SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 000-16893
CROSS MEDICAL PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
(formerly known as Danninger Medical Technology, Inc.)
Delaware 31-1177614
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5160 Blazer Memorial Parkway
Dublin, Ohio 43017-1339
(Address of principal executive offices)
(614) 718-0530
(Registrant's telephone number)
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 of Registrant's Common Stock, par value $.01,
on October 31, 1997 was 5,219,269.
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
September 30,
1997 December 31,
(Unaudited) 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,647 $ 216
Investments 1,500
Accounts receivable, net 4,303 4,194
Inventories 8,801 4,529
Current assets of discontinued operations 4,437
Other current assets 395 126
Deferred income taxes 475 703
------------ ------------
Total current assets 18,121 14,205
Property and equipment, net 968 784
Other assets:
Intangible assets, net 172 128
Non-current assets of discontinued operations 3,811
Other assets 963 662
------------ ------------
Total assets $ 20,224 $ 19,590
============ ============
</TABLE>
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
September 30,
1997 December 31,
(Unaudited) 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion, term debt $ 79 $ 1,594
Current portion, capital lease obligations 66 65
Current liabilities of discontinued operations 2,355
Accounts payable 1,285 1,265
Accrued liabilities 790 620
Accrued disposition costs 496
Accrued income taxes 1,334 65
------------ ------------
Total current liabilities 4,050 5,964
------------ ------------
Term debt, net of current maturities 5,121 5,318
Obligations under capital leases, net of current maturities 131 164
Non-current liabilities of discontinued operations 2,452
Deferred income taxes 52 44
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value:
Authorized 10,000,000 shares; issued and
outstanding 5,219,269 and 4,936,265 shares for
1997 and 1996, respectively 52 49
Additional paid-in capital 6,736 4,362
Retained earnings 4,082 1,389
------------ ------------
10,870 5,800
Less treasury stock, at cost, 17,402 shares (152)
------------ ------------
Total shareholders' equity 10,870 5,648
------------ ------------
Total liabilities and shareholders' equity $ 20,224 $ 19,590
============ ============
</TABLE>
See notes to the consolidated financial statements
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDING SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 3,690 $ 2,325 $ 9,497 $ 5,615
Cost of goods sold 1,769 994 3,747 2,443
------------ ------------ ------------ ------------
Gross margin 1,921 1,331 5,750 3,172
------------ ------------ ------------ ------------
Selling, general and administrative 1,581 1,291 4,551 3,122
Research and development 338 218 802 487
------------ ------------ ------------ ------------
1,919 1,509 5,353 3,609
------------ ------------ ------------ ------------
Operating income (loss) 2 (178) 397 (437)
Interest expense, net (75) (108) (326) (262)
------------ ------------ ------------ ------------
Income (loss) from continuing operations before income taxes (73) (286) 71 (699)
Income tax expense (benefit) (30) (102) 27 (292)
------------ ------------ ------------ ------------
Net income (loss) from continuing operations (43) (184) 44 (407)
------------ ------------ ------------ ------------
Net income from discontinued operations (net of income taxes
of $156, $216 and $438, respectively) 375 352 881
Gain on sale of discontinued operations (net of income
tax of $1,529) 2,297
------------ ------------ ------------ ------------
Net income from discontinued operations 375 2,649 881
------------ ------------ ------------ ------------
Net income (loss) $ (43) $ 191 $ 2,693 $ 474
============ ============ ============ ============
Primary earnings per share:
Net income (loss) from continuing operations $ (.01) $ (.04) $ .01 $ (.09)
============ ============ ============ ============
Net income from discontinued operations $ .08 $ .51 $ .18
============ ============ ============ ============
Net income (loss) $ (.01) $ .04 $ .52 $ .09
============ ============ ============ ============
Fully diluted earnings per share:
Net income (loss) from continuing operations (A) (A) $ .04 (A)
============ ============ ============ ============
Net income (loss) from discontinued operations $ .46
============ ============ ============ ============
Net income (A) (A) $ .50 (A)
============ ============ ============ ============
Weighted average shares outstanding used in primary
earnings per share calculations 5,080,762 5,013,661 5,218,788 5,008,837
============ ============ ============ ============
Weighted average shares outstanding used in fully
diluted earnings per share calculation 5,711,039 5,659,815 5,849,065 5,654,991
============ ============ ============ ============
(A) Due to a net loss from continuing operations for the period, the results from the computations are antidilutive.
Accordingly, the amounts are not presented.
</TABLE>
See notes to the consolidated financial statements
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDING SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
1997 1996
------------ ------------
<S> <C> <C>
Net cash used in continuing operations $ (4,575) $ (2,752)
Net cash provided by discontinued operations 242 1,616
------------ ------------
Net cash used in operating activities (4,333) (1,136)
Cash flows from investing activities:
Expenditures for patent rights and license (48) (62)
Purchase of investment (1,500)
Purchases of property and equipment (323) (288)
------------ ------------
Net cash used in continuing operations (1,871) (350)
Net cash used in discontinued operations (91) (1,041)
Cash received from sale of Recovery Products segment 8,177
------------ ------------
Net cash provided by (used in) investing activities 6,215 (1,391)
Cash flows from financing activities:
Repayment of term debt and capitalized lease obligations (1,654) (3,017)
Proceeds from convertible subordinated debenture offering 5,250
Proceeds from term debt 100
Debt issue costs (542)
Proceeds from exercise of stock options 158 207
Proceeds from the sale of common stock 2,242
Cash overdraft (167)
------------ ------------
Net cash provided by continuing operations 746 1,831
Net cash provided by (used in) discontinued operations (197) 937
------------ ------------
Net cash provided by financing activities 549 2,768
------------ ------------
Net increase in cash 2,431 241
Cash and cash equivalents beginning of period 216 0
------------ ------------
Cash and cash equivalents end of period $ 2,647 $ 241
============ ============
Supplemental disclosures of non-cash investing and
financing activities:
Debt assumed by buyer of discontinued operations $ 3,363
============
</TABLE>
See notes to the consolidated financial statements
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Management's Statement
In the opinion of management the accompanying unaudited financial statements
contain all adjustments (all of which are normal and recurring in nature)
necessary to present fairly the financial position of Cross Medical Products,
Inc. and Subsidiary at September 30, 1997, and the results of operations and
cash flows for the three and nine month periods ending September 30, 1997 and
1996. The notes to the Consolidated Financial Statements which are contained
in the 1996 Annual Report to Shareholders should be read in conjunction with
these Consolidated Financial Statements.
2. Sale of Recovery Products Segment
On March 12, 1997, the Company entered into an agreement to sell the Recovery
Products segment for approximately $8,200,000 in cash and the assumption of
approximately $5,000,000 of debt and other liabilities. The buyer also
acquired 30,000 shares of the Company's common stock for $240,000. The
purchase price was subject to adjustment if the net tangible book value is
outside a range as defined in the agreement. In connection with the sale, the
Company agreed to retain cash, leasehold improvements, other assets and certain
related liabilities and leases of the discontinued segment.
3. Investments
Investments include a 270 day certificate of deposit with a maturity of January
27, 1998 bearing interest of 5.65%.
4. Inventories
Inventories are valued at the lower of first-in, first-out cost or market and
consisted of the following (in thousands):
<TABLE>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Raw materials $ 148 $ 125
Finished goods 6,110 3,194
Consigned inventory 2,543 1,210
------------ ------------
$8,801 $4,529
============ ============
</TABLE>
5. Income Taxes
The Company provides for federal, state, and local income taxes in interim
periods using estimated temporary differences for the annual period.
6. Term Debt
Term debt included $5,152,000 of Convertible Subordinated Debentures
("Debentures") at 8.5% due June 1, 2003. The Debentures are convertible prior
to maturity or redemption into the Company's Common Stock at $8.125 per share.
Beginning July 1, 1999, the Company will be obligated to redeem Debentures
tendered by June 1, 1999 or June 1 of any succeeding year at their fair amount
plus accrued interest, subject to an annual limitation of $25,000 per holder
and an aggregate of $262,500. Redemption may be accelerated in the event of a
change of control of the Company and in certain other circumstances as
described in the bond indenture. The Debentures contain certain covenants
with respect to default of interest and redemption payments and defaults under
other indebtedness of the Company in excess of $1,000,000. Interest expense
for the three and six months ended September 30, 1997 and 1996 was $140,000,
$115,000 and $446,000, $270,000, respectively. During 1997, $129,000 of
Debentures were converted to 15,875 shares of common stock.
7. Earnings Per Share Calculations
Primary earnings (loss) per share amounts are computed by dividing net income
(loss) by the average number of common shares and dilutive common share
equivalents outstanding during the period. Fully diluted earnings (loss) per
share assumes the conversion of the Debentures into common shares as of the
beginning of the period. Accordingly, income (loss) used in the calculation
of fully diluted earnings (loss) per share is adjusted to remove the interest
expense, net of tax, related to the Debentures for the period.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share". SFAS No. 128 establishes standards for computing and presenting
earnings per share "EPS" and supersedes APB Opinion No. 15 "Earnings Per Share"
("Opinion 15"). SFAS No. 128 replaces the presentation of primary EPS with a
presentation of basic EPS which excludes dilution and is computed by dividing
income available to common shareholders by the weighted average number of
common shares outstanding during the period. This statement also requires
dual presentation of basic EPS and diluted EPS on the face of the income
statement for all periods presented. Diluted EPS is computed similarly to
fully diluted EPS pursuant to Opinion 15, with some modifications.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Early adoption is not
permitted and the statement requires restatement of all prior EPS data
presented after the effective date.
The Company will adopt SFAS No. 128 effective with its 1997 year end. Pro
forma earnings per share data calculated in accordance with this pronouncement
for the three and nine months ended September 30, 1997 and 1996 would not
result in a material difference in the amounts previously presented.
8. New Accounting Standards
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information", each standard is effective for financial statements for fiscal
years beginning after December 15, 1997.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses). SFAS No.
130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is defined as the change in equity
of a business enterprise during a period from transactions and other events and
circumstances from non-owners sources; it includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners.
SFAS No. 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. This statement
defines business segments as components of an enterprise about which separate
financial information is available and used internally for evaluating segment
performance and decision making on resource allocations. SFAS No. 131
requires reporting a measure of segment profit or loss, certain specific
revenue and expense items, and segment assets; and other reporting about
geographic and customer matters.
The Company is evaluating each of these recent pronouncements and has not yet
determined the ultimate impact of these pronouncements on its future financial
statements.
9. Commitments and Contingency
The Company and other spinal implant manufacturers have been named as
defendants in various class action product liability lawsuits alleging that
the plaintiffs were injured by spinal implants supplied by the Company and
others. All such lawsuits were consolidated for pretrial proceedings in the
Federal District court for the Eastern District of Pennsylvania, and on
February 22, 1995, the plaintiffs were denied class certification. In
response to the denial of class certification, a large number of additional
individual lawsuits have been filed alleging, in addition to damages from
spinal implants, a conspiracy among manufacturers, physicians and other spinal
implant industry members. Approximately 500 such lawsuits have been filed in
which the Company is a party. Approximately fifteen of such cases involve
individual plaintiffs utilizing implants supplied by the Company. The Company
cannot estimate precisely at this time the number of such lawsuits are pending
in federal courts and are in preliminary stages. Discovery proceedings,
including the taking of depositions, have commenced in certain of the lawsuits.
Plaintiffs in these cases typically seek relief in the form of monetary
damages, often in unspecified amounts. While the aggregate monetary damages
eventually sought in all of such individual actions is substantial and exceeds
the limits of the Company's product liability insurance policies, the Company
believes that it has affirmative defenses and that these individual lawsuits
are otherwise without merit. An estimate of the amount of loss cannot be made
as the Company does not have sufficient information on which to base an
estimate. All pending cases are being defended by the Company's insurance
carrier, in some cases under a reservation of rights. There can be no
assurance, however, that the $5,000,000 per annum limit of the Company's
coverage will be sufficient to cover the cost of defending all lawsuits or the
payment of any amounts that may be paid in satisfaction of any settlements or
judgments. Further, there can be no assurance that the Company will continue
to be able to obtain sufficient amounts of product liability insurance
coverage at commercially reasonable premiums.
In addition to the above, in the ordinary course of business the Company has
been named as a defendant in various other legal proceedings. These actions,
when finally concluded, will not, in the opinion of management, have a
material adverse affect upon the financial position or results of operations
of the Company. However, there can be no assurance that future quarterly or
annual operating results will not be materially adversely affected by the
final resolution of these matters.
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table shows Cross Medical Product's operating results as a
percent of revenues for the periods indicated for certain items reflected in
the statement of operations.
<TABLE>
Percent Percent Percent Percent
of of of of
Sales Sales Sales Sales
for for for for
three three nine nine
months months months months
ending ending ending ending
September September September September
30, 30, 30, 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 47.9% 42.8% 39.5% 43.5%
Gross margin 52.1% 57.2% 60.5% 56.5%
Selling, general and administrative 42.8% 55.5% 47.9% 55.6%
Research and development 9.2% 9.4% 8.4% 8.7%
Operating income (loss) 0.1% (7.7)% 4.2% (7.8)%
Interest expense, net (2.1)% (4.6)% (3.4)% (4.7)%
Income (loss) from continuing operations before income taxes (2.0)% (12.3)% 0.8% (12.5)%
Income tax expense (benefit) (0.8)% (4.4)% 0.3% (5.3)%
Net income (loss) from continuing operations (1.2)% (7.9)% 0.5% (7.2)%
</TABLE>
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
At December 31, 1996, the Company had two primary business segments: Recovery
Products focused on orthopedic rehabilitative treatment; and Spinal Implant
focused on the development and marketing of spinal implant devices. On March
12, 1997, the Company sold substantially all of the assets and the buyer
assumed substantially all of the liabilities of its Recovery Products segment.
The results of the Company have been reported so as to segregate the
discontinued operations from continuing operations. The management discussion
that follows pertains to the Company's continuing operations.
The Company continues to develop its strategy of focusing on increasing market
penetration with its SYNERGY-TM- Spinal Implant System as it continues to expand
its distribution network in the United States and internationally. The
Company also continues to assess and develop new products to add to its
existing spinal implant product line.
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF SEPTEMBER 30, 1997
Working capital increased to $14,071,000 at September 30, 1997 from $8,241,000
at December 31, 1996. The current ratio (ratio of current assets to current
liabilities) increased to 4.5 to 1.0 at September 30, 1997 from 2.4 to 1.0 at
December 31, 1996. The increase in working capital is principally
attributable to the net cash received from the sale of the Recovery Products
segment of approximately $6,010,000 after paying off the Company's line of
credit of $2,190,000, cash received from the sale of common stock to the buyer
of the Recovery Products segment of $240,000, cash received from the sale of
common stock to its Japanese distributor of $2,000,000, and cash from
operations until the sale of the Recovery Products segment on March 12, 1997
of $242,000. Accounts receivable increased by $109,000, inventories increased
by $4,272,000 and accounts payable increased by $20,000. The marginal
increase in accounts receivable is attributable to a significant increase in
the third quarter sales and offset by an expanded collection effort put into
effect in 1997. The increase in the inventory and accounts payable is
primarily due to the need to build inventory, including consigned inventory,
to support the growing demand for titanium and steel SYNERGY-TM- Spinal
Implant Systems.
The nature of the Company's business subjects the Company to product liability
and related claims from time to time. The Company believes that it has
adequate insurance for its business, but there can be no assurance that the
Company's liquidity will not be materially adversely affected by the final
resolution of pending cases or future claims.
The Company believes that the funds generated by the divestiture of the
Recovery Products segment, funds received from the sale of common stock, its
bank loan facility, working capital, and funds anticipated to be generated by
operations will be sufficient to fund the Company's growth plans through at
least the end of fiscal year 1998.
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AS
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1996
Net sales increased 59% for the three months ended September 30, 1997 to
$3,690,000 from $2,325,000 for the three months ended September 30, 1996.
The increase was primarily a result of the Company's increased penetration
into the spinal implant market, as the Company continued to increase its
distribution network, the number of surgeons using the SYNERGY-TM- Spinal
Implant System and its offering of spinal implant products. The Company
received FDA marketing clearance for the posterior portion of the titanium
version of the SYNERGY-TM- Spinal Implant System for sale in the United States
in January 1997.
Cost of goods sold was $1,769,000 or 47.9% of net sales for the three months
ended September 30, 1997 compared to $994,000 or 42.8% for the three months
ended September 30, 1996. Cost of goods sold as a percentage of sales was
negatively impacted in the third quarter by (i) the increase in the sale of
instrumentation sets to new sales representatives at cost, and (ii) the
increase in international distributor sales which are at a lower gross profit
margin than domestic sales which are made through commissioned sales
representatives. Commissions paid to domestic sales distributors are treated
as selling expenses and not as part of cost of goods sold. Commissions are
not paid to international distributors.
Selling, general and administrative expenses decreased to 42.8% from 55.5% as
a percentage of net sales, and increased to $1,581,000 from $1,291,000, for
the three months ended September 30, 1997 and 1996, respectively. Except for
commissions, most of the selling, general and administrative expenses are
relatively fixed expenses and as net sales increase, these expenses as a
percentage of net sales decrease. The Company intends to continue to invest
in the development of additional markets domestically and internationally,
which expenditures will tend to keep selling, general and administrative
expenses at a relatively high percentage of sales until sales increase.
Research and development expenses decreased to 9.2% from 9.4% as a percentage
of net sales, and increased to $338,000 from $218,000, for the three months
ended September 30, 1997 and 1996, respectively. In March 1997, the Company
entered into a license agreement to develop a spinal cage, the development of
which is ongoing. The Company is also developing a cervical spinal system.
The Company continues to explore ways to expand its product lines either
through internal development or acquisition.
These factors resulted in an overall increase in operating income from
continuing operations to $2,000 or 0.1% of net sales for the three months
ended September 30, 1997, compared to a loss from continuing operations of
$(178,000) or (7.7%) of net sales for the three months ended September 30,
1996.
Interest expense, net, decreased to $75,000 or 2.0% of net sales from $108,000
or 4.6% of net sales for the three months ended September 30, 1997 and 1996,
respectively. The decrease was primarily attributable to the interest income
earned on the certificate of deposit and the money market funds.
The Company recorded a tax benefit of $30,000 and $102,000 for the three
months ended September 30, 1997 and 1996, respectively, as the Company had a
tax loss from continuing operations in the third quarter of 1997 and 1996.
Net loss from continuing operations was $(43,000) and $(184,000) for the three
months ended September 30, 1997 and 1996, respectively, and loss per share from
continuing operations decreased to $(.01) from $(.04) for the same periods.
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AS COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Net sales increased 69% for the nine months ended September 30, 1997 to
$9,497,000 from $5,615,000 for the nine months ended September 30, 1996. The
increase was primarily a result of the Company's increased penetration into
the spinal implant market, as the Company continued to increase its
distribution network, the number of surgeons using the SYNERGY-TM- Spinal
Implant System and its offering of spinal implant products. The Company
received FDA marketing clearance for the posterior portion of the titanium
version of the SYNERGY-TM- Spinal Implant System for sale in the United States
in January 1997.
Cost of goods sold was $3,747,000 or 39.5% of net sales for the nine months
ended September 30, 1997 compared to $2,443,000 or 43.5% for the nine months
ended September 30, 1996. The decrease as a percentage of sales was primarily
related to an increase in domestic sales prices for the SYNERGY-TM- Spinal
Implant System as well as an increase in the number of surgeries performed in
the United States as a percentage of total surgeries performed with the
Company's products.
Selling, general and administrative expenses decreased to 47.9% from 55.6% as
a percentage of net sales, and increased to $4,551,000 from $3,122,000, for
the nine months ended September 30, 1997 and 1996, respectively. Most of the
selling, general and administrative expenses are relatively fixed expenses and
as net sales increase, these expenses as a percentage of net sales decrease.
The Company intends to continue to invest in the development of additional
markets domestically and internationally, which expenditures will tend to keep
selling, general and administrative expenses at a relatively high percentage
of sales until sales increase.
Research and development expenses decreased to 8.4% from 8.7% as a percentage
of net sales, and increased to $802,000 from $487,000, for the nine months
ended September 30, 1997 and 1996, respectively. The Company continues to
support the development of the spinal cage and the cervical spine system.
These factors resulted in an overall increase in operating income from
continuing operations to $397,000 or 4.2% of net sales for the nine months
ended September 30, 1997, compared to a loss from continuing operations of
$(437,000) or (7.8%) of net sales for the nine months ended September 30, 1996.
Interest expense, net, increased to $326,000 from $262,000, and decreased to
3.4% from 4.7% of net sales, for the nine months ended September 30, 1997 and
1996, respectively, as a result of the issuance of $5,250,000 Convertible
Subordinated Debentures in May 1996.
The Company recorded a tax expense of $27,000 for the nine months ended
September 30, 1997 compared to a tax benefit of $(292,000) for the nine months
ended September 30, 1996, as the Company had a loss from continuing operations
in the first three quarters of 1996 and the estimated effective tax rate
increased to 40% in 1997 from 20% in 1996.
Net income from continuing operations increased to $44,000 from a net loss
from continuing operations of $(407,000) for the nine months ended September
30, 1997 and 1996, respectively, and primary earnings (loss) per share from
continuing operations increased to $.01 from a loss of $(.09) for the same
periods.
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
The foregoing statements include forward-looking statements concerning the
Company's products, market, cost of goods sold, selling, general and
administrative expenses, and research and development. The Company's actual
experience may differ materially from that projected above. Factors that
might cause the Company's present expectations to not materialize or to
change include, but are not limited to, competition, government regulation,
the Company's limited sales and marketing experience, dependence on management
and the Company's medical advisory board, product liability litigation,
product concentration and obsolescence, dependence on suppliers, and other
factors discussed in the Company's prior filings with the Securities and
Exchange Commission, including the Annual Report on Form 10-K for the year
ended December 31, 1996.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company and other spinal implant manufacturers have been named as
defendants in various class action product liability lawsuits alleging that
the plaintiffs were injured by spinal implants supplied by the Company and
others. All such lawsuits were consolidated for pretrial proceedings in the
Federal District Court for the Eastern District of Pennsylvania, and on
February 22, 1995, the plaintiffs were denied class certification. In
response to the denial of class certification, a large number of additional
individual lawsuits have been filed alleging, in addition to damages from
spinal implants, a conspiracy among manufacturers, physicians and other spinal
implant industry members. Approximately 500 such lawsuits have been filed in
which the Company is a party. Approximately fifteen of such cases involve
individual plaintiffs utilizing implants supplied by the Company. The Company
cannot estimate precisely at this time the number of such lawsuits are pending
in federal courts and are in preliminary stages. Discovery proceedings,
including the taking of depositions, have commenced in certain of the lawsuits.
Plaintiffs in these cases typically seek relief in the form of monetary
damages, often in unspecified amounts. While the aggregate monetary damages
eventually sought in all of such individual actions is substantial and exceeds
the limits of the Company's product liability insurance policies, the Company
believes that it has affirmative defenses and that these individual lawsuits
are otherwise without merit. An estimate of the amount of loss cannot be made
as the Company does not have sufficient information on which to base an
estimate. All pending cases are being defended by the Company's insurance
carrier, in some cases under a reservation of rights. There can be no
assurance, however, that the $5,000,000 per annum limit of the Company's
coverage will be sufficient to cover the cost of defending all lawsuits or the
payment of any amounts that may be paid in satisfaction of any settlements or
judgments. Further, there can be no assurance that the Company will continue
to be able to obtain sufficient amounts of product liability insurance
coverage at commercially reasonable premiums.
In addition to the above, in the ordinary course of business the Company has
been named as a defendant in various other legal proceedings. These actions,
when finally concluded, will not, in the opinion of management, have a
material adverse affect upon the financial position or results of operations
of the Company. However, there can be no assurance from future quarterly or
annual operating results will not be materially adversely affected by the
final resolution of these matters.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed in the accompanying index to exhibits are
filed as a part of this Report.
(b) Reports on Form 8-K.
Report filed on August 25, 1997 regarding the sale of common
stock to Century Medical.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROSS MEDICAL PRODUCTS, INC.
(Registrant)
Date: November 11, 1997 /S/ Joseph A. Mussey
Joseph A. Mussey
Chief Executive Officer, President
and Treasurer
Date: November 11, 1997 /S/ Paul A. Miller
Paul A. Miller
Chief Financial Officer
(Principal Financial/Accounting Officer)
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
FORM 10-Q
EXHIBIT INDEX
Exhibit No. Exhibit
10(a) Employment Agreement, dated August 15, 1997 between the
Company and Joseph A. Mussey.
10(b) Employment Agreement, dated August 15, 1997 between the
Company and Paul A. Miller.
10(c) Employment Agreement, dated August 15, 1997 between the
Company and Ira Benson.
10(d) Employment Agreement, dated August 15, 1997 between the
Company and Thomas E. Zimmer.
10(e) Employment Agreement, dated August 15, 1997 between the
Company and Philip A. Mellinger.
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
CROSS MEDICAL PRODUCTS, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 15th day of August, 1997, ("Agreement")
between Cross Medical Products, Inc., a Delaware corporation ("Cross"), and
Joseph A. Mussey ("Executive").
Recitals
A. Cross is the owner, directly or indirectly, of all of the issued
capital stock of Cross Medical Products, Inc., an Ohio corporation
("Subsidiary").
B. Cross and its Subsidiary (collectively, the "Company") design,
license, manufacture, market and sell devices and instruments used in spinal
surgery.
C. The Executive is currently employed as an executive of Cross or its
Subsidiary.
D. The Company considers the continued services of the Executive to be in
the best interest of the Company and desires to assure the continued services
of the Executive on behalf of the Company on an objective and impartial basis
and without distraction or conflict of interest in the event of an attempt to
obtain control of the Company.
E. The Executive is willing to remain in the employ of the Company upon
the understanding that the Company will provide income security in the event
of a change in control of the Company.
F. The Company and the Executive desire to enter into an employment
relationship upon the terms and conditions contained herein.
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive and the
Executive accepts such employment upon the terms and conditions hereinafter
set forth.
2. DUTIES. The Executive shall be employed:
(a) to serve as President and Chief Executive Officer of Cross and of the
Subsidiary, and to serve in other capacities for each of Cross and the
Subsidiary, if so elected, subject to the authority and direction of the Board
of Directors of Cross or the Subsidiary, as the case may be; and
(b) to perform such other duties and responsibilities similar to those
performed by the Executive prior hereto and exercise such other authority,
perform such other or additional duties and responsibilities and have such
other or different title (or have no title) as the Board of Directors of Cross
or the Subsidiary may, from time to time, prescribe.
So long as he is employed under this Agreement, the Executive agrees
to devote his full time and efforts exclusively on behalf of the Company and
to competently, diligently, and effectively discharge his duties hereunder.
The Executive shall not be prohibited from engaging in such personal,
charitable, or other nonemployment activities as do not interfere with his
full time employment hereunder and which do not violate the other provisions
of this Agreement. The Executive further agrees to comply fully with all
reasonable policies of the Company as are from time to time in effect.
3. COMPENSATION. As his entire compensation for all services rendered to
the Company pursuant to this Agreement, in whatever capacity rendered, the
Company shall pay to the Executive during the term hereof a minimum base
salary at the rate of $170,000.00 per year ("Basic Salary"), payable monthly
or in other more frequent installments, as determined by the Company. The
Basic Salary may be increased, but not decreased, from time to time, by the
Board of Directors of Cross or the Subsidiary.
In addition, the Executive will be entitled to receive incentive
compensation pursuant to the terms of plans adopted by the Board of Directors
of Cross or the Subsidiary from time to time.
4. BUSINESS EXPENSES. The Company shall promptly pay directly, or
reimburse the Executive for, all business expenses to the extent such expenses
are paid or incurred by the Executive during the term of employment in
accordance with Company policy in effect from time to time and to the extent
such expenses are reasonable and necessary to the conduct by the Executive of
the Company's business and properly substantiated.
5. FRINGE BENEFITS. During the term of this Agreement and the
Executive's employment hereunder, the Company shall provide to the Executive
such insurance, vacation, sick leave and other like benefits as are provided
from time to time to its other employees holding equivalent executive positions
with the Company in accordance with the policy of the Company as may be
established from time to time; provided, however, that the Company shall
maintain at least the level of benefits presently provided to the Executive.
6. TERM; TERMINATION. The Executive is employed by the Company "at will."
The Executive's employment may be terminated at any time as provided below.
For purposes of this Section 6, "Termination Date" shall mean the date on
which any notice period required under this Section 6 expires or, if no notice
period is specified in this Section 6, the effective date of the termination
referenced in the notice.
(a) Termination by the Executive. The Executive may terminate his
employment upon giving at least 30 days' advance written notice to the Company
and the Company will pay the Executive the earned but unpaid portion of the
Executive's Basic Salary through the Termination Date. If the Executive gives
notice of termination hereunder, the Company shall have the right to relieve
the Executive, in whole or in part, of his duties under this Agreement and to
advance the Termination Date from the date set by the Executive's notice to a
date not less than 14 days from the receipt of the Executive's notice of
termination.
(b) Termination by Company Without Cause. The Company may terminate the
Executive's employment without cause upon giving 30 days' advance written
notice to the Executive. If the Executive's employment is terminated without
cause under this Section 6(b), the Company will pay the Executive the earned
but unpaid portion of the Executive's Basic Salary and any earned but unpaid
portion of any bonus through the Termination Date, will continue to pay the
Executive his Basic Salary and to provide the fringe benefits at the level in
place at the Termination Date for 12 months following the Termination Date
("Severance Period"), and will provide outplacement services at a cost to the
Company not to exceed the Executive's Basic Salary for one month; provided,
however, that the Company may terminate payment of the Basic Salary, may
terminate fringe benefits, and may terminate outplacement services during the
Severance Period if the Executive accepts other employment or is in breach of
obligations under Sections 7 or 8 of this Agreement.
(c) Termination by Company For Good Cause. The Company may terminate the
Executive's employment upon a determination by the Company that "Good Cause"
exists for the Executive's termination and the Company serves written notice
of such termination upon the Executive. As used in this Agreement, the term
"Good Cause" shall refer only to any one or more of the following actions by
the Executive:
(i) commission of an act of dishonesty, including, but not limited to,
misappropriation of funds or any property of the Company;
(ii) engagement in activities or conduct clearly injurious to the reputation
of the Company;
(iii) refusal to perform his assigned duties and responsibilities;
(iv) gross insubordination;
(v) the clear violation of any of the material terms and conditions of this
Agreement or any written agreement or agreements the Executive may from time
to time have with the Company (following 30-days' written notice from the
Company specifying the violation and the Executive's failure to cure such
violation within such 30-day period); or
(vi) commission of a misdemeanor involving an act of moral turpitude or a
felony.
In the event of a termination under this Section 6(c), the Company will pay
the Executive the earned but unpaid portion of the Executive's Basic Salary
and the earned but unpaid portion of any bonus through the Termination Date.
(d) Termination upon Death or Permanent Disability. The Executive's
employment shall terminate upon the death or permanent disability of the
Executive. For purposes hereof, "permanent disability," shall mean the
inability of the Executive, as determined by the Board of Directors of the
Company, by reason of physical or mental illness to perform the duties required
of him under this Agreement for more than 180 days in any one year period.
Successive periods of disability, illness or incapacity will be considered
separate periods unless the later period of disability, illness or incapacity
is due to the same or related cause and commences less than six months from
the ending of the previous period of disability. Upon a determination by the
Board of Directors of Cross or the Subsidiary that the Executive's employment
shall be terminated under this Section 6(d), the Board of Directors shall give
the Executive 30 days' prior written notice of the termination. If a
determination of the Board of Directors under this Section 6(d) is disputed
by the Executive, the parties agree to abide by the decision of a panel of
three physicians. The Company will select a physician, the Executive will
select a physician and the physicians selected by the Company and the
Executive will select a third physician. The Executive agrees to make himself
available for and submit to examinations by such physicians as may be directed
by the Company. Failure to submit to any examination shall constitute a breach
of a material part of this Agreement. In the event of a termination under
this Section 6(d), the Company will pay Executive or his duly appointed and
qualified executor or other personal representative the earned but unpaid
portion of the Executive's Basic Salary and the earned but unpaid portion of
any bonus through the Termination Date.
(e) Termination Following Change of Control. If a "Change in Control", as
defined in Section 6(e)(v), shall have occurred and within one year following
such Change in Control the Company terminates the employment of the Executive
for other than Good Cause, as defined in Section 6(c), or the Executive
terminates his employment for Good Reason, as that term is defined in Section
6(e)(vii), then the Executive shall be entitled to the benefits described
below:
(i) The Executive shall be entitled to the unpaid portion of his Basic Salary
plus credit for any vacation accrued but not taken and the amount of any
earned but unpaid portion of any bonus, incentive compensation or any other
benefit to which he is entitled under this Agreement through the date of the
termination as a result of a Change in Control, plus 2 times the Executive's
"Current Annual Compensation" as defined in this Section 6(e)(i) ("Salary
Termination Benefit"). For this purpose "Current Annual Compensation" shall
mean the total of Executive's Basic Salary in effect at the Termination Date,
plus any performance bonuses received by Executive in the prior twelve months,
and shall not include the value of any stock options granted or exercised,
contributions to 401(k) or other qualified plans, medical, dental, or other
insurance benefits, or other fringe benefits. The Salary Termination Benefit
shall be paid to the Executive in 24 equal consecutive monthly payments
commencing on the first day of the month after termination of employment
following a Change in Control.
(ii) All outstanding stock options issued to the Executive shall become 100%
vested and thereafter exercisable in accordance with such governing stock
option agreements and plans.
(iii) The Company shall maintain for the Executive's benefit until the
earlier of (y) 24 months after termination of employment following a Change in
Control, or (z) the Executive's commencement of full-time employment with a
new employer, all life insurance, medical, health and accident, and disability
plans or programs in which the Executive shall have been entitled to
participate prior to termination of employment following a Change in Control,
provided the Executive's continued participation is permitted under the
general terms of such plans and programs after the Change in Control ("Fringe
Termination Benefits"; collectively the Salary Termination Benefit and the
Fringe Termination Benefit are referred to as the "Termination Benefits").
In the event the Executive's participation in any such plan or program is not
permitted, the Company will provide directly the benefits to which the
Executive would be entitled under such plans and programs.
(iv) The Termination Benefits shall be payable to the Executive as severance
pay in consideration of his past service and of his continued services from
the date hereof. Executive shall have no duty to mitigate his damages by
seeking other employment, and the Company shall not be entitled to set off
against amounts payable hereunder any compensation which the Executive may
receive from future employment.
(v) A "Change in Control" shall be deemed to have occurred if and when, after
the date hereof, (i) Cross, or in one or more transactions 50% or more of its
assets, is acquired by or combined with a person, partnership, corporation,
trust or other entity ("Person") and less than a majority of the outstanding
voting shares of the Person surviving such transaction (or the ultimate parent
of the surviving Person) after such acquisition or combination is owned,
immediately after the acquisition or combination, by the owners of the voting
shares of Cross outstanding immediately prior to such acquisition or
combination; or (ii) the Subsidiary, or in one or more transactions 50% or
more of its assets, is acquired by or combined with a Person and less than a
majority of the outstanding voting shares of the Person surviving such
transaction (or the ultimate parent of the surviving Person) after such
acquisition or combination is owned, immediately after the acquisition or
combination, directly or indirectly by the owners of the voting shares of
Cross outstanding immediately prior to such acquisition or combination; or
(iii) during any period of two consecutive years during the term of this
Agreement, individuals who at the beginning of such period constitute the
Board of Directors of Cross cease for any reason to constitute at least
two-thirds thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by
directors of Cross representing at least two-thirds of the directors then in
office who were directors at the beginning of the period.
(vi) If the payments and benefits provided under this Agreement to the
Executive, either alone or with other payments and benefits, would constitute
"excess parachute payments" as defined in Section 280G of the Internal Revenue
Code of 1986, as amended ("Code"), then the payments and other benefits under
this Agreement shall be reduced to the extent necessary so that no portion
thereof shall be subject to the excise tax imposed by Section 4999 of the Code.
Either the Company or the Executive may request a determination as to whether
the payments or benefits would constitute an excess parachute payment and, if
requested, such determination shall be made by independent tax counsel selected
by the Company and approved by the Executive. At the Executive's election and
to the extent not otherwise paid, the Executive may determine the amount of
cash and/or elements of non-cash fringe benefits to reduce so that such
payments and benefits will not constitute excess parachute payments.
(vii) As used in this Agreement, the term "Good Reason" means, without the
Executive's written consent,
(a) a change in status, position or responsibilities which, in the Executive's
reasonable judgment, does not represent a promotion from existing status,
position or responsibilities as in effect immediately prior to the Change in
Control; the assignment of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with such status, position
or responsibilities; or any removal from or failure to reappoint or reelect
the Executive to any of such positions, except in connection with the
termination of employment for total and permanent disability, death or Good
Cause or by the Executive other than for Good Reason;
(b) a reduction by the Company in the Executive's base salary as in effect on
the date hereof or as the same may be increased from time to time during the
term of this Agreement or the Company's failure to increase (within twelve
months of the Executive's last increase in base salary) the Executive's base
salary after a Change in Control in an amount which at least equals, on a
percentage basis, the average percentage increase in base salary for all
executive and senior officers of the Company effected in the preceding twelve
months;
(c) the relocation of the Company's principal executive offices to a location
outside the Columbus metropolitan area or the relocation of the Executive by
the Company to any place other than the location at which the Executive
performed duties prior to a Change in Control, except for required travel on
the Company's business to an extent substantially consistent with business
travel obligations at the time of a Change in Control;
(d) the failure of the Company to continue in effect any incentive, bonus or
other compensation plan in which the Executive participates, including but not
limited to the Company's stock option plans, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan), evidenced by the
Executive's written consent, has been made with respect to such plan in
connection with the Change in Control, or the failure by the Company to
continue the Executive's participation therein, or any action by the Company
which would directly or indirectly materially reduce participation therein;
(e) the failure by the Company to continue to provide the Executive with
benefits substantially similar to those enjoyed or entitled under any of the
Company's pension, profit sharing, life insurance, medical, dental, health and
accident, or disability plans at the time of a Change in Control, the taking
of any action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material fringe
benefit enjoyed or entitled to at the time of the Change in Control, or the
failure by the Company to provide the number of paid vacation and sick leave
days to which the Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation policy in effect
on the date hereof;
(f) the failure of the Company to obtain a satisfactory agreement from any
successor or assign of the Company to assume and agree to perform this
Agreement; or
(g) any request by the Company that the Executive participate in an unlawful
act or take any action constituting a breach of the Executive's professional
standard of conduct. Notwithstanding anything in this Section to the contrary,
the Executive's right to terminate the employment pursuant to this Section
shall not be affected by incapacity due to physical or mental illness.
(viii) Upon any termination or expiration of this Agreement or any cessation
of the Executive's employment hereunder, the Company shall have no further
obligations under this Agreement and no further payments shall be payable by
the Company to the Executive, except as provided in Sections 6(a), 6(b), 6(d)
and 6(e) above and except as required under any benefit plans or arrangements
maintained by the Company and applicable to the Executive at the time of such
termination, expiration or cessation of the Executive's employment, including,
without limitation thereto, salary, incentive compensation, sick leave, and
vacation pay.
(ix) Enforcement of Agreement. The Company is aware that upon the occurrence
of a Change in Control, the Board of Directors or a shareholder of the Company
may then cause or attempt to cause the Company to refuse to comply with its
obligations under this Agreement, or may cause or attempt to cause the Company
to institute, or may institute litigation seeking to have this Agreement
declared unenforceable, or may institute litigation seeking to have this
Agreement declared unenforceable, or may take or attempt to take other action
to deny the Executive the benefits intended under this Agreement. In these
circumstances, the purpose of this Agreement could be frustrated. It is the
intent of the Company that the Executive not be required to incur the expenses
associated with the enforcement of any rights under this Agreement by
litigation or other legal action, nor be bound to negotiate any settlement of
any rights hereunder, because the cost and expense of such legal action or
settlement would substantially detract from the benefits intended to be
extended to the Executive hereunder. Accordingly, if following a Change in
Control it should appear to the Executive that the Company has failed to
comply with any of its obligations under this Agreement or in the event that
the Company or any other person takes any action to declare this Agreement
void or enforceable, or institutes any litigation or other legal action
designed to deny, diminish or to recovery from the Executive the benefits
entitled to be provided to the Executive hereunder, and that the Executive has
complied with all obligations under this Agreement, the Company irrevocably
authorizes the Executive from time to time to retain counsel of the
Executive's choice, at the expense of the Company as provided in this Section,
to represent the Executive in connection with the initiation or defense of any
litigation or other legal action, whether such action is by or against the
Company or any Director, officer, shareholder, or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to the Executive entering into an attorney-client
relationship with such counsel, and in that connection the Company and the
Executive agree that a confidential relationship shall exist between the
executive and such counsel. The reasonable fees and expenses of counsel
selected from time to time by the Executive as hereinabove provided shall be
paid or reimbursed to the Executive by the Company on a regular, periodic
basis upon presentation by the Executive of a statement or statements prepared
by such counsel in accordance with its customary practices, up to a maximum
aggregate amount of $200,000. Any legal expenses incurred by the Company by
reason of any dispute between the parties as to enforceability of or the terms
contained in this Agreement, notwithstanding the outcome of any such dispute,
shall be the sole responsibility of the Company, and the Company shall not
take any action to seek reimbursement from the Executive for such expenses.
7. NON-COMPETITION.
(a) The Executive agrees that he will not:
(i) during the term or any extension of this Agreement while the Executive
is so employed by the Company, engage or participate, directly or indirectly,
either as principal, agent, employee, employer, consultant, stockholder
(except as the holder of not more than two percent of the stock of any
publicly traded corporation), or in any other individual or representative
capacity whatsoever, in the operation, management or ownership of any business,
firm, corporation, association, or other entity engaged in the design, license,
manufacture, marketing, or sale of devices and instruments used in spinal
surgery or in any other business engaged in by the Company;
(ii) for a period of 12 months after termination of employment with the
Company, whether such termination is voluntary or involuntary or with Good
Cause or without cause, engage or participate, directly or indirectly, either
as principal, agent, employee, employer, consultant, stockholder (except as
the holder of not more than two percent of the stock of any publicly traded
corporation), or in any other individual or representative capacity whatsoever,
in the operation, management or ownership of any business, firm, corporation,
association, or other entity engaged in the design, license, manufacture,
marketing, or sale of devices and instruments used in spinal surgery or in
any other business engaged in by the Company or which was under development by
the Company at the time of the Executive's termination of employment with the
Company; or
(iii) for a period of 12 months after termination of employment with the
Company, whether such termination is voluntary or involuntary or with Good
Cause or without cause, directly or indirectly, for himself or in conjunction
with or on behalf of any other individual or entity, solicit, divert, take
away or endeavor to take away from the Company any customer, account or
employee of the Company who was a customer, account or employee of the Company
at any time during the 12 months prior to the date of the Executive's
termination of employment with the Company.
(b) In the event of a violation of this Section 7, the non-competition
time periods provided in Section 7(a) shall be tolled during the time of such
violation.
8. CONFIDENTIAL INFORMATION; ASSIGNMENT OF INVENTIONS.
(a) As used herein, the term "Confidential Information" includes, but is
not limited to, all information and materials belonging to, used by, or in the
possession of the Company (i) which have been disclosed or made known to, or
has come into the possession of the Executive as a consequence of or through
the Executive's relationship with the Company prior to or after the date
hereof, (ii) which are related to the Company's customers, potential
customers, suppliers, distributors, sales representatives or agents, business
strategies or policies, financial or sales results, sales and management
techniques, marketing plans, research or development, reports, records,
software, systems, source or object code, software documentation or
instruction or user manuals, and (iii) which have not generally been made
available to the public (not including customers) by the Company pursuant to
a specific authorization in the ordinary course of business by the Company of
the release of such information to the public or otherwise published and
released by the Company to the general public. Notwithstanding the foregoing,
the Executive may release Confidential Information if (1) required by law, (2)
necessary to establish a lawful claim or defense against the Company, (3)
necessary to establish a lawful claim or defense against a person or entity
other than the Company, but only with the permission, which shall not be
unreasonably withheld, of the Company, or (4) necessary to respond to process
or appropriate governmental inquiry, but then in each case only with prior
notice to the Company.
(b) The Executive agrees:
(i) that the Executive will promptly disclose and grant and does hereby
grant to the Company his entire right, title and interest in and to all
customer lists, discoveries, developments, designs, improvements, inventions,
formulae, software, documentation, processes, techniques, know-how, patents,
trade secrets and trademarks, copyrights and all other data conceived,
developed or acquired by him during the period of his employment with the
Company, both prior to and after the execution of this Agreement, whether or
not patentable or registrable under patent, copyright or similar statutes,
made or conceived or reduced to practice or learned by the Executive, either
alone or jointly with others, that result from or are conceived during the
performance of tasks assigned to the Executive by the Company, are related to
the business conducted by the Company, or result from use of property,
equipment, or premises owned, leased or contracted for by the Company
("Inventions"). The Executive agrees to execute and deliver, from time to
time, such documents as may be necessary or convenient to effectuate the
transfer of such Confidential Information to the Company and shall cooperate
with and assist the Company in every proper way (at the expense of the Company)
in obtaining and from time to time enforcing patents, copyrights, trade
secrets, other proprietary rights and protections relating to Inventions in
any and all countries;
(ii) that the Executive will during the term of this Agreement and thereafter
safeguard all Confidential Information and, except as specifically permitted
in Section 8(b)(iii) and Section 8(b)(iv), the Executive will never disclose
or use for any purpose or benefit (other than for the purpose or benefit of
the Company) any Confidential Information;
(iii) that, except in connection with the ordinary course of the Company's
business, the Executive will not, either during the term of this Agreement or
thereafter, directly or indirectly, disclose, disseminate or otherwise make
known or provide any Confidential Information, whether in original form or in
duplicated or copied form or extracts therefrom, and whether orally or in
writing, to any individual, partnership, company or other entity, unless the
Company has given its prior written consent thereto;
(iv) that, except in connection with the ordinary course of the Company's
business, the Executive will not, either during the term of this Agreement or
thereafter, remove any Confidential Information from the premises of the
Company either in original form or in duplicated or copied form or extracts
therefrom; and that upon any termination of Executive's employment by the
Company, Executive will immediately surrender to the Company, without request,
all Confidential Information, whether in original or duplicated or copied form
or extracts therefrom.
9. NO CONFLICTS. The Executive represents that the performance by the
Executive of all the terms of this Agreement does not and will not breach any
agreement as to which the Executive or the Company is or was a party and which
requires Executive to keep any information in confidence or in trust. The
Executive has not entered into, and will not enter into, any agreement either
written or oral in conflict herewith.
10. REASONABLENESS OF RESTRICTIONS. The Executive acknowledges that the
restrictions contained in this Agreement are reasonable, but should any
provisions of this Agreement be determined to be invalid, illegal or otherwise
unenforceable to its full extent, or if any such restriction is found by a
court of competent jurisdiction to be unreasonable under applicable law, then
the restriction shall be enforced to the maximum extent permitted by law, and
the parties hereto hereby consent and agree that such scope of protection,
time or geographic area (or any one of them, as the case may be) shall be
modified accordingly in any proceeding brought to enforce such restriction.
The Executive acknowledges that the validity, legality and enforceability of
the other provisions shall not be affected thereby. The Executive hereby
acknowledges and confirms that the business of the Company extends throughout
the world and that, without limitation of any remedies for breach of such
covenant, the Company shall be entitled to temporary and permanent injunctive
relief.
11. REMEDIES; VENUE; PROCESS.
(a) The Executive hereby acknowledges and agrees that the Confidential
Information disclosed to the Executive prior to and during the term of this
Agreement is of a special, unique and extraordinary character, and that any
breach of this Agreement will cause the Company irreparable injury and damage,
and consequently the Company shall be entitled, in addition to all other
remedies available to it, to injunctive and equitable relief to prevent or
cease a breach of Sections 7 or 8 of this Agreement without further proof of
harm and entitlement; that the terms of this Agreement, if enforced by the
Company, will not unduly impair the Executive's ability to earn a living or
pursue his vocation; and further, that the Company may withhold compensation
and benefits if the Executive fails to comply with this Agreement, without
restricting the Company from other legal and equitable remedies. The parties
agree that the prevailing party shall be entitled to all costs and expenses
(including reasonable legal fees and expenses) which it incurs in successfully
enforcing this Agreement and in prosecuting or defending any litigation
(including appellate proceedings) arising out of this Agreement.
(b) The parties agree that jurisdiction and venue in any action brought
pursuant to this Agreement to enforce its terms or otherwise with respect to
the relationships between the parties shall properly lie in either the United
States District Court for the Southern District of Ohio, Eastern Division,
Columbus, Ohio, or the Court of Common Pleas of Franklin County, Ohio. Such
jurisdiction and venue is exclusive, except that the Company may bring suit
in any jurisdiction and venue where jurisdiction and venue would otherwise be
proper if Executive has breached Sections 7 or 8 of this Agreement. The
parties further agree that the mailing by certified or registered mail, return
receipt requested, of any process required by any such court shall constitute
valid and lawful service of process against them, without the necessity for
service by any other means provided by statute or rule of court.
12. WITHHOLDING. The Company may withhold from any payments to be made
hereunder such amounts as it may be required to withhold under applicable
federal, state or other law, and transmit such withheld amounts to the
appropriate taxing authority.
13. ASSIGNMENT. This Agreement is personal to the Executive and the
Executive may not assign or delegate any of his rights or obligations
hereunder. Subject to the foregoing, this Agreement shall be binding upon
and inure to the benefit of the respective parties hereto, their heirs,
executors, administrators, successors and assigns.
14. WAIVER. The waiver by either party hereto of any breach or violation
of any provision of this Agreement by the other party shall not operate as or
be construed to be a waiver of any subsequent breach by such waiving party.
15. NOTICES. Any and all notices required or permitted to be given under
this Agreement will be sufficient and deemed effective three (3) days
following deposit in the United States mail if furnished in writing and sent
by certified mail to the Executive at:
Joseph A. Mussey
8967 Dunskeath Court
Dublin, OH 43017
and to the Company at:
Cross Medical Products, Inc.
5160-A Blazer Memorial Parkway
Dublin, OH 43017-1339
Attention: Joseph A. Mussey, President
with a copy to:
Curtis A. Loveland, Esq.
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
16. GOVERNING LAW. This Agreement shall be interpreted, construed and
governed according to the laws of the State of Ohio applicable to contracts
made and to be wholly performed within such state.
17. AMENDMENT. This Agreement may be amended in any and every respect by
agreement in writing executed by both parties hereto.
18. SECTION HEADINGS. Section headings contained in this Agreement are
for convenience only and shall not be considered in construing any provision
hereof.
19. ENTIRE AGREEMENT. This Agreement terminates, cancels and supersedes
all previous employment agreements or other agreements relating to the
employment of the Executive with the Company, written or oral, entered into
between the parties hereto, and this Agreement contains the entire
understanding of the parties hereto with respect to the subject matter of this
Agreement. This Agreement was fully reviewed and negotiated on behalf of each
party and shall not be construed against the interest of either party as the
drafter of this Agreement. THE EXECUTIVE ACKNOWLEDGES THAT, BEFORE PLACING
HIS SIGNATURE HEREUNDER, HE HAS READ ALL OF THE PROVISIONS OF THIS EMPLOYMENT
AGREEMENT AND HAS THIS DAY RECEIVED A COPY HEREOF.
20. SEVERABILITY. The invalidity or unenforceability of any one or more
provisions of this Agreement shall not affect the validity or enforceability
of any other provisions of this Agreement or parts thereof.
21. SURVIVAL. Sections 6 through 13 of this Agreement and this Section 21
shall survive any termination or expiration of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EXECUTIVE: CROSS MEDICAL PRODUCTS, INC.
/S/ Joseph A. Mussey By: /S/ Paul A. Miller
Joseph A. Mussey Paul A. Miller, Vice President
CROSS MEDICAL PRODUCTS, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 15th day of August, 1997, ("Agreement")
between Cross Medical Products, Inc., a Delaware corporation ("Cross"), and
Paul A. Miller ("Executive").
Recitals
A. Cross is the owner, directly or indirectly, of all of the issued
capital stock of Cross Medical Products, Inc., an Ohio corporation
("Subsidiary").
B. Cross and its Subsidiary (collectively, the "Company") design,
license, manufacture, market and sell devices and instruments used in spinal
surgery.
C. The Executive is currently employed as an executive of Cross or its
Subsidiary.
D. The Company considers the continued services of the Executive to be in
the best interest of the Company and desires to assure the continued services
of the Executive on behalf of the Company on an objective and impartial basis
and without distraction or conflict of interest in the event of an attempt to
obtain control of the Company.
E. The Executive is willing to remain in the employ of the Company upon
the understanding that the Company will provide income security in the event
of a change in control of the Company.
F. The Company and the Executive desire to enter into an employment
relationship upon the terms and conditions contained herein.
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive and the
Executive accepts such employment upon the terms and conditions hereinafter
set forth.
2. DUTIES. The Executive shall be employed:
(a) to serve as Vice President and Chief Financial Officer of Cross and of
the Subsidiary, and to serve in other capacities for each of Cross and the
Subsidiary, if so elected, subject to the authority and direction of the Board
of Directors of Cross or the Subsidiary, as the case may be; and
(b) to perform such other duties and responsibilities similar to those
performed by the Executive prior hereto and exercise such other authority,
perform such other or additional duties and responsibilities and have such
other or different title (or have no title) as the Board of Directors of Cross
or the Subsidiary may, from time to time, prescribe.
So long as he is employed under this Agreement, the Executive agrees
to devote his full time and efforts exclusively on behalf of the Company and
to competently, diligently, and effectively discharge his duties hereunder.
The Executive shall not be prohibited from engaging in such personal,
charitable, or other nonemployment activities as do not interfere with his
full time employment hereunder and which do not violate the other provisions
of this Agreement. The Executive further agrees to comply fully with all
reasonable policies of the Company as are from time to time in effect.
3. COMPENSATION. As his entire compensation for all services rendered to
the Company pursuant to this Agreement, in whatever capacity rendered, the
Company shall pay to the Executive during the term hereof a minimum base
salary at the rate of $106,500.00 per year ("Basic Salary"), payable monthly
or in other more frequent installments, as determined by the Company. The
Basic Salary may be increased, but not decreased, from time to time, by the
Board of Directors of Cross or the Subsidiary.
In addition, the Executive will be entitled to receive incentive
compensation pursuant to the terms of plans adopted by the Board of Directors
of Cross or the Subsidiary from time to time.
4. BUSINESS EXPENSES. The Company shall promptly pay directly, or
reimburse the Executive for, all business expenses to the extent such expenses
are paid or incurred by the Executive during the term of employment in
accordance with Company policy in effect from time to time and to the extent
such expenses are reasonable and necessary to the conduct by the Executive of
the Company's business and properly substantiated.
5. FRINGE BENEFITS. During the term of this Agreement and the
Executive's employment hereunder, the Company shall provide to the Executive
such insurance, vacation, sick leave and other like benefits as are provided
from time to time to its other employees holding equivalent executive positions
with the Company in accordance with the policy of the Company as may be
established from time to time; provided, however, that the Company shall
maintain at least the level of benefits presently provided to the Executive.
6. TERM; TERMINATION. The Executive is employed by the Company "at will."
The Executive's employment may be terminated at any time as provided below.
For purposes of this Section 6, "Termination Date" shall mean the date on
which any notice period required under this Section 6 expires or, if no notice
period is specified in this Section 6, the effective date of the termination
referenced in the notice.
(a) Termination by the Executive. The Executive may terminate his
employment upon giving at least 30 days' advance written notice to the Company
and the Company will pay the Executive the earned but unpaid portion of the
Executive's Basic Salary through the Termination Date. If the Executive gives
notice of termination hereunder, the Company shall have the right to relieve
the Executive, in whole or in part, of his duties under this Agreement and to
advance the Termination Date from the date set by the Executive's notice to a
date not less than 14 days from the receipt of the Executive's notice of
termination.
(b) Termination by Company Without Cause. The Company may terminate the
Executive's employment without cause upon giving 30 days' advance written
notice to the Executive. If the Executive's employment is terminated without
cause under this Section 6(b), the Company will pay the Executive the earned
but unpaid portion of the Executive's Basic Salary and any earned but unpaid
portion of any bonus through the Termination Date, will continue to pay the
Executive his Basic Salary and to provide the fringe benefits at the level in
place at the Termination Date for 12 months following the Termination Date
("Severance Period"), and will provide outplacement services at a cost to the
Company not to exceed the Executive's Basic Salary for one month; provided,
however, that the Company may terminate payment of the Basic Salary, may
terminate fringe benefits, and may terminate outplacement services during the
Severance Period if the Executive accepts other employment or is in breach of
obligations under Sections 7 or 8 of this Agreement.
(c) Termination by Company For Good Cause. The Company may terminate the
Executive's employment upon a determination by the Company that "Good Cause"
exists for the Executive's termination and the Company serves written notice
of such termination upon the Executive. As used in this Agreement, the term
"Good Cause" shall refer only to any one or more of the following actions by
the Executive:
(i) commission of an act of dishonesty, including, but not limited to,
misappropriation of funds or any property of the Company;
(ii) engagement in activities or conduct clearly injurious to the reputation
of the Company;
(iii) refusal to perform his assigned duties and responsibilities;
(iv) gross insubordination;
(v) the clear violation of any of the material terms and conditions of this
Agreement or any written agreement or agreements the Executive may from time
to time have with the Company (following 30-days' written notice from the
Company specifying the violation and the Executive's failure to cure such
violation within such 30-day period); or
(vi) commission of a misdemeanor involving an act of moral turpitude or a
felony.
In the event of a termination under this Section 6(c), the Company will pay
the Executive the earned but unpaid portion of the Executive's Basic Salary
and the earned but unpaid portion of any bonus through the Termination Date.
(d) Termination upon Death or Permanent Disability. The Executive's
employment shall terminate upon the death or permanent disability of the
Executive. For purposes hereof, "permanent disability," shall mean the
inability of the Executive, as determined by the Board of Directors of the
Company, by reason of physical or mental illness to perform the duties required
of him under this Agreement for more than 180 days in any one year period.
Successive periods of disability, illness or incapacity will be considered
separate periods unless the later period of disability, illness or incapacity
is due to the same or related cause and commences less than six months from
the ending of the previous period of disability. Upon a determination by the
Board of Directors of Cross or the Subsidiary that the Executive's employment
shall be terminated under this Section 6(d), the Board of Directors shall give
the Executive 30 days' prior written notice of the termination. If a
determination of the Board of Directors under this Section 6(d) is disputed
by the Executive, the parties agree to abide by the decision of a panel of
three physicians. The Company will select a physician, the Executive will
select a physician and the physicians selected by the Company and the
Executive will select a third physician. The Executive agrees to make himself
available for and submit to examinations by such physicians as may be directed
by the Company. Failure to submit to any examination shall constitute a breach
of a material part of this Agreement. In the event of a termination under
this Section 6(d), the Company will pay Executive or his duly appointed and
qualified executor or other personal representative the earned but unpaid
portion of the Executive's Basic Salary and the earned but unpaid portion of
any bonus through the Termination Date.
(e) Termination Following Change of Control. If a "Change in Control", as
defined in Section 6(e)(v), shall have occurred and within one year following
such Change in Control the Company terminates the employment of the Executive
for other than Good Cause, as defined in Section 6(c), or the Executive
terminates his employment for Good Reason, as that term is defined in Section
6(e)(vii), then the Executive shall be entitled to the benefits described
below:
(i) The Executive shall be entitled to the unpaid portion of his Basic Salary
plus credit for any vacation accrued but not taken and the amount of any
earned but unpaid portion of any bonus, incentive compensation or any other
benefit to which he is entitled under this Agreement through the date of the
termination as a result of a Change in Control, plus 2 times the Executive's
"Current Annual Compensation" as defined in this Section 6(e)(i) ("Salary
Termination Benefit"). For this purpose "Current Annual Compensation" shall
mean the total of Executive's Basic Salary in effect at the Termination Date,
plus any performance bonuses received by Executive in the prior twelve months,
and shall not include the value of any stock options granted or exercised,
contributions to 401(k) or other qualified plans, medical, dental, or other
insurance benefits, or other fringe benefits. The Salary Termination Benefit
shall be paid to the Executive in 24 equal consecutive monthly payments
commencing on the first day of the month after termination of employment
following a Change in Control.
(ii) All outstanding stock options issued to the Executive shall become 100%
vested and thereafter exercisable in accordance with such governing stock
option agreements and plans.
(iii) The Company shall maintain for the Executive's benefit until the
earlier of (y) 24 months after termination of employment following a Change in
Control, or (z) the Executive's commencement of full-time employment with a
new employer, all life insurance, medical, health and accident, and disability
plans or programs in which the Executive shall have been entitled to
participate prior to termination of employment following a Change in Control,
provided the Executive's continued participation is permitted under the
general terms of such plans and programs after the Change in Control ("Fringe
Termination Benefits"; collectively the Salary Termination Benefit and the
Fringe Termination Benefit are referred to as the "Termination Benefits").
In the event the Executive's participation in any such plan or program is not
permitted, the Company will provide directly the benefits to which the
Executive would be entitled under such plans and programs.
(iv) The Termination Benefits shall be payable to the Executive as severance
pay in consideration of his past service and of his continued services from
the date hereof. Executive shall have no duty to mitigate his damages by
seeking other employment, and the Company shall not be entitled to set off
against amounts payable hereunder any compensation which the Executive may
receive from future employment.
(v) A "Change in Control" shall be deemed to have occurred if and when, after
the date hereof, (i) Cross, or in one or more transactions 50% or more of its
assets, is acquired by or combined with a person, partnership, corporation,
trust or other entity ("Person") and less than a majority of the outstanding
voting shares of the Person surviving such transaction (or the ultimate parent
of the surviving Person) after such acquisition or combination is owned,
immediately after the acquisition or combination, by the owners of the voting
shares of Cross outstanding immediately prior to such acquisition or
combination; or (ii) the Subsidiary, or in one or more transactions 50% or
more of its assets, is acquired by or combined with a Person and less than a
majority of the outstanding voting shares of the Person surviving such
transaction (or the ultimate parent of the surviving Person) after such
acquisition or combination is owned, immediately after the acquisition or
combination, directly or indirectly by the owners of the voting shares of
Cross outstanding immediately prior to such acquisition or combination; or
(iii) during any period of two consecutive years during the term of this
Agreement, individuals who at the beginning of such period constitute the
Board of Directors of Cross cease for any reason to constitute at least
two-thirds thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by
directors of Cross representing at least two-thirds of the directors then in
office who were directors at the beginning of the period.
(vi) If the payments and benefits provided under this Agreement to the
Executive, either alone or with other payments and benefits, would constitute
"excess parachute payments" as defined in Section 280G of the Internal Revenue
Code of 1986, as amended ("Code"), then the payments and other benefits under
this Agreement shall be reduced to the extent necessary so that no portion
thereof shall be subject to the excise tax imposed by Section 4999 of the Code.
Either the Company or the Executive may request a determination as to whether
the payments or benefits would constitute an excess parachute payment and, if
requested, such determination shall be made by independent tax counsel selected
by the Company and approved by the Executive. At the Executive's election and
to the extent not otherwise paid, the Executive may determine the amount of
cash and/or elements of non-cash fringe benefits to reduce so that such
payments and benefits will not constitute excess parachute payments.
(vii) As used in this Agreement, the term "Good Reason" means, without the
Executive's written consent,
(a) a change in status, position or responsibilities which, in the Executive's
reasonable judgment, does not represent a promotion from existing status,
position or responsibilities as in effect immediately prior to the Change in
Control; the assignment of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with such status, position
or responsibilities; or any removal from or failure to reappoint or reelect
the Executive to any of such positions, except in connection with the
termination of employment for total and permanent disability, death or Good
Cause or by the Executive other than for Good Reason;
(b) a reduction by the Company in the Executive's base salary as in effect on
the date hereof or as the same may be increased from time to time during the
term of this Agreement or the Company's failure to increase (within twelve
months of the Executive's last increase in base salary) the Executive's base
salary after a Change in Control in an amount which at least equals, on a
percentage basis, the average percentage increase in base salary for all
executive and senior officers of the Company effected in the preceding twelve
months;
(c) the relocation of the Company's principal executive offices to a location
outside the Columbus metropolitan area or the relocation of the Executive by
the Company to any place other than the location at which the Executive
performed duties prior to a Change in Control, except for required travel on
the Company's business to an extent substantially consistent with business
travel obligations at the time of a Change in Control;
(d) the failure of the Company to continue in effect any incentive, bonus or
other compensation plan in which the Executive participates, including but not
limited to the Company's stock option plans, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan), evidenced by the
Executive's written consent, has been made with respect to such plan in
connection with the Change in Control, or the failure by the Company to
continue the Executive's participation therein, or any action by the Company
which would directly or indirectly materially reduce participation therein;
(e) the failure by the Company to continue to provide the Executive with
benefits substantially similar to those enjoyed or entitled under any of the
Company's pension, profit sharing, life insurance, medical, dental, health and
accident, or disability plans at the time of a Change in Control, the taking
of any action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material fringe
benefit enjoyed or entitled to at the time of the Change in Control, or the
failure by the Company to provide the number of paid vacation and sick leave
days to which the Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation policy in effect
on the date hereof;
(f) the failure of the Company to obtain a satisfactory agreement from any
successor or assign of the Company to assume and agree to perform this
Agreement; or
(g) any request by the Company that the Executive participate in an unlawful
act or take any action constituting a breach of the Executive's professional
standard of conduct. Notwithstanding anything in this Section to the contrary,
the Executive's right to terminate the employment pursuant to this Section
shall not be affected by incapacity due to physical or mental illness.
(viii) Upon any termination or expiration of this Agreement or any cessation
of the Executive's employment hereunder, the Company shall have no further
obligations under this Agreement and no further payments shall be payable by
the Company to the Executive, except as provided in Sections 6(a), 6(b), 6(d)
and 6(e) above and except as required under any benefit plans or arrangements
maintained by the Company and applicable to the Executive at the time of such
termination, expiration or cessation of the Executive's employment, including,
without limitation thereto, salary, incentive compensation, sick leave, and
vacation pay.
(ix) Enforcement of Agreement. The Company is aware that upon the occurrence
of a Change in Control, the Board of Directors or a shareholder of the Company
may then cause or attempt to cause the Company to refuse to comply with its
obligations under this Agreement, or may cause or attempt to cause the Company
to institute, or may institute litigation seeking to have this Agreement
declared unenforceable, or may institute litigation seeking to have this
Agreement declared unenforceable, or may take or attempt to take other action
to deny the Executive the benefits intended under this Agreement. In these
circumstances, the purpose of this Agreement could be frustrated. It is the
intent of the Company that the Executive not be required to incur the expenses
associated with the enforcement of any rights under this Agreement by
litigation or other legal action, nor be bound to negotiate any settlement of
any rights hereunder, because the cost and expense of such legal action or
settlement would substantially detract from the benefits intended to be
extended to the Executive hereunder. Accordingly, if following a Change in
Control it should appear to the Executive that the Company has failed to
comply with any of its obligations under this Agreement or in the event that
the Company or any other person takes any action to declare this Agreement
void or enforceable, or institutes any litigation or other legal action
designed to deny, diminish or to recovery from the Executive the benefits
entitled to be provided to the Executive hereunder, and that the Executive has
complied with all obligations under this Agreement, the Company irrevocably
authorizes the Executive from time to time to retain counsel of the
Executive's choice, at the expense of the Company as provided in this Section,
to represent the Executive in connection with the initiation or defense of any
litigation or other legal action, whether such action is by or against the
Company or any Director, officer, shareholder, or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to the Executive entering into an attorney-client
relationship with such counsel, and in that connection the Company and the
Executive agree that a confidential relationship shall exist between the
executive and such counsel. The reasonable fees and expenses of counsel
selected from time to time by the Executive as hereinabove provided shall be
paid or reimbursed to the Executive by the Company on a regular, periodic
basis upon presentation by the Executive of a statement or statements prepared
by such counsel in accordance with its customary practices, up to a maximum
aggregate amount of $200,000. Any legal expenses incurred by the Company by
reason of any dispute between the parties as to enforceability of or the terms
contained in this Agreement, notwithstanding the outcome of any such dispute,
shall be the sole responsibility of the Company, and the Company shall not
take any action to seek reimbursement from the Executive for such expenses.
7. NON-COMPETITION.
(a) The Executive agrees that he will not:
(i) during the term or any extension of this Agreement while the Executive
is so employed by the Company, engage or participate, directly or indirectly,
either as principal, agent, employee, employer, consultant, stockholder
(except as the holder of not more than two percent of the stock of any
publicly traded corporation), or in any other individual or representative
capacity whatsoever, in the operation, management or ownership of any business,
firm, corporation, association, or other entity engaged in the design, license,
manufacture, marketing, or sale of devices and instruments used in spinal
surgery or in any other business engaged in by the Company;
(ii) for a period of 12 months after termination of employment with the
Company, whether such termination is voluntary or involuntary or with Good
Cause or without cause, engage or participate, directly or indirectly, either
as principal, agent, employee, employer, consultant, stockholder (except as
the holder of not more than two percent of the stock of any publicly traded
corporation), or in any other individual or representative capacity whatsoever,
in the operation, management or ownership of any business, firm, corporation,
association, or other entity engaged in the design, license, manufacture,
marketing, or sale of devices and instruments used in spinal surgery or in
any other business engaged in by the Company or which was under development by
the Company at the time of the Executive's termination of employment with the
Company; or
(iii) for a period of 12 months after termination of employment with the
Company, whether such termination is voluntary or involuntary or with Good
Cause or without cause, directly or indirectly, for himself or in conjunction
with or on behalf of any other individual or entity, solicit, divert, take
away or endeavor to take away from the Company any customer, account or
employee of the Company who was a customer, account or employee of the Company
at any time during the 12 months prior to the date of the Executive's
termination of employment with the Company.
(b) In the event of a violation of this Section 7, the non-competition
time periods provided in Section 7(a) shall be tolled during the time of such
violation.
8. CONFIDENTIAL INFORMATION; ASSIGNMENT OF INVENTIONS.
(a) As used herein, the term "Confidential Information" includes, but is
not limited to, all information and materials belonging to, used by, or in the
possession of the Company (i) which have been disclosed or made known to, or
has come into the possession of the Executive as a consequence of or through
the Executive's relationship with the Company prior to or after the date
hereof, (ii) which are related to the Company's customers, potential
customers, suppliers, distributors, sales representatives or agents, business
strategies or policies, financial or sales results, sales and management
techniques, marketing plans, research or development, reports, records,
software, systems, source or object code, software documentation or
instruction or user manuals, and (iii) which have not generally been made
available to the public (not including customers) by the Company pursuant to
a specific authorization in the ordinary course of business by the Company of
the release of such information to the public or otherwise published and
released by the Company to the general public. Notwithstanding the foregoing,
the Executive may release Confidential Information if (1) required by law, (2)
necessary to establish a lawful claim or defense against the Company, (3)
necessary to establish a lawful claim or defense against a person or entity
other than the Company, but only with the permission, which shall not be
unreasonably withheld, of the Company, or (4) necessary to respond to process
or appropriate governmental inquiry, but then in each case only with prior
notice to the Company.
(b) The Executive agrees:
(i) that the Executive will promptly disclose and grant and does hereby
grant to the Company his entire right, title and interest in and to all
customer lists, discoveries, developments, designs, improvements, inventions,
formulae, software, documentation, processes, techniques, know-how, patents,
trade secrets and trademarks, copyrights and all other data conceived,
developed or acquired by him during the period of his employment with the
Company, both prior to and after the execution of this Agreement, whether or
not patentable or registrable under patent, copyright or similar statutes,
made or conceived or reduced to practice or learned by the Executive, either
alone or jointly with others, that result from or are conceived during the
performance of tasks assigned to the Executive by the Company, are related to
the business conducted by the Company, or result from use of property,
equipment, or premises owned, leased or contracted for by the Company
("Inventions"). The Executive agrees to execute and deliver, from time to
time, such documents as may be necessary or convenient to effectuate the
transfer of such Confidential Information to the Company and shall cooperate
with and assist the Company in every proper way (at the expense of the Company)
in obtaining and from time to time enforcing patents, copyrights, trade
secrets, other proprietary rights and protections relating to Inventions in
any and all countries;
(ii) that the Executive will during the term of this Agreement and thereafter
safeguard all Confidential Information and, except as specifically permitted
in Section 8(b)(iii) and Section 8(b)(iv), the Executive will never disclose
or use for any purpose or benefit (other than for the purpose or benefit of
the Company) any Confidential Information;
(iii) that, except in connection with the ordinary course of the Company's
business, the Executive will not, either during the term of this Agreement or
thereafter, directly or indirectly, disclose, disseminate or otherwise make
known or provide any Confidential Information, whether in original form or in
duplicated or copied form or extracts therefrom, and whether orally or in
writing, to any individual, partnership, company or other entity, unless the
Company has given its prior written consent thereto;
(iv) that, except in connection with the ordinary course of the Company's
business, the Executive will not, either during the term of this Agreement or
thereafter, remove any Confidential Information from the premises of the
Company either in original form or in duplicated or copied form or extracts
therefrom; and that upon any termination of Executive's employment by the
Company, Executive will immediately surrender to the Company, without request,
all Confidential Information, whether in original or duplicated or copied form
or extracts therefrom.
9. NO CONFLICTS. The Executive represents that the performance by the
Executive of all the terms of this Agreement does not and will not breach any
agreement as to which the Executive or the Company is or was a party and which
requires Executive to keep any information in confidence or in trust. The
Executive has not entered into, and will not enter into, any agreement either
written or oral in conflict herewith.
10. REASONABLENESS OF RESTRICTIONS. The Executive acknowledges that the
restrictions contained in this Agreement are reasonable, but should any
provisions of this Agreement be determined to be invalid, illegal or otherwise
unenforceable to its full extent, or if any such restriction is found by a
court of competent jurisdiction to be unreasonable under applicable law, then
the restriction shall be enforced to the maximum extent permitted by law, and
the parties hereto hereby consent and agree that such scope of protection,
time or geographic area (or any one of them, as the case may be) shall be
modified accordingly in any proceeding brought to enforce such restriction.
The Executive acknowledges that the validity, legality and enforceability of
the other provisions shall not be affected thereby. The Executive hereby
acknowledges and confirms that the business of the Company extends throughout
the world and that, without limitation of any remedies for breach of such
covenant, the Company shall be entitled to temporary and permanent injunctive
relief.
11. REMEDIES; VENUE; PROCESS.
(a) The Executive hereby acknowledges and agrees that the Confidential
Information disclosed to the Executive prior to and during the term of this
Agreement is of a special, unique and extraordinary character, and that any
breach of this Agreement will cause the Company irreparable injury and damage,
and consequently the Company shall be entitled, in addition to all other
remedies available to it, to injunctive and equitable relief to prevent or
cease a breach of Sections 7 or 8 of this Agreement without further proof of
harm and entitlement; that the terms of this Agreement, if enforced by the
Company, will not unduly impair the Executive's ability to earn a living or
pursue his vocation; and further, that the Company may withhold compensation
and benefits if the Executive fails to comply with this Agreement, without
restricting the Company from other legal and equitable remedies. The parties
agree that the prevailing party shall be entitled to all costs and expenses
(including reasonable legal fees and expenses) which it incurs in successfully
enforcing this Agreement and in prosecuting or defending any litigation
(including appellate proceedings) arising out of this Agreement.
(b) The parties agree that jurisdiction and venue in any action brought
pursuant to this Agreement to enforce its terms or otherwise with respect to
the relationships between the parties shall properly lie in either the United
States District Court for the Southern District of Ohio, Eastern Division,
Columbus, Ohio, or the Court of Common Pleas of Franklin County, Ohio. Such
jurisdiction and venue is exclusive, except that the Company may bring suit
in any jurisdiction and venue where jurisdiction and venue would otherwise be
proper if Executive has breached Sections 7 or 8 of this Agreement. The
parties further agree that the mailing by certified or registered mail, return
receipt requested, of any process required by any such court shall constitute
valid and lawful service of process against them, without the necessity for
service by any other means provided by statute or rule of court.
12. WITHHOLDING. The Company may withhold from any payments to be made
hereunder such amounts as it may be required to withhold under applicable
federal, state or other law, and transmit such withheld amounts to the
appropriate taxing authority.
13. ASSIGNMENT. This Agreement is personal to the Executive and the
Executive may not assign or delegate any of his rights or obligations
hereunder. Subject to the foregoing, this Agreement shall be binding upon
and inure to the benefit of the respective parties hereto, their heirs,
executors, administrators, successors and assigns.
14. WAIVER. The waiver by either party hereto of any breach or violation
of any provision of this Agreement by the other party shall not operate as or
be construed to be a waiver of any subsequent breach by such waiving party.
15. NOTICES. Any and all notices required or permitted to be given under
this Agreement will be sufficient and deemed effective three (3) days
following deposit in the United States mail if furnished in writing and sent
by certified mail to the Executive at:
Paul A. Miller
6597 Masefield Street
Worthington, OH 43085
and to the Company at:
Cross Medical Products, Inc.
5160-A Blazer Memorial Parkway
Dublin, OH 43017-1339
Attention: Joseph A. Mussey, President
with a copy to:
Curtis A. Loveland, Esq.
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
16. GOVERNING LAW. This Agreement shall be interpreted, construed and
governed according to the laws of the State of Ohio applicable to contracts
made and to be wholly performed within such state.
17. AMENDMENT. This Agreement may be amended in any and every respect by
agreement in writing executed by both parties hereto.
18. SECTION HEADINGS. Section headings contained in this Agreement are
for convenience only and shall not be considered in construing any provision
hereof.
19. ENTIRE AGREEMENT. This Agreement terminates, cancels and supersedes
all previous employment agreements or other agreements relating to the
employment of the Executive with the Company, written or oral, entered into
between the parties hereto, and this Agreement contains the entire
understanding of the parties hereto with respect to the subject matter of this
Agreement. This Agreement was fully reviewed and negotiated on behalf of each
party and shall not be construed against the interest of either party as the
drafter of this Agreement. THE EXECUTIVE ACKNOWLEDGES THAT, BEFORE PLACING
HIS SIGNATURE HEREUNDER, HE HAS READ ALL OF THE PROVISIONS OF THIS EMPLOYMENT
AGREEMENT AND HAS THIS DAY RECEIVED A COPY HEREOF.
20. SEVERABILITY. The invalidity or unenforceability of any one or more
provisions of this Agreement shall not affect the validity or enforceability
of any other provisions of this Agreement or parts thereof.
21. SURVIVAL. Sections 6 through 13 of this Agreement and this Section 21
shall survive any termination or expiration of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EXECUTIVE: CROSS MEDICAL PRODUCTS, INC.
/S/ Paul A. Miller By: /S/ Joseph A. Mussey
Paul A. Miller Joseph A. Mussey, President
CROSS MEDICAL PRODUCTS, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 15th day of August, 1997, ("Agreement")
between Cross Medical Products, Inc., a Delaware corporation ("Cross"), and
Ira Benson ("Executive").
Recitals
A. Cross is the owner, directly or indirectly, of all of the issued
capital stock of Cross Medical Products, Inc., an Ohio corporation
("Subsidiary").
B. Cross and its Subsidiary (collectively, the "Company") design,
license, manufacture, market and sell devices and instruments used in spinal
surgery.
C. The Executive is currently employed as an executive of Cross or its
Subsidiary.
D. The Company considers the continued services of the Executive to be in
the best interest of the Company and desires to assure the continued services
of the Executive on behalf of the Company on an objective and impartial basis
and without distraction or conflict of interest in the event of an attempt to
obtain control of the Company.
E. The Executive is willing to remain in the employ of the Company upon
the understanding that the Company will provide income security in the event
of a change in control of the Company.
F. The Company and the Executive desire to enter into an employment
relationship upon the terms and conditions contained herein.
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive and the
Executive accepts such employment upon the terms and conditions hereinafter
set forth.
2. DUTIES. The Executive shall be employed:
(a) to serve as Vice President of Sales and Marketing of the Subisiary,
and to serve in other capacities for each of Cross and the Subsidiary, if so
elected, subject to the authority and direction of the Board of Directors of
Cross or the Subsidiary, as the case may be; and
(b) to perform such other duties and responsibilities similar to those
performed by the Executive prior hereto and exercise such other authority,
perform such other or additional duties and responsibilities and have such
other or different title (or have no title) as the Board of Directors of Cross
or the Subsidiary may, from time to time, prescribe.
So long as he is employed under this Agreement, the Executive agrees
to devote his full time and efforts exclusively on behalf of the Company and
to competently, diligently, and effectively discharge his duties hereunder.
The Executive shall not be prohibited from engaging in such personal,
charitable, or other nonemployment activities as do not interfere with his
full time employment hereunder and which do not violate the other provisions
of this Agreement. The Executive further agrees to comply fully with all
reasonable policies of the Company as are from time to time in effect.
3. COMPENSATION. As his entire compensation for all services rendered to
the Company pursuant to this Agreement, in whatever capacity rendered, the
Company shall pay to the Executive during the term hereof a minimum base
salary at the rate of $113,000.00 per year ("Basic Salary"), payable monthly
or in other more frequent installments, as determined by the Company. The
Basic Salary may be increased, but not decreased, from time to time, by the
Board of Directors of Cross or the Subsidiary.
In addition, the Executive will be entitled to receive incentive
compensation pursuant to the terms of plans adopted by the Board of Directors
of Cross or the Subsidiary from time to time.
4. BUSINESS EXPENSES. The Company shall promptly pay directly, or
reimburse the Executive for, all business expenses to the extent such expenses
are paid or incurred by the Executive during the term of employment in
accordance with Company policy in effect from time to time and to the extent
such expenses are reasonable and necessary to the conduct by the Executive of
the Company's business and properly substantiated.
5. FRINGE BENEFITS. During the term of this Agreement and the
Executive's employment hereunder, the Company shall provide to the Executive
such insurance, vacation, sick leave and other like benefits as are provided
from time to time to its other employees holding equivalent executive positions
with the Company in accordance with the policy of the Company as may be
established from time to time; provided, however, that the Company shall
maintain at least the level of benefits presently provided to the Executive.
6. TERM; TERMINATION. The Executive is employed by the Company "at will."
The Executive's employment may be terminated at any time as provided below.
For purposes of this Section 6, "Termination Date" shall mean the date on
which any notice period required under this Section 6 expires or, if no notice
period is specified in this Section 6, the effective date of the termination
referenced in the notice.
(a) Termination by the Executive. The Executive may terminate his
employment upon giving at least 30 days' advance written notice to the Company
and the Company will pay the Executive the earned but unpaid portion of the
Executive's Basic Salary through the Termination Date. If the Executive gives
notice of termination hereunder, the Company shall have the right to relieve
the Executive, in whole or in part, of his duties under this Agreement and to
advance the Termination Date from the date set by the Executive's notice to a
date not less than 14 days from the receipt of the Executive's notice of
termination.
(b) Termination by Company Without Cause. The Company may terminate the
Executive's employment without cause upon giving 30 days' advance written
notice to the Executive. If the Executive's employment is terminated without
cause under this Section 6(b), the Company will pay the Executive the earned
but unpaid portion of the Executive's Basic Salary and any earned but unpaid
portion of any bonus through the Termination Date, will continue to pay the
Executive his Basic Salary and to provide the fringe benefits at the level in
place at the Termination Date for 12 months following the Termination Date
("Severance Period"), and will provide outplacement services at a cost to the
Company not to exceed the Executive's Basic Salary for one month; provided,
however, that the Company may terminate payment of the Basic Salary, may
terminate fringe benefits, and may terminate outplacement services during the
Severance Period if the Executive accepts other employment or is in breach of
obligations under Sections 7 or 8 of this Agreement.
(c) Termination by Company For Good Cause. The Company may terminate the
Executive's employment upon a determination by the Company that "Good Cause"
exists for the Executive's termination and the Company serves written notice
of such termination upon the Executive. As used in this Agreement, the term
"Good Cause" shall refer only to any one or more of the following actions by
the Executive:
(i) commission of an act of dishonesty, including, but not limited to,
misappropriation of funds or any property of the Company;
(ii) engagement in activities or conduct clearly injurious to the reputation
of the Company;
(iii) refusal to perform his assigned duties and responsibilities;
(iv) gross insubordination;
(v) the clear violation of any of the material terms and conditions of this
Agreement or any written agreement or agreements the Executive may from time
to time have with the Company (following 30-days' written notice from the
Company specifying the violation and the Executive's failure to cure such
violation within such 30-day period); or
(vi) commission of a misdemeanor involving an act of moral turpitude or a
felony.
In the event of a termination under this Section 6(c), the Company will pay
the Executive the earned but unpaid portion of the Executive's Basic Salary
and the earned but unpaid portion of any bonus through the Termination Date.
(d) Termination upon Death or Permanent Disability. The Executive's
employment shall terminate upon the death or permanent disability of the
Executive. For purposes hereof, "permanent disability," shall mean the
inability of the Executive, as determined by the Board of Directors of the
Company, by reason of physical or mental illness to perform the duties required
of him under this Agreement for more than 180 days in any one year period.
Successive periods of disability, illness or incapacity will be considered
separate periods unless the later period of disability, illness or incapacity
is due to the same or related cause and commences less than six months from
the ending of the previous period of disability. Upon a determination by the
Board of Directors of Cross or the Subsidiary that the Executive's employment
shall be terminated under this Section 6(d), the Board of Directors shall give
the Executive 30 days' prior written notice of the termination. If a
determination of the Board of Directors under this Section 6(d) is disputed
by the Executive, the parties agree to abide by the decision of a panel of
three physicians. The Company will select a physician, the Executive will
select a physician and the physicians selected by the Company and the
Executive will select a third physician. The Executive agrees to make himself
available for and submit to examinations by such physicians as may be directed
by the Company. Failure to submit to any examination shall constitute a breach
of a material part of this Agreement. In the event of a termination under
this Section 6(d), the Company will pay Executive or his duly appointed and
qualified executor or other personal representative the earned but unpaid
portion of the Executive's Basic Salary and the earned but unpaid portion of
any bonus through the Termination Date.
(e) Termination Following Change of Control. If a "Change in Control", as
defined in Section 6(e)(v), shall have occurred and within one year following
such Change in Control the Company terminates the employment of the Executive
for other than Good Cause, as defined in Section 6(c), or the Executive
terminates his employment for Good Reason, as that term is defined in Section
6(e)(vii), then the Executive shall be entitled to the benefits described
below:
(i) The Executive shall be entitled to the unpaid portion of his Basic Salary
plus credit for any vacation accrued but not taken and the amount of any
earned but unpaid portion of any bonus, incentive compensation or any other
benefit to which he is entitled under this Agreement through the date of the
termination as a result of a Change in Control, plus 2 times the Executive's
"Current Annual Compensation" as defined in this Section 6(e)(i) ("Salary
Termination Benefit"). For this purpose "Current Annual Compensation" shall
mean the total of Executive's Basic Salary in effect at the Termination Date,
plus any performance bonuses received by Executive in the prior twelve months,
and shall not include the value of any stock options granted or exercised,
contributions to 401(k) or other qualified plans, medical, dental, or other
insurance benefits, or other fringe benefits. The Salary Termination Benefit
shall be paid to the Executive in 24 equal consecutive monthly payments
commencing on the first day of the month after termination of employment
following a Change in Control.
(ii) All outstanding stock options issued to the Executive shall become 100%
vested and thereafter exercisable in accordance with such governing stock
option agreements and plans.
(iii) The Company shall maintain for the Executive's benefit until the
earlier of (y) 24 months after termination of employment following a Change in
Control, or (z) the Executive's commencement of full-time employment with a
new employer, all life insurance, medical, health and accident, and disability
plans or programs in which the Executive shall have been entitled to
participate prior to termination of employment following a Change in Control,
provided the Executive's continued participation is permitted under the
general terms of such plans and programs after the Change in Control ("Fringe
Termination Benefits"; collectively the Salary Termination Benefit and the
Fringe Termination Benefit are referred to as the "Termination Benefits").
In the event the Executive's participation in any such plan or program is not
permitted, the Company will provide directly the benefits to which the
Executive would be entitled under such plans and programs.
(iv) The Termination Benefits shall be payable to the Executive as severance
pay in consideration of his past service and of his continued services from
the date hereof. Executive shall have no duty to mitigate his damages by
seeking other employment, and the Company shall not be entitled to set off
against amounts payable hereunder any compensation which the Executive may
receive from future employment.
(v) A "Change in Control" shall be deemed to have occurred if and when, after
the date hereof, (i) Cross, or in one or more transactions 50% or more of its
assets, is acquired by or combined with a person, partnership, corporation,
trust or other entity ("Person") and less than a majority of the outstanding
voting shares of the Person surviving such transaction (or the ultimate parent
of the surviving Person) after such acquisition or combination is owned,
immediately after the acquisition or combination, by the owners of the voting
shares of Cross outstanding immediately prior to such acquisition or
combination; or (ii) the Subsidiary, or in one or more transactions 50% or
more of its assets, is acquired by or combined with a Person and less than a
majority of the outstanding voting shares of the Person surviving such
transaction (or the ultimate parent of the surviving Person) after such
acquisition or combination is owned, immediately after the acquisition or
combination, directly or indirectly by the owners of the voting shares of
Cross outstanding immediately prior to such acquisition or combination; or
(iii) during any period of two consecutive years during the term of this
Agreement, individuals who at the beginning of such period constitute the
Board of Directors of Cross cease for any reason to constitute at least
two-thirds thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by
directors of Cross representing at least two-thirds of the directors then in
office who were directors at the beginning of the period.
(vi) If the payments and benefits provided under this Agreement to the
Executive, either alone or with other payments and benefits, would constitute
"excess parachute payments" as defined in Section 280G of the Internal Revenue
Code of 1986, as amended ("Code"), then the payments and other benefits under
this Agreement shall be reduced to the extent necessary so that no portion
thereof shall be subject to the excise tax imposed by Section 4999 of the Code.
Either the Company or the Executive may request a determination as to whether
the payments or benefits would constitute an excess parachute payment and, if
requested, such determination shall be made by independent tax counsel selected
by the Company and approved by the Executive. At the Executive's election and
to the extent not otherwise paid, the Executive may determine the amount of
cash and/or elements of non-cash fringe benefits to reduce so that such
payments and benefits will not constitute excess parachute payments.
(vii) As used in this Agreement, the term "Good Reason" means, without the
Executive's written consent,
(a) a change in status, position or responsibilities which, in the Executive's
reasonable judgment, does not represent a promotion from existing status,
position or responsibilities as in effect immediately prior to the Change in
Control; the assignment of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with such status, position
or responsibilities; or any removal from or failure to reappoint or reelect
the Executive to any of such positions, except in connection with the
termination of employment for total and permanent disability, death or Good
Cause or by the Executive other than for Good Reason;
(b) a reduction by the Company in the Executive's base salary as in effect on
the date hereof or as the same may be increased from time to time during the
term of this Agreement or the Company's failure to increase (within twelve
months of the Executive's last increase in base salary) the Executive's base
salary after a Change in Control in an amount which at least equals, on a
percentage basis, the average percentage increase in base salary for all
executive and senior officers of the Company effected in the preceding twelve
months;
(c) the relocation of the Company's principal executive offices to a location
outside the Columbus metropolitan area or the relocation of the Executive by
the Company to any place other than the location at which the Executive
performed duties prior to a Change in Control, except for required travel on
the Company's business to an extent substantially consistent with business
travel obligations at the time of a Change in Control;
(d) the failure of the Company to continue in effect any incentive, bonus or
other compensation plan in which the Executive participates, including but not
limited to the Company's stock option plans, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan), evidenced by the
Executive's written consent, has been made with respect to such plan in
connection with the Change in Control, or the failure by the Company to
continue the Executive's participation therein, or any action by the Company
which would directly or indirectly materially reduce participation therein;
(e) the failure by the Company to continue to provide the Executive with
benefits substantially similar to those enjoyed or entitled under any of the
Company's pension, profit sharing, life insurance, medical, dental, health and
accident, or disability plans at the time of a Change in Control, the taking
of any action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material fringe
benefit enjoyed or entitled to at the time of the Change in Control, or the
failure by the Company to provide the number of paid vacation and sick leave
days to which the Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation policy in effect
on the date hereof;
(f) the failure of the Company to obtain a satisfactory agreement from any
successor or assign of the Company to assume and agree to perform this
Agreement; or
(g) any request by the Company that the Executive participate in an unlawful
act or take any action constituting a breach of the Executive's professional
standard of conduct. Notwithstanding anything in this Section to the contrary,
the Executive's right to terminate the employment pursuant to this Section
shall not be affected by incapacity due to physical or mental illness.
(viii) Upon any termination or expiration of this Agreement or any cessation
of the Executive's employment hereunder, the Company shall have no further
obligations under this Agreement and no further payments shall be payable by
the Company to the Executive, except as provided in Sections 6(a), 6(b), 6(d)
and 6(e) above and except as required under any benefit plans or arrangements
maintained by the Company and applicable to the Executive at the time of such
termination, expiration or cessation of the Executive's employment, including,
without limitation thereto, salary, incentive compensation, sick leave, and
vacation pay.
(ix) Enforcement of Agreement. The Company is aware that upon the occurrence
of a Change in Control, the Board of Directors or a shareholder of the Company
may then cause or attempt to cause the Company to refuse to comply with its
obligations under this Agreement, or may cause or attempt to cause the Company
to institute, or may institute litigation seeking to have this Agreement
declared unenforceable, or may institute litigation seeking to have this
Agreement declared unenforceable, or may take or attempt to take other action
to deny the Executive the benefits intended under this Agreement. In these
circumstances, the purpose of this Agreement could be frustrated. It is the
intent of the Company that the Executive not be required to incur the expenses
associated with the enforcement of any rights under this Agreement by
litigation or other legal action, nor be bound to negotiate any settlement of
any rights hereunder, because the cost and expense of such legal action or
settlement would substantially detract from the benefits intended to be
extended to the Executive hereunder. Accordingly, if following a Change in
Control it should appear to the Executive that the Company has failed to
comply with any of its obligations under this Agreement or in the event that
the Company or any other person takes any action to declare this Agreement
void or enforceable, or institutes any litigation or other legal action
designed to deny, diminish or to recovery from the Executive the benefits
entitled to be provided to the Executive hereunder, and that the Executive has
complied with all obligations under this Agreement, the Company irrevocably
authorizes the Executive from time to time to retain counsel of the
Executive's choice, at the expense of the Company as provided in this Section,
to represent the Executive in connection with the initiation or defense of any
litigation or other legal action, whether such action is by or against the
Company or any Director, officer, shareholder, or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to the Executive entering into an attorney-client
relationship with such counsel, and in that connection the Company and the
Executive agree that a confidential relationship shall exist between the
executive and such counsel. The reasonable fees and expenses of counsel
selected from time to time by the Executive as hereinabove provided shall be
paid or reimbursed to the Executive by the Company on a regular, periodic
basis upon presentation by the Executive of a statement or statements prepared
by such counsel in accordance with its customary practices, up to a maximum
aggregate amount of $200,000. Any legal expenses incurred by the Company by
reason of any dispute between the parties as to enforceability of or the terms
contained in this Agreement, notwithstanding the outcome of any such dispute,
shall be the sole responsibility of the Company, and the Company shall not
take any action to seek reimbursement from the Executive for such expenses.
7. NON-COMPETITION.
(a) The Executive agrees that he will not:
(i) during the term or any extension of this Agreement while the Executive
is so employed by the Company, engage or participate, directly or indirectly,
either as principal, agent, employee, employer, consultant, stockholder
(except as the holder of not more than two percent of the stock of any
publicly traded corporation), or in any other individual or representative
capacity whatsoever, in the operation, management or ownership of any business,
firm, corporation, association, or other entity engaged in the design, license,
manufacture, marketing, or sale of devices and instruments used in spinal
surgery or in any other business engaged in by the Company;
(ii) for a period of 12 months after termination of employment with the
Company, whether such termination is voluntary or involuntary or with Good
Cause or without cause, engage or participate, directly or indirectly, either
as principal, agent, employee, employer, consultant, stockholder (except as
the holder of not more than two percent of the stock of any publicly traded
corporation), or in any other individual or representative capacity whatsoever,
in the operation, management or ownership of any business, firm, corporation,
association, or other entity engaged in the design, license, manufacture,
marketing, or sale of devices and instruments used in spinal surgery or in
any other business engaged in by the Company or which was under development by
the Company at the time of the Executive's termination of employment with the
Company; or
(iii) for a period of 12 months after termination of employment with the
Company, whether such termination is voluntary or involuntary or with Good
Cause or without cause, directly or indirectly, for himself or in conjunction
with or on behalf of any other individual or entity, solicit, divert, take
away or endeavor to take away from the Company any customer, account or
employee of the Company who was a customer, account or employee of the Company
at any time during the 12 months prior to the date of the Executive's
termination of employment with the Company.
(b) In the event of a violation of this Section 7, the non-competition
time periods provided in Section 7(a) shall be tolled during the time of such
violation.
8. CONFIDENTIAL INFORMATION; ASSIGNMENT OF INVENTIONS.
(a) As used herein, the term "Confidential Information" includes, but is
not limited to, all information and materials belonging to, used by, or in the
possession of the Company (i) which have been disclosed or made known to, or
has come into the possession of the Executive as a consequence of or through
the Executive's relationship with the Company prior to or after the date
hereof, (ii) which are related to the Company's customers, potential
customers, suppliers, distributors, sales representatives or agents, business
strategies or policies, financial or sales results, sales and management
techniques, marketing plans, research or development, reports, records,
software, systems, source or object code, software documentation or
instruction or user manuals, and (iii) which have not generally been made
available to the public (not including customers) by the Company pursuant to
a specific authorization in the ordinary course of business by the Company of
the release of such information to the public or otherwise published and
released by the Company to the general public. Notwithstanding the foregoing,
the Executive may release Confidential Information if (1) required by law, (2)
necessary to establish a lawful claim or defense against the Company, (3)
necessary to establish a lawful claim or defense against a person or entity
other than the Company, but only with the permission, which shall not be
unreasonably withheld, of the Company, or (4) necessary to respond to process
or appropriate governmental inquiry, but then in each case only with prior
notice to the Company.
(b) The Executive agrees:
(i) that the Executive will promptly disclose and grant and does hereby
grant to the Company his entire right, title and interest in and to all
customer lists, discoveries, developments, designs, improvements, inventions,
formulae, software, documentation, processes, techniques, know-how, patents,
trade secrets and trademarks, copyrights and all other data conceived,
developed or acquired by him during the period of his employment with the
Company, both prior to and after the execution of this Agreement, whether or
not patentable or registrable under patent, copyright or similar statutes,
made or conceived or reduced to practice or learned by the Executive, either
alone or jointly with others, that result from or are conceived during the
performance of tasks assigned to the Executive by the Company, are related to
the business conducted by the Company, or result from use of property,
equipment, or premises owned, leased or contracted for by the Company
("Inventions"). The Executive agrees to execute and deliver, from time to
time, such documents as may be necessary or convenient to effectuate the
transfer of such Confidential Information to the Company and shall cooperate
with and assist the Company in every proper way (at the expense of the Company)
in obtaining and from time to time enforcing patents, copyrights, trade
secrets, other proprietary rights and protections relating to Inventions in
any and all countries;
(ii) that the Executive will during the term of this Agreement and thereafter
safeguard all Confidential Information and, except as specifically permitted
in Section 8(b)(iii) and Section 8(b)(iv), the Executive will never disclose
or use for any purpose or benefit (other than for the purpose or benefit of
the Company) any Confidential Information;
(iii) that, except in connection with the ordinary course of the Company's
business, the Executive will not, either during the term of this Agreement or
thereafter, directly or indirectly, disclose, disseminate or otherwise make
known or provide any Confidential Information, whether in original form or in
duplicated or copied form or extracts therefrom, and whether orally or in
writing, to any individual, partnership, company or other entity, unless the
Company has given its prior written consent thereto;
(iv) that, except in connection with the ordinary course of the Company's
business, the Executive will not, either during the term of this Agreement or
thereafter, remove any Confidential Information from the premises of the
Company either in original form or in duplicated or copied form or extracts
therefrom; and that upon any termination of Executive's employment by the
Company, Executive will immediately surrender to the Company, without request,
all Confidential Information, whether in original or duplicated or copied form
or extracts therefrom.
9. NO CONFLICTS. The Executive represents that the performance by the
Executive of all the terms of this Agreement does not and will not breach any
agreement as to which the Executive or the Company is or was a party and which
requires Executive to keep any information in confidence or in trust. The
Executive has not entered into, and will not enter into, any agreement either
written or oral in conflict herewith.
10. REASONABLENESS OF RESTRICTIONS. The Executive acknowledges that the
restrictions contained in this Agreement are reasonable, but should any
provisions of this Agreement be determined to be invalid, illegal or otherwise
unenforceable to its full extent, or if any such restriction is found by a
court of competent jurisdiction to be unreasonable under applicable law, then
the restriction shall be enforced to the maximum extent permitted by law, and
the parties hereto hereby consent and agree that such scope of protection,
time or geographic area (or any one of them, as the case may be) shall be
modified accordingly in any proceeding brought to enforce such restriction.
The Executive acknowledges that the validity, legality and enforceability of
the other provisions shall not be affected thereby. The Executive hereby
acknowledges and confirms that the business of the Company extends throughout
the world and that, without limitation of any remedies for breach of such
covenant, the Company shall be entitled to temporary and permanent injunctive
relief.
11. REMEDIES; VENUE; PROCESS.
(a) The Executive hereby acknowledges and agrees that the Confidential
Information disclosed to the Executive prior to and during the term of this
Agreement is of a special, unique and extraordinary character, and that any
breach of this Agreement will cause the Company irreparable injury and damage,
and consequently the Company shall be entitled, in addition to all other
remedies available to it, to injunctive and equitable relief to prevent or
cease a breach of Sections 7 or 8 of this Agreement without further proof of
harm and entitlement; that the terms of this Agreement, if enforced by the
Company, will not unduly impair the Executive's ability to earn a living or
pursue his vocation; and further, that the Company may withhold compensation
and benefits if the Executive fails to comply with this Agreement, without
restricting the Company from other legal and equitable remedies. The parties
agree that the prevailing party shall be entitled to all costs and expenses
(including reasonable legal fees and expenses) which it incurs in successfully
enforcing this Agreement and in prosecuting or defending any litigation
(including appellate proceedings) arising out of this Agreement.
(b) The parties agree that jurisdiction and venue in any action brought
pursuant to this Agreement to enforce its terms or otherwise with respect to
the relationships between the parties shall properly lie in either the United
States District Court for the Southern District of Ohio, Eastern Division,
Columbus, Ohio, or the Court of Common Pleas of Franklin County, Ohio. Such
jurisdiction and venue is exclusive, except that the Company may bring suit
in any jurisdiction and venue where jurisdiction and venue would otherwise be
proper if Executive has breached Sections 7 or 8 of this Agreement. The
parties further agree that the mailing by certified or registered mail, return
receipt requested, of any process required by any such court shall constitute
valid and lawful service of process against them, without the necessity for
service by any other means provided by statute or rule of court.
12. WITHHOLDING. The Company may withhold from any payments to be made
hereunder such amounts as it may be required to withhold under applicable
federal, state or other law, and transmit such withheld amounts to the
appropriate taxing authority.
13. ASSIGNMENT. This Agreement is personal to the Executive and the
Executive may not assign or delegate any of his rights or obligations
hereunder. Subject to the foregoing, this Agreement shall be binding upon
and inure to the benefit of the respective parties hereto, their heirs,
executors, administrators, successors and assigns.
14. WAIVER. The waiver by either party hereto of any breach or violation
of any provision of this Agreement by the other party shall not operate as or
be construed to be a waiver of any subsequent breach by such waiving party.
15. NOTICES. Any and all notices required or permitted to be given under
this Agreement will be sufficient and deemed effective three (3) days
following deposit in the United States mail if furnished in writing and sent
by certified mail to the Executive at:
Ira Benson
5790 Rushwood Drive
Dublin, OH 43017
and to the Company at:
Cross Medical Products, Inc.
5160-A Blazer Memorial Parkway
Dublin, OH 43017-1339
Attention: Joseph A. Mussey, President
with a copy to:
Curtis A. Loveland, Esq.
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
16. GOVERNING LAW. This Agreement shall be interpreted, construed and
governed according to the laws of the State of Ohio applicable to contracts
made and to be wholly performed within such state.
17. AMENDMENT. This Agreement may be amended in any and every respect by
agreement in writing executed by both parties hereto.
18. SECTION HEADINGS. Section headings contained in this Agreement are
for convenience only and shall not be considered in construing any provision
hereof.
19. ENTIRE AGREEMENT. This Agreement terminates, cancels and supersedes
all previous employment agreements or other agreements relating to the
employment of the Executive with the Company, written or oral, entered into
between the parties hereto, and this Agreement contains the entire
understanding of the parties hereto with respect to the subject matter of this
Agreement. This Agreement was fully reviewed and negotiated on behalf of each
party and shall not be construed against the interest of either party as the
drafter of this Agreement. THE EXECUTIVE ACKNOWLEDGES THAT, BEFORE PLACING
HIS SIGNATURE HEREUNDER, HE HAS READ ALL OF THE PROVISIONS OF THIS EMPLOYMENT
AGREEMENT AND HAS THIS DAY RECEIVED A COPY HEREOF.
20. SEVERABILITY. The invalidity or unenforceability of any one or more
provisions of this Agreement shall not affect the validity or enforceability
of any other provisions of this Agreement or parts thereof.
21. SURVIVAL. Sections 6 through 13 of this Agreement and this Section 21
shall survive any termination or expiration of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EXECUTIVE: CROSS MEDICAL PRODUCTS, INC.
/S/ Ira Benson By: /S/ Joseph A. Mussey
Ira Benson Joseph A. Mussey, President
CROSS MEDICAL PRODUCTS, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 15th day of August, 1997, ("Agreement")
between Cross Medical Products, Inc., a Delaware corporation ("Cross"), and
Thomas E. Zimmer ("Executive").
Recitals
A. Cross is the owner, directly or indirectly, of all of the issued
capital stock of Cross Medical Products, Inc., an Ohio corporation
("Subsidiary").
B. Cross and its Subsidiary (collectively, the "Company") design,
license, manufacture, market and sell devices and instruments used in spinal
surgery.
C. The Executive is currently employed as an executive of Cross or its
Subsidiary.
D. The Company considers the continued services of the Executive to be in
the best interest of the Company and desires to assure the continued services
of the Executive on behalf of the Company on an objective and impartial basis
and without distraction or conflict of interest in the event of an attempt to
obtain control of the Company.
E. The Executive is willing to remain in the employ of the Company upon
the understanding that the Company will provide income security in the event
of a change in control of the Company.
F. The Company and the Executive desire to enter into an employment
relationship upon the terms and conditions contained herein.
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive and the
Executive accepts such employment upon the terms and conditions hereinafter
set forth.
2. DUTIES. The Executive shall be employed:
(a) to serve as Vice President of Manufacturing of Cross and of the
Subisiary, and to serve in other capacities for each of Cross and the
Subsidiary, if so elected, subject to the authority and direction of the
Board of Directors of Cross or the Subsidiary, as the case may be; and
(b) to perform such other duties and responsibilities similar to those
performed by the Executive prior hereto and exercise such other authority,
perform such other or additional duties and responsibilities and have such
other or different title (or have no title) as the Board of Directors of Cross
or the Subsidiary may, from time to time, prescribe.
So long as he is employed under this Agreement, the Executive agrees
to devote his full time and efforts exclusively on behalf of the Company and
to competently, diligently, and effectively discharge his duties hereunder.
The Executive shall not be prohibited from engaging in such personal,
charitable, or other nonemployment activities as do not interfere with his
full time employment hereunder and which do not violate the other provisions
of this Agreement. The Executive further agrees to comply fully with all
reasonable policies of the Company as are from time to time in effect.
3. COMPENSATION. As his entire compensation for all services rendered to
the Company pursuant to this Agreement, in whatever capacity rendered, the
Company shall pay to the Executive during the term hereof a minimum base
salary at the rate of $90,000.00 per year ("Basic Salary"), payable monthly
or in other more frequent installments, as determined by the Company. The
Basic Salary may be increased, but not decreased, from time to time, by the
Board of Directors of Cross or the Subsidiary.
In addition, the Executive will be entitled to receive incentive
compensation pursuant to the terms of plans adopted by the Board of Directors
of Cross or the Subsidiary from time to time.
4. BUSINESS EXPENSES. The Company shall promptly pay directly, or
reimburse the Executive for, all business expenses to the extent such expenses
are paid or incurred by the Executive during the term of employment in
accordance with Company policy in effect from time to time and to the extent
such expenses are reasonable and necessary to the conduct by the Executive of
the Company's business and properly substantiated.
5. FRINGE BENEFITS. During the term of this Agreement and the
Executive's employment hereunder, the Company shall provide to the Executive
such insurance, vacation, sick leave and other like benefits as are provided
from time to time to its other employees holding equivalent executive positions
with the Company in accordance with the policy of the Company as may be
established from time to time; provided, however, that the Company shall
maintain at least the level of benefits presently provided to the Executive.
6. TERM; TERMINATION. The Executive is employed by the Company "at will."
The Executive's employment may be terminated at any time as provided below.
For purposes of this Section 6, "Termination Date" shall mean the date on
which any notice period required under this Section 6 expires or, if no notice
period is specified in this Section 6, the effective date of the termination
referenced in the notice.
(a) Termination by the Executive. The Executive may terminate his
employment upon giving at least 30 days' advance written notice to the Company
and the Company will pay the Executive the earned but unpaid portion of the
Executive's Basic Salary through the Termination Date. If the Executive gives
notice of termination hereunder, the Company shall have the right to relieve
the Executive, in whole or in part, of his duties under this Agreement and to
advance the Termination Date from the date set by the Executive's notice to a
date not less than 14 days from the receipt of the Executive's notice of
termination.
(b) Termination by Company Without Cause. The Company may terminate the
Executive's employment without cause upon giving 30 days' advance written
notice to the Executive. If the Executive's employment is terminated without
cause under this Section 6(b), the Company will pay the Executive the earned
but unpaid portion of the Executive's Basic Salary and any earned but unpaid
portion of any bonus through the Termination Date, will continue to pay the
Executive his Basic Salary and to provide the fringe benefits at the level in
place at the Termination Date for 6 months following the Termination Date
("Severance Period"), and will provide outplacement services at a cost to the
Company not to exceed the Executive's Basic Salary for one month; provided,
however, that the Company may terminate payment of the Basic Salary, may
terminate fringe benefits, and may terminate outplacement services during the
Severance Period if the Executive accepts other employment or is in breach of
obligations under Sections 7 or 8 of this Agreement.
(c) Termination by Company For Good Cause. The Company may terminate the
Executive's employment upon a determination by the Company that "Good Cause"
exists for the Executive's termination and the Company serves written notice
of such termination upon the Executive. As used in this Agreement, the term
"Good Cause" shall refer only to any one or more of the following actions by
the Executive:
(i) commission of an act of dishonesty, including, but not limited to,
misappropriation of funds or any property of the Company;
(ii) engagement in activities or conduct clearly injurious to the reputation
of the Company;
(iii) refusal to perform his assigned duties and responsibilities;
(iv) gross insubordination;
(v) the clear violation of any of the material terms and conditions of this
Agreement or any written agreement or agreements the Executive may from time
to time have with the Company (following 30-days' written notice from the
Company specifying the violation and the Executive's failure to cure such
violation within such 30-day period); or
(vi) commission of a misdemeanor involving an act of moral turpitude or a
felony.
In the event of a termination under this Section 6(c), the Company will pay
the Executive the earned but unpaid portion of the Executive's Basic Salary
and the earned but unpaid portion of any bonus through the Termination Date.
(d) Termination upon Death or Permanent Disability. The Executive's
employment shall terminate upon the death or permanent disability of the
Executive. For purposes hereof, "permanent disability," shall mean the
inability of the Executive, as determined by the Board of Directors of the
Company, by reason of physical or mental illness to perform the duties required
of him under this Agreement for more than 180 days in any one year period.
Successive periods of disability, illness or incapacity will be considered
separate periods unless the later period of disability, illness or incapacity
is due to the same or related cause and commences less than six months from
the ending of the previous period of disability. Upon a determination by the
Board of Directors of Cross or the Subsidiary that the Executive's employment
shall be terminated under this Section 6(d), the Board of Directors shall give
the Executive 30 days' prior written notice of the termination. If a
determination of the Board of Directors under this Section 6(d) is disputed
by the Executive, the parties agree to abide by the decision of a panel of
three physicians. The Company will select a physician, the Executive will
select a physician and the physicians selected by the Company and the
Executive will select a third physician. The Executive agrees to make himself
available for and submit to examinations by such physicians as may be directed
by the Company. Failure to submit to any examination shall constitute a breach
of a material part of this Agreement. In the event of a termination under
this Section 6(d), the Company will pay Executive or his duly appointed and
qualified executor or other personal representative the earned but unpaid
portion of the Executive's Basic Salary and the earned but unpaid portion of
any bonus through the Termination Date.
(e) Termination Following Change of Control. If a "Change in Control", as
defined in Section 6(e)(v), shall have occurred and within one year following
such Change in Control the Company terminates the employment of the Executive
for other than Good Cause, as defined in Section 6(c), or the Executive
terminates his employment for Good Reason, as that term is defined in Section
6(e)(vii), then the Executive shall be entitled to the benefits described
below:
(i) The Executive shall be entitled to the unpaid portion of his Basic Salary
plus credit for any vacation accrued but not taken and the amount of any
earned but unpaid portion of any bonus, incentive compensation or any other
benefit to which he is entitled under this Agreement through the date of the
termination as a result of a Change in Control, plus 2 times the Executive's
"Current Annual Compensation" as defined in this Section 6(e)(i) ("Salary
Termination Benefit"). For this purpose "Current Annual Compensation" shall
mean the total of Executive's Basic Salary in effect at the Termination Date,
plus any performance bonuses received by Executive in the prior twelve months,
and shall not include the value of any stock options granted or exercised,
contributions to 401(k) or other qualified plans, medical, dental, or other
insurance benefits, or other fringe benefits. The Salary Termination Benefit
shall be paid to the Executive in 24 equal consecutive monthly payments
commencing on the first day of the month after termination of employment
following a Change in Control.
(ii) All outstanding stock options issued to the Executive shall become 100%
vested and thereafter exercisable in accordance with such governing stock
option agreements and plans.
(iii) The Company shall maintain for the Executive's benefit until the
earlier of (y) 24 months after termination of employment following a Change in
Control, or (z) the Executive's commencement of full-time employment with a
new employer, all life insurance, medical, health and accident, and disability
plans or programs in which the Executive shall have been entitled to
participate prior to termination of employment following a Change in Control,
provided the Executive's continued participation is permitted under the
general terms of such plans and programs after the Change in Control ("Fringe
Termination Benefits"; collectively the Salary Termination Benefit and the
Fringe Termination Benefit are referred to as the "Termination Benefits").
In the event the Executive's participation in any such plan or program is not
permitted, the Company will provide directly the benefits to which the
Executive would be entitled under such plans and programs.
(iv) The Termination Benefits shall be payable to the Executive as severance
pay in consideration of his past service and of his continued services from
the date hereof. Executive shall have no duty to mitigate his damages by
seeking other employment, and the Company shall not be entitled to set off
against amounts payable hereunder any compensation which the Executive may
receive from future employment.
(v) A "Change in Control" shall be deemed to have occurred if and when, after
the date hereof, (i) Cross, or in one or more transactions 50% or more of its
assets, is acquired by or combined with a person, partnership, corporation,
trust or other entity ("Person") and less than a majority of the outstanding
voting shares of the Person surviving such transaction (or the ultimate parent
of the surviving Person) after such acquisition or combination is owned,
immediately after the acquisition or combination, by the owners of the voting
shares of Cross outstanding immediately prior to such acquisition or
combination; or (ii) the Subsidiary, or in one or more transactions 50% or
more of its assets, is acquired by or combined with a Person and less than a
majority of the outstanding voting shares of the Person surviving such
transaction (or the ultimate parent of the surviving Person) after such
acquisition or combination is owned, immediately after the acquisition or
combination, directly or indirectly by the owners of the voting shares of
Cross outstanding immediately prior to such acquisition or combination; or
(iii) during any period of two consecutive years during the term of this
Agreement, individuals who at the beginning of such period constitute the
Board of Directors of Cross cease for any reason to constitute at least
two-thirds thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by
directors of Cross representing at least two-thirds of the directors then in
office who were directors at the beginning of the period.
(vi) If the payments and benefits provided under this Agreement to the
Executive, either alone or with other payments and benefits, would constitute
"excess parachute payments" as defined in Section 280G of the Internal Revenue
Code of 1986, as amended ("Code"), then the payments and other benefits under
this Agreement shall be reduced to the extent necessary so that no portion
thereof shall be subject to the excise tax imposed by Section 4999 of the Code.
Either the Company or the Executive may request a determination as to whether
the payments or benefits would constitute an excess parachute payment and, if
requested, such determination shall be made by independent tax counsel selected
by the Company and approved by the Executive. At the Executive's election and
to the extent not otherwise paid, the Executive may determine the amount of
cash and/or elements of non-cash fringe benefits to reduce so that such
payments and benefits will not constitute excess parachute payments.
(vii) As used in this Agreement, the term "Good Reason" means, without the
Executive's written consent,
(a) a change in status, position or responsibilities which, in the Executive's
reasonable judgment, does not represent a promotion from existing status,
position or responsibilities as in effect immediately prior to the Change in
Control; the assignment of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with such status, position
or responsibilities; or any removal from or failure to reappoint or reelect
the Executive to any of such positions, except in connection with the
termination of employment for total and permanent disability, death or Good
Cause or by the Executive other than for Good Reason;
(b) a reduction by the Company in the Executive's base salary as in effect on
the date hereof or as the same may be increased from time to time during the
term of this Agreement or the Company's failure to increase (within twelve
months of the Executive's last increase in base salary) the Executive's base
salary after a Change in Control in an amount which at least equals, on a
percentage basis, the average percentage increase in base salary for all
executive and senior officers of the Company effected in the preceding twelve
months;
(c) the relocation of the Company's principal executive offices to a location
outside the Columbus metropolitan area or the relocation of the Executive by
the Company to any place other than the location at which the Executive
performed duties prior to a Change in Control, except for required travel on
the Company's business to an extent substantially consistent with business
travel obligations at the time of a Change in Control;
(d) the failure of the Company to continue in effect any incentive, bonus or
other compensation plan in which the Executive participates, including but not
limited to the Company's stock option plans, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan), evidenced by the
Executive's written consent, has been made with respect to such plan in
connection with the Change in Control, or the failure by the Company to
continue the Executive's participation therein, or any action by the Company
which would directly or indirectly materially reduce participation therein;
(e) the failure by the Company to continue to provide the Executive with
benefits substantially similar to those enjoyed or entitled under any of the
Company's pension, profit sharing, life insurance, medical, dental, health and
accident, or disability plans at the time of a Change in Control, the taking
of any action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material fringe
benefit enjoyed or entitled to at the time of the Change in Control, or the
failure by the Company to provide the number of paid vacation and sick leave
days to which the Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation policy in effect
on the date hereof;
(f) the failure of the Company to obtain a satisfactory agreement from any
successor or assign of the Company to assume and agree to perform this
Agreement; or
(g) any request by the Company that the Executive participate in an unlawful
act or take any action constituting a breach of the Executive's professional
standard of conduct. Notwithstanding anything in this Section to the contrary,
the Executive's right to terminate the employment pursuant to this Section
shall not be affected by incapacity due to physical or mental illness.
(viii) Upon any termination or expiration of this Agreement or any cessation
of the Executive's employment hereunder, the Company shall have no further
obligations under this Agreement and no further payments shall be payable by
the Company to the Executive, except as provided in Sections 6(a), 6(b), 6(d)
and 6(e) above and except as required under any benefit plans or arrangements
maintained by the Company and applicable to the Executive at the time of such
termination, expiration or cessation of the Executive's employment, including,
without limitation thereto, salary, incentive compensation, sick leave, and
vacation pay.
(ix) Enforcement of Agreement. The Company is aware that upon the occurrence
of a Change in Control, the Board of Directors or a shareholder of the Company
may then cause or attempt to cause the Company to refuse to comply with its
obligations under this Agreement, or may cause or attempt to cause the Company
to institute, or may institute litigation seeking to have this Agreement
declared unenforceable, or may institute litigation seeking to have this
Agreement declared unenforceable, or may take or attempt to take other action
to deny the Executive the benefits intended under this Agreement. In these
circumstances, the purpose of this Agreement could be frustrated. It is the
intent of the Company that the Executive not be required to incur the expenses
associated with the enforcement of any rights under this Agreement by
litigation or other legal action, nor be bound to negotiate any settlement of
any rights hereunder, because the cost and expense of such legal action or
settlement would substantially detract from the benefits intended to be
extended to the Executive hereunder. Accordingly, if following a Change in
Control it should appear to the Executive that the Company has failed to
comply with any of its obligations under this Agreement or in the event that
the Company or any other person takes any action to declare this Agreement
void or enforceable, or institutes any litigation or other legal action
designed to deny, diminish or to recovery from the Executive the benefits
entitled to be provided to the Executive hereunder, and that the Executive has
complied with all obligations under this Agreement, the Company irrevocably
authorizes the Executive from time to time to retain counsel of the
Executive's choice, at the expense of the Company as provided in this Section,
to represent the Executive in connection with the initiation or defense of any
litigation or other legal action, whether such action is by or against the
Company or any Director, officer, shareholder, or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to the Executive entering into an attorney-client
relationship with such counsel, and in that connection the Company and the
Executive agree that a confidential relationship shall exist between the
executive and such counsel. The reasonable fees and expenses of counsel
selected from time to time by the Executive as hereinabove provided shall be
paid or reimbursed to the Executive by the Company on a regular, periodic
basis upon presentation by the Executive of a statement or statements prepared
by such counsel in accordance with its customary practices, up to a maximum
aggregate amount of $200,000. Any legal expenses incurred by the Company by
reason of any dispute between the parties as to enforceability of or the terms
contained in this Agreement, notwithstanding the outcome of any such dispute,
shall be the sole responsibility of the Company, and the Company shall not
take any action to seek reimbursement from the Executive for such expenses.
7. NON-COMPETITION.
(a) The Executive agrees that he will not:
(i) during the term or any extension of this Agreement while the Executive
is so employed by the Company, engage or participate, directly or indirectly,
either as principal, agent, employee, employer, consultant, stockholder
(except as the holder of not more than two percent of the stock of any
publicly traded corporation), or in any other individual or representative
capacity whatsoever, in the operation, management or ownership of any business,
firm, corporation, association, or other entity engaged in the design, license,
manufacture, marketing, or sale of devices and instruments used in spinal
surgery or in any other business engaged in by the Company;
(ii) for a period of 12 months after termination of employment with the
Company, whether such termination is voluntary or involuntary or with Good
Cause or without cause, engage or participate, directly or indirectly, either
as principal, agent, employee, employer, consultant, stockholder (except as
the holder of not more than two percent of the stock of any publicly traded
corporation), or in any other individual or representative capacity whatsoever,
in the operation, management or ownership of any business, firm, corporation,
association, or other entity engaged in the design, license, manufacture,
marketing, or sale of devices and instruments used in spinal surgery or in
any other business engaged in by the Company or which was under development by
the Company at the time of the Executive's termination of employment with the
Company; or
(iii) for a period of 12 months after termination of employment with the
Company, whether such termination is voluntary or involuntary or with Good
Cause or without cause, directly or indirectly, for himself or in conjunction
with or on behalf of any other individual or entity, solicit, divert, take
away or endeavor to take away from the Company any customer, account or
employee of the Company who was a customer, account or employee of the Company
at any time during the 12 months prior to the date of the Executive's
termination of employment with the Company.
(b) In the event of a violation of this Section 7, the non-competition
time periods provided in Section 7(a) shall be tolled during the time of such
violation.
8. CONFIDENTIAL INFORMATION; ASSIGNMENT OF INVENTIONS.
(a) As used herein, the term "Confidential Information" includes, but is
not limited to, all information and materials belonging to, used by, or in the
possession of the Company (i) which have been disclosed or made known to, or
has come into the possession of the Executive as a consequence of or through
the Executive's relationship with the Company prior to or after the date
hereof, (ii) which are related to the Company's customers, potential
customers, suppliers, distributors, sales representatives or agents, business
strategies or policies, financial or sales results, sales and management
techniques, marketing plans, research or development, reports, records,
software, systems, source or object code, software documentation or
instruction or user manuals, and (iii) which have not generally been made
available to the public (not including customers) by the Company pursuant to
a specific authorization in the ordinary course of business by the Company of
the release of such information to the public or otherwise published and
released by the Company to the general public. Notwithstanding the foregoing,
the Executive may release Confidential Information if (1) required by law, (2)
necessary to establish a lawful claim or defense against the Company, (3)
necessary to establish a lawful claim or defense against a person or entity
other than the Company, but only with the permission, which shall not be
unreasonably withheld, of the Company, or (4) necessary to respond to process
or appropriate governmental inquiry, but then in each case only with prior
notice to the Company.
(b) The Executive agrees:
(i) that the Executive will promptly disclose and grant and does hereby
grant to the Company his entire right, title and interest in and to all
customer lists, discoveries, developments, designs, improvements, inventions,
formulae, software, documentation, processes, techniques, know-how, patents,
trade secrets and trademarks, copyrights and all other data conceived,
developed or acquired by him during the period of his employment with the
Company, both prior to and after the execution of this Agreement, whether or
not patentable or registrable under patent, copyright or similar statutes,
made or conceived or reduced to practice or learned by the Executive, either
alone or jointly with others, that result from or are conceived during the
performance of tasks assigned to the Executive by the Company, are related to
the business conducted by the Company, or result from use of property,
equipment, or premises owned, leased or contracted for by the Company
("Inventions"). The Executive agrees to execute and deliver, from time to
time, such documents as may be necessary or convenient to effectuate the
transfer of such Confidential Information to the Company and shall cooperate
with and assist the Company in every proper way (at the expense of the Company)
in obtaining and from time to time enforcing patents, copyrights, trade
secrets, other proprietary rights and protections relating to Inventions in
any and all countries;
(ii) that the Executive will during the term of this Agreement and thereafter
safeguard all Confidential Information and, except as specifically permitted
in Section 8(b)(iii) and Section 8(b)(iv), the Executive will never disclose
or use for any purpose or benefit (other than for the purpose or benefit of
the Company) any Confidential Information;
(iii) that, except in connection with the ordinary course of the Company's
business, the Executive will not, either during the term of this Agreement or
thereafter, directly or indirectly, disclose, disseminate or otherwise make
known or provide any Confidential Information, whether in original form or in
duplicated or copied form or extracts therefrom, and whether orally or in
writing, to any individual, partnership, company or other entity, unless the
Company has given its prior written consent thereto;
(iv) that, except in connection with the ordinary course of the Company's
business, the Executive will not, either during the term of this Agreement or
thereafter, remove any Confidential Information from the premises of the
Company either in original form or in duplicated or copied form or extracts
therefrom; and that upon any termination of Executive's employment by the
Company, Executive will immediately surrender to the Company, without request,
all Confidential Information, whether in original or duplicated or copied form
or extracts therefrom.
9. NO CONFLICTS. The Executive represents that the performance by the
Executive of all the terms of this Agreement does not and will not breach any
agreement as to which the Executive or the Company is or was a party and which
requires Executive to keep any information in confidence or in trust. The
Executive has not entered into, and will not enter into, any agreement either
written or oral in conflict herewith.
10. REASONABLENESS OF RESTRICTIONS. The Executive acknowledges that the
restrictions contained in this Agreement are reasonable, but should any
provisions of this Agreement be determined to be invalid, illegal or otherwise
unenforceable to its full extent, or if any such restriction is found by a
court of competent jurisdiction to be unreasonable under applicable law, then
the restriction shall be enforced to the maximum extent permitted by law, and
the parties hereto hereby consent and agree that such scope of protection,
time or geographic area (or any one of them, as the case may be) shall be
modified accordingly in any proceeding brought to enforce such restriction.
The Executive acknowledges that the validity, legality and enforceability of
the other provisions shall not be affected thereby. The Executive hereby
acknowledges and confirms that the business of the Company extends throughout
the world and that, without limitation of any remedies for breach of such
covenant, the Company shall be entitled to temporary and permanent injunctive
relief.
11. REMEDIES; VENUE; PROCESS.
(a) The Executive hereby acknowledges and agrees that the Confidential
Information disclosed to the Executive prior to and during the term of this
Agreement is of a special, unique and extraordinary character, and that any
breach of this Agreement will cause the Company irreparable injury and damage,
and consequently the Company shall be entitled, in addition to all other
remedies available to it, to injunctive and equitable relief to prevent or
cease a breach of Sections 7 or 8 of this Agreement without further proof of
harm and entitlement; that the terms of this Agreement, if enforced by the
Company, will not unduly impair the Executive's ability to earn a living or
pursue his vocation; and further, that the Company may withhold compensation
and benefits if the Executive fails to comply with this Agreement, without
restricting the Company from other legal and equitable remedies. The parties
agree that the prevailing party shall be entitled to all costs and expenses
(including reasonable legal fees and expenses) which it incurs in successfully
enforcing this Agreement and in prosecuting or defending any litigation
(including appellate proceedings) arising out of this Agreement.
(b) The parties agree that jurisdiction and venue in any action brought
pursuant to this Agreement to enforce its terms or otherwise with respect to
the relationships between the parties shall properly lie in either the United
States District Court for the Southern District of Ohio, Eastern Division,
Columbus, Ohio, or the Court of Common Pleas of Franklin County, Ohio. Such
jurisdiction and venue is exclusive, except that the Company may bring suit
in any jurisdiction and venue where jurisdiction and venue would otherwise be
proper if Executive has breached Sections 7 or 8 of this Agreement. The
parties further agree that the mailing by certified or registered mail, return
receipt requested, of any process required by any such court shall constitute
valid and lawful service of process against them, without the necessity for
service by any other means provided by statute or rule of court.
12. WITHHOLDING. The Company may withhold from any payments to be made
hereunder such amounts as it may be required to withhold under applicable
federal, state or other law, and transmit such withheld amounts to the
appropriate taxing authority.
13. ASSIGNMENT. This Agreement is personal to the Executive and the
Executive may not assign or delegate any of his rights or obligations
hereunder. Subject to the foregoing, this Agreement shall be binding upon
and inure to the benefit of the respective parties hereto, their heirs,
executors, administrators, successors and assigns.
14. WAIVER. The waiver by either party hereto of any breach or violation
of any provision of this Agreement by the other party shall not operate as or
be construed to be a waiver of any subsequent breach by such waiving party.
15. NOTICES. Any and all notices required or permitted to be given under
this Agreement will be sufficient and deemed effective three (3) days
following deposit in the United States mail if furnished in writing and sent
by certified mail to the Executive at:
Thomas E. Zimmer
325 Greenglade Avenue
Worthington, OH 43085
and to the Company at:
Cross Medical Products, Inc.
5160-A Blazer Memorial Parkway
Dublin, OH 43017-1339
Attention: Joseph A. Mussey, President
with a copy to:
Curtis A. Loveland, Esq.
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
16. GOVERNING LAW. This Agreement shall be interpreted, construed and
governed according to the laws of the State of Ohio applicable to contracts
made and to be wholly performed within such state.
17. AMENDMENT. This Agreement may be amended in any and every respect by
agreement in writing executed by both parties hereto.
18. SECTION HEADINGS. Section headings contained in this Agreement are
for convenience only and shall not be considered in construing any provision
hereof.
19. ENTIRE AGREEMENT. This Agreement terminates, cancels and supersedes
all previous employment agreements or other agreements relating to the
employment of the Executive with the Company, written or oral, entered into
between the parties hereto, and this Agreement contains the entire
understanding of the parties hereto with respect to the subject matter of this
Agreement. This Agreement was fully reviewed and negotiated on behalf of each
party and shall not be construed against the interest of either party as the
drafter of this Agreement. THE EXECUTIVE ACKNOWLEDGES THAT, BEFORE PLACING
HIS SIGNATURE HEREUNDER, HE HAS READ ALL OF THE PROVISIONS OF THIS EMPLOYMENT
AGREEMENT AND HAS THIS DAY RECEIVED A COPY HEREOF.
20. SEVERABILITY. The invalidity or unenforceability of any one or more
provisions of this Agreement shall not affect the validity or enforceability
of any other provisions of this Agreement or parts thereof.
21. SURVIVAL. Sections 6 through 13 of this Agreement and this Section 21
shall survive any termination or expiration of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EXECUTIVE: CROSS MEDICAL PRODUCTS, INC.
/S/ Thomas E. Zimmer By: /S/ Joseph A. Mussey
Thomas E. Zimmer Joseph A. Mussey, President
CROSS MEDICAL PRODUCTS, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 15th day of August, 1997, ("Agreement")
between Cross Medical Products, Inc., a Delaware corporation ("Cross"), and
Philip A. Mellinger ("Executive").
Recitals
A. Cross is the owner, directly or indirectly, of all of the issued
capital stock of Cross Medical Products, Inc., an Ohio corporation
("Subsidiary").
B. Cross and its Subsidiary (collectively, the "Company") design,
license, manufacture, market and sell devices and instruments used in spinal
surgery.
C. The Executive is currently employed as an executive of Cross or its
Subsidiary.
D. The Company considers the continued services of the Executive to be in
the best interest of the Company and desires to assure the continued services
of the Executive on behalf of the Company on an objective and impartial basis
and without distraction or conflict of interest in the event of an attempt to
obtain control of the Company.
E. The Executive is willing to remain in the employ of the Company upon
the understanding that the Company will provide income security in the event
of a change in control of the Company.
F. The Company and the Executive desire to enter into an employment
relationship upon the terms and conditions contained herein.
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive and the
Executive accepts such employment upon the terms and conditions hereinafter
set forth.
2. DUTIES. The Executive shall be employed:
(a) to serve as Vice President of Research and Development of the
Subisiary, and to serve in other capacities for each of Cross and the
Subsidiary, if so elected, subject to the authority and direction of the
Board of Directors of Cross or the Subsidiary, as the case may be; and
(b) to perform such other duties and responsibilities similar to those
performed by the Executive prior hereto and exercise such other authority,
perform such other or additional duties and responsibilities and have such
other or different title (or have no title) as the Board of Directors of Cross
or the Subsidiary may, from time to time, prescribe.
So long as he is employed under this Agreement, the Executive agrees
to devote his full time and efforts exclusively on behalf of the Company and
to competently, diligently, and effectively discharge his duties hereunder.
The Executive shall not be prohibited from engaging in such personal,
charitable, or other nonemployment activities as do not interfere with his
full time employment hereunder and which do not violate the other provisions
of this Agreement. The Executive further agrees to comply fully with all
reasonable policies of the Company as are from time to time in effect.
3. COMPENSATION. As his entire compensation for all services rendered to
the Company pursuant to this Agreement, in whatever capacity rendered, the
Company shall pay to the Executive during the term hereof a minimum base
salary at the rate of $90,000.00 per year ("Basic Salary"), payable monthly
or in other more frequent installments, as determined by the Company. The
Basic Salary may be increased, but not decreased, from time to time, by the
Board of Directors of Cross or the Subsidiary.
In addition, the Executive will be entitled to receive incentive
compensation pursuant to the terms of plans adopted by the Board of Directors
of Cross or the Subsidiary from time to time.
4. BUSINESS EXPENSES. The Company shall promptly pay directly, or
reimburse the Executive for, all business expenses to the extent such expenses
are paid or incurred by the Executive during the term of employment in
accordance with Company policy in effect from time to time and to the extent
such expenses are reasonable and necessary to the conduct by the Executive of
the Company's business and properly substantiated.
5. FRINGE BENEFITS. During the term of this Agreement and the
Executive's employment hereunder, the Company shall provide to the Executive
such insurance, vacation, sick leave and other like benefits as are provided
from time to time to its other employees holding equivalent executive positions
with the Company in accordance with the policy of the Company as may be
established from time to time; provided, however, that the Company shall
maintain at least the level of benefits presently provided to the Executive.
6. TERM; TERMINATION. The Executive is employed by the Company "at will."
The Executive's employment may be terminated at any time as provided below.
For purposes of this Section 6, "Termination Date" shall mean the date on
which any notice period required under this Section 6 expires or, if no notice
period is specified in this Section 6, the effective date of the termination
referenced in the notice.
(a) Termination by the Executive. The Executive may terminate his
employment upon giving at least 30 days' advance written notice to the Company
and the Company will pay the Executive the earned but unpaid portion of the
Executive's Basic Salary through the Termination Date. If the Executive gives
notice of termination hereunder, the Company shall have the right to relieve
the Executive, in whole or in part, of his duties under this Agreement and to
advance the Termination Date from the date set by the Executive's notice to a
date not less than 14 days from the receipt of the Executive's notice of
termination.
(b) Termination by Company Without Cause. The Company may terminate the
Executive's employment without cause upon giving 30 days' advance written
notice to the Executive. If the Executive's employment is terminated without
cause under this Section 6(b), the Company will pay the Executive the earned
but unpaid portion of the Executive's Basic Salary and any earned but unpaid
portion of any bonus through the Termination Date, will continue to pay the
Executive his Basic Salary and to provide the fringe benefits at the level in
place at the Termination Date for 6 months following the Termination Date
("Severance Period"), and will provide outplacement services at a cost to the
Company not to exceed the Executive's Basic Salary for one month; provided,
however, that the Company may terminate payment of the Basic Salary, may
terminate fringe benefits, and may terminate outplacement services during the
Severance Period if the Executive accepts other employment or is in breach of
obligations under Sections 7 or 8 of this Agreement.
(c) Termination by Company For Good Cause. The Company may terminate the
Executive's employment upon a determination by the Company that "Good Cause"
exists for the Executive's termination and the Company serves written notice
of such termination upon the Executive. As used in this Agreement, the term
"Good Cause" shall refer only to any one or more of the following actions by
the Executive:
(i) commission of an act of dishonesty, including, but not limited to,
misappropriation of funds or any property of the Company;
(ii) engagement in activities or conduct clearly injurious to the reputation
of the Company;
(iii) refusal to perform his assigned duties and responsibilities;
(iv) gross insubordination;
(v) the clear violation of any of the material terms and conditions of this
Agreement or any written agreement or agreements the Executive may from time
to time have with the Company (following 30-days' written notice from the
Company specifying the violation and the Executive's failure to cure such
violation within such 30-day period); or
(vi) commission of a misdemeanor involving an act of moral turpitude or a
felony.
In the event of a termination under this Section 6(c), the Company will pay
the Executive the earned but unpaid portion of the Executive's Basic Salary
and the earned but unpaid portion of any bonus through the Termination Date.
(d) Termination upon Death or Permanent Disability. The Executive's
employment shall terminate upon the death or permanent disability of the
Executive. For purposes hereof, "permanent disability," shall mean the
inability of the Executive, as determined by the Board of Directors of the
Company, by reason of physical or mental illness to perform the duties required
of him under this Agreement for more than 180 days in any one year period.
Successive periods of disability, illness or incapacity will be considered
separate periods unless the later period of disability, illness or incapacity
is due to the same or related cause and commences less than six months from
the ending of the previous period of disability. Upon a determination by the
Board of Directors of Cross or the Subsidiary that the Executive's employment
shall be terminated under this Section 6(d), the Board of Directors shall give
the Executive 30 days' prior written notice of the termination. If a
determination of the Board of Directors under this Section 6(d) is disputed
by the Executive, the parties agree to abide by the decision of a panel of
three physicians. The Company will select a physician, the Executive will
select a physician and the physicians selected by the Company and the
Executive will select a third physician. The Executive agrees to make himself
available for and submit to examinations by such physicians as may be directed
by the Company. Failure to submit to any examination shall constitute a breach
of a material part of this Agreement. In the event of a termination under
this Section 6(d), the Company will pay Executive or his duly appointed and
qualified executor or other personal representative the earned but unpaid
portion of the Executive's Basic Salary and the earned but unpaid portion of
any bonus through the Termination Date.
(e) Termination Following Change of Control. If a "Change in Control", as
defined in Section 6(e)(v), shall have occurred and within one year following
such Change in Control the Company terminates the employment of the Executive
for other than Good Cause, as defined in Section 6(c), or the Executive
terminates his employment for Good Reason, as that term is defined in Section
6(e)(vii), then the Executive shall be entitled to the benefits described
below:
(i) The Executive shall be entitled to the unpaid portion of his Basic Salary
plus credit for any vacation accrued but not taken and the amount of any
earned but unpaid portion of any bonus, incentive compensation or any other
benefit to which he is entitled under this Agreement through the date of the
termination as a result of a Change in Control, plus 2 times the Executive's
"Current Annual Compensation" as defined in this Section 6(e)(i) ("Salary
Termination Benefit"). For this purpose "Current Annual Compensation" shall
mean the total of Executive's Basic Salary in effect at the Termination Date,
plus any performance bonuses received by Executive in the prior twelve months,
and shall not include the value of any stock options granted or exercised,
contributions to 401(k) or other qualified plans, medical, dental, or other
insurance benefits, or other fringe benefits. The Salary Termination Benefit
shall be paid to the Executive in 24 equal consecutive monthly payments
commencing on the first day of the month after termination of employment
following a Change in Control.
(ii) All outstanding stock options issued to the Executive shall become 100%
vested and thereafter exercisable in accordance with such governing stock
option agreements and plans.
(iii) The Company shall maintain for the Executive's benefit until the
earlier of (y) 24 months after termination of employment following a Change in
Control, or (z) the Executive's commencement of full-time employment with a
new employer, all life insurance, medical, health and accident, and disability
plans or programs in which the Executive shall have been entitled to
participate prior to termination of employment following a Change in Control,
provided the Executive's continued participation is permitted under the
general terms of such plans and programs after the Change in Control ("Fringe
Termination Benefits"; collectively the Salary Termination Benefit and the
Fringe Termination Benefit are referred to as the "Termination Benefits").
In the event the Executive's participation in any such plan or program is not
permitted, the Company will provide directly the benefits to which the
Executive would be entitled under such plans and programs.
(iv) The Termination Benefits shall be payable to the Executive as severance
pay in consideration of his past service and of his continued services from
the date hereof. Executive shall have no duty to mitigate his damages by
seeking other employment, and the Company shall not be entitled to set off
against amounts payable hereunder any compensation which the Executive may
receive from future employment.
(v) A "Change in Control" shall be deemed to have occurred if and when, after
the date hereof, (i) Cross, or in one or more transactions 50% or more of its
assets, is acquired by or combined with a person, partnership, corporation,
trust or other entity ("Person") and less than a majority of the outstanding
voting shares of the Person surviving such transaction (or the ultimate parent
of the surviving Person) after such acquisition or combination is owned,
immediately after the acquisition or combination, by the owners of the voting
shares of Cross outstanding immediately prior to such acquisition or
combination; or (ii) the Subsidiary, or in one or more transactions 50% or
more of its assets, is acquired by or combined with a Person and less than a
majority of the outstanding voting shares of the Person surviving such
transaction (or the ultimate parent of the surviving Person) after such
acquisition or combination is owned, immediately after the acquisition or
combination, directly or indirectly by the owners of the voting shares of
Cross outstanding immediately prior to such acquisition or combination; or
(iii) during any period of two consecutive years during the term of this
Agreement, individuals who at the beginning of such period constitute the
Board of Directors of Cross cease for any reason to constitute at least
two-thirds thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by
directors of Cross representing at least two-thirds of the directors then in
office who were directors at the beginning of the period.
(vi) If the payments and benefits provided under this Agreement to the
Executive, either alone or with other payments and benefits, would constitute
"excess parachute payments" as defined in Section 280G of the Internal Revenue
Code of 1986, as amended ("Code"), then the payments and other benefits under
this Agreement shall be reduced to the extent necessary so that no portion
thereof shall be subject to the excise tax imposed by Section 4999 of the Code.
Either the Company or the Executive may request a determination as to whether
the payments or benefits would constitute an excess parachute payment and, if
requested, such determination shall be made by independent tax counsel selected
by the Company and approved by the Executive. At the Executive's election and
to the extent not otherwise paid, the Executive may determine the amount of
cash and/or elements of non-cash fringe benefits to reduce so that such
payments and benefits will not constitute excess parachute payments.
(vii) As used in this Agreement, the term "Good Reason" means, without the
Executive's written consent,
(a) a change in status, position or responsibilities which, in the Executive's
reasonable judgment, does not represent a promotion from existing status,
position or responsibilities as in effect immediately prior to the Change in
Control; the assignment of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with such status, position
or responsibilities; or any removal from or failure to reappoint or reelect
the Executive to any of such positions, except in connection with the
termination of employment for total and permanent disability, death or Good
Cause or by the Executive other than for Good Reason;
(b) a reduction by the Company in the Executive's base salary as in effect on
the date hereof or as the same may be increased from time to time during the
term of this Agreement or the Company's failure to increase (within twelve
months of the Executive's last increase in base salary) the Executive's base
salary after a Change in Control in an amount which at least equals, on a
percentage basis, the average percentage increase in base salary for all
executive and senior officers of the Company effected in the preceding twelve
months;
(c) the relocation of the Company's principal executive offices to a location
outside the Columbus metropolitan area or the relocation of the Executive by
the Company to any place other than the location at which the Executive
performed duties prior to a Change in Control, except for required travel on
the Company's business to an extent substantially consistent with business
travel obligations at the time of a Change in Control;
(d) the failure of the Company to continue in effect any incentive, bonus or
other compensation plan in which the Executive participates, including but not
limited to the Company's stock option plans, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan), evidenced by the
Executive's written consent, has been made with respect to such plan in
connection with the Change in Control, or the failure by the Company to
continue the Executive's participation therein, or any action by the Company
which would directly or indirectly materially reduce participation therein;
(e) the failure by the Company to continue to provide the Executive with
benefits substantially similar to those enjoyed or entitled under any of the
Company's pension, profit sharing, life insurance, medical, dental, health and
accident, or disability plans at the time of a Change in Control, the taking
of any action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material fringe
benefit enjoyed or entitled to at the time of the Change in Control, or the
failure by the Company to provide the number of paid vacation and sick leave
days to which the Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation policy in effect
on the date hereof;
(f) the failure of the Company to obtain a satisfactory agreement from any
successor or assign of the Company to assume and agree to perform this
Agreement; or
(g) any request by the Company that the Executive participate in an unlawful
act or take any action constituting a breach of the Executive's professional
standard of conduct. Notwithstanding anything in this Section to the contrary,
the Executive's right to terminate the employment pursuant to this Section
shall not be affected by incapacity due to physical or mental illness.
(viii) Upon any termination or expiration of this Agreement or any cessation
of the Executive's employment hereunder, the Company shall have no further
obligations under this Agreement and no further payments shall be payable by
the Company to the Executive, except as provided in Sections 6(a), 6(b), 6(d)
and 6(e) above and except as required under any benefit plans or arrangements
maintained by the Company and applicable to the Executive at the time of such
termination, expiration or cessation of the Executive's employment, including,
without limitation thereto, salary, incentive compensation, sick leave, and
vacation pay.
(ix) Enforcement of Agreement. The Company is aware that upon the occurrence
of a Change in Control, the Board of Directors or a shareholder of the Company
may then cause or attempt to cause the Company to refuse to comply with its
obligations under this Agreement, or may cause or attempt to cause the Company
to institute, or may institute litigation seeking to have this Agreement
declared unenforceable, or may institute litigation seeking to have this
Agreement declared unenforceable, or may take or attempt to take other action
to deny the Executive the benefits intended under this Agreement. In these
circumstances, the purpose of this Agreement could be frustrated. It is the
intent of the Company that the Executive not be required to incur the expenses
associated with the enforcement of any rights under this Agreement by
litigation or other legal action, nor be bound to negotiate any settlement of
any rights hereunder, because the cost and expense of such legal action or
settlement would substantially detract from the benefits intended to be
extended to the Executive hereunder. Accordingly, if following a Change in
Control it should appear to the Executive that the Company has failed to
comply with any of its obligations under this Agreement or in the event that
the Company or any other person takes any action to declare this Agreement
void or enforceable, or institutes any litigation or other legal action
designed to deny, diminish or to recovery from the Executive the benefits
entitled to be provided to the Executive hereunder, and that the Executive has
complied with all obligations under this Agreement, the Company irrevocably
authorizes the Executive from time to time to retain counsel of the
Executive's choice, at the expense of the Company as provided in this Section,
to represent the Executive in connection with the initiation or defense of any
litigation or other legal action, whether such action is by or against the
Company or any Director, officer, shareholder, or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to the Executive entering into an attorney-client
relationship with such counsel, and in that connection the Company and the
Executive agree that a confidential relationship shall exist between the
executive and such counsel. The reasonable fees and expenses of counsel
selected from time to time by the Executive as hereinabove provided shall be
paid or reimbursed to the Executive by the Company on a regular, periodic
basis upon presentation by the Executive of a statement or statements prepared
by such counsel in accordance with its customary practices, up to a maximum
aggregate amount of $200,000. Any legal expenses incurred by the Company by
reason of any dispute between the parties as to enforceability of or the terms
contained in this Agreement, notwithstanding the outcome of any such dispute,
shall be the sole responsibility of the Company, and the Company shall not
take any action to seek reimbursement from the Executive for such expenses.
7. NON-COMPETITION.
(a) The Executive agrees that he will not:
(i) during the term or any extension of this Agreement while the Executive
is so employed by the Company, engage or participate, directly or indirectly,
either as principal, agent, employee, employer, consultant, stockholder
(except as the holder of not more than two percent of the stock of any
publicly traded corporation), or in any other individual or representative
capacity whatsoever, in the operation, management or ownership of any business,
firm, corporation, association, or other entity engaged in the design, license,
manufacture, marketing, or sale of devices and instruments used in spinal
surgery or in any other business engaged in by the Company;
(ii) for a period of 12 months after termination of employment with the
Company, whether such termination is voluntary or involuntary or with Good
Cause or without cause, engage or participate, directly or indirectly, either
as principal, agent, employee, employer, consultant, stockholder (except as
the holder of not more than two percent of the stock of any publicly traded
corporation), or in any other individual or representative capacity whatsoever,
in the operation, management or ownership of any business, firm, corporation,
association, or other entity engaged in the design, license, manufacture,
marketing, or sale of devices and instruments used in spinal surgery or in
any other business engaged in by the Company or which was under development by
the Company at the time of the Executive's termination of employment with the
Company; or
(iii) for a period of 12 months after termination of employment with the
Company, whether such termination is voluntary or involuntary or with Good
Cause or without cause, directly or indirectly, for himself or in conjunction
with or on behalf of any other individual or entity, solicit, divert, take
away or endeavor to take away from the Company any customer, account or
employee of the Company who was a customer, account or employee of the Company
at any time during the 12 months prior to the date of the Executive's
termination of employment with the Company.
(b) In the event of a violation of this Section 7, the non-competition
time periods provided in Section 7(a) shall be tolled during the time of such
violation.
8. CONFIDENTIAL INFORMATION; ASSIGNMENT OF INVENTIONS.
(a) As used herein, the term "Confidential Information" includes, but is
not limited to, all information and materials belonging to, used by, or in the
possession of the Company (i) which have been disclosed or made known to, or
has come into the possession of the Executive as a consequence of or through
the Executive's relationship with the Company prior to or after the date
hereof, (ii) which are related to the Company's customers, potential
customers, suppliers, distributors, sales representatives or agents, business
strategies or policies, financial or sales results, sales and management
techniques, marketing plans, research or development, reports, records,
software, systems, source or object code, software documentation or
instruction or user manuals, and (iii) which have not generally been made
available to the public (not including customers) by the Company pursuant to
a specific authorization in the ordinary course of business by the Company of
the release of such information to the public or otherwise published and
released by the Company to the general public. Notwithstanding the foregoing,
the Executive may release Confidential Information if (1) required by law, (2)
necessary to establish a lawful claim or defense against the Company, (3)
necessary to establish a lawful claim or defense against a person or entity
other than the Company, but only with the permission, which shall not be
unreasonably withheld, of the Company, or (4) necessary to respond to process
or appropriate governmental inquiry, but then in each case only with prior
notice to the Company.
(b) The Executive agrees:
(i) that the Executive will promptly disclose and grant and does hereby
grant to the Company his entire right, title and interest in and to all
customer lists, discoveries, developments, designs, improvements, inventions,
formulae, software, documentation, processes, techniques, know-how, patents,
trade secrets and trademarks, copyrights and all other data conceived,
developed or acquired by him during the period of his employment with the
Company, both prior to and after the execution of this Agreement, whether or
not patentable or registrable under patent, copyright or similar statutes,
made or conceived or reduced to practice or learned by the Executive, either
alone or jointly with others, that result from or are conceived during the
performance of tasks assigned to the Executive by the Company, are related to
the business conducted by the Company, or result from use of property,
equipment, or premises owned, leased or contracted for by the Company
("Inventions"). The Executive agrees to execute and deliver, from time to
time, such documents as may be necessary or convenient to effectuate the
transfer of such Confidential Information to the Company and shall cooperate
with and assist the Company in every proper way (at the expense of the Company)
in obtaining and from time to time enforcing patents, copyrights, trade
secrets, other proprietary rights and protections relating to Inventions in
any and all countries;
(ii) that the Executive will during the term of this Agreement and thereafter
safeguard all Confidential Information and, except as specifically permitted
in Section 8(b)(iii) and Section 8(b)(iv), the Executive will never disclose
or use for any purpose or benefit (other than for the purpose or benefit of
the Company) any Confidential Information;
(iii) that, except in connection with the ordinary course of the Company's
business, the Executive will not, either during the term of this Agreement or
thereafter, directly or indirectly, disclose, disseminate or otherwise make
known or provide any Confidential Information, whether in original form or in
duplicated or copied form or extracts therefrom, and whether orally or in
writing, to any individual, partnership, company or other entity, unless the
Company has given its prior written consent thereto;
(iv) that, except in connection with the ordinary course of the Company's
business, the Executive will not, either during the term of this Agreement or
thereafter, remove any Confidential Information from the premises of the
Company either in original form or in duplicated or copied form or extracts
therefrom; and that upon any termination of Executive's employment by the
Company, Executive will immediately surrender to the Company, without request,
all Confidential Information, whether in original or duplicated or copied form
or extracts therefrom.
9. NO CONFLICTS. The Executive represents that the performance by the
Executive of all the terms of this Agreement does not and will not breach any
agreement as to which the Executive or the Company is or was a party and which
requires Executive to keep any information in confidence or in trust. The
Executive has not entered into, and will not enter into, any agreement either
written or oral in conflict herewith.
10. REASONABLENESS OF RESTRICTIONS. The Executive acknowledges that the
restrictions contained in this Agreement are reasonable, but should any
provisions of this Agreement be determined to be invalid, illegal or otherwise
unenforceable to its full extent, or if any such restriction is found by a
court of competent jurisdiction to be unreasonable under applicable law, then
the restriction shall be enforced to the maximum extent permitted by law, and
the parties hereto hereby consent and agree that such scope of protection,
time or geographic area (or any one of them, as the case may be) shall be
modified accordingly in any proceeding brought to enforce such restriction.
The Executive acknowledges that the validity, legality and enforceability of
the other provisions shall not be affected thereby. The Executive hereby
acknowledges and confirms that the business of the Company extends throughout
the world and that, without limitation of any remedies for breach of such
covenant, the Company shall be entitled to temporary and permanent injunctive
relief.
11. REMEDIES; VENUE; PROCESS.
(a) The Executive hereby acknowledges and agrees that the Confidential
Information disclosed to the Executive prior to and during the term of this
Agreement is of a special, unique and extraordinary character, and that any
breach of this Agreement will cause the Company irreparable injury and damage,
and consequently the Company shall be entitled, in addition to all other
remedies available to it, to injunctive and equitable relief to prevent or
cease a breach of Sections 7 or 8 of this Agreement without further proof of
harm and entitlement; that the terms of this Agreement, if enforced by the
Company, will not unduly impair the Executive's ability to earn a living or
pursue his vocation; and further, that the Company may withhold compensation
and benefits if the Executive fails to comply with this Agreement, without
restricting the Company from other legal and equitable remedies. The parties
agree that the prevailing party shall be entitled to all costs and expenses
(including reasonable legal fees and expenses) which it incurs in successfully
enforcing this Agreement and in prosecuting or defending any litigation
(including appellate proceedings) arising out of this Agreement.
(b) The parties agree that jurisdiction and venue in any action brought
pursuant to this Agreement to enforce its terms or otherwise with respect to
the relationships between the parties shall properly lie in either the United
States District Court for the Southern District of Ohio, Eastern Division,
Columbus, Ohio, or the Court of Common Pleas of Franklin County, Ohio. Such
jurisdiction and venue is exclusive, except that the Company may bring suit
in any jurisdiction and venue where jurisdiction and venue would otherwise be
proper if Executive has breached Sections 7 or 8 of this Agreement. The
parties further agree that the mailing by certified or registered mail, return
receipt requested, of any process required by any such court shall constitute
valid and lawful service of process against them, without the necessity for
service by any other means provided by statute or rule of court.
12. WITHHOLDING. The Company may withhold from any payments to be made
hereunder such amounts as it may be required to withhold under applicable
federal, state or other law, and transmit such withheld amounts to the
appropriate taxing authority.
13. ASSIGNMENT. This Agreement is personal to the Executive and the
Executive may not assign or delegate any of his rights or obligations
hereunder. Subject to the foregoing, this Agreement shall be binding upon
and inure to the benefit of the respective parties hereto, their heirs,
executors, administrators, successors and assigns.
14. WAIVER. The waiver by either party hereto of any breach or violation
of any provision of this Agreement by the other party shall not operate as or
be construed to be a waiver of any subsequent breach by such waiving party.
15. NOTICES. Any and all notices required or permitted to be given under
this Agreement will be sufficient and deemed effective three (3) days
following deposit in the United States mail if furnished in writing and sent
by certified mail to the Executive at:
Philip A. Mellinger
1094 Kirk Avenue
Worthington, OH 43085
and to the Company at:
Cross Medical Products, Inc.
5160-A Blazer Memorial Parkway
Dublin, OH 43017-1339
Attention: Joseph A. Mussey, President
with a copy to:
Curtis A. Loveland, Esq.
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
16. GOVERNING LAW. This Agreement shall be interpreted, construed and
governed according to the laws of the State of Ohio applicable to contracts
made and to be wholly performed within such state.
17. AMENDMENT. This Agreement may be amended in any and every respect by
agreement in writing executed by both parties hereto.
18. SECTION HEADINGS. Section headings contained in this Agreement are
for convenience only and shall not be considered in construing any provision
hereof.
19. ENTIRE AGREEMENT. This Agreement terminates, cancels and supersedes
all previous employment agreements or other agreements relating to the
employment of the Executive with the Company, written or oral, entered into
between the parties hereto, and this Agreement contains the entire
understanding of the parties hereto with respect to the subject matter of this
Agreement. This Agreement was fully reviewed and negotiated on behalf of each
party and shall not be construed against the interest of either party as the
drafter of this Agreement. THE EXECUTIVE ACKNOWLEDGES THAT, BEFORE PLACING
HIS SIGNATURE HEREUNDER, HE HAS READ ALL OF THE PROVISIONS OF THIS EMPLOYMENT
AGREEMENT AND HAS THIS DAY RECEIVED A COPY HEREOF.
20. SEVERABILITY. The invalidity or unenforceability of any one or more
provisions of this Agreement shall not affect the validity or enforceability
of any other provisions of this Agreement or parts thereof.
21. SURVIVAL. Sections 6 through 13 of this Agreement and this Section 21
shall survive any termination or expiration of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EXECUTIVE: CROSS MEDICAL PRODUCTS, INC.
/S/ Philip A. Mellinger By: /S/ Joseph A. Mussey
Philip A. Mellinger Joseph A. Mussey, President
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
FOR THE THREE AND NINE MONTH PERIODS ENDING SEPTEMBER 30, 1997 AND 1996
<TABLE>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average number of common shares outstanding 5,080,762 4,776,571 5,012,454 4,754,819
Shares issuable pursuant to stock option plans and
stock warrants 237,090 206,334 254,018
------------ ------------ ------------ ------------
Weighted average shares outstanding used in primary
earnings per share calculation 5,080,762 5,013,661 5,218,788 5,008,837
Shares issuable under the Convertible Subordinated
Debentures 630,277 646,154 630,277 646,154
------------ ------------ ------------ ------------
Weighted average shares outstanding used in fully
diluted earnings per share calculation 5,711,039 5,659,815 5,849,065 5,654,991
============ ============ ============ ============
Net income (loss) from continuing operations $(43,000) $(184,000) $44,000 $(407,000)
============ ============ ============ ============
Net income from discontinued operations $375,000 $2,649,000 $881,000
============ ============ ============ ============
Net income (loss) used in calculation of primary earnings
per share $(43,000) $191,000 $2,693,000 $474,000
Interest, net of tax, on Convertible Subordinated
Debentures $67,000 $67,000 $198,000 $89,000
------------ ------------ ------------ ------------
Net income used in calculation of fully diluted
earnings per share $24,000 $258,000 $2,891,000 $563,000
============ ============ ============ ============
Primary earnings per share:
Net income (loss) per share from continuing operations $(.01) $(.04) $.01 $(.09)
============ ============ ============ ============
Net income per share from discontinued operations $.08 $.51 $.18
============ ============ ============ ============
Net income (loss) per share $(.01) $.04 $.52 $.09
============ ============ ============ ============
Fully diluted earnings per share:
Net income (loss) per share from continuing operations $.00 $(.02) $.04 $(.06)
============ ============ ============ ============
Net income per share from discontinued operations $.07 $.46 $.16
============ ============ ============ ============
Net income per share $.00 $.05 $.50 $.10
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 1,2 AND 3 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2647
<SECURITIES> 1500
<RECEIVABLES> 4303
<ALLOWANCES> 147
<INVENTORY> 8801
<CURRENT-ASSETS> 18121
<PP&E> 1368
<DEPRECIATION> 400
<TOTAL-ASSETS> 20224
<CURRENT-LIABILITIES> 4050
<BONDS> 5200
0
0
<COMMON> 52
<OTHER-SE> 10818
<TOTAL-LIABILITY-AND-EQUITY> 20224
<SALES> 9497
<TOTAL-REVENUES> 9497
<CGS> 3747
<TOTAL-COSTS> 3747
<OTHER-EXPENSES> 5353
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 326
<INCOME-PRETAX> 71
<INCOME-TAX> 27
<INCOME-CONTINUING> 44
<DISCONTINUED> 2649
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2693
<EPS-PRIMARY> .52
<EPS-DILUTED> .50
</TABLE>
