SECURITIES AND EXCHANGE COMMISSION
Washington D.C.
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For Quarter Ended December 31, 1999
Commission File Number 0-7955
Mentor Corporation
(Exact name of registrant as specified in its charter)
Minnesota 41-0950791
(State of Incorporation) (I.R.S. Employer Identification No.)
201 Mentor Drive, Santa Barbara, California 93111
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (805) 879-6000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months or for such shorter period that the registrant was
required to file such reports and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
The number of shares outstanding for each of the Issuer's
classes of common stock as of February 14, 2000 was:
Common stock, $.10 par value 24,278,725 shares
Mentor Corporation
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Financial
Position -- December 31, 1999 and March 31, 1999
Consolidated Statements of Income -- Three Months
Ended December 31, 1999 and 1998
Consolidated Statements of Income -- Six Months
Ended December 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows --
Nine Months Ended December 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements--
December 31, 1999
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
List of Exhibits
10(a) Asset Purchase Agreement, dated as of August
26, 1999 between Mentor Corporation and
Xomed, Inc.
Mentor Corporation
Condensed Consolidated Statements of Financial Position
December 31, 1999 and March 31, 1999
(Unaudited)
December 31, March 31,
(dollars in thousands) 1999 1999
ASSETS
Current assets:
Cash and equivalents $ 25,589 $ 19,533
Marketable securities 52,825 2,088
Accounts receivable, net 38,809 37,431
Inventories 34,114 30,552
Deferred income taxes 8,619 7,919
Net assets of discontinued operations - 36,818
Prepaid Expenses and Other 9,460 7,640
Total current assets 169,416 141,981
Property and equipment, net 36,726 34,995
Intangible, net 2,290 2,342
Goodwill, net 4,504 7,966
Long term marketable securities and
investments 13,048 8,356
Other assets 328 371
56,896 54,030
Total assets $ 226,312 $ 196,011
See Notes to Condensed Consolidated Financial Statements
Mentor Corporation
Condensed Consolidated Statements of Financial Position
December 31, 1999 and March 31, 1999
(Unaudited)
December 31, March 31,
(dollars in thousands) 1999 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 5,622 $ 5,726
Accrued compensation 4,647 7,049
Income taxes payable 7,602 3,770
Dividends payable 610 612
Sales returns 5,564 5,126
Self-insured retention 5,051 3,700
Accrued royalties 1,698 1,076
Other accrued liabilities 10,030 4,171
Short-term bank borrowings - 4,000
Total current liabilities 40,824 35,230
Long-term deferred taxes 4,198 2,163
Shareholders' equity:
Common stock, $.10 par value:
Authorized 50,000,000 shares
Issued and outstanding:
24,331,725 shares at
December 31,1999
24,548,537 shares at
March 31, 1999 2,433 2,455
Capital in excess of par value 16,875 21,502
Cumulative translation adjustment (2,118) (1,141)
Unrealized gain on investments 2,952 880
Retained earnings 161,148 134,922
181,290 158,618
Total liabilities and shareholders'
Equity $ 226,312 $ 196,011
See Notes to Condensed Consolidated Financial Statements
Mentor Corporation
Consolidated Statements of Income
Three Months Ended December 31, 1999 and 1998
(Unaudited)
(in thousands, except per share data) 1999 1998
Net sales $ 60,587 $ 51,655
Costs and expenses:
Cost of sales 23,143 21,011
Selling, general and administrative 23,946 21,836
Research and development 3,902 3,747
$ 50,991 $ 46,594
Operating income from continuing
operations 9,596 5,061
Interest expense (3) (156)
Interest income 1,017 253
Other income (expense) 131 108
Income from continuing operations
before income taxes 10,741 5,266
Income taxes 3,468 1,812
Income from continuing operations 7,273 3,454
Income from discontinued operations,
net of tax 571 (8,652)
Net income $ 7,844 $ (5,198)
Basic earnings per share:
Continuing operations $ .30 $ .14
Discontinued operations .02 $ (.35)
Basic earnings per share $ .32 $ (.21)
Diluted earnings per share:
Continuing operations $ .29 $ .14
Discontinued operations .02 (.35)
Diluted earnings per share $ .31 $ (.21)
See notes to consolidated financial statements
Mentor Corporation
Consolidated Statements of Income
Nine Months Ended December 31, 1999 and 1998
(Unaudited)
(in thousands, except per share data)
1999 1998
Net sales $ 178,733 $ 147,452
Costs and expenses:
Cost of sales 66,574 53,198
Selling, general and administrative 72,371 60,112
Research and development 11,936 10,507
150,881 123,817
Operating income from continuing
Operations 27,852 23,635
Interest expense (32) (182)
Interest income 1,999 921
Other income (expense) (31) (126)
Income from continuing operations
before income taxes 29,788 24,248
Income taxes 9,527 8,601
Income from continuing operations 20,261 15,647
Income from discontinued operations,
net of tax 7,797 (7,434)
Net income $ 28,058 $ 8,213
Basic earnings per share:
Continuing operations $ .83 $ .64
Discontinued operations .32 (.31)
Basic earnings per share $ 1.15 $ .33
Diluted earnings per share:
Continuing operations $ .81 $ .61
Discontinued operations .31 (.29)
Diluted earnings per share $ 1.12 $ .32
See notes to consolidated financial statements
Mentor Corporation
Condensed Consolidated Statements of Cash Flows
Nine Months Ended December 31, 1999 and 1998
(Unaudited)
(in thousands) 1999 1998
Cash flows from continuing operating
Activities $ 24,714 $ 12,670
Cash flows from discontinued
operating activities (6,925) 2,176
Cash flows from operating activities 17,789 14,846
Cash flows from investing activities:
Purchase of property, equipment,
and intangibles (7,434) (14,029)
Other (394) -
Cash flows from continuing
investing activities (7,828) (14,029)
Cash flows from discontinued
investing activities 59,392 (784)
Cash flows from investing activities 51,564 (14,813)
Cash flows from financing activities:
Exercise of stock options 3,501 2,508
Dividends paid (1,833) (1,792)
(Reduction) proceeds of debt (4,000) 5,100
Repurchase of common stock (10,227) (20,017)
(12,559) (14,201)
Increase (decrease) in cash, cash
equivalents, and marketable
securities 56,794 (14,168)
Cash at beginning of period 21,620 27,937
Cash at end of period $ 78,414 $ 13,769
See notes to consolidated financial statements
Mentor Corporation
Notes to Condensed Consolidated Financial Statements
December 31, 1999
Note A
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally
accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.
Operating results for the three-month and nine-month period
ended December 31, 1999 are not necessarily indicative of
the results that may be expected for the year ended March
31, 2000.
The balance sheet at March 31, 1999 has been derived from
the audited financial statements at that date but does not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended March 31,
1999.
Note B
Inventories at December 31, 1999 and March 31, 1999
consisted of:
(in thousands) December 31, March 31,
1999 1999
Raw materials $ 6,809 $ 7,640
Work in process 6,819 6,563
Finished goods 20,486 16,349
$ 34,114 $ 30,552
Note C
Other assets at December 31, 1999 include the Company's
equity investments in its manufacturing partners, Intracel
Corporation and North American Scientific, Inc. (NASI) and
shares of Paradigm Medical Industries, Inc. (Paradigm)
received in connection with the sale of assets included in
discontinued operations. The Intracel Corporation
investment is valued at cost of $6 million. In accordance
with Financial Accounting Standards Board (FASB) statement
115 "Accounting of Certain Equity Investments in Debt and
Equity Securities", the North American Scientific and
Paradigm investment are carried at fair market value of
approximately $3.4 million and $3.7 million respectively.
Unrealized gains, net of the related tax effect, are
accounted for as a separate component of shareholders'
equity.
Note D
The Company has adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for reporting and
display of an alternative income measurement and its
components (revenue, expenses, gains and losses) in a full
set of general-purpose financial statements. Total
comprehensive income includes net earnings, net unrealized
currency gains and losses on translation and net unrealized
gains and losses on securities.
The components of comprehensive income are listed below:
Three Months Ended Nine Months Ended
December 31, December 30,
(in thousands) 1999 1998 1999 1998
Net income $ 7,844 $ (5,198) $ 28,058 $ 8,213
Foreign currency
Translation adjustment (738) 806 (977) 515
Unrealized gains (losses)
on investment
activities 1,538 400 2,072 (3,600)
Comprehensive income $8,644 $ (3,992) $29,153 $ 5,128
Note E
The Company has adopted Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131
establishes standards under which companies report
information about operating segments in financial
statements.
The Company's operations are principally managed on a
functional basis and reported on a product or geographic
basis. As a result there are four reportable segments:
Aesthetic and General Surgery, Surgical Urology, Clinical
and Consumer Healthcare products, and International.
The Aesthetic and General Surgery products segment consists
primarily of breast implants, tissue expanders and the
Company's Contour Genesis Ultrasonic equipment product line
along with equipment and disposables for traditional
liposuction. The Surgical Urology segment includes
impotence implants, products for the treatment of urinary
incontinence, and products for the treatment of prostate
cancer. The Clinical and Consumer Healthcare products
segment consists primarily of catheters and other products
for the management of urinary incontinence or retention.
The International segment includes the operations of the
Company's wholly owned international sales offices, which
cover most of the Company's Aesthetic and Surgical Urology
product lines, and a European manufacturing and distribution
facility which supplies Aesthetic surgery products to our
international sales offices and non-US distributors.
Segment revenues include domestic sales, sales to
independent foreign distributors and sales to the Company's
international sales offices.
Selected financial information for the Company's reportable
segments for the quarter ended December 31, 1999 and 1998
follows:
Three Months Ended Nine Months Ended
December 31, December 31,
(in thousands) 1999 1998 1999 1998
Revenues
Aesthetics and General
Surgery $ 31 056 $ 25,070 $ 93,872 $ 78,368
Surgical Urology 13,216 10,291 36,222 24,971
Clinical and Consumer
Healthcare 11,173 11,925 33,166 31,277
International 9,335 9,532 29,086 27,307
Total reportable segments 64,780 56,818 192,346 161,923
Elimination of inter-segment
Revenues (4,193) (5,163) (13,613) (14,471)
Total consolidated
Revenues $ 60,587 $51,655 $178,733 $147,452
Three Months Ended Nine Months Ended
December 31, December 31,
(in thousands) 1999 1998 1999 1998
Operating profit (loss) from
continuing operations
Aesthetics and General
Surgery $ 7,264 $ 3,500 $ 29,987 $ 22,293
Surgical Urology 2,427 1,938 7,140 6,502
Clinical and Consumer
Healthcare 2,215 2,697 7,392 8,017
International 1,420 1,249 4,643 3,684
Operating profit from
continuing operations of
reportable segments 13,326 9,384 49,162 40,496
Corporate operating loss (3,730) (4,323) (21,310) (16,861)
Interest expense (3) (156) (32) (182)
Interest income 1,017 253 1,999 921
Other income (loss) 131 108 (31) (126)
Income from continuing
operations before taxes $ 10,741 $ 5,266 $ 29,788 $ 24,248
December 31, March 31,
1999 1999
Identifiable assets
Aesthetics and General
Surgery $ 51,472 $ 48,818
Surgical Urology 21,358 23,175
Clinical and Consumer
Healthcare 25,791 28,354
International 23,001 20,957
Total reportable segments 121,622 121,304
Corporate and other 106,237 37,889
Net assets of discontinued
Operations (1,547) 36,818
Consolidated assets $ 226,312 $ 196,011
Note F
In May 1999, the Company announced that its Board of
Directors had decided to divest the ophthalmology business,
which accounted for approximately 16% of sales in fiscal
1999. Consistent with the plan to dispose of its ophthalmic
business segment, the net assets and results of operations
of the ophthalmic segment of the business, comprised of the
intraocular lens products and ophthalmic equipment lines
have been classified as discontinued operations.
Summaries of the results of operations for discontinued
operations follows:
Three Months Ended Nine Months Ended
December 31, December 31,
(in thousands) 1999 1998 1999 1998
Revenues $ 152 $ 10,838 $ 14,114 $ 28,780
Operating profit (735) (12,922) 367 (12,021)
Gain on sale of lens assets 6,178 - 17,478 -
Income before income taxes 5,443 (12,918) 17,845 (12,004)
Income tax expense (4,872) (4,266) 10,048 (4,570)
Net income from discontinued
Operations $ 571 $ (8,652) 7,797 (7,434)
The assets and liabilities of discontinued operations as of
March 31, 1999 have been classified in the balance sheet as
net assets of discontinued operations. As of December 31,
1999 substantially all assets have been sold, and the
remaining contractual and accruals have been classified as
part of other current liabilities. The assets and
liabilities related to discontinued operations consist of
the following:
December 31, March 31,
(in thousands) 1999 1999
Accounts receivable, net $ - $ 7,981
Inventory - 17,687
Property, plant & equipment, net - 3,985
Intangibles and goodwill, net - 12,098
Other 2 4,525
Total assets 2 46,276
Current liabilities 1,549 6,377
Net assets (liabilities) of
discontinued operations $ (1,547) $ 39,899
During the quarter ended June 30, 1999, the Company
completed the sale of the assets of the intraocular lens
business, for cash consideration of $38.4 million. The
Company recorded a gain of $7.5 million, net of $3.8 million
in taxes. On October 4, 1999 the Company completed the sale
of the remaining assets of the Ophthalmic equipment business
for cash consideration of $21 million. The Company recorded
an after tax a gain of approximately $1.1 million from this
transaction in the third quarter.
Note G
Earnings per Share
A reconciliation of weighted average shares outstanding,
used to calculate basic earnings per share, to weighted
average shares outstanding assuming dilution, used to
calculate diluted earnings per share, follows:
Three Months Ended Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
Average outstanding shares:
Basic 24,357 24,195 24,419 24,618
Shares issuable through
Options 740 720 677 911
Average common shares
Outstanding: diluted 25,097 24,916 25,096 25,529
Shares issuable through options are determined using the
treasury stock method.
Note H
The Company's three quarterly interim reporting periods are
each approximately thirteen-week periods ending on the
Friday nearest the end of the third calendar month. The
fiscal year end remains March 31. To facilitate ease of
presentation, each interim period is shown as if it ended on
the last day of the appropriate calendar month. The actual
dates on which each quarter ended are shown below:
Fiscal 2000 Fiscal 1999
First Quarter July 2, 1999 June 26, 1998
Second Quarter October 1, 1999 September 25, 1998
Third Quarter December 31, 1999 January 1, 1999
Mentor Corporation
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Except for the historical information contained herein, the
matters discussed in this Management's Discussion are
forward-looking statements, the accuracy of which is
necessarily subject to risks and uncertainties. Actual
results may differ significantly from the discussion of such
matters in the forward-looking statements. Potential risks
and uncertainties include, without limitation, those
mentioned in this report and, in particular, the factors
described under "Factors That May Affect Future Results of
Operations" in the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1999.
In May 1999, the Company announced that its Board of
Directors decided to divest the ophthalmology business,
which accounted for approximately 16% of sales in fiscal
1999. The Company completed the sale of the assets of the
intraocular lens portion of the ophthalmology business in
the first quarter. In the third quarter, the Company
completed the sale of the remaining assets of the
Ophthalmology business, primarily the equipment product
lines, for cash consideration of $21 million. As a result
of this divestiture, the Company accounts for the ophthalmic
business as a "Discontinued Operations" in accordance with
Generally Accepted Accounting Principles. Accordingly, all
sales and expenses and other financial information of the
ophthalmic business are reported, on a net basis, as a
single line on the financials. All prior period amounts
presented in this Form 10-Q have been restated to exclude
the results of the ophthalmic business as appropriate.
RESULTS OF OPERATIONS
Sales
Sales for the three months ended December 31, 1999 increased
17% to $60.6 million, compared to $51.7 million in the prior
year. Growth was led by strong sales of Surgical Urology
products, increasing 28% compared to a year ago. The growth
is primarily attributable to sales of brachytherapy seeds
for the treatment of prostate cancer, and the Suspend sling
for treating female urinary incontinence. Sales of these
two products accounted for the majority of the increased
revenues for this business segment.
Sales of aesthetics and general surgery products increased
23% from the prior year. The strong sales growth in this
segment is attributable, in part, to recently initiated
consumer-advertising programs and the recent re-introduction
of the Becker reconstruction implant.
Sales of Clinical and Consumer Healthcare products decreased
5% from the prior year. The decrease is attributable to
stocking by wholesalers and others in advance of a price
increase that went into effect late in the second quarter
which, in turn, reduced third quarter demand. For the nine
months ended December sales have increased 7% over the prior
year.
Sales by Principal Product Line
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
Percent Percent
1999 1998 Change 1999 1998 Change
Aesthetic &
General Surgery
Products $34,955 $28,455 23% $106,183 $88,927 19%
Surgical Urology
Products 13,733 10,736 28% 37,481 25,965 44%
Clinical &
Consumer
Healthcare
Products 11,899 12,464 (5%) 35,069 32,560 8%
$60,587 $51,655 17% $178,733 $147,452 21%
Cost of Sales
For three months ended December 31, 1999, cost of sales
decreased to 38.2% from 40.7% for the comparable period last
year. While a larger proportion of the product mix is being
supplied by Mentor's alliance partners, which have lower
profit margins than products produced by the Company, the
overall mix has improved as sales of Aesthetics products
increased substantially. In addition, the cost of goods
sold for the quarter ended December 1998 included a
substantial amount of expense related to the re-validation
efforts at the Company's Texas facility.
Selling, General and Administrative Expenses
Selling, General and administrative expenses were 39.5% of
sales in the quarter compared to 42.3% in the previous year.
For the nine months ended December 31, 1999, Selling,
General and administrative expenses were essentially
unchanged from prior year levels at 40.5% of sales. The
quarterly decrease to 39.5% was primarily due higher levels
of sales offset in part by the Company's direct consumer
advertising campaign that began in the first quarter. The
purpose of the campaign is to educate women about breast
augmentation and reconstruction, and to stimulate interest
in looking at these products as an effective and affordable
surgical option. The Company spent approximately $1.2
million on this campaign in the quarter ending December 31,
1999. In addition, over the last year the Company has
increased its selling and marketing efforts to establish a
competitive position in the market for the treatment of
prostate cancer with brachytherapy. During the first quarter
of the current year the Company launched a new palladium
brachytherapy product, the PdGoldTM, to complement its
existing iodine IoGold product.
Research and Development
Research and development expenses were 6.4% of sales for the
quarter, compared to 7.3% for the prior year. The decreased
percentage is the result of increased sales used in the
calculation, actual spending increased 4%. During the
quarter the Company continued to spend funds on its
premarket approval applications ("PMAAs") for its saline
breast implants, silicone gel filled breast implants, and
penile implants. The Company is committed to a variety of
preclinical and clinical studies in connection with these
products.
Regulatory and Compliance
In May 1998, the Company entered into a voluntary consent
decree with the FDA in relation to the Texas facility. This
resulted from issues the FDA had concerning the Company's
validations of this facility. The agreement required the
Company to re-validate certain of the Company's
manufacturing processes, strengthen its continuous quality
improvement program, and to contract for an independent
audit on overall GMP compliance under a schedule agreed to
by the Company and the FDA.
Mentor believes that to date it has completed in a timely
fashion all the activities called for in the agreement.
Specifically, the Company has completed the re-validations
of the plant and has had a GMP expert consultant conduct the
first annual inspection. The expert consultant reported
that the company was in substantial GMP compliance.
In November and December of 1999 the FDA conducted an
inspection of the Company's Texas facility. The inspection
consisted of a comprehensive good manufacturing practices
("GMP") audit, a review of the Company's corrections of
observations from previous inspections and a review of other
conditions of the consent decree. While some inspection
observations were issued, they were not related to issues
raised in previous inspections nor did they indicate any
issues of noncompliance with the terms of the consent
decree. We believe the observations were not major in scope
and that the facility was found to be in substantial GMP
compliance. Most of the observations were corrected during
the course of the audit or by December 31, 1999. The
outstanding observations will be addressed in a very short
period of time.
Should the Company fail to comply with the conditions of the
consent decree, under its terms, the FDA is allowed to order
the Company to stop manufacturing or distributing breast
implants, order a recall or take other corrective actions.
The Company may also be subject to penalties of $10,000 per
day until the task is completed.
Our saline-filled breast implant has been marketed in the
U.S. based upon substantial equivalence to other saline-
filled breast implant products that were in commercial
distribution before the FDA was granted authority to
regulate implants under the "Medical Device Amendments of
1976"(the "Medical Device Act"). In June 1988 the FDA
issued regulations that classified mammary implants as Class
III implantable devices. As a result of this
classification, each breast implant manufacturer is required
to submit a PMA application to the FDA. These PMA
applications contain substantial data to demonstrate the
safety and efficacy of the products, materials and
processes. On August 17, 1999, the FDA issued final
regulations known as a "call for a PMA application" for the
saline-filled breast implant products, ending this
"grandfather" status. All manufacturers of saline-filled
breast implant products are required to obtain approval to
enter or remain on the market.
Pursuant to the call for PMA applications, all manufacturers
of saline-filled breast implant products now in commercial
distribution must have submitted a PMA application by
November 17, 1999. Accordingly, the Company filed its
saline-filled breast implant PMA application with the FDA on
November 15,1999. The FDA conducted its initial review and
accepted the Company's application. The FDA will then
conduct a comprehensive review of the application. An
advisory panel meeting has been scheduled for the first week
in March to provide further review and make a recommendation
on the Company's and other manufacturers' applications. The
FDA is not bound to adopt the panel's recommendation
regarding this approval. The FDA decision regarding
approval of the PMA application is expected in 2000. While
the Company believes its filing is adequate to support the
approval of the submission, any filing with the FDA is
subject to uncertainty and there can be no assurances that
the FDA review process will not involve delays or that
clearances and approvals will be granted. In addition, the
FDA ultimately could find our PMA application not
approvable, which would preclude commercial distribution of
this product. If the FDA does not grant PMA application
approval on the saline filled breast implant it would have a
material adverse effect on the business, financial condition
and results of operations.
Interest and Other Income and Expense
Net interest income increased from $97 thousand last year to
$1.0 million this year, due to higher cash balances
generated by increased earnings and the proceeds of the sale
of the Ophthalmic business. The net interest expense for
the comparable quarter in the prior year included interest
expense from borrowings on the line of credit to increased
stock repurchases. The borrowings were repaid in the first
quarter.
Income Taxes
The effective rate of corporate income taxes was 32.3% for
the quarter, compared to 34.4% in the same period a year
ago. The prior year rate reflects the effect of restatement
for discontinued operations, while the current year rate
reflects tax credits earned in prior years not previously
provided for.
Discontinued Operations
In May 1999, the Company announced its decision to divest
its ophthalmology business, which accounted for
approximately 16% of sales in fiscal 1999. Consequently,
the Company accounts for the ophthalmic business as a
"Discontinued Operation" in accordance with Generally
Accepted Accounting Principles (GAAP).
For the quarter, the Company had a net income from
discontinued operations of $571 thousand, compared to a loss
of $8.7 million for the comparable quarter in the prior
year. The prior year restated results of discontinued
operations include the after-tax effect of a $14 million
reserve for discontinued operations of the Ophthalmic
business. During the first quarter, the Company completed
the sale of the assets of the intraocular lens business,
recording a gain of $7.5 million, net of tax. In the third
quarter the Company completed the sale of the remaining
assets of the Ophthalmic equipment business for cash
consideration of $21 million. The Company recorded an after-
tax gain of approximately $1.1 million from this
transaction.
Net Income From Continuing Operations
Diluted earnings per share from continuing operations was
$0.29 for the quarter, a per share increase of 104% over the
comparable quarter last year. The increased earnings are
primarily the result of increased sales in the current year
and high levels of manufacturing expenses related to
validations of our Texas facility in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company's working capital was
$126.2 million compared to $106.8 million at March 31, 1999.
The Company's working capital needs were provided from
operations.
The Company generated $24.7 million of cash from continuing
operations during the nine months ended December 31, 1999,
compared to $12.7 million the previous year.
The Company anticipates investing approximately $9 million
in facilities and capital equipment in fiscal 2000. The
majority of the expenditures will be for facility upgrades
at the Company's facilities in Texas and Santa Barbara, as
well as for enhancing the Company's information technology
capabilities.
The Company has a line of credit for $25 million. As a
result of the increased stock repurchases in fiscal 1999,
the Company had a balance of $4.0 million on its line of
credit at March 31, 1999. This amount was paid off during
the first quarter.
For the last several years, the Company has paid a quarterly
cash dividend of $.025 per share. At the indicated rate of
$.10 per year, the aggregate annual dividend would equal
approximately $2.4 million.
The Company's Board of Directors has authorized an ongoing
stock repurchase program. The objectives of the program are
to offset the issuance of stock options, provide liquidity
to the market and to generally enhance the Company's return
to shareholder's equity. Repurchases are subject to market
conditions and cash availability. In May 1999, the Board
increased the repurchase authorization by 4 million shares,
to a total of 4.6 million. The Company has repurchased
approximately 650 thousand shares for consideration of $12
million during the fiscal year to date.
As discussed above, during the first quarter the Company
completed the sale of the assets of the intraocular lens
business, for cash consideration of $38.4 million. In the
third quarter, the Company completed the sale of the
remaining assets of the ophthalmic equipment business for
cash consideration of $21 million.
The Company's principal source of liquidity at December 31,
1999 consisted of $58.7 million in cash and marketable
securities plus $25 million available under its line of
credit.
IMPACT OF YEAR 2000
The Company experienced no adverse effects related to the
Year 2000 Issue.
The total cost to the Company of the Year 2000 project is
estimated at $3.0 million and was funded through operating
cash flows. This amount includes upgrading desktop systems
and office software to the latest release, which the Company
would do in the normal course of business. The majority of
these costs related to new hardware and software, and were
capitalized.
PART II
Item 1. Legal Proceedings
In regards to the litigation reported in Item 3 of the
annual report on Form 10-K for the fiscal year ended March
31, 1999, there have been no material changes.
Item 2. Changes in Securities
No changes have been made in any registered securities.
Item 3. Defaults Upon Senior Securities
No event constituting a material default has occurred
respecting any senior security of the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
10(a) Asset Purchase Agreement, dated as of August
26, 1999 between Mentor Corporation and
Xomed, Inc.
Pursuant to the requirement of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned thereunto duly
authorized.
MENTOR CORPORATION
(Registrant)
DATE: February 14, 2000 BY: /s/ANTHONY R. GETTE
Anthony R. Gette
President and
Chief Operating Officer
DATE: February 14, 2000 BY: /s/LOREN L. McFARLAND
Loren L. McFarland
Vice President of Finance
Corporate Controller
Exhibit 10(a)
ASSET PURCHASE AGREEMENT
dated as of
August 26, 1999
between
Mentor Corporation
and
Xomed, Inc.
TABLE OF CONTENTS
Page No.
ARTICLE 1 - PURCHASE AND SALE OF ASSETS 1
Section 1.1 Purchase and Sale 1
Section 1.2 Excluded Assets 5
Section 1.3 Transfer 7
ARTICLE 2 - PURCHASE PRICE 7
Section 2.1 Purchase Price 7
Section 2.2 Accounts Receivable 8
Section 2.3 Assumption of Liabilities. 9
Section 2.4 Purchase Price Allocation 10
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF THE
SELLER AND THE SUBSIDIARIES 11
Section 3.1 Organization and Corporate Standing 11
Section 3.2 Corporate Power and Authority 11
Section 3.3 Financial Statements 12
Section 3.4 Absence of Certain Changes and Events 13
Section 3.5 No Violation of Law 13
Section 3.6 Equipment 14
Section 3.7 Title to Assets/Sufficiency 14
Section 3.8 Leases 15
Section 3.9 Litigation 15
Section 3.10 Employees of the Business 16
Section 3.11Collective Bargaining; Employment Contracts 16
Section 3.12 Labor Matters 16
Section 3.13 Inventory 17
Section 3.14 Permits 17
Section 3.15 Contracts 18
Section 3.16 Required Consents, Approvals and Filings 18
Section 3.17 No Conflict 19
Section 3.18 Intellectual Property 19
Section 3.19 Taxes 20
Section 3.20 Accounts Receivable 20
Section 3.21 Trade Payables 20
Section 3.22 Undisclosed Liabilities 21
Section 3.23 Warranty 21
Section 3.24 Year 2000 Status 21
Section 3.25 Disclosure 21
Section 3.26 Disclaimer 22
ARTICLE 4 - BUYER'S REPRESENTATIONS AND WARRANTIES 22
Section 4.1 Organization 22
Section 4.2 Corporate Power and Authority 22
Section 4.3 Required Consents, Approvals and Filings 23
Section 4.4 No Conflict 23
Section 4.5 Litigation 24
Section 4.6 Financing 24
ARTICLE 5 - COVENANTS OF THE PARTIES 24
Section 5.1 Operations Pending Closing 24
Section 5.2 Access 26
Section 5.3 Preparation of Supporting Documents 27
Section 5.4Approvals of Third Parties; Satisfaction of Conditions to
Closing 27
Section 5.5 Hart-Scott-Rodino Notification 28
Section 5.6 Financial and Tax Services 29
Section 5.7 Transfer Taxes 29
Section 5.8 Notice and Opportunity to Cure. 30
Section 5.9 Inventory 31
ARTICLE 6 - COVENANTS AS TO EMPLOYEES 32
Section 6.1 Employees and Employee Benefits. 32
Section 6.2 Key Employees 33
ARTICLE 7 - CONDITIONS TO SELLER'S OBLIGATIONS 34
Section 7.1Representations and Warranties True at Closing Date; Performance
of Agreements 34
Section 7.2 Litigation 34
Section 7.3 Opinion of Counsel to Buyer 35
Section 7.4 Required Governmental Approvals 35
Section 7.5 Other Necessary Consents 35
ARTICLE 8 - CONDITIONS TO BUYER'S OBLIGATIONS 35
Section 8.1Representations and Warranties True at Closing Date; Performance
of Agreements 36
Section 8.2 Litigation 36
Section 8.3 Opinion of Counsel to the Seller 36
Section 8.4 Required Governmental Approvals 36
Section 8.5 Other Necessary Consents 37
ARTICLE 9 - CLOSING 37
Section 9.1 Closing 37
Section 9.2 Termination Prior to Closing 38
Section 9.3 Termination of Obligations 39
ARTICLE 10 - INDEMNIFICATION 39
Section 10.1 Seller Indemnification. 39
Section 10.2 Buyer Indemnification. 41
Section 10.3 Indemnity Claims. 42
Section 10.4 Deductible. 43
Section 10.5 Notice of Claim 44
Section 10.6 Defense 44
Section 10.7 Limitation of Liability 46
Section 10.8 Exclusive Remedy; Release. 46
ARTICLE 11 - COVENANT NOT TO COMPETE 47
ARTICLE 12 - MISCELLANEOUS 47
Section 12.1 Expenses 47
Section 12.2 Entire Agreement 47
Section 12.3 Waivers 48
Section 12.4Parties Bound by Agreement; Successors and Assigns 48
Section 12.5 Counterparts 49
Section 12.6 Notices 49
Section 12.7 Brokerage 50
Section 12.8 Governing Law 51
Section 12.9 Public Announcements 51
Section 12.10 No Third-Party Beneficiaries 52
Section 12.11 Certain Definitions. 52
Section 12.12 Interpretation 52
SCHEDULES
1.1 Business
1.1( Computer Software, Equipment and Databases
g)
1.2 Excluded Assets
2.2 Additional Assumed Liabilities
3.3 Financial Statements and Exceptions to Financial
Statements
3.4 Certain Changes and Events
3.7 Exceptions to Title
3.8 Equipment Leases
3.9 Litigation
3.10 Key Employees
3.11 Agreements with Employees
3.12 Labor Matters
3.14 Permits and Registrations
3.15 Contracts
3.15 Contracts Included in Assets
(b)
3.15 Notice to Distributors and Independent Sales
(c) Representatives
3.16 Seller Required Consents, Approvals and Filings
3.18 Intellectual Property
3.18 Intellectual Property Licensed back to Seller
(b)
3.19 Taxes
3.23 Warranties
4.3 Buyer Required Consents, Approvals and Filings
5.1 Operations Pending Closing
5.1( Actions Prior to Closing
b)
6.2 Key Employees
DEFINITIONS
Term: First Defined in Section -
"Accounts Receivable" Section 1.1(h)
"Adjusted Accounts Section 2.2(a)
Receivable"
"Affiliate" Section 12.11(a)
"Agreement" First paragraph of Agreement
"Assets" Section 1.1
"Assumed Liabilities" Section 2.3(a)
"Business" Section 1.1
"Business Employees" Section 6.1(a)
"Buyer" First paragraph of Agreement
"Buyer Protected Parties" Section 10.1(a)
"Buyer's Benefit Plans" Section 6.1(b)
"Closing" Section 9.1
"Closing Date" Section 9.1
"Code" Section 2.4
"Collected Accounts Section 2.2(b)
Receivable"
"Contracts" Section 1.1(d)
"Deductible" Section 10.4
"Effective Date" First paragraph of Agreement
"Equipment" Section 1.1(e)
"Excluded Assets" Section 1.2
"Excluded Liabilities" Section 2.3(b)
"FTC" Section 5.5
"Financial Statements" Section 3.3
"Hired Employees" Section 6.1(a)
"HSR" Section 3.16
"Indemnified Party" Section 10.5
"Indemnifying Party" Section 10.5
"Intellectual Property" Section 3.18
"Justice Department" Section 5.5
"Key Employees" Section 3.10
"knowledge" Section 12.11(b)
"Leases" Section 1.1(f)
"Losses" Section 10.1(a)
"Mark" Section 1.2(h)
"Material Adverse Effect" Section 12.11(c)
"Mentor" Section 1.2(h)
"MOI" First paragraph of Agreement
"MMI" First paragraph of Agreement
"Permits" Section 1.1(c)
"Permitted Liens" Section 3.7
"Phaco Product" Section 1.1(j)
"Pre-Closing Date" Section 2.1
"Purchase Price" Section 2.1
"Purchase Price Allocation" Section 2.4
"Registrations" Section 1.1(b)
"Second Request" Section 5.5
"Seller" First paragraph of Agreement
"Subsidiary" Second paragraph of Agreement
"Subsidiaries" Second paragraph of Agreement
"Seller Protected Parties" Section 10.2
"Supply Agreement" Section 1.1(j)
"Technical Information" Section 1.1(k)
"Trade Payables" Section 2.3(b)
"Transaction Agreements" Section 3.2
"Transition Services Section 5.3
Agreement"
"Wet-Field Intellectual Section 1.1(j)
Property"
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), made and
entered into as of this 26th day of August, 1999 (the "Effective
Date"), among Mentor Corporation, a Minnesota corporation, having
its principal place of business at 201 Mentor Drive, Santa
Barbara, CA 93111 (the "Seller"), Mentor Ophthalmics, Inc., a
Massachusetts corporation ("MOI"), Mentor Medical, Inc., a
Delaware corporation ("MMI"), and Xomed, Inc., a Delaware
corporation, having its principal place of business at
6743 Southpoint Drive N., Jacksonville, Florida 32216 (the
"Buyer").
WITNESSETH:
WHEREAS, the Seller is the sole shareholder of MOI and MMI
(each, a "Subsidiary" and, collectively, the "Subsidiaries"); and
WHEREAS, upon and subject to the terms and conditions of
this Agreement, the Seller and the Subsidiaries desire to sell to
the Buyer, and the Buyer desires to purchase from the Seller and
the Subsidiaries, certain assets of the Seller and of the
Subsidiaries used in the Mentor Ophthalmics business division.
NOW, THEREFORE, in consideration of the mutual promises and
covenants and the terms and conditions set forth herein and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as
follows:
- - PURCHASE AND SALE OF ASSETS
Purchase and Sale
. Subject to the terms of this Agreement, at the Closing (as
defined in Section 9.1), the Seller and the Subsidiaries will
sell, convey, transfer, assign and deliver to the Buyer, and the
Buyer will purchase and accept from the Seller and the
Subsidiaries, all of the assets, properties and rights of every
kind, nature, character or description, whether tangible or
intangible, real, personal or mixed, wherever located, used or
held by the Seller and the Subsidiaries as of the Effective Date
in the ophthalmic product lines described on Schedule 1.1 (the
"Business"), including any additions to such assets, properties
and rights in the ordinary course of business between the date
hereof and the Closing, but specifically excluding (A) the
Excluded Assets (as defined in Section 1.2) and (B) any deletions
to such assets, properties and rights in the ordinary course of
business between the date hereof and the Closing in accordance
with this Agreement. The assets, properties and rights being
sold and purchased pursuant to this Agreement are herein referred
to as the "Assets". Subject to Section 1.2, the Assets include,
but are not limited to:
All originals (where originals exist, in the case of materials
used exclusively in the Business), and/or copies of records
(including copies of materials not used exclusively in the
Business, whether in hard copy or electronic format), operating
data and business files, including customer lists and files,
customer credit files, advertising materials and sales
literature, information relating to purchasing histories and
procedures, vendor files and financial records (including all
sales invoices and purchase order records and supporting
documents with respect to accounts receivable and accounts
payable) and other marketing information and records used
primarily in the Business, which are in the possession of the
Seller or a Subsidiary on the Closing Date (as defined in Section
9.1);
All governmental registrations, registration applications,
temporary registrations, experimental use permits, applications
and emergency use exemptions used in the Business, including
those listed on Schedule 3.14 hereto (the "Registrations");
All governmental authorizations, licenses and permits used in the
Business, including those listed on Schedule 3.14 (collectively,
the "Permits");
All contracts, agreements and licenses (other than the Leases of
Equipment listed on Schedule 3.8) which are listed on Schedule
3.15(b), but excluding any such contracts that expire or are
terminated prior to Closing in accordance with this Agreement and
such contracts where the Seller or a Subsidiary, as the case may
be, is unable to obtain an assignment prior to the Closing (the
"Contracts");
All machinery, motor vehicles, tools, furniture, instruments,
laboratory equipment, research equipment, fixtures and personal
property used in connection with the Business (the "Equipment");
All leases of Equipment used in the Business, including those
listed on Schedule 3.8 (the "Leases");
Computer, data processing and telecommunications hardware,
software and systems, equipment and database items used
exclusively in connection with the Business, as set forth on
Schedule 1.1(g), except with respect to such items where the
Seller or a Subsidiary, as the case may be, is unable to obtain
an assignment;
All accounts receivable ("Accounts Receivable") of the Business
(excluding intercompany receivables, as described in Section
1.2(f)) as of the Closing;
All inventories of the Business, including finished goods and
products, field inventory, goods and products in process, and
materials and supplies on hand and in transit, as of the Closing;
All of the Seller's and the Subsidiaries' right, title and
interest in and to intellectual property (including patents,
unpatented know-how, copyrights, trade secrets, trade names,
service marks and trademarks), whether registered or not,
applications for the foregoing, and any and all other intangible
assets used in the Business, including, without limitation, those
set forth on Schedule 3.18. The Buyer acknowledges that certain
intellectual property related to the Wet-Field Console is
incorporated into Seller's phacoemulsification product, the
Mentor SIStem (together with future generations of the
phacoemulsification product, the "Phaco Product"), which is
excluded from this transaction. The Buyer therefore grants to
the Seller and the Subsidiaries, as of the Closing, an exclusive,
royalty-free, irrevocable, worldwide right and license to use the
Wet-Field Intellectual Property (as defined below) in connection
with their use, development, and manufacture of the Phaco
Product. The term "Wet-Field Intellectual Property" shall mean
those intangible assets set forth on Schedule 3.18(b). The
foregoing license shall be: (i) limited to use of the Wet-Field
Intellectual Property within the Phaco Product and not within any
other product or as a stand-alone product; and (ii) contingent on
the Seller purchasing all of its components for the Phaco Product
that relate to the Wet-Field Console from the Buyer, and the
Seller agrees (effective as of the Closing) to purchase all its
requirements for such components from the Buyer under a supply
agreement between the parties hereto to be executed as of the
Closing (the "Supply Agreement"). The Seller may assign such
license to a third party upon notice to the Buyer of the
assignee's name, address, telephone number and contact person.
In the event the Seller and/or a Subsidiary assigns such license
to use the Wet-Field Intellectual Property, the assignee of such
license is hereby granted a worldwide license for a period of six
months from the date of assignment to use the name "Wet-Field"
in connection with the Phaco Product. Such use shall be limited
to identifying, selling, marketing and distributing the existing
inventory of products transferred in connection with such
assignment and any related advertising and promotional materials.
Within six (6) months after the Closing Date, the Seller or its
assignee shall remove the name "Wet-Field" from the internal
software in the Phaco Product such that the name does not appear
on any screen display.
All of the Seller's technical information and data, including,
but not limited to, know-how, trade secrets, inventions,
formulas, processes, designs, drawings, technology, software
(including source codes), data bases, electronic data and
engineering files (including drawings and materials),
manufacturing and quality control procedures and records, product
composition data and specifications, packaging specifications,
material safety data sheets, customer specifications, product
standards, competitive samples and reports of analyses thereof,
lab notebooks, records of inventions, patent application drafts,
and research and development projects, materials, results and
records, wherever located, used in the Business ("Technical
Information");
All manufacturers', vendors' and suppliers' warranties, to the
extent assignable, relating to the Assets or the Business;
The goodwill of Seller relating to the Assets or the Business;
The following (800) telephone numbers used in the Business:
(i) (800) 992-7557 (Customer Service);
(ii) (800) 645-9792 (Technical Support).
Excluded Assets
. Notwithstanding anything herein to the contrary, the Assets
shall not include the following (the "Excluded Assets"):
Cash;
Securities;
Bank deposits;
Assets, properties and rights of the Seller or a Subsidiary not
currently used primarily in the Business;
Any and all rights and assets, including without limitation
intellectual property rights, relating to the Polytef, Contour
Genesis, Urethrin, Phaco, and all other product lines other than
the Business;
Intercompany receivables (that is, amounts owing by the Seller to
a Subsidiary, by a Subsidiary to the Seller, or by one Subsidiary
to another Subsidiary);
Any and all real property and leases thereof; and
Material contracts set forth on Schedule 3.15, except for those
contracts listed on Schedule 3.15(b); and
All other assets, properties, trademarks and tradenames and
rights identified on Schedule 1.2, including without limitation,
all rights in and to use the name "Mentor." Pursuant to this
Agreement, the Buyer will acquire for sale certain existing
inventory which display the "Mentor" mark. The Buyer
acknowledges that the Seller and/or one or more of the
Subsidiaries is the exclusive owner of the "Mentor" trade name
and trademark (the "Mark"). The Buyer agrees to refrain from any
action which is in any way inconsistent with the Seller's
ownership of the Mark or which could damage Seller's interest in
the Mark or the Seller's reputation. The Seller grants to the
Buyer as of the Closing a limited worldwide, royalty-free
license, (A) for a period not to exceed one year from the Closing
Date, to use the Mark in an informational sense only to identify
the existing inventory transferred under this Agreement and on
any related advertising and promotional materials and to refrain
from any use of the Mark in connection with any other products,
and (B) for a period not to exceed six months from the Closing
Date, to use the Mark to announce the Buyer's purchase of, and to
promote the Buyer's ownership of, the Business (subject to the
Seller's approval thereof pursuant to Section 12.9, which
approval shall not be unreasonably withheld or delayed).
Transfer
. The sale, conveyance, transfer, assignment and delivery of the
Assets by the Seller and the Subsidiaries to the Buyer will be
effected by the delivery from the Seller and the Subsidiaries to
the Buyer at Closing of all bills of sale, endorsements,
assignments and transfers as required by the Agreement plus such
other instruments of transfer and conveyance in forms reasonably
satisfactory to the parties.
- - PURCHASE PRICE
Purchase Price
. Subject to adjustment as provided in this Section 2.1 and in
Section 2.2, the purchase price for the Assets shall be
Twenty-One Million Dollars ($21,000,000) (the "Purchase Price").
The Purchase Price is payable by the Buyer to the Seller at
Closing in immediately available funds by wire transfer. Two (2)
business days prior to the Closing ("Pre-Closing Date"), Seller
will provide to Buyer an aging report of Accounts Receivable and
Trade Payables. The Purchase Price will be reduced by one dollar
($1.00) at Closing for each dollar that Accounts Receivable as of
the Pre-Closing Date are less than 90% of the Accounts Receivable
as indicated on the March 31, 1999 balance sheet referenced in
Schedule 3.3. The Purchase Price will also be reduced by one
dollar ($1.00) at Closing for each dollar of Trade Payables that
are forty-five or more days old as of the Pre-Closing Date.
Accounts Receivable
. There shall be a post-Closing adjustment to the Purchase Price
in accordance with this Section 2.2.
The amount of "Adjusted Accounts Receivable" shall be equal to
the amount of the Accounts Receivable, as shown on the aging
report thereof delivered pursuant to Section 2.1, less $350,000.
During the one year period following the Closing, the Buyer shall
use commercially reasonable efforts to collect the Accounts
Receivable. Within 30 days following the first anniversary of
the Closing Date, the Buyer shall deliver to the Seller a
schedule of the Adjusted Accounts Receivable and the amounts
collected thereon during the one year period following the
Closing; the amount of the Adjusted Accounts Receivable collected
during such period is referred to as the "Collected Accounts
Receivables." For the purpose of such schedule, amounts
collected during such period from a customer shall be applied to
the earliest amounts owing. The Seller shall have the right to
audit such schedule, and the Buyer shall provide access to the
relevant books and records for that purpose.
If the amount of the Adjusted Accounts Receivable exceeds the
amount of the Collected Accounts Receivables, one-half of the
difference shall be paid by the Seller to the Buyer. Such amount
shall be promptly paid by the Seller to the Buyer, in immediately
available funds by wire transfer, and shall constitute an
adjustment to the Purchase Price.
Assumption of Liabilities.
Except as specifically set forth in this Section 2.2, the Buyer
will not assume, and shall not be bound by, any obligations and
liabilities of the Seller or a Subsidiary of any kind or nature,
known or unknown, expressed, implied, contingent or otherwise
(the "Excluded Liabilities"). Without limiting the generality of
the foregoing and notwithstanding anything in this Agreement to
the contrary, Excluded Liabilities shall include, and Buyer shall
have no responsibility for, any liability arising from actual or
threatened litigation from Seller's contracts or relationships
with its independent sales representatives, exclusive
distributors or any other third parties worldwide, which are not
listed in Schedule 3.15(b).
At the Closing, the Buyer will assume and agree to pay, perform
and discharge, and to indemnify the Seller and the Subsidiaries
against and hold them harmless from, the following obligations
and liabilities, whether imposed by contract, by operation of
law, or otherwise, relating to the Assets or the Business
("Assumed Liabilities"): (i) all liabilities and obligations on
or after the Closing Date under the Contracts, Permits, and
Leases included in the Assets; (ii) all trade accounts payable
relating to the Business incurred in the ordinary course of
business ("Trade Payables"); (iii) all liabilities or obligations
to third parties for personal injury, property damage,
consequential damages, punitive damages or incidental damages
arising from any injury, event or damage as a result of any
product or good of the Business manufactured on or after the
Closing Date; (iv) all obligations associated with customer
orders received by the Seller or a Subsidiary that remain
unfulfilled, and any purchase orders issued by the Seller or a
Subsidiary that remain open, on and as of the Closing Date,
provided that such customer orders or purchase orders were issued
or accepted in the ordinary course of business consistent with
past practices; (v) the obligations with respect to the Hired
Employees in accordance with Article 6 of this Agreement;
(vi) all deferred warranty obligations with respect to products
and goods of the Business; (vii) all obligations to service
products and goods of the Business; (viii) all obligations and
liabilities, of any nature or kind, known or unknown, fixed,
accrued, absolute or contingent, related to or based upon the
ownership or operation of the Business or the Assets on or after
the Closing Date; and (ix) the obligations or liabilities set
forth on Schedule 2.2.
Purchase Price Allocation
. The Purchase Price shall be allocated by the Buyer and the
Seller in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"), including the requirements of Section 1060
of the Code, and the Treasury Regulations promulgated thereunder.
Such allocation (the "Purchase Price Allocation") shall apply to
Assets used in connection with the Business as conducted in the
United States as well as Assets used in connection with the
Business as conducted outside the United States. The Buyer and
the Seller shall negotiate in good faith to determine the
Purchase Price Allocation within 90 days following the Closing
Date, and shall execute a written document evidencing their
agreement as to the Purchase Price Allocation. In the event that
the parties are unable to reach an agreement concerning the
Purchase Price Allocation prior to the expiration of said 90 day
period, the parties shall submit the matter to a public
accounting firm with a nationally recognized tax, auditing and
appraisal expertise selected jointly by the Seller and the Buyer.
The determination of the Purchase Price Allocation by such firm
shall be binding on the parties for all tax reporting purposes.
The cost of employing any such firm shall be borne one-half by
the Seller and one-half by the Buyer. The Buyer and the Seller
agree to each prepare (and timely file) identical Internal
Revenue Service Forms 8594 (Asset Acquisition Statement Under
Section 1060) based on the agreed Purchase Price Allocation and
any supplemental Forms 8594 that are required in case of any
subsequent adjustments to the Purchase Price.
- - REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE
SUBSIDIARIES
The Seller and each of the Subsidiaries represent and
warrant to the Buyer as of the date hereof as follows:
Organization and Corporate Standing
. The Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Minnesota and
has all requisite corporate power and authority to carry on and
conduct the portion of the Business it conducts and to own or
lease the Assets it now owns or leases and to convey the Assets
it now owns. Each of the Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws
of the jurisdiction in which it is organized and has all
requisite corporate power and authority to carry on and conduct
the portion of the Business it now conducts and to own or lease
the Assets it now owns or leases and to convey the Assets it now
owns. The Seller and each Subsidiary is duly qualified and in
good standing in every jurisdiction in which the conduct of the
Business by it or the ownership of the Assets by it requires it
to be so qualified, and the absence of such qualification would
have a Material Adverse Effect.
Corporate Power and Authority
. The Seller and each Subsidiary has the right, power and
capacity to execute, deliver and perform this Agreement and all
the documents and instruments referred to herein and contemplated
hereby to which it is a party together with all other agreements
to be signed or delivered at Closing (the "Transaction
Agreements") and to consummate the transactions contemplated by
this Agreement. The execution, delivery and performance of this
Agreement and the Transaction Agreements, and the consummation of
the transactions contemplated hereby and thereby, have been duly
and validly authorized by all necessary corporate action on the
part of the Seller. This Agreement has been, and each of the
Transaction Agreements to which it is a party after execution and
delivery thereof at the Closing will have been, duly and validly
executed and delivered by the Seller and/or the Subsidiaries, as
the case may be, and constitute the legal, valid and binding
obligation of the Seller and/or the Subsidiaries, as the case may
be, enforceable in accordance with its terms.
Financial Statements
. Schedule 3.3 includes the following: (i) the unaudited balance
sheet of the Business as of March 31, 1999, and (ii) gross margin
summaries for the year ended March 31, 1999 and the 3-month
period ended July 2, 1999 (collectively the "Financial
Statements"). In addition, Schedule 3.3 will be supplemented as
soon as practicable following the Effective Date with the
unaudited balance sheet of the Business as of July 2, 1999, which
shall be one of the Financial Statements. Except as set forth on
Schedule 3.3, the Financial Statements (i) have been prepared
from, and are consistent with, the books and records of the
Business, and (ii) in all material respects are correct and
complete, and fairly present the financial position of the
Business as of the dates thereof, and results of operations from
the Business for the periods described therein; provided,
however, that in each case, the Financial Statements do not
include provision of corporate services to the Business by the
Seller, including, without limitation, expenses for clinical
programs and submissions to the U.S. Food and Drug
Administration, marketing services, accounting and other
corporate services performed by the Seller on behalf of the
Business; and further provided that the Financial Statements
reflect the Seller's good faith effort to separate the Assets
from other assets, properties and rights of the Seller or a
Subsidiary not currently used primarily in the Business.
Absence of Certain Changes and Events
. Except (i) to the extent arising out of or relating to the
transactions contemplated by this Agreement, (ii) for matters set
forth on any Schedule to this Agreement, or (iii) as set forth on
Schedule 3.4, since July 2, 1999:
The Business has not suffered any material damage or destruction
to the Assets (either individually or in the aggregate);
No event has occurred with respect to the Assets or the Business
that has had a Material Adverse Effect other than as contemplated
by this Agreement;
There has been no sale, transfer or other disposition of any
material Assets, except for inventory in the ordinary course of
business and other tangible personal property retired or replaced
in the ordinary course of business;
There have been no material contracts or commitments relating to
the Business or the Assets, except purchase orders in the
ordinary course of business;
There has been no creation of any material mortgage, lien,
security interest, pledge or other encumbrances on the Assets,
except for Permitted Liens; and
The Business has not incurred or discharged any material
obligation or liability, except in the ordinary course of
business;
No Violation of Law
. Since December 31, 1998, the Seller has not received any
written notice alleging the Seller or a Subsidiary is in material
violation of any applicable local, state or federal law,
ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency or authority or
court binding on it, relating to the Assets or the Business which
violation would have a Material Adverse Effect. To the knowledge
of the Seller, the Seller and the Subsidiaries have operated the
Business in material compliance with all applicable local, state
and federal laws, ordinances, regulations and orders, where
failure to do so would have a Material Adverse Effect.
Equipment
. A listing of Equipment will be provided by the Seller to the
Buyer as of the Closing Date, and will be true and correct in all
material respects as of the date of such listing. To Seller's
knowledge, the Equipment which is material to the operation of
the Business, as such Equipment is used by the Seller and the
Subsidiaries in the operation of the Business, is in good working
order and condition and repair.
Title to Assets/Sufficiency
. The Seller or a Subsidiary has good title to all Assets, free
and clear of all liens and encumbrances, or has a license with
the right to use the Assets for the benefit of the Business,
except (i) as set forth on Schedule 3.7, or (ii) (A) liens for
taxes not yet due and payable; (B) carriers', warehousemen's,
mechanics', material men's, repairmen's or other like liens
arising in the ordinary course of business, payment for which is
not yet due or which is being contested in good faith; and (C)
deposits to secure the performance of utilities, leases,
statutory obligations and surety and appeal bonds and other
obligations of a like nature incurred in the ordinary course of
business (collectively, "Permitted Liens"). The Assets include
all material assets and rights necessary for the conduct of the
Business as now conducted, except (A) as set forth on Schedule
3.7, and (B) for assets not held at a Business location or not
used by the Seller or a Subsidiary primarily for the benefit of
the Business, such as administrative services used by the Seller
or a Subsidiary in providing administrative services to the
Business (such as payroll, electronic mail and certain other
information services) and corporate services used in connection
with the Business (such as research and development activities,
Seller's quality system, and marketing).
Leases
. Except for real property leases, Schedule 3.8 lists all Leases
(including any capital leases) and lease-purchases and other
arrangements, in each case with payments aggregating $25,000 or
more per year, pursuant to which the Seller or a Subsidiary
leases any Assets from third parties. Except as set forth on
Schedule 3.8, (i) each Lease is in full force and effect and has
not been modified or amended, and (ii) there are no disputes,
oral agreements or forbearance programs in effect as to any
Lease. To the Seller's knowledge, there has not occurred any
default, or any event with notice or lapse of time, or both,
would become a default under any Lease.
Litigation
. Schedule 3.9 sets forth all litigation, suits, indictments or
informations, or proceedings or arbitrations pending, or to the
knowledge of the Seller, threatened, before any court,
arbitration tribunal, or judicial, governmental or administrative
agency, relating to the Business or the Assets, in each case,
that is pending, or, to the knowledge of the Seller, threatened,
as of the date hereof that would have a Material Adverse Effect.
Further, except as set forth in Schedule 3.9, there are no
material judgments, orders, writs, injunctions, decrees,
indictments or informations, grand jury subpoenas or civil
investigative demands, or awards against the Seller or a
Subsidiary relating to the Business or the Assets that would have
a Material Adverse Effect. There is no suit, investigation,
action or other proceeding pending, or to the Seller's knowledge,
threatened before any court, arbitration, tribunal, or judicial,
governmental or administrative agency, against the Seller or a
Subsidiary which would have a Material Adverse Effect on the
ability of the Seller or a Subsidiary to perform its obligations
hereunder or which seeks to prevent the consummation of the
transactions contemplated herein.
Employees of the Business
. Seller has provided to Buyer a schedule setting forth the
names, positions, and current compensation of all employees of
the Seller and Subsidiaries who are assigned exclusively to the
Business as of the Effective Date.
Collective Bargaining; Employment Contracts
. There are no labor contracts or collective bargaining
agreements covering any of the Business Employees (as defined in
Section 6.1) and no collective bargaining agreement or union
contract is currently being negotiated by the Seller or a
Subsidiary. None of the Business Employees are represented by
any union or labor organization. Except as set forth in
Schedule 3.15 or Schedule 3.11, neither the Seller nor any
Subsidiary, in connection with the operation of the Business, is
bound by or subject to any written employment agreements.
Labor Matters
. Neither the Seller nor any Subsidiary has received any written
notice alleging any material violation of any applicable local,
state or federal law, ordinance, regulation, order, injunction,
or decree, or any other requirement of any governmental body,
agency or authority or court respecting employment and employment
practices relating to the Business, and the Seller has no
knowledge of any such material violation. Except as set forth in
Schedule 3.12, (i) neither the Seller nor any Subsidiary has
received any written notification that any of the Employees have
any material claim against the Seller or a Subsidiary,
(ii) neither the Seller nor any Subsidiary has received written
notice of any material charge of, or action or proceedings
relating to unfair labor practices by the Seller or a Subsidiary
in connection with the Business pending or threatened before the
National Labor Relations Board, the Equal Employment Opportunity
Commission, or the United States Department of Labor, and
(iii) to the knowledge of the Seller, there is no labor
organizing effort related to the Business, or any strike or other
labor trouble actually pending or threatened against the
Business.
Inventory
. A listing of inventory will be provided by the Seller to the
Buyer as of the Closing Date, and will be true and correct in all
material respects as of the date of such listing. Each item of
inventory identified in the aforementioned list has been
manufactured, packaged and labeled in accordance with Good
Manufacturing Practices and all other applicable requirements of
the United States Food and Drug Administration. To the knowledge
of Seller, the inventory, taken as a whole (but excluding
inventory being serviced by the Seller's technical services and
repair department), is free from significant defects in materials
and workmanship.
Permits
. The Permits disclosed on Schedule 3.14 are all material
Permits or other authorizations of governmental authorities
necessary or required for the production of products of the
Business or for the conduct of the Business as currently
conducted. There is no action pending, or to the Seller's
knowledge, threatened, seeking the revocation, cancellation,
suspension or adverse modification of any material Permit.
Contracts
. Schedule 3.15 sets forth a list of all material contracts,
agreements and licenses (other than Leases) used in the Business.
Except as set forth on Schedule 3.15, each such Contract is valid
and in full force and effect and is enforceable in accordance
with its respective terms. Except as set forth on Schedule 3.16,
no consent, approval or authorization of any third party is
required for the assignment of each Contract to the Buyer. There
are no material disputes, oral agreements or forbearance programs
in effect as to the Contracts and there has not occurred any
material default by the Seller or a Subsidiary or, to the
Seller's knowledge, any other party of any such Contracts.
Seller will provide notice to its distributors and independent
sales representatives under the agreements set forth in
subsections B and F of Schedule 3.15, respectively, that it has
discontinued the manufacture and sale of the products in the
Business; such notice shall be substantially in the form set
forth on Schedule 3.15(c).
Required Consents, Approvals and Filings
. Except as set forth in Schedule 3.16, no consent or approval
is required by virtue of the execution hereof by the Seller or
the consummation of any of the transactions contemplated herein
by the Seller to avoid the violation or breach of, or the default
under, or the creation of a lien or other encumbrance on the
Assets pursuant to the terms of any regulation, order, decree or
award of any court or governmental agency or any Lease or
Contract to which the Seller or a Subsidiary is a party or to
which the Business or the Assets is subject. Except for filings
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended ("HSR"), and as set forth on Schedule 3.16, there are
no filings or similar procedures required with respect to any
governmental body in connection with the consummation of the
transactions contemplated hereby.
No Conflict
. Subject to obtaining the consents and approvals and making the
filings described in Section 3.16, the execution and delivery of
this Agreement by the Seller, and the consummation of the
transactions contemplated herein by the Seller will not (with or
without the giving of notice or the lapse of time or both): (i)
violate or conflict with any of the provisions of any charter
document or bylaw of the Seller; or (ii) violate, conflict with
or result in a breach or default under or cause termination of
any term or condition of any mortgage, indenture, contract,
license, permit, instrument, or other agreement, document or
instrument to which the Seller or a Subsidiary is a party or by
which the Seller, a Subsidiary or the Assets may be bound, or
(iii) violate any provision of law or any valid and enforceable
court order, judgment, decree or ruling of any governmental
authority, to which the Seller or a Subsidiary is a party or by
which it or its properties may be bound, or (iv) result in the
creation or imposition of any lien or other encumbrance upon any
Asset, except as to clauses (i) through (iv) above, any such
matters that would not (A) involve or affect the Business or the
Assets, or (B) prevent or delay the consummation of the
transactions contemplated herein.
Intellectual Property
. Schedule 3.18 sets forth a list of all material trademarks and
patents and describes the material copyrights and other
intellectual property used primarily in the Business (the
"Intellectual Property"). Except as set forth on Schedule 3.18,
the Seller or a Subsidiary owns or is licensed under a Contract
to use all the Intellectual Property and the Technical
Information, free and clear of any liens or other encumbrances.
Unless otherwise noted on Schedule 3.18, none of the Intellectual
Property, or Seller's ownership or use thereof, is subject to any
pending or, to the knowledge of the Seller, threatened challenge.
Except as noted on Schedule 3.18, Seller is not aware of any
circumstances indicating that any person is or has been
infringing on any rights in the Intellectual Property. To the
Seller's knowledge, neither (i) the use by the Seller or any
Subsidiary of the Intellectual Property, nor (ii) the making,
using, selling, offering to sell, importing or exporting of the
products of the Business, infringes or otherwise violates the
rights of any other party.
Taxes
. Except as set forth in Schedule 3.19, (i) all material tax and
informational returns and related information required to be
filed by or on behalf of the Seller or any Subsidiary relating to
the Assets or the Business prior to the date hereof have been
prepared and filed in accordance with applicable law, and all
taxes, interest, penalties, assessments and deficiencies relating
to the Assets or the Business that have become due pursuant to
such returns or any assessments or otherwise have been paid in
full; (ii) all such returns are true and correct in all material
respects, and there is no unresolved claim concerning any
federal, state, local or foreign tax liability; and (iii) all
monies required to be withheld by the Seller or any Subsidiary
from the employees of the Business have been collected and
withheld, and either paid to the appropriate governmental agency
or will be paid by the Seller on or before their due date.
Accounts Receivable
. The Accounts Receivable shown on the books and records of the
Business and to be transferred to Buyer at the Closing constitute
valid obligations of customers generated in the ordinary course
of the Business.
Trade Payables
. The Trade Payables shown on the books and records of the
Business and to be assumed by Buyer at the Closing constitute
valid obligations generated in the ordinary course of the
Business and are due and payable as shown on the books and
records of the Business.
Undisclosed Liabilities
. Other than as disclosed in this Agreement or the Financial
Statements, to the Seller's knowledge there are no material
liabilities associated with the Business or the Assets.
Warranty
. Attached as Schedule 3.23 is a listing of all warranty terms
and all extended warranty agreements with respect to products and
goods of the Business, which liability is to be assumed at the
Closing by Buyer pursuant to Section 2.3(vi) of this Agreement.
Year 2000 Status
. Products of the Business currently manufactured do not rely on
real-time clocks to function. Certain ultrasound products of the
Business currently manufactured contain date mechanisms for
reference purposes only. Such products: (i) will provide
accurate date output denoting the year with either two or four
digits; (ii) will recognize 2000 as a leap year; and (iii) will
function accurately and without interruption before, during and
after January 1, 2000 without any adverse change in operations
associated with the advent of the new century.
Disclosure
. No representation or warranty by the Seller in this Agreement,
nor any statement, document, certificate or schedule furnished or
to be furnished by the Seller or a Subsidiary in connection with
the transactions contemplated by this Agreement, shall, as of the
date furnished to the Buyer and as of the Closing Date (other
than changes in the ordinary course of business prior to the
Closing Date), contain any untrue statement of a material fact or
omit a material fact necessary to make the statements contained
therein not misleading.
Disclaimer
. EXCEPT AS SET FORTH IN THIS ARTICLE 3, (A) THE SELLER AND THE
SUBSIDIARIES MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, RELATING TO THE ASSETS OR THE BUSINESS, INCLUDING,
WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY AS TO VALUE,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR FOR ORDINARY
PURPOSES, OR ANY OTHER MATTER; AND (B) THE ASSETS AND BUSINESS OF
THE SELLER AND THE SUBSIDIARIES BEING TRANSFERRED TO THE BUYER
ARE CONVEYED ON AN "AS IS, WHERE IS" BASIS AS OF THE CLOSING, AND
THE BUYER SHALL RELY UPON ITS OWN EXAMINATION THEREOF.
- - BUYER'S REPRESENTATIONS AND WARRANTIES
The Buyer represents and warrants to the Seller as of the
date hereof as follows:
Organization
. Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Buyer
has all requisite corporate power and authority to carry on and
conduct its business as it is now being conducted, to own or
lease its assets and properties and is duly qualified and in good
standing in every jurisdiction in which the conduct of its
business or ownership of its assets requires it to be so
qualified.
Corporate Power and Authority
. The Buyer has the right, power and capacity to execute,
deliver and perform this Agreement and the Transaction Agreements
and to consummate the transactions contemplated by this
Agreement. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated
hereby, have been duly and validly authorized by all necessary
corporate action on the part of the Buyer. This Agreement has
been, and each of the Transaction Agreements after execution and
delivery thereof at the Closing will have been, duly and validly
executed and delivered by the Buyer and constitute the Buyer's
legal, valid and binding obligation, enforceable in accordance
with its terms.
Required Consents, Approvals and Filings
. Except as set forth on Schedule 4.3, no consent or approval is
required by virtue of the execution hereof by the Buyer or the
consummation of any of the transactions contemplated herein by
the Buyer to avoid the violation or breach of, or the default
under, or the creation of a lien or other encumbrance on assets
of the Buyer pursuant to the terms of any regulation, order,
decree or award of any court or governmental agency or any lease,
agreement, contract, mortgage, note, license, or any other
instrument to which the Buyer is a party or to which it or any of
its property is subject. Except for filings under HSR and
applicable securities laws, and as set forth on Schedule 4.3,
there are no filings or similar procedures required with respect
to any governmental body in connection with the consummation of
the transactions contemplated hereby.
No Conflict
. Subject to obtaining the consent and approvals and making the
filings described in Section 4.3, the execution and delivery of
this Agreement by the Buyer, and the consummation of the
transactions contemplated herein by the Buyer will not, with or
without the giving of notice or the lapse of time, or both, (i)
violate or conflict with any of the provisions of any charter
document or bylaw of the Buyer, (ii) violate, conflict with or
result in breach or default under or cause termination of any
term or condition of any mortgage, indenture, contract, license,
permit, instrument, or other agreement, document or instrument to
which the Buyer is a party or by which the Buyer or any of its
properties may be bound, or (iii) violate any provision of law or
any valid and enforceable court order, judgment, decree, or
ruling of any governmental authority, to which Buyer is a party
or by which Buyer or its properties may be bound, and except as
to clause (i) through (iii) above, any such matters that would
not prevent or delay the consummation of the transaction
contemplated herein.
Litigation
. There is no suit, investigation, action or other proceeding
pending, or to the Buyer's knowledge, threatened before any
court, arbitration tribunal, or judicial, governmental or
administrative agency, against the Buyer which would have a
Material Adverse Effect on the ability of the Buyer to perform
its obligations hereunder or which seeks to prevent the
consummation of the transactions contemplated herein.
Financing
. The Buyer will have available at Closing sufficient
immediately available funds to enable the Buyer to pay the
Purchase Price to the Seller and to effect the consummation of
the transactions described herein.
- - COVENANTS OF THE PARTIES
Operations Pending Closing
. The Seller hereby agrees that, except as set forth in Section
3.4 or in Section 6.2 or on Schedule 5.1 or as consented to in
writing by the Buyer (such consent not to be unreasonably
withheld or delayed), pending the Closing, the Seller and the
Subsidiaries shall operate and conduct the Business in the
ordinary course and consistent with past practices of the Seller
and the Subsidiaries. Pursuant thereto and not in limitation of
the foregoing:
The Seller and the Subsidiaries will maintain, in all material
respects, the Assets in their present state of repair (ordinary
wear and tear excepted), and will use commercially reasonable
efforts to preserve the good will of its business and
relationships with customers and suppliers with whom it has
business relations. Notwithstanding the foregoing, the
resignation or termination of any sales representative or the
election by a customer or supplier to curtail or cease business
relations with the Business, shall not be deemed a breach of, or
failure to comply with, this Section 5.1(a), provided that Seller
has used commercially reasonable efforts to retain such
representative, customer or supplier.
Except as set forth on Schedule 5.1(b), or without the written
consent of the Buyer (such consent not to be unreasonably
withheld or delayed), or as otherwise contemplated by this
Agreement, the Seller and the Subsidiaries will not take any of
the following actions between the Effective Date and the Closing
Date:
Sell, transfer or otherwise dispose of any material Assets,
except for inventory in the ordinary course of business and other
tangible personal property retired or replaced in the ordinary
course of business;
Enter into any material contract or commitment relating to the
Business or the Assets, except purchase orders in the ordinary
course of business;
Create any material mortgage, lien, security interest, pledge or
other encumbrances, on the Assets, except for Permitted Liens; or
Cause the Business to incur or discharge any material obligation
or liability, except in the ordinary course of business.
Access
. The Buyer shall be afforded a period of fifteen (15) days,
commencing on the Effective Date, to continue its due diligence
investigation in order to confirm the accuracy of the
representations and warranties contained in Article 3 hereof, and
upon discovery of any such inaccuracy, shall have the rights
provided in Section 9.2(c) hereof. During the period from the
Effective Date to the Closing Date, the Seller will, and will
cause the Subsidiaries to, (i) provide the Buyer with such
information as the Buyer may from time to time reasonably request
with respect to the Assets and the Business and the transactions
contemplated by this Agreement, and (ii) provide the Buyer, upon
reasonable notice and during regular business hours, access to
the books, records, offices, counsel, accountants and employees
of the Business and those of the Seller and the Subsidiaries as
such relate to the Business, as the Buyer may from time to time
reasonably request. Any access will be conducted in such a
manner so as not to interfere unreasonably with the operation of
the business of the Seller and the Subsidiaries, and any
representative of the Buyer shall, at all times while in the
facilities of the Seller or a Subsidiary, be accompanied by an
employee(s) or representative(s) of the Seller. The Seller shall
also have the right to require, prior to entry onto any of the
facilities of the Seller or a Subsidiary by contractors acting on
behalf of the Buyer, that the Buyer provide the Seller with
evidence of the contractor's insurance in form and amount
reasonably satisfactory to the Seller, including contractor's
insurance that names the Seller as an insured. At the Seller's
request, the Buyer shall furnish to the Seller at the Buyer's
expense a copy of all information obtained by the Buyer as a
result of any such access by contractors acting on behalf of the
Buyer. The Buyer shall inform its representatives and agents of
the Confidentiality Agreement, dated on or about June 24, 1999 by
and between the Seller and Xomed Surgical Products, Inc., and
shall cause said representatives to abide by such Confidentiality
Agreement and the Seller's rules and regulations regarding
safety, security and operations. The Buyer shall and hereby does
indemnify, defend and hold harmless the Seller Protected Parties
(as defined in Section 10.2) from and against any and all Losses
(as defined in Section 10.1) that may arise in connection with or
as a result of the Buyer's access to the Business, and the Buyer
further agrees to be responsible for and bear all costs and
expenses of damage directly related to any of the Buyer's access
to the Business.
Preparation of Supporting Documents
. In addition to such actions as the parties may otherwise be
required to take under this Agreement or applicable law in order
to consummate this Agreement and the transactions contemplated
hereby and by the Transaction Agreements, the parties will take
such action, furnish such information, and prepare, or cooperate
in preparing, and execute and deliver such certificates,
agreements (including a Transition Services Agreement between the
parties hereto of even date herewith (the "Transition Services
Agreement")) and other instruments as the other party may
reasonably request from time to time, before, at or after the
Closing, with respect to compliance with obligations of the Buyer
or the Seller in connection with the transactions contemplated
hereby or by the Transaction Agreements (including, but not
limited to, vesting title to the Assets more fully in the Buyer).
Approvals of Third Parties; Satisfaction of Conditions to Closing
. The Seller and the Buyer will use their reasonable, good faith
efforts, and will cooperate with one another, to secure all
necessary consents, approvals, authorizations and exemptions from
governmental agencies and other third parties, including, without
limitation, all consents and approvals required by Sections 7.4,
7.5, 8.4 and 8.5. In the event that any required consent or
approval is not obtained prior to the Closing, the Seller and the
Buyer will use their reasonable good faith efforts to obtain such
consent or approval as promptly as possible after the Closing,
and until such consent or approval is obtained, to cooperate with
each other in reasonable arrangements (such as subcontracting,
sublicensing or subleasing) designed to achieve the purposes of
this Agreement. The Seller will use its reasonable, good faith
efforts to obtain the satisfaction of the conditions specified in
Article 8. The Buyer will use its reasonable, good faith efforts
to obtain the satisfaction of the conditions specified in Article
7.
Hart-Scott-Rodino Notification
. The Seller and the Buyer will each promptly prepare and file a
notification with the United States Justice Department (the
"Justice Department") and the Federal Trade Commission (the
"FTC") as required by HSR. The Seller and the Buyer will
cooperate with each other in connection with the preparation of
such notification, including sharing information concerning sales
and ownership and such other information as may be needed to
complete such notification, and providing a copy of such
notification to the other prior to filing. Each of the Seller
and the Buyer will keep confidential all information about the
other obtained in connection with the preparation of such
notification. The Buyer and the Seller will cooperate to respond
to all inquiries and requests for further information associated
with the HSR filing. A party receiving a Request for Additional
Information and Documentary Material ("Second Request") from the
Justice Department and/or the FTC shall notify the other party
and respond thereto as soon as reasonably possible and in any
event within seventy-five (75) days of receipt of such Second
Request. The Seller and the Buyer will each bear all of their
own expenses (including attorneys fees) in complying with this
Section.
Financial and Tax Services
. It is recognized that one or more party may need tax,
financial or other data after the Closing Date with respect to
the Business covering fiscal periods prior to the Closing Date in
order to facilitate the preparation of tax returns or in
connection with any audit, investigation, litigation, amended
return, claim for refund or any proceeding in connection
therewith or to comply with the rules and regulations of the
Internal Revenue Service, the Securities and Exchange Commission
or any other governmental organization or agency. The parties
will render reasonable cooperation and will afford access during
normal business hours to all books, records, data and personnel
concerning use and ownership of the Assets and the operation and
conduct of the Business with respect to periods prior to and
including the Closing Date to each other and their auditors,
accountants, counsel or other authorized representatives for such
purpose. The parties will also each execute such documents as
the other may reasonably request in order to file any required
reports or tax returns and provide the other with prompt written
notice upon receipt of any written claim, notice of deficiency or
proposed or actual assessment pertaining to the Business which
could affect the tax liability of the other. The party
requesting assistance from the other party will bear all
reasonable out-of-pocket costs and expenses incurred by such
assisting party (excluding salaries or wages of its employees).
Transfer Taxes
. All sales or transfer taxes, including but not limited to,
document recording fees, real property transfer taxes, sales and
excise taxes, arising out of or in connection with the
consummation of the transactions contemplated herein shall be
paid by the Buyer. The Buyer shall furnish the Seller with any
necessary certificates of tax exemption.
Notice and Opportunity to Cure.
If between the Effective Date and the Closing Date either party
becomes aware that any of the Seller's representation(s) or
warranty(ies) are or will be untrue or inaccurate ("Inaccuracy"),
such party will promptly notify the other. In any such case,
even if such Inaccuracy would be likely to have a Material
Adverse Effect, the Seller can elect to take any of the following
actions, in which case the Buyer shall be obligated to close the
transaction contemplated hereby if all other conditions to
Closing in Article 8 have been satisfied:
prior to Closing, the Seller can cure such Inaccuracy by
correcting such Inaccuracy without any potential Loss, risk or
adverse effect to the Buyer;
if the Inaccuracy can be cured (without any remaining potential
risk or adverse effect to the Buyer) by the Seller's assumption
of, and indemnification for, any Losses resulting from any such
Inaccuracy, the Seller can agree to the unconditional and
unlimited assumption of liability for, and indemnification of the
Buyer for, any such Loss; or
if the Inaccuracy cannot be cured by the Seller prior to Closing
with commercially reasonable efforts, then the Seller can present
to the Buyer a reasonable plan to cure such Inaccuracy after the
Closing (without any remaining potential risk or adverse effect
to the Buyer), including the Seller's agreement to carry out such
plan within a reasonable time frame, and the Seller's
unconditional and unlimited indemnification of the Buyer for any
potential Losses resulting from any such Inaccuracy.
If the Seller satisfies all conditions in any of clauses
(1), (2) or (3) above, then the appropriate Schedule(s) will
be updated and the Inaccuracy shall be deemed corrected for
the all purposes of this Agreement (including without
limitation Section 10.1 hereof); provided, however, that
except as contemplated hereby and by Section 3.10 hereof,
the Seller shall not otherwise have any right to update such
Schedules. The parties acknowledge and agree that the
Seller's indemnity provided in this Section 5.8 is without
regard to the provisions of Article 10 hereof.
If the parties discover an Inaccuracy between the Effective Date
and the Closing Date, but such Inaccuracy would not be likely to
have a Material Adverse Effect, then the parties acknowledge and
agree that the condition in Section 8.1 of this Agreement will
nevertheless be satisfied insofar as Section 8.1 relates to the
required degree of accuracy of the representations and warranties
as of the Closing Date and after the Closing the Buyer may not
assert an indemnification claim against Seller under Article 10
hereof in respect of such Inaccuracy.
Inventory
. Following the Closing, all inventory included in the Assets
will be handled, packaged, labeled and distributed by Buyer in
accordance with Good Manufacturing Practices and all other
applicable requirements of the United States Food and Drug
Administration.
- - COVENANTS AS TO EMPLOYEES
Employees and Employee Benefits.
The Buyer may offer employment, effective as of the Closing Date,
to persons who are employees of the Seller or a Subsidiary and
who are assigned exclusively to the Business immediately prior to
the Closing Date (the "Business Employees"). The Seller shall
provide the Business Employees with reasonable paid time off to
enable them to interview or otherwise meet with the Buyer
(including at Buyer's Jacksonville, Florida headquarters); the
Buyer shall be responsible for reimbursing the Business Employees
for reasonable travel expenses incurred in connection therewith.
The Buyer shall notify the Seller in writing at least one week
prior to the Closing Date as to which Business Employees, if any,
offers of employment shall be made. Business Employees who
accept the Buyer's offer of employment are herein referred to as
the "Hired Employees." The Buyer shall cause the Hired Employees
to be eligible, as of the Closing Date, to participate in
employee medical, dental, life, retirement and other pension and
welfare benefit plans of the Buyer and its Affiliates that
provide benefits that are no less favorable than those provided
to other employees of the Buyer and its Affiliates holding
similar positions; provided, however, that the group health plan
coverage provided by the Buyer and its Affiliates to the Hired
Employees shall be such that the Seller's group health plan shall
not be required to offer continuation coverage to the Hired
Employees or their dependents under Part 6 of Title I of ERISA or
Section 4980B of the Code.
The Buyer shall cause the Buyer's and its Affiliates' employee
benefit plans, programs and policies ("Buyer's Benefit Plans") to
treat service and employment of Hired Employees with the Seller,
the Subsidiaries, their Affiliates and any predecessor employers
prior to the Closing Date as service and employment with the
Buyer for all purposes (other than for benefit accrual purposes
under any defined benefit pension plans) under Buyer's Benefit
Plans.
The Hired Employees and their beneficiaries shall not be required
for calendar year 1999 to satisfy any deductible, employee co-
payment, out-of pocket maximum or similar requirements under the
Buyer's Benefit Plans that provide medical, dental and other
welfare benefits to the extent of amounts previously credited for
such purposes under the Seller's Plans that provide medical,
dental, and other welfare benefits, and any waiting periods, pre-
existing condition exclusions and requirements to show evidence
of good health contained in such Buyer Benefit Plans shall be
waived with respect to the Hired Employees and their dependents.
The Seller and the Buyer shall take such further action (before,
on or after the Closing Date), if any, as may be necessary or
convenient to implement the intent of the Seller's and the
Buyer's agreement with respect to employee benefits as set forth
in this Section 6.1.
Key Employees
. Attached as Schedule 6.2 is a listing of key employees (the
"Key Employees") that Buyer has identified as essential to the
effective running of the Business. Seller agrees that it will
use its best efforts to retain the services of the Key Employees
and will make their services available to Buyer from the
Effective Date through the Closing Date and thereafter in
accordance with the Transition Services Agreement. Seller shall
be deemed to have satisfied the foregoing obligation if it (i)
fulfills the terms of the retention packages which it has
previously offered to the Key Employees until Closing and
thereafter in accordance with the Transition Services Agreement,
and (ii) does not terminate or decrease the compensation or
benefits of Key Employees except, in each case, for good cause.
- - CONDITIONS TO SELLER'S OBLIGATIONS
Each of the obligations of the Seller to consummate the
transactions contemplated hereby will be subject to the
satisfaction (or written waiver by the Seller) at or prior to the
Closing Date of each of the following conditions.
Representations and Warranties True at Closing Date; Performance
of Agreements
. Except for changes as may be contemplated by this Agreement,
each of the representations and warranties of the Buyer contained
in this Agreement must be true in all material respects on and as
of the Closing Date with the same force and effect as though made
on and as of such date unless the representation and warranty is
made as of a specified date and except to the extent that the
failure of such representations and warranties to be true as of
the Closing Date would not, in the aggregate, have a material
adverse effect on the Seller; the Buyer must have performed and
complied in all material respects with the covenants and
agreements set forth herein to be performed or complied with by
it on or before the Closing Date, including execution and
delivery of the Transaction Agreements; and the Buyer must have
delivered to the Seller a certificate dated the Closing Date and
signed by its duly authorized officer to all such effects.
Litigation
. No suit, investigation, action or other proceeding is pending,
or overtly threatened, against the Buyer or the Seller, a
Subsidiary or their Affiliates before any court or governmental
agency which has resulted, or in the reasonable opinion of
counsel for the Seller is likely to result, in the restraint or
prohibition of the consummation of the transactions contemplated
hereby or in a Material Adverse Effect on the Business, the
Assets, the Seller or a Subsidiary.
Opinion of Counsel to Buyer
. The Seller shall have received from counsel to the Buyer an
opinion, dated the Closing Date, reasonably satisfactory in form
and substance to the Seller.
Required Governmental Approvals
. All governmental authorizations, consents and approvals
necessary for the valid consummation of the transactions
contemplated hereby, the absence of which would have a Material
Adverse Effect, must have been obtained and must be in full force
and effect. All applicable governmental pre-acquisition filing,
information furnishing and waiting period requirements, including
expiration of all applicable waiting periods pursuant to HSR, the
absence of which would have a Material Adverse Effect, must have
been met or such compliance must have been waived by the
governmental authority having authority to grant such waivers.
Other Necessary Consents
. The parties must have obtained all consents and approvals
listed on Schedule 3.16 and Schedule 4.3, or, if any required
consent or approval has not been obtained, the parties must have
agreed to an alternative arrangement as contemplated by the
second sentence of Section 5.4.
- - CONDITIONS TO BUYER'S OBLIGATIONS
Each of the obligations of the Buyer to consummate the
transactions contemplated hereby is subject to the satisfaction
(or written waiver by the Buyer) at or prior to the Closing Date
of each of the following conditions.
Representations and Warranties True at Closing Date; Performance
of Agreements
. Except for changes as may be contemplated by this Agreement,
each of the representations and warranties of the Seller
contained in this Agreement must be true in all material respects
on and as of the Closing Date with the same force and effect as
though made on and as of such date, unless the representation or
warranty is made as of a specified date; the Seller must have
performed and complied in all material respects with the
respective covenants and agreements set forth herein to be
performed or complied with by it on or before the Closing Date,
including execution and delivery of the Transaction Agreements;
and the Seller must have delivered to the Buyer a certificate
dated the Closing Date and signed by its duly authorized officer
to all such effects.
Litigation
. No suit, investigation, action or other proceeding is pending,
or overtly threatened, against the Buyer or the Seller, a
Subsidiary or their Affiliates before any court or governmental
agency which has resulted, or in the reasonable opinion of
counsel for the Buyer is likely to result, in restraint or the
prohibition of the consummation of the transactions contemplated
hereby or in a Material Adverse Effect on the Business, the
Assets or the Buyer.
Opinion of Counsel to the Seller
. The Buyer shall have received from Chief Counsel of the Seller
an opinion, dated the Closing Date, reasonably satisfactory in
form and substance to the Buyer.
Required Governmental Approvals
. All governmental authorizations, consents and approvals
necessary for the valid consummation of the transactions
contemplated hereby must have been obtained and must be in full
force and effect. All applicable governmental pre-acquisition
filing, information furnishing and waiting period requirements,
including expiration of all applicable waiting periods pursuant
to HSR, must have been met or such compliance must have been
waived by the governmental authority having authority to grant
such waivers.
Other Necessary Consents
. The parties must have obtained all consents and approvals
listed on Schedule 3.16 and Schedule 4.3, the absence of which
would have a Material Adverse Effect, or, if any such required
consent or approval has not been obtained, the parties must have
agreed to an alternative arrangement as contemplated by the
second sentence of Section 5.4.
- - CLOSING
Closing
. The closing of the transactions contemplated hereby (the
"'Closing") will take place at 9:00 a.m. Pacific Time on the
"Closing Date," at the offices of the Seller located at
201 Mentor Drive, Santa Barbara, CA 93111, or at such other place
as may be mutually agreeable. Subject to Section 10.5, and
subject to satisfaction or waiver of the conditions to the
Seller's and the Buyer's obligations set forth in Articles 7 and
8, respectively, the Closing Date will be the later of (i)
October 1, 1999, or (ii) on the second business day following
expiration of all applicable waiting periods pursuant to HSR, or
such other date as the parties may mutually agree. At the
Closing, the parties hereto will duly execute and deliver all
documents and instruments required to be delivered, and the Buyer
will make all payments to the Seller required to be paid at the
Closing as provided in this Agreement.
Termination Prior to Closing
. Notwithstanding the foregoing, the parties will be relieved of
the obligation to consummate the Closing and purchase or sell the
Assets:
By the mutual written consent of the Buyer and the Seller;
By the Seller in writing, without liability, if the Buyer
(i) fails to perform in any material respect its agreements
contained herein required to be performed by it on or prior to
the Closing Date, or (ii) materially breaches any of its
representations, warranties or covenants contained herein, which
failure or breach is not cured, to the reasonable satisfaction of
the Seller, within twenty (20) days after the Seller has notified
in writing the Buyer of such failure or breach and of its intent
to terminate this Agreement pursuant to this subparagraph;
By the Buyer in writing, without liability, if the Seller
(i) fails to perform in any material respect its agreements
contained herein required to be performed on or prior to the
Closing Date, or (ii) materially breaches any of its
representations, warranties or covenants contained herein, which
failure or breach is not cured, to the reasonable satisfaction of
the Buyer, within twenty (20) days after the Buyer has notified
in writing the Seller of such failure or breach and of its intent
to terminate this Agreement pursuant to this subparagraph;
By either the Seller or the Buyer in writing, without liability,
if there is issued any order, writ, injunction or decree of any
court or governmental or regulatory agency binding on the Buyer
or the Seller or a Subsidiary which prohibits or restrains the
Buyer or the Seller from consummating the transactions
contemplated hereby; provided that the Buyer and the Seller have
used their reasonable, good faith efforts to have any such order,
writ, injunction or decree lifted and the same has not been
lifted within sixty (60) days after entry, by any such court or
governmental or regulatory agency;
By either the Seller or the Buyer in writing, without liability,
if for any reason the Closing has not occurred by October 29,
1999 other than as a result of the breach of this Agreement by
the party attempting to terminate this Agreement; provided,
however, that in the event that a Second Request is received by a
party, such deadline of October 29, 1999 shall be extended by the
number of days (not to exceed seventy-five (75)) elapsed between
the receipt of the Second Request and the submission of the
party's response thereto.
Termination of Obligations
. Termination of this Agreement pursuant to Section 9.2 will
terminate all obligations of the parties hereunder, except for
the obligations under Article 10 (Indemnity Claims), and this
Section, and Sections 5.2 (Indemnification and Confidentiality
Obligations Regarding Access), 12.1 (Expenses), 12.7 (Brokerage)
and 12.9 (Public Announcements); provided that termination
pursuant to subparagraphs (b), (c), or (e) of Section 9.2 will
not relieve a defaulting or breaching party from any liability to
the other party hereto.
- - INDEMNIFICATION
Seller Indemnification.
Except as otherwise provided in this Article 10, and in
Sections 2.2, 5.8 and 12.7, the Seller and each Subsidiary will
indemnify and reimburse the Buyer for any and all claims, losses,
liabilities, damages, penalties, fines, costs and expenses
(including reasonable attorneys' fees and court costs)
(collectively, "Losses") incurred by the Buyer and its Affiliates
and their successors or assigns, and their respective directors,
officers, employees, consultants and agents (the "Buyer Protected
Parties"), to the extent such Losses are a result of or arise out
of:
any material breach or inaccuracy of any representation or
warranty of the Seller or any Subsidiary set forth in this
Agreement or in any Transaction Agreement (other than the
Transition Services Agreement or the Supply Agreement), including
any failure by the Seller to satisfy the condition to Closing
regarding the Seller's representations and warranties (as set
forth in Section 8.1) and the corresponding breach of Section
5.4;
any material breach of, or noncompliance by the Seller or any
Subsidiary with, any covenant or agreement of the Seller
contained in this Agreement or in any Transaction Agreement
(other than the Transition Services Agreement or the Supply
Agreement);
the Excluded Assets or the Excluded Liabilities;
any liabilities or obligations for which the Seller has assumed
responsibility under Article 6 hereof, or
federal, state and foreign sales, use, franchise, income or other
taxes (including interest and penalties) assessed or levied at
any time on the Business for periods prior to the Closing Date;
provided, however, that, in each case, the Seller has
no obligation to indemnify the Buyer for any Loss
arising from, with respect to, or resulting from any
matters or information disclosed in writing to the
Buyer prior to the Closing, whether in this Agreement,
the Schedules to this Agreement or otherwise in a
writing that is acknowledged by an authorized officer
of Buyer.
Notwithstanding anything in the foregoing to the contrary,
subject to Section 10.3(b) (Time to Assert Claims) and Section
10.4 (Deductible), the Seller's obligation for indemnity under
Section 10.1(a)(1) or Section 10.1(a)(2) (with respect to
covenants or agreements of Seller under Section 5.1(a) and
Article 6 only) shall be only up to a maximum aggregate liability
for the Seller and the Subsidiaries equal to fifteen percent
(15%) of the Purchase Price; provided, however, that this
limitation shall not apply to claims for indemnity arising out of
Seller's knowing or willful misrepresentations; and further
provided that this limitation shall not apply to claims for
indemnity arising out of any material breach or inaccuracy of any
representation or warranty by the Seller or the Subsidiaries
under Section 3.2 or the first sentence of Section 3.7 (the
indemnity obligation with respect to both of such Sections being
limited to the Purchase Price).
Buyer Indemnification.
Except as otherwise provided in this Article 10 and Sections 2.2,
5.2 and 12.7, the Buyer will indemnify and reimburse the Seller
for any and all Losses incurred by the Seller, a Subsidiary and
their Affiliates and their successors or assigns, and their
respective directors, officers, employees, consultants and agents
(the "Seller Protected Parties"), to the extent such Losses are a
result of or arise out of:
any material breach or inaccuracy of any representation or
warranty of the Buyer set forth in this Agreement or in any
Transaction Agreement (other than the Transition Services
Agreement or the Supply Agreement), including any failure by the
Buyer to satisfy the condition to Closing regarding the Buyer's
representations and warranties (as set forth in Section 7.1) and
the corresponding breach of Section 5.4;
any material breach of, or noncompliance by the Buyer with, any
covenant or agreement of the Buyer contained in this Agreement or
in any Transaction Agreement (other than the Transition Services
Agreement or the Supply Agreement);
the Assumed Liabilities;
the ownership or operation of the Business or the Assets on or
after the Closing Date.
Notwithstanding anything in the foregoing to the contrary,
subject to Section 10.3(b) (Time to Assert Claims) and Section
10.4 (Deductible), the Buyer's obligation for indemnity under
Section 10.2(a)(1) shall be only up to a maximum aggregate
liability for the Buyer equal to fifteen percent (15%) of the
Purchase Price; provided, however, that this limitation shall not
apply to claims for indemnity arising out of (i) any material
breach or inaccuracy of any representation or warranty of the
Buyer under Sections 4.2 or 4.6 (the indemnity obligation with
respect thereto being limited to the Purchase Price), or (ii)
Buyer's knowing or willful misrepresentations.
Indemnity Claims.
Survival. The representations, warranties, covenants and
agreements contained herein, except for covenants and agreements
to be performed by the parties prior to the Closing, will not be
extinguished by the Closing but will survive the Closing, subject
to the limitations set forth in subsection (b) below with respect
to the time periods within which claims for indemnity must be
asserted. The covenants and agreements to be performed by the
parties prior to the Closing shall expire at the Closing.
Time to Assert Claims. All claims for indemnification under
Section 10.1(a) which are not extinguished by or at the Closing
in accordance with Section 10.3(a) must be asserted no later than
eighteen (18) months after the Closing Date, except for (i)
claims described in clause (5) of Section 10.1(a), which must be
asserted prior to the expiration of the applicable statute of
limitations, or (ii) claims by employees, distributors and sales
representatives of the Seller or the Subsidiaries, which must be
asserted prior to the expiration of the applicable statute of
limitations or five (5) years after the Closing Date, whichever
is earlier. All claims for indemnification under clauses (1) and
(2) of Section 10.2(a) which are not extinguished by or at the
Closing in accordance with Section 10.3(a) must be asserted no
later than eighteen (18) months after the Closing Date.
Deductible.
The Buyer Protected Parties may make no claim against the Seller
for indemnification pursuant to Section 10.1(a) unless and until
the aggregate amount of such claims exceeds $10,000 (the
"Deductible"), in which event the Buyer Protected Parties may
claim indemnification for the amount of such claims in excess of
the Deductible; provided, however, that the Deductible for claims
arising under Section 10.1(a)(1) or Section 10.1(a)(2) (with
respect to covenants or agreements of Seller under Section 5.1(a)
and Article 6 only) shall be $100,000. This Section 10.4 shall
not apply to claims for material breach of the representations
and warranties provided under Section 3.19 (taxes).
The Seller Protected Parties may make no claim against the Buyer
for indemnification pursuant to Section 10.2(a) unless and until
the aggregate amount of such claims exceeds $10,000 (the
"Deductible"), in which event the Seller Protected Parties may
claim indemnification for the amount of such claims in excess of
the Deductible; provided, however, that the Deductible for claims
arising under Section 10.2(a)(1) shall be $100,000.
Notice of Claim
. The Buyer Protected Party or the Seller Protected Party, as
the case may be (the "Indemnified Party"), will notify the party
against whom indemnification under this Agreement is sought (the
"Indemnifying Party"), in writing, of any claim for
indemnification, specifying in reasonable detail the nature of
the Loss, and, if known, the amount, or an estimate of the
amount, of the liability arising therefrom. The Indemnified
Party's failure or delay in providing such notice shall not
relieve the Indemnifying Party of its obligations hereunder
unless (and then only to the extent that) such failure or delay
prejudiced the Indemnifying Party's ability to defend such claim.
The Indemnified Party will provide to the Indemnifying Party, as
promptly as practicable thereafter, such information and
documentation as may be reasonably requested by the Indemnifying
Party to support and verify the claim asserted, so long as such
disclosure would not violate the attorney-client privilege of the
Indemnified Party.
Defense
. If the facts pertaining to a Loss arise out of the claim of
any third party, or if there is any claim against a third party
(other than a Buyer Protected Party or a Seller Protected Party)
available by virtue of the circumstances of the Loss, the
Indemnifying Party shall assume the defense or the prosecution
thereof by prompt written notice to the Indemnified Party,
including the employment of counsel or accountants, at the
Indemnifying Party's cost and expense. If the Indemnifying Party
does not assume the defense or prosecution of a claim as provided
above within thirty days after notice thereof from any
Indemnified Party (or within such shorter period, if any, as may
be necessary to avoid default judgment or other prejudice to the
Indemnified Party), the Indemnified Party may retain counsel and
defend or prosecute such claim at the Indemnifying Party's cost
and expense. The Indemnified Party will have the right to employ
counsel separate from counsel employed by the Indemnifying Party
in any such action and to participate therein, but the fees and
expenses of such counsel employed by Indemnified Party will be at
its expense. The Indemnifying Party will not be liable for any
settlement of any such claim effected without its prior written
consent, which will not be unreasonably withheld; provided that
if the Indemnifying Party does not assume the defense or
prosecution of a claim as provided above within thirty days after
notice thereof from any Indemnified Party (or within such shorter
period, if any, as may be necessary to avoid default judgment or
other prejudice to the Indemnified Party), the Indemnified Party
may settle such claim without the Indemnifying Party's consent.
The Indemnifying Party will not agree to a settlement of any
claim which provides for any relief other than the payment of
monetary damages or which could have a material precedential
impact or effect on the business or financial condition of any
Indemnified Party without the Indemnified Party's prior written
consent. Whether or not the Indemnifying Party chooses to so
defend or prosecute such claim, the Indemnifying Party and the
Indemnified Party will cooperate in the defense or prosecution
thereof and will furnish such records, information and testimony,
and attend such conferences, discovery proceedings, hearings,
trials and appeals, as may be reasonably requested in connection
therewith. The Indemnifying Party will be subrogated to all
rights and remedies of' any Indemnified Party, except to the
extent they apply against another Indemnified Party.
Limitation of Liability
. In calculating any amount of damages to be paid by the
Indemnifying Party pursuant to this Agreement, the amount of such
damages will be reduced by all reimbursements credited to or
received by the Indemnified Party, relating to such damages, and
will be net of any tax benefits and insurance proceeds (after
giving effect to any premium increases or deductibles) received
by the Indemnified Party with respect to the matter for which
indemnification is claimed.
Exclusive Remedy; Release.
The indemnification provided pursuant to this Agreement shall be
the sole and exclusive remedy hereto for any Losses as a result
of, with respect to or arising out of the breach of this
Agreement, or any of the transactions or other agreements or
instruments contemplated or entered into in connection herewith
(including, but not limited to, all Exhibits attached or
referenced herein); provided, however, that such indemnification
shall not be the sole and exclusive remedy, and shall in no way
limit the rights of the parties for fraud or willful breach or
misconduct.
Except as specifically provided in this Article 10 and Sections
2.2, 5.2, 5.8 and 12.7, neither party nor its Affiliates or
representatives shall be liable to the other party for, and
(except as so provided each party) hereby releases and discharges
the other party and its Affiliates and representatives from, any
and all Losses incurred as a result of, with respect to or
arising out of the ownership or operation of the Assets or the
Business.
- - COVENANT NOT TO COMPETE
For a period of five (5) years from and after the Closing
Date, the Seller shall not engage, directly or indirectly through
one or more subsidiaries or other intermediaries controlled by
the Seller, in any activities that constitute the Business as of
the Effective Date or the Closing Date. If the final judgment of
a court of competent jurisdiction declares that any provision of
this Article 11 is invalid or unenforceable, the parties agree
that the court making the determination shall reduce the scope,
duration or area of the term or provision to the least extent
necessary so that this provision shall be enforceable as so
modified and that the time period shall be extended by any period
of non-compliance. Notwithstanding the provisions of Section
10.8(a), this provision shall be specifically enforceable.
- - MISCELLANEOUS
Expenses
. Except as otherwise provided herein, the Seller and the Buyer
will each pay all costs and expenses incurred by each of them, or
on their behalf respectively, in connection with this Agreement
and the transactions contemplated hereby, including fees and
expenses of their own financial consultants, accountants and
counsel. Any and all personal property taxes, assessments,
security deposits, lease rentals, and other charges applicable to
the Assets or the Business will be pro-rated to the Closing Date
and allocated between the parties by adjustment at Closing, or as
soon thereafter as shall be reasonably practicable.
Entire Agreement
. Other than the Confidentiality Agreement, dated on or about
June 24, 1999 by and between the Seller and Xomed Surgical
Products, Inc., by which the Buyer agrees to be bound and the
terms and provisions of which shall survive the execution of this
Agreement and the Closing, this Agreement (including the
Schedules and Exhibits) and all other agreements to be signed or
delivered at Closing constitute the full understanding of the
parties, a complete allocation of risks between them and a
complete and exclusive statement of the terms and conditions of
their agreement relating to the subject matter hereof and
supersede any and all prior agreements, whether written or oral,
that may exist between the parties with respect thereto; provided
that this provision is not intended to abrogate any Transaction
Agreements executed with or after this Agreement. Except as
otherwise specifically provided in this Agreement, no conditions,
usage of trade, course of dealing or performance, understanding
or agreement purporting to modify, vary, explain or supplement
the terms or conditions of this Agreement will be binding unless
hereafter made in writing and signed by the party to be bound,
and no modification will be effected by the acknowledgment or
acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this
Agreement. The Exhibits and Schedules identified in this
Agreement are incorporated herein by reference and are made a
part hereof.
Waivers
. No waiver by a party with respect to any breach or default or
of any right or remedy and no course of dealing or performance,
will be deemed to constitute a continuing waiver of any other
breach or default or of any other right or remedy, unless such
waiver is expressed in writing signed by the party to be bound.
Failure of a party to exercise any right will not be deemed a
waiver of such right or rights in the future.
Parties Bound by Agreement; Successors and Assigns
. The terms, conditions and obligations of this Agreement will
inure to the benefit of and be binding upon the parties hereto
and the respective successors and permitted assigns thereof. No
Party shall transfer or assign its rights, duties or obligations
hereunder or any part thereof to any other person or entity
without the prior written consent of the other Party; provided,
however, that either Party may assign its rights and delegate its
obligations to an Affiliate within the meaning of Section
12.11(a)(i), but no such assignment or delegation shall relieve
such Party of its obligations hereunder.
Counterparts
. This Agreement may be executed in one or more counterparts,
each of which will for all purposes be deemed to be an original
and all of which will constitute the same instrument.
Notices
. Any notice, request, instruction or other document to be given
hereunder by any party hereto to any other party hereto must be
in writing and delivered personally (including by overnight
courier or express mail service) or sent by registered or
certified mail, postage or fees prepaid,
If to the Buyer: Xomed, Inc.
6743 Southpoint Dr. N.
Jacksonville, FL 32216-0980
Attention: Jaime A. Frias, General
Counsel
Telephone: (904) 332-2451
Facsimile: (904) 281-2779
With a copy to: McGuire Woods Battle & Boothe, LLP
50 N. Laura Street
Suite 3300
Jacksonville, FL 32202
Attention: C. Daniel Rice, Esq.
Telephone: (904) 798-2617
Facsimile: (904) 360-6323
If to the Seller: Mentor Corporation
201 Mentor Drive
Santa Barbara, CA 93111
Attention: Vice President and General
Counsel
Telephone: (805) 879-6000
Facsimile: (805) 681-6006
With a copy to: Arnold & Porter
777 South Figueroa Street
Los Angeles, CA 90017-2513
Attention: Gregory C. Fant, Esq.
Telephone: (213) 243-4000
Facsimile: (213) 243-4199
or to such other address as may be specified from time to time in
a notice given by such party. Any notice which is delivered
personally in the manner provided herein will be deemed to have
been duly given to the party to whom it is directed upon actual
receipt by such party or the office of such party. Any notice
which is addressed and mailed in the manner herein provided will
be conclusively presumed to have been duly given to the party to
which it is addressed at the close of business, local time of the
recipient, on the fourth business day after the day it is so
placed in the mail or, if earlier, the time of actual receipt.
Brokerage
. The Seller and the Buyer do hereby expressly warrant and
represent, each to the other, that except U.S. Bancorp Piper
Jaffray, in the case of the Seller, no broker, agent, or finder
has rendered services to such party in connection with the
transaction contemplated under this Agreement. The Seller shall
be solely responsible for any claims for compensation or
otherwise brought by U.S. Bancorp Piper Jaffray relating to the
transactions contemplated hereby and hereby indemnifies and
agrees to hold harmless the Buyer from and against any and all
Losses arising or resulting, or sustained or incurred by the
Buyer, by reason of any claim by any broker, agent, finder, or
other person or entity based upon any arrangement or agreement
made or alleged to have been made by the Seller in connection
with the transaction contemplated by this Agreement. The Buyer
hereby indemnifies and agrees to hold harmless the Seller from
and against any and all Losses arising or resulting, or sustained
or incurred by the Seller, by reason of any claim by any broker,
agent, finder, or other person or entity based upon any
arrangement or agreement made or alleged to have been made by the
Buyer in connection with the transaction contemplated by this
Agreement.
Governing Law
. The validity, interpretation and performance of this agreement
and any dispute connected with this agreement will be governed by
and determined in accordance with the statutory, regulatory and
decisional law of the State of New York (exclusive of such
state's choice or conflicts of laws rules) and, to the extent
applicable, the federal statutory, regulatory and decisional law
of the United States (except for the U.N. Convention on Contracts
for the International Sale of Goods, April 10, 1980, U.N. Doc.
A/Conf. 97/18, 19 I.L.M. 668, 671 (1980) reprinted in Public
Notice, 52 Fed. Reg. 66280 (1987), which is hereby specifically
disclaimed and excluded).
Public Announcements
. No public announcement may be made by any person with regard
to the transactions contemplated by this Agreement without the
prior consent of the Seller and the Buyer; provided that either
party may make such disclosure to the extent required if advised
by counsel that it is required to do so by applicable law or
regulation of any governmental agency or stock exchange upon
which securities of such party are registered. The Seller and
the Buyer will discuss any public announcements or disclosures
concerning the transactions contemplated by this Agreement with
the other parties prior to making such announcements or
disclosures.
No Third-Party Beneficiaries
. With the exception of the parties to this Agreement and the
Seller Protected Parties or Buyer Protected Parties, there exists
no right of any person to claim a beneficial interest in this
Agreement or any rights occurring by virtue of this Agreement.
Certain Definitions.
As used in this Agreement, "Affiliate" of a person or entity
shall mean: (i) any other person or entity directly, or
indirectly through one or more intermediaries, controlling,
controlled by, or under common control with such person or
entity, (ii) any officer, director, partner, employee, or direct
or indirect beneficial owner of any 10% or greater of the equity
or voting interests of such person or entity, or (iii) any other
person or entity for which a person or entity described in
clause (ii) acts in such capacity.
As used in the Agreement, the "knowledge" of the Seller shall
mean the actual knowledge as of the date hereof of the following
officers and managers of the Seller: (A) the following corporate
officers and managers of Seller: (i) Chief Executive Officer and
President, (ii) Senior Vice President and Chief Financial
Officer, (iii) Corporate Counsel, and (iv) Vice President,
Regulatory Affairs/Quality Assurance, corporate; and (B) the
following officers and managers of the Seller or the Subsidiaries
primarily assigned to Opthalmics: (i) Senior Vice President,
Ophthalmics, (ii) Director of Manufacturing Operations,
Ophthalmics, (iii) Vice President, R&D, Ophthalmics, and (iv)
Quality/Regulatory Assurance and Document Control Supervisor.
As used in this Agreement, "Material Adverse Effect" shall mean a
material adverse effect on the Business taken as a whole.
Interpretation
. Words of the masculine gender will be deemed and construed to
include correlative words of the feminine and neuter genders.
Words importing the singular number will include the plural
number and vice versa unless the context will otherwise indicate.
References to Articles, Sections and other subdivisions of this
Agreement are to the Articles, Sections and other subdivisions of
this Agreement as originally executed. The headings of this
Agreement are for convenience and do not define or limit the
provisions hereof. Words importing persons include firms,
associations and corporations. The terms "herein," "hereunder,"
"hereby," "hereto," "hereof" and any similar terms refer to this
Agreement; the term "heretofore" means before the date of
execution of this Agreement; and the term "hereafter" means after
the date of execution of this Agreement and the word "including"
shall be deemed to be followed by the words "without limitation."
The terms "ordinary course of business" or "ordinary course"
means the ordinary course of business consistent with past custom
and practice (including with respect to quantity and frequency),
subject to the qualifications and other matters set forth in
Section 3.4. The term "days" means calendar days (unless
otherwise specified).
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their duly authorized representatives in the
United States of America as of the date first above written.
MENTOR CORPORATION
By:/S/ANTHONY R. GETTE
Name: Anthony R. Gette
Title: President
MENTOR OPHTHALMICS, INC.
By:/S/GARY E. MISTLIN
Name: Gary E. Mistlin
Title: Secretary/Treasurer
MENTOR MEDICAL, INC.
By:/S/GARY E. MISTLIN
Name: Gary E. Mistlin
Title: Secretary/Treasurer
XOMED, INC.
By:/S/THOMAS E. TIMBIE
Name: Thomas E. Timbie
Title: Secretary
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