarks and trade names that Edwards and its
Affiliates use in the promotion and sale of the Products hereunder, and that
Baxter has no right or interest in such trademarks or trade names. Prior to
using any such trademarks or trade names, Baxter shall provide to Edwards
specimens of the proposed use of such trademarks or trade names, and Baxter
shall not use such trademarks or trade names unless Edwards approves in writing
of each such proposed use, such approval not to be unreasonably withheld or
delayed. Notwithstanding the foregoing (a) Edwards hereby grants to Baxter Japan
the limited right during the Term to use the EDWARDS or EDWARDS LIFESCIENCES
mark in connection with and to refer to the operating division of Baxter Japan
that engages in the Japanese Edwards Business (i.e., the Edwards Lifesciences
----
division of Baxter Japan or similar uses); and (b) Edwards hereby grants to
Baxter during the Term the exclusive, limited right to use the EDWARDS and
EDWARDS LIFESCIENCES marks in the Territory in connection with the Japanese
Edwards Business. Baxter Japan's and Baxter's rights to use such Edwards marks
shall be subject to all reasonable usage guidelines communicated by Edwards to
Baxter Japan and Baxter, respectively. Edwards shall not grant to any third-
party the right to use such Edwards marks in the Territory during the Term in
connection with the development, manufacture, marketing, sales or support of
products that are competitive with or otherwise related to the Products
hereunder or any other products or services of the Japanese Edwards Business.
12.2 Infringement. Baxter shall notify Edwards promptly of any
infringement or improper use by any third party of the trademarks or trade names
connoting Edwards if it comes to Baxter's attention that such infringement or
improper use is taking place. In connection therewith, Baxter shall provide to
Edwards all related information of which Baxter has knowledge. Edwards shall
have sole discretion and control with regard to any proceedings related to
infringement or improper use of its trademarks and trade names. Baxter may
choose to be represented by its own counsel in any such proceedings, but such
representation shall be solely at Baxter's expense.
12.3 Equitable Remedies. Baxter acknowledges that Edwards may not have an
adequate remedy at law for the breach by Baxter of any covenant contained in
Section 12.1. Accordingly, if Baxter breaches any such covenant, Edwards may,
in addition to the other remedies that may be available to Edwards, file a suit
in equity to enjoin Baxter from any further breach of any of the terms of
Section 12.1.
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ARTICLE XIII
TERMINATION
13.1 Change in Control.
(a) General.
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(i) In the event of a Change in Control of Edwards, Edwards shall
give Notice to Baxter within 30 days after the occurrence of such Change in
Control. Baxter may terminate this Agreement in whole, or solely with
respect to Edwards' rights set forth in Section 7 of Schedule A, in the
event of any such Change in Control with respect to Edwards, by giving
Notice of such termination to Edwards as provided below.
(ii) Baxter may exercise the rights of termination described in the
preceding paragraph (i) by providing to Edwards a Notice of termination,
specifying the date of termination, at any time within the 60-day period
immediately following the receipt by Baxter of the applicable Notice of
Change in Control given by Edwards pursuant to the first sentence of
Section 13.1(a)(i).
(iii) The date of termination specified by Baxter in the Notice of
termination for a termination in whole shall be the last day of a calendar
month that is not earlier than the third full calendar month following the
date of the Notice of termination and not later than the sixth full
calendar month following the date of the Notice of termination. The date of
termination specified by Baxter in the Notice of termination for a
termination solely with respect to Edwards' rights set forth in Section 7
of Schedule A shall be the last day of a calendar month that is not earlier
than the first full calendar month following the date of the Notice of
termination and not later than the third full calendar month following the
date of the Notice of termination.
(b) Definitions. For purposes hereof, "Change in Control" shall mean
-----------
(i) the acquisition, directly or indirectly, by any Person or Persons of more
than 30% of the voting stock of either party to this Agreement or any person
that controls either party, other than such an acquisition by a Person that is
controlled by the Ultimate Parent of such party, (ii) any merger or
consolidation involving the Ultimate Parent of Edwards or any Affiliate of such
Ultimate Parent that requires a vote of the stockholders of the Ultimate Parent
of Edwards, (iii) the acquisition by the Ultimate Parent of Edwards of any
Person that constitutes a "significant subsidiary" of such Ultimate Parent
within the meaning of Rule 1-02(w) of Regulation S-X of the Regulations of the
Securities and Exchange Commission, substituting 50 percent for 10 percent in
the tests used therein to determine significant subsidiary, and (iv) the sale,
assignment, transfer or other disposition (including any disposition through a
merger) of all or substantially all of the business and assets of any Person
that controls Edwards. "Ultimate Parent" means Baxter International in the case
of Baxter and Edwards Lifesciences in the case of Edwards.
(c) Confidential Information. During the period commencing with any
------------------------
such Change in Control and continuing through the end of the Term (and
thereafter, if appropriate), Edwards shall take any and all action reasonably
requested by Baxter to protect any confidential
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information of Baxter from disclosure to or use by any Affiliate of Edwards
other than a Person that, immediately prior to the occurrence of the Change in
Control, was an Affiliate of Edwards that regularly accessed such confidential
information for a reasonable business purpose.
13.2 Other Terminations. Each party shall have the right to terminate this
Agreement effective upon delivery of Notice to the other party if the other
party materially defaults in the performance of any of its covenants or
obligations contained in this Agreement (including a failure to comply with the
Foreign Corrupt Practices Act (as amended)), and such default is not remedied to
the nondefaulting party's reasonable satisfaction within 30 days after Notice to
the defaulting party of such default, or if such default is not capable of
rectification within 30 days, if the defaulting party has not promptly commenced
to rectify the default within such 30-day period or is not proceeding diligently
to rectify the default.
13.3 Procedures Upon Termination. Upon any termination of this Agreement,
each party shall complete its work in process and otherwise cooperate with the
other party as reasonably necessary to avoid disruption of the normal business
operations of such other party, and such termination shall not affect either
party's rights that arose prior to the effective date of such termination.
Except as otherwise required pursuant to ARTICLE XVIII and Section 22.10, each
party shall destroy or return to the other party all records made or obtained in
the course of performance hereunder that contain information that is protected
from disclosure by such party under ARTICLE XVIII. If either party elects to
destroy any records as permitted above, such party shall provide the other party
with written confirmation of such destruction.
13.4 Continued Service. If this Agreement expires or is terminated pursuant
to this ARTICLE XIII, Baxter and Edwards shall comply fully with this Agreement
and use reasonable efforts to adequately service existing customers of the
Products until such expiration or termination becomes effective. Edwards shall
reimburse Baxter for (a) any termination or severance payments actually paid by
Baxter to any Edwards Japan Employees as a result of the termination or
expiration of this Agreement, and (b) any Losses incurred by Baxter as a result
of Baxter's inability to terminate the employment of any Edwards Japan Employees
following such termination or expiration.
13.5 Sell-Off. Notwithstanding any provision of this Agreement or any other
agreement between Baxter, Edwards, and/or their respective Affiliates, the
parties acknowledge that Baxter and its Affiliates shall be entitled to continue
to sell or otherwise dispose of the Products within the Territory from and after
the effective date of the expiration or termination of this Agreement if such
Products were owned by Baxter on the date of such expiration or termination;
provided that Baxter shall not substantially increase its inventory of Products
in anticipation of such expiration or termination.
ARTICLE XIV
INDEMNITY
14.1 Baxter's Obligation. Except as provided in Section 14.2(a)(v)(B) and
14.4, Baxter shall indemnify and hold harmless Edwards and each of its
Affiliates, directors, officers, employees, agents and counsel and each of the
heirs, executors, successors and assigns of any of
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the foregoing (collectively, the "Edwards Indemnified Parties"), from and
---------------------------
against any and all Expenses or Losses incurred or suffered by Edwards (and/or
one or more of the Edwards Indemnified Parties), in connection with, relating
to, arising out of or due to, directly or indirectly, any of the following
items:
(a) any fines, penalties or other sanctions imposed by a Governmental
Body that (i) arise out of the operation of the Other Japanese Businesses at any
time prior to the fifth anniversary of this Agreement and (ii) affect the
Japanese Edwards Business;
(b) any failure of the Other Japanese Businesses to comply, at any
time prior to the fifth anniversary of this Agreement, with any applicable
Administrative and Legal Requirements;
(c) any exercise of control or influence over the operation of the
Japanese Edwards Business during the first five years of this Agreement by a
Baxter Japan Officer or Director, without the approval of the Mutually Approved
President; and
(d) any and all Third-Party Claims that arise out of or relate to:
(i) any actual or alleged patent, copyright or trademark
infringement, or misappropriation or violation of any other proprietary
right, arising out of Baxter's performance pursuant to this Agreement (but
not arising out of or relating to any of the proprietary rights in the
Products as delivered); or
(ii) any tort claim (including any claim for personal injury, wrongful
death or property damage) to the extent such claim arises from any grossly
negligent act or omission or willful misconduct by Baxter (or its employees
or agents) in the course of its performance pursuant to this Agreement,
including any misrepresentation concerning the characteristics or method of
usage of Products or relating to the storage, handling or delivery of
Products.
Expenses shall be reimbursed or advanced when and as incurred promptly upon
submission of statements to Baxter by Edwards or any Edwards Indemnified Party.
14.2 Edwards' Obligation.
(a) Except as provided in Sections 14.2(b) and 14.4, Edwards shall
indemnify and hold harmless Baxter and each of its Affiliates, directors,
officers, employees, agents and counsel and each of the heirs, executors,
successors and assigns of any of the foregoing (collectively, the "Baxter
------
Indemnified Parties"), from and against any and all Expenses or Losses incurred
- -------------------
or suffered by Baxter (and/or one or more of the Baxter Indemnified Parties), in
connection with, relating to, arising out of or due to, directly or indirectly,
any of the following items (and to the extent related to Products shall apply to
all Products sold or transferred to Baxter Japan prior to or after the Effective
Date):
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(i) any fines, penalties or other sanctions imposed by a Governmental
Body that (A) arise out of the operation of the Japanese Edwards Business at any
time prior to the fifth anniversary of this Agreement and (B) affect the Other
Japanese Businesses;
(ii) any failure of the Edwards Japanese Business to comply, at any time
prior to the fifth anniversary of this Agreement, with any applicable
Administrative and Legal Requirements;
(iii) any exercise of control or influence over the operation of Other
Japanese Businesses during the first five years of this Agreement by an officer
or director of the Edwards Lifesciences division of Baxter Japan and without the
approval of Baxter's President;
(iv) any claim or Action that is brought by a Edwards Employee against
Baxter Japan and that relates to or arises out of events that occurred at any
time prior to the fifth anniversary of this Agreement, other than a claim or
Action that arises out of (x) an event or action described in Section 14.1(c) or
(y) the gross negligence or willful misconduct of a Baxter Japan Employee; and
(v) any and all Third-Party Claims that arise out of or relate to:
(A) any tort claim (including any claim for personal injury,
wrongful death or property damage) to the extent such claim
arises from any grossly negligent act or omission or willful
misconduct by Edwards (or its employees or other agents) in
the course of its performance pursuant to this Agreement;
(B) defects in the Products;
(C) any actual or alleged patent, copyright or trademark
infringement, or misappropriation or violation of any other
proprietary right related to a Product;
(D) any actual or alleged breach of any warranty (including
written warranties included within the Product packaging) or
obligation, if any, accompanying the Products, subject to the
limitations in ARTICLE XI to the extent provided therein; and
(E) any claim for personal injury, wrongful death or property
damage arising out of the use of a Product.
Expenses shall be reimbursed or advanced when and as incurred promptly upon
submission of statements to Edwards by Baxter or any Baxter Indemnified Party.
(b) Notwithstanding the foregoing, none of the Baxter Indemnified
Parties shall be entitled to indemnification under clause (i), (ii) or (iii) of
Section 14.2(a) for (i) any Expenses or Losses that are included in the Profits
and Losses allocated under the TK Agreement
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or (ii) any period during which Baxter or its Affiliates shall cause (A) the
President of the Edwards Lifesciences division of Baxter Japan to be someone
other than a person approved by Edwards or (B) any of the positions listed in
Exhibit B hereto to report directly to anyone other than the Mutually Approved
- ---------
President.
14.3 Applicability of Indemnification. EXCEPT AS EXPRESSLY PROVIDED
HEREIN, THE INDEMNITY OBLIGATION UNDER THIS ARTICLE XIV SHALL APPLY
NOTWITHSTANDING ANY INVESTIGATION MADE BY OR ON BEHALF OF ANY INDEMNIFIED PARTY
AND SHALL APPLY WITHOUT REGARD TO WHETHER THE LOSS, LIABILITY, CLAIM, DAMAGE,
COST OR EXPENSE FOR WHICH INDEMNITY IS CLAIMED HEREUNDER IS BASED ON STRICT
LIABILITY, ABSOLUTE LIABILITY OR ARISES AS AN OBLIGATION FOR CONTRIBUTION.
14.4 Adjustment of Indemnifiable Losses.
(a) The amount that any party (an "Indemnifying Party") is required to
------------------
pay to any Person entitled to indemnification hereunder (an "Indemnified Party")
-----------------
shall be reduced (including retroactively) by any Insurance Proceeds and other
amounts actually recovered by or on behalf of such Indemnified Party in
reduction of the related Expense or Loss. If an Indemnified Party receives a
payment (an "Indemnity Payment") required by this Agreement from an Indemnifying
-----------------
Party in respect of any Expense or Loss and subsequently actually receives
Insurance Proceeds or other amounts in respect of such Expense or Loss, then
such Indemnified Party shall pay to the Indemnifying Party a sum equal to the
lesser of (i) the amount of such Insurance Proceeds or other amounts actually
received or (ii) the net amount of Indemnity Payments actually received
previously. The Indemnified Party agrees that the Indemnifying Party shall be
subrogated to such Indemnified Party under any insurance policy.
(b) An insurer who otherwise would be obligated to pay any claim shall
not be relieved of the responsibility with respect thereto, or, solely by virtue
of the indemnification provisions hereof, have any subrogation rights with
respect thereto, it being expressly understood and agreed that no insurer or any
other third party shall be entitled to a "windfall" (i.e., a benefit he or she
----
would not be entitled to receive in the absence of the indemnification
provisions) by virtue of the indemnification provisions hereof.
(c) If any Indemnified Party realizes a Tax benefit or detriment in
one or more Tax periods by reason of having incurred a Loss for which such
Indemnified Party receives an Indemnity Payment from an Indemnifying Party (or
by reason of the receipt of any Indemnity Payment), then such Indemnified Party
shall pay to such Indemnifying Party an amount equal to the Tax benefit or such
Indemnifying Party shall pay to such Indemnified Party an additional amount
equal to the Tax detriment (taking into account, without limitation, any Tax
detriment resulting from the receipt of such additional amounts), as the case
may be. The amount of any Tax benefit or any Tax detriment for a Tax period
realized by an Indemnified Party by reason of having incurred a Loss (or by
reason of the receipt of any Indemnity Payment) shall be deemed to equal the
product obtained by multiplying (i) the amount of any deduction or loss or
inclusion in income for such period resulting from such Loss (or the receipt of
any Indemnity Payment or additional amount), as the case may be (without regard
to whether such deduction or loss or such
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inclusion in income results in any actual decrease or increase in Tax liability
for such period), by (ii) the highest applicable marginal Tax rate for such
period (provided, however, that the amount of any Tax benefit attributable to an
-------- -------
amount that is creditable shall be deemed to equal the amount of such creditable
item). Any payment due under this Section 14.4 with respect to a Tax benefit or
Tax detriment realized by an Indemnified Party in a Tax period shall be due and
payable within 30 days from the time the return for such Tax period is due,
without taking into account any extension of time granted to the Party filing
such return.
(d) All Indemnity Payments under this ARTICLE XIV shall be denominated
in Yen.
14.5 Procedures for Indemnification of Third-Party Claims.
(a) In the event of a Third-Party Claim against any one or more of the
Indemnified Parties with respect to which an Indemnified Party intends to make
any claim for indemnification against Baxter under Section 14.1 or against
Edwards under Section 14.2, such Indemnified Party shall promptly give written
notice to the Indemnifying Party describing such Third-Party Claim in reasonable
detail, and the following provisions shall apply. Notwithstanding the foregoing,
the failure of any Indemnified Party to provide notice in accordance with this
Section 14.5(a) shall not relieve the related Indemnifying Party of its
obligations under this ARTICLE XIV, except to the extent that such Indemnifying
Party is actually prejudiced by such failure to provide notice.
(b) The Indemnifying Party shall have 20 business days after receipt
of the notice referred to in Section 14.5(a) to notify the Indemnified Party
that it elects to conduct and control the defense of such Third-Party Claim. If
the Indemnifying Party does not give the foregoing notice, the Indemnified Party
shall have the right to defend, contest, settle or compromise such Third-Party
Claim in the exercise of its exclusive discretion subject to the provisions of
Section 14.5(c), and the Indemnifying Party shall, upon request from any of the
Indemnified Parties, promptly pay to such Indemnified Parties in accordance with
the other terms of this Section 14.5(b) the amount of any Expense or Loss
resulting from their liability to the third-party claimant. If the Indemnifying
Party gives the foregoing notice, the Indemnifying Party shall have the right to
undertake, conduct and control, through counsel reasonably acceptable to the
Indemnified Party, and at its sole expense, the conduct and settlement of such
Third-Party Claim, and the Indemnified Party shall cooperate with the
Indemnifying Party in connection therewith, provided that (i) the Indemnifying
--------
Party shall not thereby permit any lien, encumbrance or other adverse charge to
thereafter attach to any asset of any Indemnified Party; (ii) the Indemnifying
Party shall not thereby permit any injunction against any Indemnified Party;
(iii) the Indemnifying Party shall permit the Indemnified Party and counsel
chosen by the Indemnified Party and reasonably acceptable to the Indemnifying
Party to monitor such conduct or settlement and shall provide the Indemnified
Party and such counsel with such information regarding such Third-Party Claim as
either of them may reasonably request (which request may be general or
specific), but the fees and expenses of such counsel (including allocated costs
of in-house counsel and other personnel) shall be borne by the Indemnified Party
unless (A) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (B) the named parties to any such
Third-Party Claim include the Indemnified Party
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and the Indemnifying Party and in the reasonable opinion of counsel to the
Indemnified Party representation of both parties by the same counsel would be
inappropriate due to actual or likely conflicts of interest between them, in
either of which cases the reasonable fees and disbursements of counsel for such
Indemnified Party (including allocated costs of in-house counsel and other
personnel) shall be reimbursed by the Indemnifying Party to the Indemnified
Party; and (iv) the Indemnifying Party shall agree promptly to reimburse to the
extent required under this ARTICLE XIV the Indemnified Party for the full amount
of any Expense or Loss resulting from such Third-Party Claim and all related
expenses incurred by the Indemnified Party. In no event shall the Indemnifying
Party, without the prior written consent of the Indemnified Party, settle or
compromise any claim or consent to the entry of any judgment that does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a release from all Liability in respect of
such claim. If the Indemnifying Party shall not have undertaken the conduct and
control of the defense of any Third-Party Claim as provided above, the
Indemnifying Party shall nevertheless be entitled through counsel chosen by the
Indemnifying Party and reasonably acceptable to the Indemnified Party to monitor
the conduct or settlement of such claim by the Indemnified Party, and the
Indemnified Party shall provide the Indemnifying Party and such counsel with
such information regarding such Third-Party Claim as either of them may
reasonably request (which request may be general or specific), but all costs and
expenses incurred in connection with such monitoring shall be borne by the
Indemnifying Party.
(c) So long as the Indemnifying Party is contesting any such Third-
Party Claim in good faith, the Indemnified Party shall not pay or settle any
such Third-Party Claim. Notwithstanding the foregoing, the Indemnified Party
shall have the right to pay or settle any such Third-Party Claim, provided that
--------
in such event the Indemnified Party shall waive any right to indemnity therefor
by the Indemnifying Party, and no amount in respect thereof shall be claimed as
an Expense or a Loss under this Section 14.5(c). If the Indemnifying Party shall
have undertaken the conduct and control of the defense of any Third-Party Claim
as provided above, the Indemnified Party, on not less than 30 days prior written
notice to the Indemnifying Party, may make settlement (including payment in
full) of such Third-Party Claim, and such settlement shall be binding upon the
Parties for the purposes hereof, unless within said 30-day period the
Indemnifying Party shall have requested the Indemnified Party to contest such
Third-Party Claim at the expense of the Indemnifying Party. In such event, the
Indemnified Party shall promptly comply with such request and the Indemnifying
Party shall have the right to direct the defense of such claim or any litigation
based thereon subject to all the conditions of Section 14.5(b). Notwithstanding
anything in this Section 14.5(c) to the contrary, if the Indemnified Party, in
the belief that a claim may materially and adversely affect it other than as a
result of money damages or other money payments, advises the Indemnifying Party
that it has determined to settle a claim, the Indemnified Party shall have the
right to do so at its own cost and expense, without any requirement to contest
such claim at the request of the Indemnifying Party, but without any right under
the provisions of this Section 14.5(c)for indemnification by the Indemnifying
Party.
14.6 Procedures for Indemnification of Direct Claims. Any claim for
indemnification on account of an Expense or a Loss made directly by the
Indemnified Party against the Indemnifying Party and that does not result from a
Third-Party Claim shall be asserted by written notice from the Indemnified Party
to the Indemnifying Party specifically
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claiming indemnification hereunder. Such Indemnifying Party shall have a period
of 30 business days after the receipt of such notice within which to respond
thereto. If such Indemnifying Party does not respond within such 30 business-day
period, such Indemnifying Party shall be deemed to have accepted responsibility
to make payment and shall have no further right to contest the validity of such
claim. If such Indemnifying Party does respond within such 30 business-day
period and rejects such claim in whole or in part, such Indemnified Party shall
be free to pursue resolution as provided in ARTICLE XX
14.7 No Third-Party Beneficiaries. Except to the extent expressly provided
otherwise in this ARTICLE XIV, the indemnification provided for in this
Agreement shall not inure to the benefit of any third party or parties and shall
not relieve any insurer or other third party who otherwise would be obligated to
pay any claim or assume the responsibility with respect thereto, or, solely by
virtue of the indemnification provisions hereof, provide any subrogation rights
with respect thereto, and each Party agrees to waive such rights against the
other to the fullest extent permitted.
14.8 Remedies Cumulative. The remedies provided in this ARTICLE XIV shall
be cumulative and, subject to the provisions of ARTICLE XIX below, shall not
preclude assertion by an Indemnified Party of any other rights or the seeking of
any and all other remedies against any Indemnifying Party.
ARTICLE XV
COMPLIANCE WITH LAWS
15.1 Baxter Compliance. Baxter shall comply (or cause compliance) in all
material respects with all laws, rules, regulations and directives applicable to
the conduct of Baxter's business or the possession of Products pursuant to this
Agreement including the following:
(a) giving prompt written notice to Edwards if Baxter should become
aware of any defect or condition (actual or alleged) which may alter the quality
of the Products in any material respect or may render any of the Products in
violation of any applicable law, rule, regulation or directive including any
violation which could require any alteration of the specifications of any
Product, affect the sale of any Product, cause revocation of any regulatory
approval with respect to any Product or its sale hereunder, or give rise to a
claim against Edwards by any person, and Baxter shall promptly notify Edwards
upon becoming aware of any changes in any laws, rules, regulations or directives
applicable to the manufacture, sale, packaging, labeling, possession or use of
the Products;
(b) keeping appropriate records of all lot coded Products and serial
numbered Products shipped to customers; and
(c) complying with Edwards' reasonable instructions regarding the
return or disposal of any Products affected by holds or recalls.
15.2 Edwards Compliance. Edwards shall comply (or cause compliance) in all
material respects with all laws, rules, regulations and directives applicable to
the conduct of
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Edwards' business or the manufacture, packaging, labeling and sale to Baxter of
Products pursuant to this Agreement including the following:
(a) giving prompt written notice to Baxter if Edwards should become
aware of any defect or condition (actual or alleged) which may alter the quality
of the Products in any material respect or may render any of the Products in
violation of any applicable law or regulation of the Territory, including,
without limitation, any violation which could require any alteration of the
specifications of any Product, affect the sale of any Product, cause revocation
of any federal, state or other regulatory approval with respect to any Product
or its sale hereunder or give rise to a claim against Baxter by any person; and
(b) giving prompt written notice to Baxter of any and all Products
affected by holds or recalls and, if Edwards requests that Baxter return or
dispose of any of such Products, promptly reimburse Baxter for the price paid by
Baxter for such returned or disposed Products along with any direct costs of
returning or disposing of such Products.
15.3 Specific Federal Requirements.
(a) To the extent applicable to the subject matter of this Agreement,
and pursuant to the requirements of 42 CFR 420.300 et seq., Baxter shall make
-------
available to the Secretary of Health and Human Services ("HHS"), the Comptroller
---
of the General Accounting Office ("GAO"), or their authorized representatives,
---
all contracts, books, documents and records relating to the nature and extent of
costs hereunder for a period of four years after the furnishing of services
hereunder. In addition, if any part of Baxter's obligations is to be provided
by subcontract, Baxter shall require by contract that such subcontractor make
available to the HHS and GAO, or their authorized representatives, all
contracts, books, documents and records relating to the nature and costs
thereunder for a period of four years after the furnishing of services
thereunder.
(b) The services provided hereunder will be provided in compliance
with applicable Equal Employment Opportunity requirements including, where
applicable, those set forth in Section 202 of Executive Order 11246, as amended.
15.4 Additional Requirements.
(a) Baxter will periodically confirm that the Products to be imported
are produced under and in accordance with appropriate manufacturing and quality
control systems, and such confirmation will include reviewing the current the
United States Food and Drug Administration Certificate to Foreign Government
(CFG) document which certifies that the applicable manufacturing plant is in
compliance with current Good Manufacturing Practice requirements.
(b) Edwards will promptly communicate to Baxter any proposed change
or changes in the Products having the potential to impact product quality,
safety or efficacy, and such changes may include changes in or to: (i) the
design of the Product; (ii) the composition or source of any raw material; (iii)
the method of producing, processing or testing the Product;
22
<PAGE>
(iv) the subcontractors that produce, process or test; (v) the site of
manufacture; (vi) labeling; (vii) the design or material of any packaging
component; and (viii) the sterilization method, condition or site. Such
communications will be directed to Baxter Japan's Regulatory and Scientific
Affairs Director and QA Manager.
(c) Edwards will promptly communicate to Baxter any decision by
Edwards to recall or hold any Product if such decision is related to the
Product's quality, safety or efficacy, and such communication shall include: (i)
Product code number of affected Products, (ii) lot or serial number(s) of
affected Products, (iii) the reason for such hold or recall, and (iv)
instructions for the disposition of the Products. Such communications will be
directed to the President of Baxter.
ARTICLE XVI
INSURANCE
Each party is responsible for carrying any insurance desired by it in its
sole discretion, including comprehensive general liability insurance, insurance
to cover its facilities, products liability insurance and business interruption
insurance.
ARTICLE XVII
FORCE MAJEURE
The obligations of either party to perform under this Agreement shall be
excused during each period of delay caused by matters (not including lack of
funds or other financial causes) such as strikes, supplier delays, shortages of
raw materials, government orders or acts of God, that are reasonably beyond the
control of the party obligated to perform; provided that nothing contained in
this Agreement shall affect either party's ability or discretion with respect to
any strike or other employee dispute or disturbance and all such strikes,
disputes or disturbances shall be deemed to be beyond the control of such party.
A condition of force majeure shall be deemed to continue only so long as the
affected party shall be taking all reasonable actions necessary to overcome such
condition. If either party shall be affected by a condition of force majeure,
such party shall give the other party prompt Notice thereof, which Notice shall
contain the affected party's estimate of the duration of such condition and a
description of the steps being taken or proposed to be taken to overcome such
condition of force majeure. Any delay occasioned by any such cause shall not
constitute a default under this Agreement, and the obligations of the parties
shall be suspended during the period of delay so occasioned. During any period
of force majeure, the party that is not directly affected by such condition of
force majeure shall be entitled to take any reasonable action necessary to
mitigate the effects of such condition of force majeure, and the provisions of
Section 3.1 shall be suspended to the extent necessary to permit any such
action, and any financial obligations shall be adjusted in a fair and equitable
manner.
ARTICLE XVIII
CONFIDENTIALITY
18.1 Baxter Information. Edwards shall hold (and shall use reasonable
efforts to cause its employees and representatives to hold) in confidence (in a
manner consistent with
23
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Edwards' treatment of its own confidential information) all information
concerning Baxter (a) contained in any of the Schedules to this Agreement or
otherwise received by Edwards from Baxter after the Effective Date relating to
the determination of the fees and charges payable hereunder, (b) obtained from
Baxter using access to Baxter's information through any interface between
Baxter's systems and Edwards' systems maintained in connection with Baxter's
provision of services hereunder, (c) obtained from Baxter in the course of an
audit pursuant to Section 6.7, or (d) furnished to or obtained by Edwards after
the Effective Date in the course of its receipt of services hereunder. Edwards
shall not use such information for any purpose other than as contemplated under
this Agreement or for verifying compliance with this Agreement.
18.2 Edwards Information. Baxter shall hold (and shall use its reasonable
efforts to cause its employees and representatives to hold) in confidence (in a
manner consistent with Baxter's treatment of its own confidential information)
all information concerning Edwards (a) furnished to or obtained by Baxter after
the Effective Date in the course of providing services hereunder, or (b)
obtained from Edwards using access to Edwards' information through any interface
between Baxter's systems and Edwards' systems maintained in connection with
Baxter's provision of services hereunder. Baxter shall not use such information
for any purpose other than as contemplated under this Agreement or for verifying
compliance with this Agreement.
18.3 General.
(a) Each party shall be responsible for preventing unauthorized
access by such party's agents and employees to data transferred to or otherwise
made available to the other party under this Agreement.
(b) The obligations of confidentiality and nondisclosure imposed
under this ARTICLE XVIII shall not apply to data and information that the
recipient can demonstrate:
(i) is published or is or otherwise becomes available to the general
public as part of the public domain without breach of this Agreement by the
recipient;
(ii) has been furnished or made known to the recipient by a third
party without any obligation on the recipient to keep it confidential and
under circumstances that are not known to the recipient to involve a breach
of the third party's obligations to the other party;
(iii) was developed independently of information furnished to the
recipient under this Agreement; or
(iv) was known to the recipient at the time of receipt thereof from
the other party, was not improperly obtained from the other party and is
not otherwise subject to (a) the confidentiality restrictions contained in
the Reorganization Agreement dated as of March 15, 2000, between Baxter
International and Edwards Lifesciences or (b) any other obligation to keep
it confidential.
18.4 Injunctive Relief. Each party (the "first party") acknowledges that
the other party would not have an adequate remedy at law for the breach by the
first party of any one or more of
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the covenants contained in this ARTICLE XVIII and agrees that, in the event of
such breach, the other party may, in addition to the other remedies which may be
available to it, apply to a court for an injunction to prevent breaches of this
ARTICLE XVIII and to enforce specifically the terms and provisions of this
Article.
18.5 Required Disclosures. The provisions of this Section shall not
preclude disclosures required by law; provided, however, that each party will
use reasonable efforts to notify the other, prior to making any such disclosure,
and permit the other to take such steps as it deems appropriate (including
obtaining a protective order) to minimize any loss of confidentiality.
ARTICLE XIX
LIMITATION OF LIABILITY AND REMEDIES
19.1 Damages.
(a) Except for the right to recover Lost Profits and Harm to
Reputation under clauses (a) and (b) of Section 14.1 and clauses (i) and (ii) of
Section 14.2(a) and except for damages asserted by a third party against a party
entitled to indemnification hereunder, in no event, whether based on contract,
indemnity, warranty, tort (including negligence), strict liability or otherwise,
shall either party or any of its directors, officers, employees or agents, be
liable for incidental, consequential, special, exemplary, or punitive damages.
The foregoing limitation and disclaimer shall apply irrespective of whether the
possibility of such incidental, consequential, special, exemplary, or punitive
damages had been disclosed in advance or could have reasonably been foreseen.
(b) The limitations and disclaimers of obligations and liabilities
contained in this ARTICLE XIX are intended to apply to the fullest extent
permitted by law; provided that such limitations and disclaimers shall not limit
amounts payable with respect to any express indemnity provided for in this
Agreement.
19.2 Exclusive Remedies.
(a) Except in the case of the gross negligence or willful misconduct
of Baxter or its Affiliates, Edwards' exclusive remedies against Baxter for any
breach of, or other act or omission arising out of or relating to, this
Agreement or Baxter's performance hereunder shall be:
(i) the right to receive refunds of the amount of any payment in
excess of amounts owed under this Agreement;
(ii) the right to require reperformance of any obligation to the
extent required pursuant to ARTICLE IX;
(iii) the right to indemnification as provided in Section 14.1;
(iv) the right to injunction, specific performance or other equitable
nonmonetary relief when available under applicable law;
25
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(v) the right to terminate this Agreement for material breach as set
forth in Section 13.2; and
(vi) the right to actual damages for breach of ARTICLE XVIII.
(b) Except in the case of the gross negligence or willful misconduct
of Edwards or its Affiliates, Baxter's exclusive remedies against Edwards for
any breach of, or other act or omission arising out of or relating to, this
Agreement or Edwards' performance hereunder shall be:
(i) the right to indemnification as provided in Section 14.2;
(ii) the right to require Edwards to repair or replace (at Edwards'
option and expense) any Product that proves not to be in conformity with
applicable labeling or specifications, and Edwards shall pay the
transportation and other costs incurred by Baxter with respect to any
Products returned to Baxter for repair or replacement under this Section
19.2(b)(ii), or, at Edwards' option, reimburse Baxter for any such costs;
(iii) the right to injunction, specific performance or other equitable
nonmonetary relief when available under applicable law;
(iv) the right to terminate this Agreement for material breach as set
forth in Section 13.2; and
(v) the right to actual damages for breach of ARTICLE XVIII.
ARTICLE XX
DISPUTE RESOLUTION
20.1 General. Any dispute arising out of or relating to this Agreement
shall be resolved in accordance with the procedures specified in this ARTICLE
XX, which shall be the sole and exclusive procedures for the resolution of any
such disputes.
20.2 Escalation. The parties will attempt in good faith to resolve any
claim or controversy arising out of or relating to the execution, interpretation
and performance of this Agreement (including the validity, scope and
enforceability of this mediation and arbitration provision) promptly by
negotiations between executives who have authority to settle the controversy and
who are at a higher level of management than the persons with direct
responsibility for the administration of this Agreement. Any party may give the
other party written notice of any dispute not resolved in the normal course of
business. Within fifteen days after delivery of the notice, the receiving party
shall submit to the other a written response. The notice and the response shall
include (a) a statement of each party's position and a summary of arguments
supporting that position, and (b) the name and title of the executive who will
represent that party and of any other person who will accompany the executive.
Within 30 days after delivery of the notifying party's notice, the executives of
both parties shall meet at a mutually acceptable time and place, and thereafter
as often as they reasonably deem necessary, to attempt to resolve the dispute.
All reasonable requests for information made by one party to the other
26
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will be honored. All negotiations pursuant to this clause are confidential and
shall be treated as compromise and settlement negotiations for purposes of
applicable rules of evidence.
20.3 Arbitration. Any dispute arising out of or relating to this Agreement
or its breach, termination or validity which has not been resolved by the
specified non-binding procedure within 90 days of the initiation of the date of
delivery of notice shall be settled by binding arbitration in accordance with
the CPR Non-Administered Arbitration Rules in effect on the date of this
Agreement, by three independent and impartial arbitrators, none of whom shall be
appointed by either party. The arbitration shall be governed by the United
States Arbitration Act, 9 U.S.C. (S)(S) 1-16, and judgment upon the award
rendered by the arbitrators may be entered by any court having jurisdiction
thereof. The place of the arbitration shall be Lake County, Illinois, or Orange
County, California, and shall be determined by the party that initiated the
dispute resolution process. The arbitrators may award attorneys' fees in their
discretion. Otherwise, the arbitrators are not empowered to award damages in
excess of compensatory damages, and each party hereby irrevocably waives any
right to recover such damages.
20.4 Procedures. The parties may request limited discovery in accordance
with the Federal Rules of Civil Procedure for a period of 120 days after the
initiation of the arbitration process. All issues regarding compliance with
discovery requests shall be decided by the arbitrators pursuant to the Federal
Rules of Civil Procedure. The parties agree that the recipient of a discovery
request shall have ten business days after the receipt of such request to object
to any or all portions of such request and shall respond to any portions of such
request not so objected within 30 business days of the receipt of such request.
All objections shall be in writing and shall indicate the reasons for such
objections. The objecting party shall ensure that all objections and responses
are received by the other party within the above time periods; failure to comply
with the specified time period shall be addressed as set forth in F.R.C.P. 37.
Any party seeking to compel discovery following receipt of an objection shall
file with the other party and the arbitrators a motion to compel, including a
copy of the initial request and the objection. The arbitrators shall allow ten
business days for the responses to the motion to compel before ruling. Claims
of privilege and other objections shall be determined as they would be in United
States federal court in a case applying Illinois law. The arbitrators may grant
or deny the motion to compel, in whole or in part, concluding that the discovery
request is or is not appropriate under the circumstances, taking into account
the needs of the parties and the desirability of making discovery expeditious
and cost-effective. The statute of limitations of the State of Illinois
applicable to the commencement of a lawsuit shall apply to the date of initial
written notification of a dispute and shall be extended until commencement of
arbitration if all interim deadlines have been complied with by the notifying
party.
20.5 Injunctive Relief. Nothing contained in this ARTICLE XX shall prevent
either party from resorting to judicial process if injunctive or other equitable
relief from a court is necessary to prevent serious and irreparable injury to
one party or to others. The use of arbitration procedures will not be construed
under the doctrine of laches, waiver or estoppel to affect adversely either
party's right to assert any claim or defense.
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ARTICLE XXI
ASSIGNMENT
21.1 General. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns, provided, however, that, except as provided below, Edwards shall not
Transfer its interest in the Agreement, including Transfers by operation of law
such as by way of merger or consolidation, without Baxter's prior written
consent, which consent may not be unreasonably withheld.
21.2 Transfers by Baxter. Baxter may Transfer its rights and obligations
hereunder to any Person to which Baxter shall Transfer the business and assets
of Baxter related to Baxter's fulfillment of its obligations hereunder, provided
that any such acquiring Person shall assume in writing the portion of Baxter's
obligations hereunder relating to the business and assets so Transferred, and
shall deliver a signed copy of such assumption instrument to Edwards. Baxter
shall have no further liability in connection with any of its obligations so
assumed by such acquiring Person.
21.3 Delegation. Baxter shall have the right to delegate performance of
any of its obligations hereunder to any Person that is not a Competitor of
Edwards, but no such delegation shall relieve Baxter of any liability therefor
except as otherwise provided in Section 21.2.
ARTICLE XXII
MISCELLANEOUS PROVISIONS
22.1 Notices. All notices and other communications required under this
Agreement shall be in writing and shall be deemed to have been given if
delivered by hand, or sent by courier or facsimile transmission (provided that
in the case of facsimile transmission, a confirmation copy of the notice shall
be delivered by hand or sent by courier within 2 days of transmission),
addressed:
To Baxter:
Baxter Limited
4, Rokubancho, Chiyoda-ku
Tokyo 102-8468 Japan
Attention: President
(facsimile number: 81-3-5213-5111)
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with a copy to:
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
USA
Attention: General Counsel
(facsimile number: 847-948-4634)
To Edwards:
Edwards Lifesciences LLC
17221 Red Hill Avenue
Irvine, California 92614
USA
Attention: International Counsel
(facsimile number: 949-250-6868)
with copies to:
Edwards Lifesciences Limited
Rokubancho 2-8, Chiyoda-ku
Tokyo 102-0085 Japan
Attention: Chairman and Representative Director
(facsimile number: 81-3-5213-5802)
and
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, California 92614
USA
Attention: General Counsel
(facsimile number: 949-250-6868)
until notice of a change in address or addressee is given as provided in this
Section 22.1. All notices given in accordance with this Section 22.1 shall be
effective, if delivered by hand or by courier, at the time of delivery, and, if
communicated by facsimile transmission, at the time of transmission.
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22.2 Entire Agreement. This Agreement is the entire agreement between the
parties hereto with respect to the subject matter hereof, there being no prior
written or oral promises or representations not incorporated herein.
22.3 Choice of Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Illinois and the federal
laws of the United States of America applicable therein, as though all acts and
omissions related hereto occurred in Illinois. Subject to ARTICLE XX (including
the right to obtain judgment upon the award rendered by the arbitrators in any
court having jurisdiction thereof), any lawsuit arising from or related to this
Agreement shall only be brought in the United States District Court for the
Northern District of Illinois, the Circuit Court of Lake County, Illinois, the
United States District Court for the Central District of California, or the
Superior Court of Orange County, California, and the specific choice from among
the foregoing shall be determined by the party initiating such lawsuit. To the
extent permissible by law, the parties hereby consent to the jurisdiction and
venue of such courts. Each party hereby waives, releases and agrees not to
assert, and agrees to cause its Affiliates to waive, release and not assert, any
rights such party or its Affiliates may have under any foreign law or regulation
that would be inconsistent with the terms of this Agreement as governed by
Illinois law.
22.4 Amendment; Waiver. No amendment or modification of the terms of this
Agreement shall be binding on either party unless reduced to writing and signed
by (a) in the case of Baxter, its President, and (b) in the case of Edwards, its
President. The waiver by either party of any particular default by the other
party shall not affect or impair the rights of the party so waiving with respect
to any subsequent default of the same or a different kind; nor shall any delay
or omission by either party to exercise any right arising from any default by
the other affect or impair any rights which the nondefaulting party may have
with respect to the same or any future default.
22.5 Severability. If any provision of this Agreement is held to be
invalid, illegal, void or otherwise unenforceable in any jurisdiction by reason
of any rule of law, administrative decision, judicial decision, public policy or
otherwise, such provision shall be ineffective in such jurisdiction to the
extent of such invalidity, illegality, voidness or unenforceability without
affecting, impairing or invalidating any remaining provisions of this Agreement.
Any such invalid, illegal, void or otherwise unenforceable provisions shall be
replaced by valid enforceable substitute provisions that are as similar as
possible to such invalid, illegal, void or otherwise unenforceable provisions
with respect to the economic and other commercial effects upon the parties,
which substitute provisions shall be established pursuant to the dispute
resolution procedure set forth in ARTICLE XX.
22.6 Relationship of the Parties. By virtue of this Agreement, neither
party shall be deemed the other party's agent, partner, joint venturer, or legal
representative, and neither party has express or implied authority to bind the
other in any manner whatsoever.
22.7 Survival. The rights and obligations of the parties under ARTICLE IX,
ARTICLE XI, ARTICLE XIV, ARTICLE XVIII, ARTICLE XIX, and ARTICLE XX and Sections
6.7, 13.1(c), 13.3, 13.4 and 13.5, as well as all rights and obligations with
respect to any
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amounts that remain unpaid under ARTICLE VI hereof as of the date of termination
or expiration, shall survive any termination or expiration of this Agreement.
22.8 Counterparts. For convenience of the parties hereto, this Agreement
may be executed in one or more counterparts, each of which shall be deemed an
original for all purposes.
22.9 Beneficiaries. Except for the provisions of ARTICLE XIV, which are
also for the benefit of the other Persons indemnified, this Agreement is solely
for the benefit of the parties hereto and their respective Affiliates,
successors and permitted assigns and shall not confer upon any other Person any
remedy, claim, liability, reimbursement or other right in excess of those
existing without reference to this Agreement.
22.10 Records Retention.
(a) Each party will retain all information obtained or created in the
course of performance hereunder in accordance with the records retention
guidelines of the other party existing from time to time. Each party has
advised the other of its respective guidelines as in effect on the Effective
Date and will advise the other party of any subsequent changes therein.
(b) The following provisions of this Section apply only to records
required for tax purposes as identified in Edwards' record retention guidelines.
In accordance with Baxter's records retention policy as of the date hereof with
respect to such records, Baxter shall retain (as necessary for a period of up to
10 years or more) all information needed for tax audits which was obtained or
created in the course of performance hereunder with respect to Edwards. If any
particular hardware or software is necessary to access any information to be
retained by Baxter pursuant to this Section 22.10(b), then Baxter shall ensure
that it has the continuing right to use such hardware and software for as long
as Baxter is obligated to retain such information hereunder. Baxter has advised
Edwards of Baxter International's records retention policy currently in effect.
Baxter will provide Edwards (and afford Edwards full access to, and the right to
inspect and copy at any reasonable time) such information and use of such
equipment and software upon Edwards' reasonable request, at no cost to Edwards
(other than reasonable out-of-pocket expenses of Baxter). At the expiration of
the applicable records retention period, Baxter may dispose of the information
upon prior Notice to Edwards. For a period of 45 days immediately following
such Notice, Edwards shall have the right to remove and take title to all such
information (in any form including books, records, computer tapes, and computer
disks). Edwards shall reimburse Baxter for any reasonable out-of-pocket
expenses incurred to retain such information after this Agreement is terminated
or expires.
(c) The foregoing record retention requirements are in addition to
any record retention requirements that are contained in the Reorganization
Agreement between Baxter International and Edwards Lifesciences dated as of
March 15, 2000. In the event of any conflict in the period for retention of
records between this Agreement and the Reorganization Agreement, the longest
retention period shall be applicable.
* * * * * *
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their authorized representatives as of the effective date of this Agreement.
BAXTER LIMITED EDWARDS LIFESCIENCES LLC
By: /s/ James Robert Hurley By: /s/ Jay P. Wertheim
------------------------- ---------------------
Name: James Robert Hurley Name: Jay P. Wertheim
Title: President and Representative Title: Assistant Secretary
Director
For purposes of Sections 3.1 and 3.3(b) only:
EDWARDS LIFESCIENCES CORPORATION
By: /s/ Bruce P. Garren
-------------------
Name: Bruce P. Garren
Title: Corporate Vice President
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EXHIBIT A
JAPANESE EDWARDS BUSINESS
The Cardiovascular Group sells or is engaged in the development of following
product categories in Japan through its three business units (Cardiovascular
Surgery or CVS, Anesthesia and Medication Delivery or AMD, Vascular and
Interventional Cardiology or VIC);
. Tissue and mechanical heart valves and rings, pericardial patches,
oxygenators, and cardiopulmonary bypass circuits including reservoirs and
arterial filters, cardioplegia devices, heart-lung machines, centrifugal
pumps, arterial and venous cannulae, CDI oxygen monitor cells, Novacor left
ventricular assist devices
. Thermo-dilution (Swan-Ganz) catheters, pacing catheters, central venous
catheters, venous introducers, Invos cerebral tissue oxygen monitor
devices, and VIA continuous arterial blood gas monitor devices, Lifespan
PTFE endovascular grafts, Fogarty atraumatic occlusion clips and clamps,
Intramed angioscopy equipment, Thombex PMT clot extraction catheters
. Direct blood pressure monitor kit, disposable pressure transducers,
Embolectomy (Fogarty) catheters, Lifepath abdominal aortic aneurysm
endovascular graft system, Datascope intra-aortic balloon pumps and
catheters, VasoSeal collagen hemostasis devices, UniCath percutaneous
transluminal coronary angioplasty balloon catheters and stents, Medtronic
pacemakers
The Cardiovascular Group in Japan also manufacturers Custom Pac cardiopulmonary
circuits and direct blood pressure monitor kits at Miyazaki plant.
1
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EXHIBIT B
DIRECT REPORTING POSITIONS
Name Responsibilities
- --------------------------------------------------------------
Kosuke Kato GM, CVS
Manufacturing
Akihiko Honda GM, AMD
Pawan Tomkoria GM, VIC
Logistics
Hitoshi Fukuhara Finance
Information Services
Shinsaku Murakawa Business Development
Communications
Masami Ikezawa Human Resources
General Administrative
Takeshi Aizawa Regulatory Affairs
Quality Control
Open Legal
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SCHEDULE A
BAXTER'S DUTIES
1. Sales. Baxter shall use commercially reasonable efforts to make sales of
-----
the Products in accordance with the following, and such efforts shall be in
lieu of any standard of performance implied by any applicable statute or
regulation:
1.1 Baxter shall generate sales interest in the Products.
1.2 Baxter shall promote sales of the Products, and such promotion shall
be at a level that is no less than the level of promotion by Baxter
prior to the Effective Date.
1.3 Baxter shall participate with Edwards in quarterly reviews of Baxter's
performance relative to applicable service levels.
1.4 Baxter shall permit Edwards to offer sales incentives directly to
Baxter sales personnel in accordance with Baxter's marketing plan.
2. Marketing. Baxter shall use commercially reasonable efforts to market the
---------
Products in accordance with the following and such efforts shall be in lieu
of any standard of performance implied by any applicable statute or
regulation:
2.1 Baxter shall provide all appropriate marketing services that are
reasonably commensurate with the Product sales targets agreed upon by
the parties.
2.2 Baxter shall develop and implement a marketing plan for the Territory
and shall use reasonable efforts to ensure that such plan complements
Edwards' overall marketing strategy.
2.3 Baxter shall maintain its own communications resources and, prior to
publication, shall submit to Edwards for Edwards' approval all Baxter
promotional/ communication endeavors specifically referring to the
Products.
3. Materials Management.
--------------------
3.1 Finished Goods Requirements Planning. Baxter will adhere to
------------------------------------
reasonable stocking, storage and delivery levels established by
Edwards for the Products in the Territory; provided that Baxter shall
not be required to carry more than 60 days inventory on hand in the
Territory based upon either (a) sales targets agreed upon by the
parties, if any; or (b) Baxter's forecasts provided in accordance with
Section 3.6 of this Schedule.
3.2 Purchasing. Baxter shall submit purchase orders to Edwards for the
----------
Products in accordance with Edwards' reasonable procedures therefor.
1
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3.3 Inspection. Baxter shall implement inspection procedures to verify
----------
that the Products are free from damage when received.
3.4 Reporting. Baxter shall provide to Edwards a monthly sales report
---------
detailing Product sales for such month by customer, subdivision and
Product.
3.5 Tracing Reports. In addition, upon Edward's reasonable request,
---------------
Baxter will provide to Edwards electronically (to the extent that
Baxter is reasonably capable) a sales tracing report. At a minimum,
such report will include for all Products (a) the model number, (b)
the quantity shipped, (c) the average selling price, (d) the lot
number or serial number, and (e) the customer name and address.
3.6 Forecasts. Within seven business days after the end of each calendar
---------
month, Baxter shall provide to Edwards a rolling twelve-month forecast
(beginning with the then-current month) of Baxter's requirements for
the Products including such requirements for sales, samples,
promotions, consignment, inventories and backorders. Baxter shall
send each forecast to Irvine, California, or shall load it into
Baxter's Global Data Exchange system in a manner that will permit
access by Edwards.
4. Distribution.
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4.1 Warehouse Management.
--------------------
4.1.1 Baxter will be responsible for the management of all Baxter
facilities.
4.1.2 Except as otherwise agreed, Baxter will adhere to existing
receiving, storage, and shipping practices including such
practices applicable to time-/ temperature-sensitive Products.
4.2 Order Fulfillment.
-----------------
4.2.1 Baxter shall take and process customer orders for the Products.
4.2.2 Baxter will pick, pack, and ship each customer order in
accordance with the terms of the order or other terms agreed
upon between Baxter and the customer.
4.3 Outbound Shipment.
-----------------
4.3.1 Baxter shall be responsible for the selection and routing
(private fleet or commercial carrier) of each customer order.
4.3.2 Baxter shall pay for freight for all outbound shipments (i.e.,
----
shipments to customers).
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4.3.3 Baxter will be responsible for freight claims and will be
responsible for resolving with customers any disputes regarding
product deliveries, shortages, and overages.
4.4 Lot Tracing. For each Product shipment, Baxter shall maintain records
-----------
including the model number, lot or serial number, quantity shipped,
and the name and address of the first consignee.
4.5 Returned Goods Management. Except as otherwise provided in connection
-------------------------
with FCAs, Baxter shall be solely responsible for all dealings with
customers related to Product returns.
4.6 Customer Service. Baxter shall provide customer service and support
----------------
as follows:
4.6.1 Product/Service Specifications. Baxter shall forward to
------------------------------
Edwards any requests for Product information that is not
reasonably available to Baxter.
4.6.2 Service Commitment. Baxter shall use commercially reasonable
------------------
efforts to provide high-quality, professional customer service
to customers of the Products.
4.6.3 Order Tracing. Baxter shall maintain the ability to identify
-------------
to customers the location of Products in the order process.
4.7 Post-Sales Service.
------------------
4.7.1 Credit and Collection. Baxter shall be responsible for all
---------------------
collection and credit approval processes for all invoices.
Baxter shall have the sole authority to issue credits.
4.7.2 Credits for Shortages, Damages, and Misdeliveries. Baxter
-------------------------------------------------
shall issue credits and resolve customer issues. Baxter shall
communicate with Edwards regarding same if there are recurring
problems that may affect Edwards' responsibilities.
4.7.3 Pricing Disputes. Baxter will handle pricing disputes between
----------------
Baxter and its customers.
4.7.4 Back Order Status and Resolution. Baxter will be accountable
--------------------------------
for managing customer communication of back orders to provide
accurate and timely information on resolution. Appropriate
product substitution information will be communicated to
customer. Baxter will transmit back order details in the same
manner as such details were transmitted immediately prior to
the Effective Date.
4.7.5 Product Complaint. Initial customer complaints will be logged
-----------------
by Baxter customer service and forwarded to Edwards' Vice
President of Regulatory
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Affairs (or such person's designee) at a frequency to be agreed
upon by the parties. Such complaints may be escalated for
resolution per applicable regulatory procedures.
4.8 Pricing/Billing.
---------------
4.8.1 Baxter will negotiate the delivered price for the Products.
4.8.2 Baxter shall process all billing to the customer.
4.9 Product Registrations. Baxter shall hold all Product registrations
---------------------
and shall be the importer of record for all Products.
5. Communications With Regulatory Agencies.
---------------------------------------
5.1 The parties shall mutually agree upon a strategy for all
communications by Baxter with applicable regulatory authorities in
connection with the Products.
5.2 Baxter shall be responsible for communications with applicable
regulatory authorities in the Territory if such regulatory authorities
require notification in connection with their regulation of the
Products.
6. Product Field Corrective Actions.
--------------------------------
6.1 Baxter shall cooperate with Edwards in performing any FCA by
identifying affected Products and customers, developing an action-
specific management plan detailing specific responsibilities, and
notifying customers of any such action. Baxter shall encourage
customers to follow instructions related to any hold or recall
situation.
6.2 Baxter shall perform field corrective action ("FCA") services in a
---
manner consistent with the quality systems, procedures and
specifications as of the Effective Date including:
6.2.1 identification of customers who received the Product involved
in the FCA;
6.2.2 notification to customers of the FCA in accordance with the FCA
strategy developed by Edwards;
6.2.3 retrieval of affected Products from customers and storage of
such Products inside a Baxter facility for up to six months
from the date of initiation of the FCA;
6.2.4 if instructed by Edwards, shipment of Products affected by the
FCA to Edwards, freight collect;
6.2.5 minor inspection of Products by Baxter if required by the FCA
strategy developed by Edwards;
6.2.6 discard and destruction of Products by Baxter utilizing
nonhazardous waste disposal methods;
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6.2.7 preparation of an FCA report for Edwards that identifies all
customers that received the affected Product, defines the
number of Product units returned to Baxter, specifies the
number of Product units used by the Customer, and specifies any
evidence of harm or injury related to the use of the affected
Product; and storage of Products affected by an FCA for periods
longer than six months or storage of such Products in rented
trailers; an incoming inspection of all Products for open FCAs
for periods longer than 12 months from the date of initiation
of the FCA; and
6.2.8 payment of third-party invoices for any of the services listed
above.
6.3 At Edwards' request and with Edwards' approval, Baxter shall perform
FCA services not included above for additional compensation to be
agreed upon. Edwards will be invoiced separately for such additional
services. Examples of additional FCA services addressed by this
Section include:
6.3.1 payment of all third-party invoices related to expenses
incurred by Baxter that arise out of the need for Edwards to
issue an FCA for Products;
6.3.2 inspection (if more than minor) or rework of Products by
Baxter;
6.3.3 storage of Products affected by an FCA for periods longer than
six months or storage of such Products in rented trailers; and
6.3.4 incoming inspection of all Products for open FCAs for periods
longer than 12 months from the date of initiation of the
FCA.
6.4 Baxter shall use commercially reasonable efforts to accomplish the FCA
tasks identified within the time periods specified by Edwards in its
FCA strategy. If extraordinary volume or other circumstances make such
time periods impracticable, Edwards and Baxter will make reasonable
adjustments by extending time periods, setting priorities or
otherwise.
6.5 Subject to local restrictions regarding disposition of affected
Products, routine dispositions (as designated by Edwards) shall be
issued to Baxter's facilities within five business days, and Baxter
shall process such dispositions within five business days thereafter.
6.6 Subject to local restrictions regarding disposition of affected
Products, expedited or extraordinary dispositions (as designated by
Edwards) shall be issued to Baxter's facilities within one business
day, and Baxter shall process such dispositions within one business
day.
6.7 Reconciled disposition reports for quantity variance shall be
negotiated between Baxter and Edwards at the time of disposition.
6.8 The necessity for and content of sampling plans and protocols shall be
negotiated by the parties at the time of the FCA.
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7. Consultation. Baxter shall consult with Edwards prior to implementing any
------------
capital expenditure that could be expected to have a substantial impact
upon pricing under ARTICLE V of this Agreement. Any capital expenditure or
series of related capital expenditures related to the Japanese Edwards
Business which shall exceed (Yen)26,750,000 shall be deemed to have a
substantial impact on pricing for purposes of this provision.
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SCHEDULE B
EDWARDS' DUTIES
1. Sales.
-----
1.1 Edwards shall participate with Baxter in quarterly reviews of
performance relative to applicable service levels.
1.2 Edwards shall develop and provide to Baxter a recommended price list
for the Products.
1.3 Edwards shall work with Baxter to develop mutually agreed-upon sales
targets.
2. Marketing.
---------
2.1 Edwards shall develop a marketing plan and shall provide Baxter with
access to Edwards' global marketing, strategic and other information
that Baxter will need in order to fulfill its duties under this
Agreement and to maintain and expand the Japanese Edwards Business.
Edwards shall provide reasonable assistance and advice regarding
clarification and implementation of Edwards' marketing strategy.
2.2 Edwards shall maintain its own communications resources and will
coordinate communications messages with Baxter where appropriate. If
Baxter is required to obtain Edwards approval regarding a
communication, Edwards shall not unreasonably withhold or delay such
approval.
3. Training. Edwards shall provide to Baxter a reasonable amount of training
--------
in connection with the sales, marketing and distribution of Products.
Edwards shall provide a trainer at Edwards' cost and expense, provided that
Baxter shall pay all costs and expenses of its personnel attending such
training.
4. Product Changes. Edwards will promptly notify Baxter of any proposed
---------------
change or changes in the Products having the potential to impact product
quality, safety and/or efficacy, and such changes include changes in (a)
product design; (b) composition or source or any raw material; (c) method
of producing, processing or testing; (d) subcontractors for producing,
processing or testing; (e) site of manufacture; (f) labeling, (g) design
and material of any packaging component; and (h) sterilization method,
condition and/or site.
5. Packaging Quality and Load Build Configuration. Edwards shall be
----------------------------------------------
responsible for ensuring that the quality of packaging and load build
configuration will conform to uniform distribution standards (e.g.,
----
palletized, etc.) as agreed by the parties.
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6. Returned Goods Processing. Edwards shall promptly provide instructions to
-------------------------
Baxter regarding the disposal or return to Edwards of Products returned by
customers.
7. Product FCAs.
------------
7.1 Edwards shall provide to Baxter in a format to be agreed upon by the
parties all information reasonably required by Baxter to perform
Baxter's duties in connection with Product FCAs. Such information
shall include, without limitation, product identifiers, reason
priority, and any information related to disposition plans.
7.2 Edwards shall have sole authority to initiate any FCA. If Edwards is
required to initiate an FCA for any Product, Edwards' Vice President,
Quality (or such person's designee) shall notify the senior Baxter
quality or regulatory officer for the Territory (or such person's
designee).
7.3 Edwards shall cooperate with Baxter in performing any FCA by
identifying affected Products and customers, developing an action-
specific management plan detailing specific responsibilities, and
notifying customers of any such action. Edwards and Baxter shall
encourage customers to follow instructions related to any FCA
situation.
8. Customer Service Support. Edwards will use commercially reasonable efforts
------------------------
to provide Product-related technical support to Baxter, including the basic
technical information resident on Edwards' computer system, technical
letters and clinical information. Edwards will respond to Product-related
technical questions from or referred by Baxter.
9. Technical Support. Edwards shall continue to provide technical support
-----------------
services in the same manner as provided in connection with the Japanese
Edwards Business prior to the Effective Date.
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