SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
(Mark one)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period from to
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Commission file number 0-18643
Lunar Corporation
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1200501
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
313 West Beltline Highway
Madison, Wisconsin 53713
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number (including area code): (608) 274-2663
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of September 26, 1996, there were issued and outstanding 8,536,065
shares of Common Stock; the aggregate market value of the shares of such stock
held by nonaffiliates of the registrant was $178,691,770 as of the same date,
assuming solely for purposes of this calculation that all directors and
executive officers of the Registrant are "affiliates." This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Lunar Corporation Proxy Statement for its 1996 Shareholders Meeting
to be held on November 21, 1996 (Part III)
LUNAR CORPORATION
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INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED JUNE 30, 1996
Page
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Part I
Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2 Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . .9
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . 10
Executive Officers of the Registrant. . . . . . . . . . . . . . 10
Part II
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . 11
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . 11
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 13
Item 8 Financial Statements and Supplementary Data . . . . . . . . . . 17
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . 33
Part III
Item 10 Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . . . . . . . . . 33
Item 11 Executive Compensation. . . . . . . . . . . . . . . . . . . . . 34
Item 12 Security Ownership of Certain
Beneficial Owners and Management. . . . . . . . . . . . . . . . 34
Item 13 Certain Relationships and Related Transactions. . . . . . . . . 34
Part IV
Item 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 34
Index to Consolidated Financial Statements and
Financial Statement Schedule . . . . . . . . . . . . . . . . . . . . . . . . 35
Report of Independent Auditors on Financial
Statement Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Schedule II - Valuation and Qualifying Accounts
for each of the years ended June 30, 1996,
1995, and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
PART I
ITEM 1. BUSINESS
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INTRODUCTION
Lunar Corporation develops products for the diagnosis and monitoring of
osteoporosis and other metabolic bone diseases. Except as the context otherwise
requires, as used herein the terms "Lunar" and the "Company" mean Lunar
Corporation, its wholly owned subsidiaries Lunar GmbH, Lunar Europe, N.V., Bona
Fide, Ltd., and Lunar FSC, Inc. On May 8, 1996, the Company distributed to its
shareholders of record as of April 24, 1996 all of the shares of common stock
owned by Lunar of Lunar's 97% owned subsidiary, Bone Care International, Inc.
("Bone Care"), and its subsidiary, Continental Assays Corporation. The Company
develops and sells bone densitometers, which are specialized scanning systems
used to aid in the diagnosis and monitoring of bone disease by measuring the
density of the bone. The Company is also the exclusive distributor in the
United States of the Artoscan extremity Magnetic Resonance Imaging ("MRI")
scanner. The Artoscan is manufactured by ESAOTE Biomedica SPA, a medical device
company based in Italy.
BACKGROUND ON OSTEOPOROSIS
Osteoporosis is a disease generally associated with aging and characterized
by excessive loss of bone mineral, resulting in decreased bone density over
time. Demineralization weakens bone so that minor physical stress can cause
debilitating fractures, usually in the wrists, hips, and spine. These fractures
can result in disfigurement, decreased mobility, and, in some cases, extensive
hospitalization and chronic nursing home care.
Osteoporosis is a major and growing public health problem in the United
States and worldwide. In the United States, 25% of women over age 60 develop
vertebral fractures related to osteoporosis, and as many as 50% of women will
develop vertebral fractures by age 75. According to the National Institutes of
Health, there are currently more than 10 million adults affected by osteoporosis
in the United States. Factors contributing to bone loss include age- and
sex-related hormonal changes, low calcium intake, excessive alcohol consumption,
and certain drug therapies.
An estimated 1.3 million osteoporosis-related fractures occur each year in
the United States. The Scientific Advisory Board of the National Osteoporosis
Foundation ("NOF") estimated the annual direct and indirect costs of
osteoporosis-related fractures in the United States in 1984 to be over $7
billion, with the costs related to hip fractures being a major component of the
aggregate cost. Without effective diagnosis and treatment, the medical and
social consequences of such fractures will worsen as the population ages.
Osteoporosis is at least partially preventable if individuals at the greatest
risk of fracture are diagnosed and treated in the early stages.
DIAGNOSIS AND MONITORING. Relatively few people are diagnosed in time for
effective therapy since there are no obvious symptoms of osteoporosis in the
early stages. Often the first symptom is a debilitating fracture. Studies show
that bone mineral density is correlated highly with bone strength. Since bone
strength is a determinant of an individual's susceptibility to fracture (along
with the likelihood of sustaining sufficient trauma), bone mineral density
indicates fracture risk. Bone mineral density can be measured with accuracy
(referring to how well the scanners measure the actual bone density) and
precision (referring to whether the scanners yield the same result upon multiple
scans of the same bone) using dual-photon absorptiometry ("DPA") or dual-energy
x-ray absorptiometry ("DEXA") techniques.
Bone densitometer technology is based on the fact that bone absorbs x-ray
photons at a different rate than does soft tissue. Photons are directed at the
body, and their differential absorption is measured. Single-photon
absorptiometry ("SPA") scanners have been available since 1972 to measure bone
density at the extremities, such as the forearm and heel bone. In the 1980s,
DPA and DEXA scanners have been developed to measure bone density in the spine
and the hip, which are more clinically significant areas of the skeleton. SPA
and DPA scanners employ a radioactive source; DEXA scanners generate radiation
using a conventional x-ray tube. DEXA scanners are accurate, have a low
precision error, are safe because they emit low radiation, have scanning times
of approximately 5 minutes, and have a low operating cost.
In recent years, ultrasound technology has been developed to measure the
bone density of certain extremity sites. Ultrasound bone densitometers are less
expensive than DEXA bone densitometers, and since they use nonionizing
radiation, ultrasound bone densitometers encounter fewer regulatory and
licensing requirements as compared to DEXA bone densitometers.
REIMBURSEMENT. To achieve broad acceptance and qualify for third-party
reimbursement, diagnostic products not only must be safe and efficacious, but
also must be deemed cost-effective by public and private health care payors.
Sales of bone densitometers are also dependent upon the level of reimbursement
provided by public and private health care payors. Reimbursement for DEXA scans
has been approved in several countries. Reimbursement for ultrasound scans is
generally not provided by public health systems.
In the United States, the Health Care Finance Administration ("HCFA") has
been reviewing the status of reimbursement for DEXA scans. In December 1993,
HCFA published proposed reimbursement rates for DEXA scans. However, HCFA has
not set national policy at this time requiring the Medicare carriers to adopt
reimbursement. However, all Medicare carriers have elected to implement
reimbursement for DEXA scans.
While many private insurance carriers have elected to provide reimbursement
for DEXA scans, a significant number of private carriers, including many of the
Blue Cross/Blue Shield organizations in the most populous states, do not
currently provide reimbursement for DEXA scans. California, Florida, Oklahoma,
Tennessee and Texas have passed legislation requiring that all private insurance
carriers cover DEXA scans. The Company believes that if HCFA decides to set a
national policy requiring reimbursement for DEXA scans throughout the United
States, those private carriers not covering DEXA might reconsider their policy.
THERAPIES. The demand for bone densitometers sold by the Company is
dependent on the availability of therapies for the treatment of postmenopausal
osteoporosis. The Company does not sell any of the therapies discussed in this
subsection.
Estrogen replacement therapies ("ERT") are approved for marketing and sale
in the United States for the treatment of postmenopausal osteoporosis. ERT is
currently believed to be an effective means to prevent bone loss and related
fractures, but does not stimulate bone formation. In the United States, ERT
most often is used to relieve symptoms related to menopause; however, usage for
osteoporosis is steadily increasing.
Calcitonins are approved for marketing and sale in the United States for
the treatment of osteoporosis. Calcitonins seem to prevent further bone loss,
but do not stimulate bone formation. Miacalcin nasal spray, by Sandoz
Pharmaceuticals, is a nasal delivery formulation which was approved for sale by
the Food and Drug Administration ("FDA") in the United States in 1995.
A bisphosphonate (Fosamax) was recently approved for marketing and sale in
the United States for the treatment of osteoporosis. Studies have shown that
bisphosphonates appear to inhibit bone resorption without interrupting normal
bone formation, thereby increasing bone mass and possibly reducing vertebral
fractures. Merck & Co., Inc., developed a bisphosphonate called Fosamax which
was approved by the FDA for treatment of osteoporosis in the United States in
1995.
Calcium supplements have not been approved for marketing and sale in the
United States for the treatment of osteoporosis. Calcium supplements are often
recommended for postmenopausal women, but evidence of their efficacy in
treatment and prevention of osteoporosis is controversial. Calcium supplements
are also recommended for use with bisphosphonates and ERT.
Fluoride preparations have not been approved for marketing and sale in the
United States for the treatment of osteoporosis. Fluoride preparations are
known to increase bone density in the spine (the most common site of
osteoporosis fractures), but have little effect on bone density in the hip (the
most debilitating site of osteoporosis fractures). A recent clinical trial on
time-released sodium fluoride demonstrated a positive effect on spinal bone
density in those patients studied.
In Japan and Europe, there is an active market for osteoporosis therapies.
In Japan, available therapies include vitamin D-3 compounds, calcitonin, and
ipriflavone. In Europe, available therapies include estrogens, calcitonins,
vitamin D-3 compounds, ipriflavone, and sodium fluoride. Vitamin D-3 compounds,
primarily 1-alpha-D-3, which are available in Japan and Europe, are activated by
the body into hormones which help regulate blood levels of calcium required for
essential body functions, including normal bone growth. Studies have shown that
low dosages of 1-alpha-D-3 have little efficacy as an osteoporosis therapy, but
at higher dosages, bone mineral content increased and bone fracture rates
decreased.
THE COMPANY'S PRODUCTS
BONE DENSITOMETER SYSTEMS
The first commercial bone densitometers utilized SPA, a method which was
developed at the University of Wisconsin - Madison, Department of Medical
Physics, by investigators including Drs. Richard B. Mazess, James Sorenson, and
John Cameron. SPA, which uses photons at a single-energy level, became
commercially available in 1972 and was widely utilized in research. During the
1970s, Dr. Richard B. Mazess, James A. Hanson, Philip Judy, Walter Peppler,
Charles Wilson, and other researchers at the University of Wisconsin - Madison,
Department of Medical Physics, developed a DPA scanner which used photons of two
energy levels. Dr. Mazess organized Lunar to focus on the diagnosis and
monitoring of osteoporosis and to market bone densitometers using DPA. Lunar
sold approximately 700 DPA scanners from 1981 to 1988, which the Company
believes constituted a majority of the worldwide sales of DPA scanners during
that period. In June 1988, Lunar introduced its DEXA system, the DPX, which
replaced the radioactive source with an x-ray source thereby allowing for faster
scan times and improved precision. In March 1990, Lunar began shipping the
DPX-L, an enhanced version of the DPX. In February 1991, Lunar began shipping
the DPX-alpha, a smaller "compact" version of the DPX-L, designed for clinics
and private hospitals. In October 1991, Lunar began international shipment of
the Achilles ultrasound device, a lower-cost bone densitometer which uses
ultrasound technology to measure the bone density of the heel bone. In 1993,
the Company commercially introduced the EXPERT, a high-end imaging bone
densitometer. In 1995, the Company introduced the DPX-SF, the smallest
spine/femur DEXA densitometer. DPX-SF is compact and mobile, yet produces the
precise AP spine and proximal femur scans preferred by researchers and
clinicians. In April 1996, the Company introduced the DPX-IQ densitometer,
which offers better image quality and a tenfold lower radiation dose than
competitive densitometers.
The DPX product line is sold to leading medical institutions, hospitals,
and radiological and other specialty group practices. Pharmaceutical companies
and orthopedic implant manufacturers investigating bone also purchase systems
for research and clinical trials.
Historically, densitometry has used ionizing radiation, which is carefully
regulated in the United States and most nations in the world. The Company's
researchers have investigated the possibility of using ultrasound rather than
x-rays or radioisotopes for more than five years. In 1991, this research
culminated in development of the reliable and relatively low-cost Achilles
densitometer. In 1995, the Company introduced the Achilles+. This new
ultrasound densitometer has the same performance features as its predecessor
with increased ease of operation and reduced patient measurement time.
The development of an ultrasound bone densitometer enables diverse medical
specialties, such as endocrinology, gynecology, and family practice, to make use
of densitometry. The Achilles can measure bone using either speed of sound or
broadband ultrasound attenuation. It is the first densitometer to combine both
of these ultrasound measurements in one device. Although leading researchers
have recognized the safety and efficacy of our ultrasound technique, the FDA is
requiring that the Company conduct clinical trials before allowing commercial
sales in the United States. The Company is currently marketing the Achilles in
select international countries.
In 1993, the Company commercially introduced the EXPERT imaging
densitometer. The EXPERT is an improvement on previous densitometers because of
its better speed (10X faster) and spatial resolution (3X finer). The EXPERT
uses a high-capacity x-ray tube with a rotating anode and a solid-state,
high-resolution detector. The spatial resolution with the EXPERT is at least
two to
three times that of existing densitometers, allowing it to provide much better
images. This enables the physician to identify artifacts that may be in the
field and to exclude them if need be. It also provides better visual
identification of the region of interest and eliminates anatomical blurring at
key areas (for example, the intervertebral spaces.)
In addition, the imaging capability of the EXPERT allows determinations of
the entire lateral spine to be achieved in less than a minute. This can be done
with the patient lying comfortably in the supine position because the EXPERT's
C-arm can be rotated under motor control for lateral imaging. Morphometry of
individual vertebra can be readily done with standardized, semiautomated
algorithms. EXPERT morphometry, compared to conventional radiographs, provides
uniformity in geometry; there is no distortion along the axis of the spine,
leading to exact values for vertebral height. The Company has received United
States patents covering morphometry on densitometers, and has applied for
similar patents in Europe and Asia.
FLUOROSCOPIC C-ARM. The Company introduced a fluoroscopic C-arm for
extremity imaging at the 1996 Conference of the American Academy of Orthopedic
Surgeons. ORCA utilizes digital imaging capabilities coupled with proprietary
processing techniques to produce distortion-free images, particularly of bone.
ORCA is designed for the orthopedic and radiology market.
CUSTOMERS, SALES, AND MARKETING. Lunar's bone densitometers are sold to
leading medical institutions, hospitals, pharmaceutical companies active in the
field of bone mineral metabolism, and radiological and other specialty group
practices. Lunar densitometer sales are dependent upon competition,
reimbursement levels, and availability of therapies on a country-by-country
basis. Lunar bone densitometers carry a one-year warranty. Extended service
contracts are also available.
In the United States, Lunar markets and sells its bone densitometers
through a direct sales force and one independent sales representative. Lunar
had 99 employees engaged in the marketing, sales support, and service of bone
densitometry equipment as of June 30, 1996.
Outside of the United States, Lunar markets and sells its bone
densitometers primarily through independent distributors, all of whom offer
sales and technical support. Employees of these distributors have undergone
product and technical training related to the Company's systems. The Company's
wholly owned German and Belgian subsidiaries provides direct sales and service
support to German and Belgian customers. The Company also maintains offices in
Brussels, Belgium, and Sydney, Australia, to support its distributors with
marketing, sales support, and service.
Lunar markets its bone densitometers through advertising in medical
journals, direct mailings of brochures, attendance of and presentations at
medical seminars and trade shows, and personal visits by sales representatives
with customers.
No individual end user accounted for more than 2% of Lunar's sales for the
fiscal year ended June 30, 1996. For the years ended June 30, 1994, 1995, and
1996, approximately 75%, 73%, and 55% of sales, respectively, were to customers
located in foreign countries. For the fiscal years ended June 30, 1994, 1995,
and 1996, sales to the Company's distributor in Japan accounted for 17%
($5,086,848), 21% ($9,170,611), and 13% ($8,580,406) of the Company's sales in
the respective years. Since a significant amount of the Company's sales are
made to distributors, the loss at any time of a distributor accounting for 10%
or more of the Company's sales could have a material adverse effect on the
Company.
As of June 30, 1996, substantially all of the Company's backlog was
deliverable within 120 days. Orders included in backlog may generally be
canceled or rescheduled by customers, without significant penalty, and therefore
cannot be considered firm. Also, the Company's revenues tend to be somewhat
seasonal, generally being lower in the first fiscal quarter due primarily to
lower activity in Europe in the summer months.
MANUFACTURING. Lunar's manufacturing operations consist primarily of
assembly, testing, and quality control. Lunar purchases a majority of the parts
and peripheral components for its systems and manufactures certain subsystems,
such as the x-ray tube head, from basic components. Parts and materials are
generally readily available from several supply sources.
SPINOFF OF BONE CARE
From its inception, Bone Care has focused on the development of one-alpha
D-2, a vitamin D compound. Lunar independently researched and patented several
other novel vitamin D compounds from 1988 to 1995. In October 1995, Lunar
contributed its ownership of Continental Assays Corporation, and all of its
vitamin D-related assets with a book value of $175,867, and forgave intercompany
loans receivable of $634,683 in exchange for 1,806,075 shares of Bone Care
common stock. Lunar also contributed $10,000,000 in exchange for 1,698,674
shares of Bone Care common stock on May 8, 1996 and reimbursed Bone Care
$725,000 for tax savings realized in prior years when Bone Care losses were
included in Lunar's consolidated tax returns. On May 8, 1996, Lunar distributed
all of its shares of Bone Care to Lunar shareholders of record as of April 24,
1996 in a transaction intended to qualify as a tax-free distribution. The
shares distributed to Lunar shareholders represent 97% of the total outstanding
Bone Care shares as of the date of the distribution.
Bone Care entered into a Transition Agreement with the Company, pursuant to
which certain employees of the Company will perform administrative services for
Bone Care. Such services include legal, treasury, accounting, insurance and
employee benefit administration. As compensation, Bone Care pays the Company a
monthly fee of $7,000. The Company leases 3,000 square feet of office space to
Bone Care for $2,000 per month under the Transition Agreement. The term of the
Transition Agreement is three years; however, Bone Care may terminate the
agreement by giving the Company 90 days advance written notice.
MAGNETIC RESONANCE IMAGING SYSTEM
On September 21, 1993, the Company signed an exclusive distributor
agreement with ESAOTE Biomedica Spa, a medical device manufacturer based in
Italy, to distribute the Artoscan dedicated MRI system in the United States and
Canada. The Artoscan is a specialized MRI scanner suitable for imaging
extremities such as knees, wrists, and ankles. The Company sells the Artoscan
in the United States for less than $350,000, which is significantly below
competitive whole body MRI systems. The Company believes that this lower price,
and the fact that installation and siting costs associated with the Artoscan are
minimal may be attractive to radiologists, orthopedists, sports medicine
specialists, and other MRI users to buy the product. Under the agreement with
ESAOTE Biomedica, Lunar is required to meet certain minimum annual purchase
commitments.
PATENTS AND PROPRIETARY RIGHTS
Lunar relies in part upon know-how, trade secrets, trademarks and
copyrights, and patents to protect technology which it considers important to
the development of its business.
Although the Company believes patents are not critical in protecting its
competitive advantage in x-ray bone densitometry, it has obtained a number of
United States patents relating to its technology. A United States patent has
been issued to the Company on the Company's patient position holder which is
used to perform lateral scans of the spine with the patient in the lateral
decubitus position. A foreign counterpart application is pending in Europe.
The Company has received a United States patent relating to the measurement of
bone mineral density in bone adjacent to a prothesis. Several United States
patents have been issued which are related to the Company's new EXPERT
densitometer. Several of these patents relate to the morphometric capabilities
of EXPERT and EXPERT's ability to identify osteophytes. Foreign counterpart
applications are pending for all of these patents. The Company has received a
U.S. design patent covering the unique appearance of EXPERT.
The Company has had issued a number of United States patents relating to
various aspects of its ultrasound bone densitometry technology. Foreign
counterparts to these United States patents are pending in Europe and Japan. The
Company has filed U.S. patent applications covering unique features of ORCA.
The Company intends to file foreign counterpart applications covering the ORCA.
The Company has obtained United States and foreign trademark registrations
for "LUNAR," "DPX," and "Achilles." Applications for trademark registration are
being sought worldwide for "EXPERT," "LUNAR Expert," "DPX-IQ," and "ORCA."
The Company claims international copyright in its software, user's manuals,
customer brochures, and advertising materials.
The Company also relies on unpatented trade secrets. The Company requires
its employees, consultants, and advisors to execute confidentiality agreements
upon the commencement of an employment or a consulting relationship with the
Company. The agreements provide that all confidential information developed or
made known to the individual during the course of the relationship shall be kept
confidential and not disclosed to third parties except in specified
circumstances. The agreements also provide that all inventions conceived by the
individual during his employment and relating to the business of the Company
shall be the exclusive property of the Company. There can be no assurance,
however, that these agreements will provide meaningful protection for the
Company's trade secrets in the event of unauthorized use or disclosure of such
information. Additionally, others may independently develop substantially
equivalent proprietary information and techniques, or otherwise gain access to
the Company's trade secrets or disclose such technology.
For information regarding patent litigation, see Item 3 below.
COMPETITION
The medical instrumentation industry is highly competitive and
characterized by continual change and improvement in technology. Many of the
companies in the medical instrumentation industry have significantly greater
research, manufacturing, marketing, and financial resources than the Company.
To date, the market for bone densitometer systems has been characterized by
companies such as Lunar which specialize in instruments for bone density
measurement.
Hologic, Inc., based in Massachusetts, and Ostech B.V., based in
Switzerland, the parent company of Stratec Medizintechnik GmbH and Norland
Corporation, based in Fort Atkinson, Wisconsin, sell bone densitometer scanners
which compete directly with the DPX. Two Japanese companies and an Italian
company are developing or have introduced x-ray bone densitometers in their
respective countries. Lunar expects additional competitors to enter the bone
densitometry market, both in the United States and foreign countries.
Competition has intensified as new models have been introduced by competitors.
DEXA scanners compete with specially equipped computer tomographic ("CT")
scanners which can make bone density measurements of the spine. Lunar believes
the use of CT scanners for measuring bone density will remain limited because of
its higher radiation exposure to patients, higher examination expense, and lower
precision and accuracy. In addition, there are other noninvasive bone density
measurement methods currently on the market and under development.
At least three companies have commercially introduced devices which compete
with the Lunar Achilles ultrasound bone densitometer. Lunar is aware of several
other companies developing ultrasound bone densitometers.
In addition to competition from other medical equipment manufacturers and
devices, biochemical markers have gained increased interest among researchers
for the detection of high bone turnover which can lead to osteoporosis. Such
markers could be used as an adjunct to bone densitometry.
REGULATION
The Company's bone densitometry devices are subject to regulation by the
FDA and by many foreign governments. Under the United States Food, Drug, and
Cosmetic Act ("FDA Act"), manufacturers of medical devices must comply with
certain regulations governing the testing, manufacturing, packaging, and
marketing of medical devices. The DPX is also subject to the Radiation Control
for Health and Safety Act, administered by the FDA, which imposes performance
standards and record keeping, reporting, product testing, and product labeling
requirements for devices using radiation, such as x-rays. Lunar believes it is
in compliance in all material respects with these various laws and regulations.
The FDA generally must register the commercial sale of new medical devices.
Commercial sales of the Company's bone densitometry devices within the United
States must be preceded by either a premarket notification filing pursuant to
Section 510(k) of the FDA Act or the granting of premarket approval for a
particular medical device. The Section 510(k) notification filing must contain
information which establishes that the device is substantially equivalent to a
legally marketed device or to a device which was marketed prior to May 28, 1976.
The FDA may either deny the Section 510(k) submission or require further
information within 90 days of submission. Commercial marketing of the device
cannot begin until the 510(k) submission is cleared by the FDA. Because of
backlog presently existing in the FDA, 510(k) clearance now takes on the average
longer than 90 days. The premarket approval procedure involves a more complex
and lengthy review process by the FDA than the Section 510(k) premarket
notification procedure. The following table summarizes FDA Section 510(k)
clearance received by Lunar during the last 10 years:
DPX Bone Densitometer June 1988
DPX Total Body Software June 1989
Population Reference Data April 1990
DPX-L/DPX-alpha Bone Densitometers December 1990
Lateral Spine Software August 1991
Forearm February 1992
Orthopedics February 1992
EXPERT Bone Densitometer April 1995
Morphometry Software May 1995
ORCA May 1996
Lunar believes new products being developed in the DPX and EXPERT product
line will be eligible for a Section 510(k) marketing clearance; however, the
Achilles ultrasound densitometer will require premarket approval by the FDA in
the United States.
Lunar is also subject to regulation by the Nuclear Regulatory Commission
("NRC") as a result of its manufacturing of medical devices which use
radioactive materials and through its storage and handling of radioactive
materials used in the testing of such medical devices. The NRC regulates the
type, amount, form, storage, use, disposal, and handling of such radioactive
materials. Licenses from the NRC must be renewed every five years. Lunar has
in place a Radiation Safety Program and believes it is in compliance in all
material respects with NRC regulations.
The Company's product line is subject to approval by certain foreign
regulatory and safety agencies. Lunar believes it is currently in compliance
with all regulations in foreign countries applicable to its business.
As a manufacturer of medical devices, Lunar is subject to certain FDA
regulations which relate to its manufacturing processes and facilities, and
these processes and facilities are subject to continuing review by the FDA.
Lunar has had several FDA on-site inspections and has complied with FDA
regulations. Most states and certain foreign countries monitor and require
licensing of x-ray devices, such as DEXA scanners. Federal, state, and foreign
regulations regarding the manufacture and sale of medical devices are subject to
future change. Lunar cannot predict what impact, if any, such changes might
have on its business.
The Company is subject to various federal, state, and local laws and
regulations relating to the protection of the environment. Lunar believes its
current operations comply with all currently applicable environmental laws and
regulations. Lunar's expenditures for environmental compliance have not had,
nor are they expected to have, a material adverse effect on the Company.
Export clearance for the Company's products varies by country. Generally
if FDA 510(k) or premarket approval is received in the United States, there are
no other export clearances required. Even in the absence of the FDA clearances,
many countries generally only require the company to comply with safety
standards. An exception to the above requirements is Japan which requires
Ministry of Health and Welfare approval.
RESEARCH AND DEVELOPMENT
As of June 30, 1996, the Company had 42 employees engaged in research and
development. During fiscal 1994, 1995, and 1996, Lunar's research and
development expenses were $2.7 million, $4.3 million, and $5.6 million,
respectively.
PRODUCT LIABILITY INSURANCE
The Company maintains product liability insurance and considers its current
level of product liability insurance coverage to be adequate. While the Company
has not experienced any material product liability claims to date, if such
claims arise in the future, they could have a material adverse effect on the
Company.
EMPLOYEES
As of June 30, 1996, Lunar had 225 full-time employees, including 65 in
manufacturing operations; 42 in research and development; 99 in marketing, sales
support, and service; and 19 in finance and administration. None of the
Company's employees is represented by a union. The Company considers its
employee relations to be excellent.
GLOSSARY OF DEFINED TERMS
1-alpha-D-2 - one alpha hydroxyvitamin D-2
Bone Care - Bone Care International, Inc.
CT - computer tomographic
DEXA - dual-energy x-ray absorptiometry
DPA - dual-photon absorptiometry
ERT - estrogen replacement therapies
FDA - Food and Drug Administration
FDA Act - United States Food, Drug, and Cosmetic Act
HCFA - Health Care Finance Administration
Hologic - Hologic, Inc.
MRI - magnetic resonance imaging
NOF - National Osteoporosis Foundation
NRC - Nuclear Regulatory Commission
SPA - single-photon absorptiometry
ITEM 2. PROPERTIES
- -------------------
The Company occupies a building of approximately 70,000 square feet on
approximately 3 acres in Madison, Wisconsin. The Company's facilities were
acquired in 1986. During fiscal year 1994, the Company spent approximately
$1,120,000 to construct a 30,000-square-foot addition to its existing building.
The Company also leases office facilities in Germany and Belgium.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
PATENT LITIGATION: During fiscal 1995 and part of fiscal year 1996, the
Company was involved in patent litigation with Hologic, Inc., a
Massachusetts-based competitor. On November 22, 1995, the Company signed a
definitive agreement with Hologic settling all disputes between the parties.
The agreement provides for certain continuing payments between the companies
related to future sales, the net effect of which Lunar does not believe will be
material to its revenues or earnings. The agreement also provides that the
companies will not engage each other in patent litigation in the area of x-ray
densitometry and ultrasound for a ten-year period.
OTHER MATTERS: The Company is a defendant from time to time in actions
arising out of its ordinary business operations. There are no legal
proceedings known to the Company at this time which it believes would likely
have a material adverse impact on the financial condition of the Company. To
the Company's knowledge, there are no material legal proceedings to which any
director, officer, affiliate, or more than 5% shareholder of the Company (or any
associate of the foregoing persons) is a party adverse to the Company or any of
its subsidiaries or has a material interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
- --------------------------------------------------------------
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
As of September 25, 1996, the executive officers of the Registrant are as
follows:
NAME AGE TITLE
- ---- --- -----
Richard B. Mazess, Ph.D. 57 President
James A. Hanson, Ph.D. 46 Vice President - Marketing
Robert A. Beckman 42 Vice President - Finance
Carl E. Gulbrandsen, Ph.D., J.D. 49 Corporate General Counsel
and Secretary
Dr. Richard B. Mazess, the founder of the Company, has been President and a
director of the Company since its inception. Dr. Mazess became Professor
Emeritus of Medical Physics at the University of Wisconsin - Madison in 1985,
and has been on the faculty of the Department of Medical Physics since 1968.
Dr. Mazess has authored over 100 scientific publications on bone, bone
measurement, and body composition; he also has edited several books and has
served on the editorial boards of several medical journals. Dr. Mazess has
organized various international scientific meetings on bone measurement and
osteoporosis.
Dr. James A. Hanson, Vice President of Marketing, joined the Company in
September 1984. From July 1980 to August 1984, Dr. Hanson was on the faculty of
the Department of Radiology at the University of Washington, Seattle,
Washington, and from 1979 to 1980, he was a Researcher at the University of
Wisconsin - Madison, Department of Medical Physics.
Robert A. Beckman joined the Company in June 1986 as Controller, has been
Vice President of Finance since 1987. Mr. Beckman is a Certified Public
Accountant.
Carl E. Gulbrandsen, Ph.D., J.D., joined the Company in 1992 as Corporate
General Counsel and Secretary. From 1989 until 1992, Dr. Gulbrandsen was a
partner in the law firm of Stroud, Stroud, Willink, Thompson & Howard of
Madison, Wisconsin, where he specialized in patent law. From 1987 until 1989,
Dr. Gulbrandsen was a partner in the Madison office of Haight & Hofeldt, a
patent litigation firm based in Chicago, Illinois. Dr. Gulbrandsen received his
J.D. degree in 1981 from the University of Wisconsin School of Law and his Ph.D.
degree in physiology from the University of Wisconsin - Madison in 1978.
Officers are elected to serve, subject to the discretion of the Board of
Directors, until their successors are appointed.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
- ----------------------------------------------------------------------
The following table sets forth high and low sales prices as reported on the
NASDAQ National Market System for fiscal year 1996 and 1995. These prices have
been adjusted for the December 1995 3-for-2 stock split.
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
---- ------- ------- ------- -------
High $22.83 $29.33 $49.50 $48.25
Low 17.00 20.58 25.50 32.75
1995
----
High 12.17 12.83 13.67 18.83
Low 7.50 10.58 10.00 12.50
On June 30, 1996, the Company's common stock was held by approximately
1,750 stockholders of record or through nominee or street name accounts with
brokers.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The following selected consolidated financial data for each of the five
years in the period ended June 30, 1996 have been derived from the audited
consolidated financial statements of LUNAR. The consolidated financial
statements for the fiscal years ended June 30, 1992 through 1996 have been
audited by KPMG Peat Marwick LLP, independent public accountants. References to
a year are to LUNAR's fiscal year ended June 30, unless otherwise designated.
The following data should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Annual Report
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
STATEMENTS OF INCOME
Year Ended June 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except per-share data)
REVENUES
Equipment sales and other
revenue $66,859 $44,572 $30,027 $24,654 $22,155
Licensing revenue 0 0 0 1,489 1,861
- --------------------------------------------------------------------------------
66,859 44,572 30,027 26,143 24,016
OPERATING EXPENSES
Cost of sales 30,236 18,871 11,720 8,743 8,359
Research and development 5,610 4,349 2,744 3,348 2,461
Sales and marketing 14,447 9,813 6,783 6,049 4,557
General and administrative 4,731 4,327 2,532 2,073 2,129
- --------------------------------------------------------------------------------
55,024 37,360 23,779 20,213 17,506
- --------------------------------------------------------------------------------
Income from operations 11,835 7,212 6,248 5,930 6,510
OTHER INCOME (EXPENSE)
Interest income 1,549 1,312 1,229 1,046 887
Interest expense 0 0 0 (5) (29)
Settlement of lawsuit 0 0 0 0 (175)
Other (238) 328 178 4 (40)
- --------------------------------------------------------------------------------
1,311 1,640 1,407 1,045 643
- --------------------------------------------------------------------------------
Income before income taxes 13,146 8,852 7,655 6,975 7,153
Income tax expense 3,910 2,151 1,849 1,793 1,837
- --------------------------------------------------------------------------------
Net income before
extraordinary item 9,236 6,701 5,806 5,182 5,316
Extraordinary item - utilization
of tax loss carryforward 0 0 0 0 436
- --------------------------------------------------------------------------------
NET INCOME $9,236 $6,701 $5,806 $5,182 $5,752
================================================================================
PER COMMON AND COMMON EQUIVALENT SHARE
Net income before
extraordinary item 1.04 .76 .68 .61 .62
Extraordinary item - utilization
of tax loss carryforward 0 0 0 0 .05
- --------------------------------------------------------------------------------
NET INCOME PER SHARE $1.04 $.76 $.68 $.61 $.67
================================================================================
Weighted average shares
outstanding 8,908 8,824 8,526 8,474 8,570
BALANCE SHEETS
As of June 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands)
Working capital $38,999 $33,140 $17,603 $29,531 $26,971
Total assets 62,872 56,700 45,515 38,369 33,336
Long-term liabilities 0 0 0 0 433
Shareholders' equity 52,405 48,096 40,451 34,437 29,101
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
STATEMENTS OF INCOME (percent of sales)
Year Ended June 30,
1996 1995 1994
----- ----- -----
REVENUES 100% 100% 100%
OPERATING EXPENSES
Cost of sales 45 42 39
Research and development 8 10 9
Sales and marketing 22 22 23
General and administrative 7 10 8
- -----------------------------------------------------------------------------
82 84 79
- -----------------------------------------------------------------------------
Income from operations 18 16 21
OTHER INCOME (EXPENSE)
Interest income 2 3 4
Other, net 0 1 0
- -----------------------------------------------------------------------------
2 4 4
- -----------------------------------------------------------------------------
Income before income taxes 20 20 25
Income tax expense 6 5 6
- -----------------------------------------------------------------------------
NET INCOME 14% 15% 19%
=============================================================================
YEAR ENDED JUNE 30, 1996 VERSUS 1995 -- Equipment sales and other revenue
increased 50% to $66,859,000 in fiscal year 1996, from $44,572,000 in fiscal
year 1995. Sales by product line are summarized as follows:
Revenues by Product
(in thousands)
Fiscal Year Fiscal Year
1996 1995
----- ----
DPX $41,048 $24,231
EXPERT 10,351 5,269
Achilles 5,054 7,211
Artoscan 6,245 5,320
Other 4,161 2,541
------- -------
$66,859 $44,572
======= =======
The increase in DPX sales in the current fiscal year is primarily
attributable to increased shipments in the United States, which the Company
believes are related to the introduction of several new drug therapies during
the last 12 months. The increase in EXPERT shipments is the result of solving
several problems related to detector production experienced in prior fiscal
years. Achilles sales decreased in fiscal year 1996 as compared to fiscal year
1995 due to lower sales in Japan caused by cutbacks in government-sponsored
programs to support low-cost densitometry. The increase in Artoscan sales is a
result of increased acceptance of the system, particularly by
orthopedic surgeons.
Cost of sales as a percentage of equipment sales increased to 45% in the
year ended June 30, 1996 from 42% in the year ended June 30, 1995. This increase
is primarily a result of increased sales of the lower-margin EXPERT and Artoscan
extremity MRI products, and proportionately less sales of the
higher-margin Achilles.
Research and development expenditures increased to $5,610,000 in fiscal
year 1996 from $4,349,000 in fiscal year 1995. This increase is primarily
attributable to expenditures related to the development of the DPX-IQ bone
densitometer and the ORCA mini C-arm. Bone Care, the Company's 97.3% owned
pharmaceutical development subsidiary, also increased expenditures for clinical
testing of 1-alpha D2 in the treatment of secondary hyperparathyroidism
associated with end-stage renal disease. The Company spun off Bone Care to its
shareholders on May 8, 1996 in a transaction intended to qualify as a tax-free
distribution. The future costs of these clinical trials and any other costs
related to the research and development of vitamin D compounds will therefore no
longer be included in the Company's consolidated net income. Vitamin D-related
expenses were $972,000 in fiscal year 1996 and $882,000 in fiscal year 1995.
Sales and marketing expenses increased to $14,447,000 in fiscal year 1996
from $9,812,000 in fiscal year 1995, representing 22% of equipment sales in both
years. During fiscal 1996, LUNAR expanded the number of direct sales
representatives and sales and marketing administration staff in the United
States in response to higher customer demand levels.
General and administrative expenses increased to $4,731,000 in fiscal year
1996 from $4,327,000 in fiscal year 1995. This increase is primarily
attributable to higher legal expenses. LUNAR had been involved in several patent
lawsuits initiated in September 1994 with Hologic, Inc., a Massachusetts-based
competitor, related to x-ray and ultrasound densitometers. These lawsuits were
settled on November 22, 1995.
Interest income increased to $1,550,000 in fiscal year 1996 from $1,313,000
in fiscal year 1995. In fiscal year 1996, increased interest income from the
Company's higher level of financed trade receivables in South America more than
offset the decreased interest income from a lower level of
marketable securities. In connection with the Bone Care spin-off the Company
transferred $10,725,000 to Bone Care. This transfer will reduce the Company's
interest income in future periods.
The effective tax rate averaged 30% in fiscal year 1996 and 24% in fiscal
year 1995. The Company's effective rate is below the 34% federal statutory rate
as a result of the tax benefit from the Company's foreign sales corporation,
Lunar FSC, Inc., and tax-exempt interest income. The effective tax rate was
higher in the current fiscal year due to increased profits from sales within the
United States, which do not benefit from foreign sales corporation treatment.
YEAR ENDED JUNE 30, 1995 VERSUS 1994 -- Equipment sales and other revenue
increased 48% to $44,572,000 in fiscal year 1995, from $30,027,000 in fiscal
year 1994. Sales by product line are summarized as follows:
Revenues by Product
(in thousands)
Fiscal Year Fiscal Year
1995 1994
---- ----
DPX $24,231 $ 22,554
EXPERT 5,269 588
Achilles 7,211 3,733
Artoscan 5,320 1,135
Other 2,541 2,017
------- -------
$44,572 $30,027
======= =======
Equipment sales continued to benefit from growing acceptance of bone
densitometers as a method to diagnose patients for osteoporosis. EXPERT
shipments were limited to some extent due to difficulties in obtaining adequate
supplies of a component. The DPX bone densitometer also experienced higher
sales, but, due to competitive pressures, the average selling price per unit
decreased. Geographically, sales increases were particularly strong in North
America and Asia.
Cost of sales as a percentage of equipment sales increased to 42% in the
year ended June 30, 1995 from 39% in the year ended June 30, 1994. This increase
is primarily a result of increased competition in the DPX product line, and
increased sales of the lower-margin EXPERT and Artoscan extremity MRI products.
Research and development expenditures increased to $4,349,000 in fiscal
year 1995 from $2,744,000 in fiscal year 1994. This increase is primarily
attributable to expenditures related to the EXPERT bone densitometer. The
Company also incurred increased research and development costs to develop
Achilles+, an improved version of the Achilles ultrasound bone densitometer.
LUNAR spent approximately $882,000 on vitamin D-related research in fiscal year
1995 compared to approximately $636,000 in fiscal year 1994. These expenditures
were targeted toward the development of 1a-OH-D2 for secondary
hyperparathyroidism associated with end-stage renal disease and preliminary
investigation of other vitamin D compounds.
Sales and marketing expenses increased to $9,813,000 in fiscal year 1995
from $6,783,000 in fiscal year 1994, representing a decrease to 22% of fiscal
year 1995 equipment sales from 23% in fiscal 1994. This decrease is primarily
attributable to lower average selling costs associated with sales of
Achilles densitometers.
General and administrative expenses increased to $4,327,000 in fiscal year
1995 from $2,532,000 in fiscal year 1994. This increase is primarily
attributable to higher legal expenses. LUNAR had been involved in several patent
lawsuits with Hologic, Inc., a Massachusetts-based competitor, related to x-ray
and ultrasound densitometers. These lawsuits resulted in approximately
$1,100,000 in legal expenses in fiscal year 1995.
Interest income increased to $1,312,000 in fiscal year 1995 from $1,229,000
in fiscal year 1994. In fiscal year 1995, increased interest income from the
Company's higher level of financed trade receivables in South American more than
offset the decreased interest income from a lower level of marketable
securities. Interest income in fiscal year 1994 includes $65,000 of nonrecurring
interest income related to an income tax recovery from the final settlement of a
prior year tax issue with the Internal Revenue Service.
The effective tax rate averaged 24% in both fiscal year 1995 and 1994. The
provision for income taxes for fiscal year 1995 includes research and
development credits of approximately $215,000 due to higher research and
development expenditures during the fiscal year. The provision for income taxes
for fiscal year 1994 is net of a $235,000 income tax recovery related to the
final settlement of a prior year tax issue with the Internal Revenue Service.
The Company's effective rate is below the 34% federal statutory rate as a result
of the benefit if Lunar FSC, Inc. but is partially offset by the provision for
state income taxes.
LIQUIDITY AND CAPITAL RESOURCES -- Total cash and cash equivalents and
marketable securities decreased from $18,547,000 at June 30, 1995 to $11,377,000
at June 30, 1996 primarily as a result of the transfer of assets in connection
with the Bone Care spin-off.
Trade accounts receivable increased 51% to $35,625,000 at the year ended
June 30, 1996 from $23,606,000 at the year ended June 30, 1995. This increase is
primarily due to a 59% increase in sales in the fourth quarter of fiscal year
1996 as compared to the fourth quarter of fiscal year 1995. Financed accounts
receivable relating to certain sales in South America (primarily Brazil and
Argentina), and extended terms for certain ARTOSCAN system sales also
contributed to the increase in trade accounts receivable. Factors affecting the
economies of Brazil, Argentina, or other South American countries could affect
the Company's collection experience related to the financed accounts receivable
from customers in these countries. The increase in trade accounts receivable was
financed in part by cash generated from maturities of marketable securities.
Inventories increased 30% to $8,675,000 on June 30, 1996 from $6,651,000 on
June 30, 1995. This increase is primarily attributable to increased sales.
LUNAR does not have any pending material commitments for capital
expenditures. LUNAR believes the existing cash balances and cash generated from
operations will be sufficient to fund its operations through fiscal 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
LUNAR CORPORATION AND SUBSIDIARIES
Years ended June 30, 1996 1995 1994
---- ---- ----
REVENUES $66,859,196 $44,571,992 $30,027,152
OPERATING EXPENSES
Cost of sales 30,236,372 18,871,021 11,719,686
Research and development 5,610,321 4,349,414 2,744,090
Sales and marketing 14,446,553 9,812,468 6,782,800
General and administrative 4,731,340 4,327,424 2,532,715
- --------------------------------------------------------------------------------
55,024,586 37,360,327 23,779,291
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS 11,834,610 7,211,665 6,247,861
OTHER INCOME (EXPENSE)
Interest income 1,549,786 1,312,500 1,228,905
Other (237,952) 327,600 178,485
- --------------------------------------------------------------------------------
1,311,834 1,640,100 1,407,390
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 13,146,444 8,851,765 7,655,251
INCOME TAX EXPENSE (BENEFIT)
Currently payable 4,714,000 2,448,503 1,745,264
Deferred (804,000) (298,000) 104,000
- --------------------------------------------------------------------------------
3,910,000 2,150,503 1,849,264
- --------------------------------------------------------------------------------
NET INCOME $9,236,444 $6,701,262 $5,805,987
================================================================================
NET INCOME PER COMMON
AND COMMON
EQUIVALENT SHARE $1.04 $0.76 $0.68
================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
LUNAR CORPORATION AND SUBSIDIARIES ASSETS
June 30, 1996 1995
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 8,001,582 $ 2,577,655
Marketable securities 2,347,400 11,647,041
Receivables:
Trade, less allowance for doubtful
accounts of $2,235,000 in 1996 and
$1,150,000 in 1995 27,966,620 19,109,561
Other 328,662 422,728
- -------------------------------------------------------------------------------
28,295,282 19,532,289
Inventories:
Finished goods and work in process 3,920,431 2,388,407
Materials and purchased parts 4,755,056 4,262,319
- -------------------------------------------------------------------------------
8,675,487 6,650,726
Prepaid expenses 161,829 156,451
Deferred income taxes 1,984,000 1,180,000
- -------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 49,465,580 41,744,162
PROPERTY, PLANT AND EQUIPMENT AT COST
Buildings and improvements 2,203,036 2,219,148
Furniture and fixtures 669,284 582,206
Machinery and other equipment 3,554,535 3,043,258
- -------------------------------------------------------------------------------
6,426,855 5,844,612
Less accumulated depreciation and amortization 2,977,468 2,456,356
- -------------------------------------------------------------------------------
3,449,387 3,388,256
Land 138,858 138,858
- -------------------------------------------------------------------------------
3,588,245 3,527,114
Long-term trade accounts receivable 7,658,079 4,496,457
Long-term marketable securities 1,028,088 4,322,629
Excess of cost over fair value of
net assets of subsidiary acquired,
net of accumulated amortization of
$464,064 in 1995 0 895,853
Patents and other intangibles, net
of accumulated amortization of $832,573
in 1996 and $682,995 in 1995 990,382 1,371,269
Other 141,556 342,484
- -------------------------------------------------------------------------------
$62,871,930 $56,699,968
===============================================================================
See accompanying notes to consolidated financial statements.
LUNAR CORPORATION AND SUBSIDIARIES
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, 1996 1995
---- ----
CURRENT LIABILITIES
Accounts payable $ 3,508,804 $ 2,258,695
Customer advances and deferred income 565,364 462,050
Income taxes payable 551,852 2,201,898
Accrued liabilities:
Commissions payable 2,502,323 1,767,139
Compensation payable 205,236 89,532
Property, payroll, and other taxes 331,139 146,219
Accrued warranty and installation expenses 2,570,000 1,555,000
Other 231,809 123,669
- -------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 10,466,527 8,604,202
SHAREHOLDERS' EQUITY
Common stock authorized 25,000,000 shares
of $.01 par value; issued and outstanding,
8,486,250 shares in 1996 and 7,988,190
shares in 1995 84,863 53,255
Capital in excess of par value 22,802,103 15,438,402
- -------------------------------------------------------------------------------
22,886,966 15,491,657
Retained earnings 29,420,314 32,622,240
Unrealized appreciation in
marketable securities 29,122 0
Cumulative translation adjustment 69,001 (18,131)
- -------------------------------------------------------------------------------
52,405,403 48,095,766
- -------------------------------------------------------------------------------
$62,871,930 $56,699,968
===============================================================================
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY
LUNAR CORPORATION AND SUBSIDIARIES
Years ended June 30, 1996,
Unrealized
1995, and 1994 Number Capital in
appreciation Cumulative
of Common excess of Retained
in marketable translation
shares stock par value earnings
securities adjustment Total
-------- ------- ----------- -----------
- ---------- ----------- -----------
<S> <C> <C> <C> <C>
<C> <C> <C>
BALANCE AT JUNE 30, 1993 7,795,170 $51,968 $14,274,540 $20,114,991
$0 ($4,890) $34,436,609
Issuance of shares under
stock option plans 42,000 280 118,982 0
0 0 119,262
Tax benefit from issuance
of shares under
stock option plans 0 0 76,186 0
0 0 76,186
Issuance of stock awards 900 6 6,894 0
0 0 6,900
Net income for the year ended
June 30, 1994 0 0 0 5,805,987
0 0 5,805,987
Translation adjustment 0 0 0 0
0 5,720 5,720
- --------------------------------------------------------------------------------
- ---------------------------------------
BALANCE AT JUNE 30, 1994 7,838,070 52,254 14,476,602 25,920,978
0 830 40,450,664
Issuance of shares under
stock option plans 149,145 994 497,907 0
0 0 498,901
Tax benefit from issuance
of shares under
stock option plans 0 0 454,149 0
0 0 454,149
Issuance of stock awards 975 7 9,744 0
0 0 9,751
Net income for the year ended
June 30, 1995 0 0 0 6,701,262
0 0 6,701,262
Translation adjustment 0 0 0 0
0 (18,961) (18,961)
- --------------------------------------------------------------------------------
- ---------------------------------------
BALANCE AT JUNE 30, 1995 7,988,190 53,255 15,438,402 32,622,240
0 (18,131) 48,095,766
Issuance of shares under
stock option plans 497,315 4,421 2,085,272 0
0 0 2,089,693
Effect of 3 for 2 stock split 0 27,180 (27,180) 0
0 0 0
Payment of fractional shares
resulting from stock split (30) 0 (875) 0
0 0 (875)
Tax benefit from issuance
of shares under
stock option plans 0 0 5,280,585 0
0 0 5,280,585
Issuance of stock awards 775 7 25,899 0
0 0 25,906
Net income for the year ended
June 30, 1996 0 0 0 9,236,444
0 0 9,236,444
Spin-off of Bone Care
International, Inc. 0 0 0 (12,438,370)
0 0 (12,438,370)
Unrealized appreciation in
marketable securities 0 0 0 0
29,122 0 29,122
Translation adjustment 0 0 0 0
0 87,132 87,132
- --------------------------------------------------------------------------------
- ---------------------------------------
BALANCE AT JUNE 30, 1996 8,486,250 $84,863 $22,802,103 $29,420,314
$29,122 $69,001 $52,405,403
================================================================================
=======================================
See accompanying notes to consolidated financial statements.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
LUNAR CORPORATION AND SUBSIDIARIES
Years ended June 30, 1996 1995 1994
---- ---- ----
CASH FLOWS
FROM OPERATING ACTIVITIES
Net income $9,236,444 $6,701,262 $5,805,987
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH
PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Depreciation and amortization 1,365,348 1,383,151 921,873
Minority interest in
net income (loss)
of subsidiary 79,983 (38,160) (43,657)
Changes in assets and liabilities:
Receivables (11,727,295)(10,288,014) (5,075,422)
Inventories (2,024,761) (3,360,842) (1,433,392)
Prepaid expenses (52,094) (32,808) (86,766)
Deferred income taxes (804,000) (298,000) 104,000
Accounts payable 1,436,573 1,206,842 55,124
Customer advances and
deferred income 103,314 206,081 36,845
Accrued liabilities 2,164,204 1,151,630 794,400
Income taxes payable (1,650,046) 1,003,846 302,503
- ---------------------------------------------------------------------------
NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES (1,872,330) (2,365,012) 1,381,495
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)
LUNAR CORPORATION AND SUBSIDIARIES
Years ended June 30, 1996 1995 1994
---- ---- ----
CASH FLOWS
FROM INVESTING ACTIVITIES
Purchases of
marketable securities ($700,000) ($1,042,910) ($5,754,964)
Sales and maturities
of marketable securities 13,132,594 5,786,129 5,886,150
Additions to property,
plant, and equipment (839,703) (1,155,586) (2,018,097)
Patents and other intangibles (303,664) (300,597) (1,249,532)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY
(USED IN) INVESTING ACTIVITIES 11,289,227 3,287,036 (3,136,443)
CASH FLOWS
FROM FINANCING ACTIVITIES
Proceeds from exercise of
stock options 2,114,724 498,901 119,262
Income tax benefit
from stock option exercises 5,280,585 454,149 76,186
Cash distributed with Bone
Care spin-off (11,388,279) 0 0
- -------------------------------------------------------------------------------
NET CASH PROVIDED BY
(USED IN) FINANCING ACTIVITIES (3,992,970) 953,050 195,448
- -------------------------------------------------------------------------------
Net increase (decrease)
in cash and cash equivalents 5,423,927 1,875,074 (1,559,500)
Cash and cash equivalents
at beginning of year 2,577,655 702,581 2,262,081
- -------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 8,001,582 $ 2,577,655 $ 702,581
===============================================================================
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Income taxes paid $ 1,083,461 $ 987,990 $1,302,887
===============================================================================
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUNAR CORPORATION AND SUBSIDIARIES
(1) Summary of Accounting Policies
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Lunar Corporation (the Company) and its wholly owned
subsidiaries, Lunar GmbH, Lunar Europe, N.V., Bona Fide, Ltd., and Lunar FSC,
Inc. In May 1996, the Company spun-off its 97% owned subsidiary, Bone Care
International, Inc. (Bone Care), and its subsidiary, Continental Assays
Corporation (note 2). The accompanying consolidated financial statements
reflect the results of operations of Bone Care prior to the date of the
spin-off. All significant intercompany accounts and transactions have been
eliminated in consolidation.
DESCRIPTION OF BUSINESS: Lunar Corporation develops products for the
diagnosis and monitoring of osteoporosis and other metabolic bone diseases. The
Company develops and sells bone densitometers, which are specialized scanning
systems used to aid in the diagnosis of bone disease by measuring the density of
bone. Lunar GmbH supports customers and sells LUNAR's products in Germany.
Lunar Europe, N.V. supports customers and sells LUNAR's products in Belgium and
supports customers in other European countries. Bona Fide, Ltd. reviews and
analyzes data from clinical trials. Lunar FSC, Inc. is a foreign sales
corporation responsible for the sale of LUNAR's products outside of the
United States.
REVENUE RECOGNITION: Revenue is recognized from sales when a product is
shipped. Amounts billed for service contracts are recognized as revenue
when earned.
CASH AND CASH EQUIVALENTS: For purposes of the consolidated statements of
cash flows, the Company considers all highly liquid debt instruments purchased
with original maturities of three months or less to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost or market; cost is
determined principally by the first-in, first-out method.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization are provided
for in amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives. A combination of straight-line and
accelerated methods of depreciation are used for financial and income tax
reporting purposes.
The cost of property and equipment are depreciated over the following
estimated useful lives:
Asset classification Estimated useful life
-------------------- ---------------------
Machinery, furniture, and fixtures 5-7 years
Building and improvements 19-39 years
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS OF SUBSIDIARY ACQUIRED: Excess
of cost over fair value of net assets of subsidiary acquired pertains to
Bone Care and was amortized on a straight-line basis over a 15-year period. Bone
Care was spun off to LUNAR shareholders in May 1996 (note 2). The excess of
cost over fair value of net assets of Bone Care was included in the
distribution.
RESEARCH AND DEVELOPMENT COSTS: Materials, labor, and overhead expenses
related to research and development projects are charged to operations
as incurred.
PROVISION FOR WARRANTIES: In the normal course of business, the Company
makes certain initial warranties as to material and workmanship. The estimated
costs associated with these warranties are accrued at the time of sale.
INCOME TAXES: Income taxes are accounted for in accordance with Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered
or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
MARKETABLE SECURITIES: Marketable securities generally consist of state and
municipal bonds with original maturities generally ranging from less than one
year to four years. The Company accounts for its investments in accordance with
the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Under SFAS No. 115, the Company classifies its investment
securities as available-for-sale. Available-for-sale securities are reported at
fair value, with unrealized gains and losses excluded from earnings and reported
in a separate component of shareholders' equity. Interest income is recognized
when earned.
INCOME PER SHARE: Income per share is based on the weighted average number
of common and common equivalent shares outstanding during each year. Common
equivalent shares include stock options, which have been included using the
treasury stock method only when their effect is dilutive. Income per share is
based upon common and common equivalent shares of 8,907,823, 8,824,265, and
8,526,130 for the years ended June 30, 1996, 1995, and 1994, respectively.
FOREIGN CURRENCY TRANSLATION: For the Company's foreign subsidiaries, the
functional currency is its local currency. Accordingly, assets and liabilities
are translated into U.S. dollars using current exchange rates. Revenue and
expense accounts are translated at average exchange rates prevailing during the
year. The resulting translation gains and losses are included as a separate
component of shareholders' equity.
The Company uses forward currency contracts in its management of foreign
currency exposures. Realized gains and losses on such contracts are included in
other income in the consolidated financial statements. Unrealized gains and
losses, which were not significant at June 30, 1996 and 1995, are
not recognized.
USE OF ESTIMATES: In preparing the consolidated financial statements, the
Company's management makes estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of financial
instruments, which consisted of cash and cash equivalents, marketable
securities, receivables, accounts payable, customer advances, and accrued
liabilities, approximated their carrying values at June 30, 1996 and 1995.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: SFAS No. 121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed
Of," was issued in 1995. Implementation of SFAS No. 121 is required in the
fiscal year commencing July 1, 1996. SFAS No. 121 established accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill relating to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. SFAS
No. 121 is not expected to have a significant impact on the Company's
consolidated financial statements.
SFAS No. 123, "Accounting for Stock-based Compensation," was issued in
1995. Implementation is required in the fiscal year commencing July 1, 1996.
SFAS No. 123 establishes a fair value-based method for financial accounting and
reporting for stock-based employee compensation plans. The new standard allows
compensation to continue to be measured by the intrinsic value-based method of
accounting prescribed by Accounting Principles Board No. 25, "Accounting for
Stock Issued to Employees," in the financial statements. However, expanded
disclosure of the impact of the fair value-based method is required. The
Company does not expect the adoption of SFAS No. 123 to have a material effect
on the Company's consolidated financial position or results of operations.
(2) Spin-off of Subsidiary
The Company distributed all of its shares of Bone Care to the Company's
shareholders on May 8, 1996 in a transaction intended to qualify as a tax-free
distribution. Previously in October 1995, the Company had contributed its
ownership of Continental Assays Corporation, and all other vitamin D-related
assets with a book value of $175,867, and forgave intercompany loans receivable
of $634,683 for 1,806,075 shares of Bone Care common stock. The Company also
contributed $10,000,000 for 1,698,674 shares of Bone Care common stock on May 8,
1996 and reimbursed Bone Care $725,000 for tax savings realized in prior years
when Bone Care losses were included in the Company's consolidated tax returns.
The shares distributed to the Company's shareholders represent 97% of the total
outstanding Bone Care shares as of the date of the distribution.
Bone Care entered into a Transition Agreement with the Company, pursuant to
which certain employees of the Company will perform administrative services for
Bone Care. Such services include legal, treasury, accounting, insurance and
employee benefit administration. As compensation, Bone Care pays the Company a
monthly fee of $7,000. The Company leases 3,000 square feet of office space to
Bone Care for $2,000 per month under the Transition Agreement. The term of the
Transition Agreement is three years; however, Bone Care may terminate the
agreement by giving the Company 90 days advance written notice.
(3) Incentive Compensation Programs
Lunar Corporation has granted options to key employees, directors, and
consultants under two separate programs. Options outstanding as of June 30,
1996 and 1995 are summarized as follows:
Program dateOption price 1996 1995
------------------------ ---- ----
September 1, 1984 $ .16 160,500 160,500
April 17, 1986 .64 135,245 322,815
5.66 60,700 166,350
6.16 220,510 363,405
7.00 10,200 33,000
7.33 81,300 103,500
7.50 100,950 127,500
7.66 51,000 68,400
7.83 48,860 58,200
10.00 36,000 50,550
11.50 2,500 3,000
13.00 18,000 18,750
14.33 6,750 6,750
17.50 15,000 0
20.58 119,500 0
24.66 19,500 0
25.50 3,100 0
30.00 30,000 0
32.00 1,000 0
32.75 10,500 0
--------- ----------
1,131,115 1,482,720
========= ==========
The option issued under the September 1, 1984 agreement to an
employee/officer is exercisable and will expire in the event of termination of
employment.
Under the second option program, titled the Non-Qualified Stock Option
program, a total of 3,000,000 shares of common stock were made available, of
which 460,890 remain available. Options granted under this program vest over a
three-year or five-year period. The options will expire ten years from the
granting date, or upon termination of employment.
The following is a summary of options related to these option programs as
of June 30, 1996, 1995, and 1994, respectively:
June 30, Option price June 30, Option price June 30, Option price
1996 per share 1995 per share 1994 per share
---- --------- ---- --------- ---- ---------
Options outstanding
at beginning
of year 1,482,720 $0.16-14.33 1,442,415 $0.16-14.33 1,295,565 $0.16-14.33
Granted 203,750 17.50-32.75 201,300 7.50-13.00 235,050 7.00-7.83
Exercised (497,315) 0.64-13.00 (149,145) 0.16-7.83 (42,000) 0.64-7.66
Expired (58,040) 6.16-24.66 (11,850) 6.16-7.83 (46,200) 0.64-7.66
- --------------------------------------------------------------------------------
Options outstanding
at end of
year 1,131,115 $0.16-32.75 1,482,720 $0.16-14.33 1,442,415 $0.16-14.33
================================================================================
Options exercisable
at end of
year 544,375 812,475 768,615
================================================================================
The option price under both option programs was based on 100% of
estimated fair market value of the Company's stock on the dates the options were
granted.
The Company has a longevity stock award program whereby 25 shares of
common stock are issued to employees with five years of service, and 100 shares
are issued for ten years of service. The Company issued 775, 975, and 900
shares under this program in the years ended June 30, 1996, 1995, and 1994,
respectively.
The Company has a program which provides for bonuses to all employees
contingent upon achieving certain financial goals. Total expense under the
program was $338,690, $189,457, and $207,130 for the years ended June 30, 1996,
1995 and 1994, respectively.
(4) Income Taxes
Income taxes consist of the following:
1996 1995 1994
---- ---- ----
Current:
Federal $4,714,000 $2,212,503 $1,452,264
State 0 236,000 293,000
---------- ---------- ----------
4,714,000 2,448,503 1,745,264
Deferred:
Federal (804,000) (269,000) 88,000
State 0 (29,000) 16,000
---------- ---------- ----------
(804,000) (298,000) 104,000
---------- ---------- ----------
$3,910,000 $2,150,503 $1,849,264
========== ========== ==========
A reconciliation of the provision for income taxes with the applicable
Federal income tax rate is presented below:
1996 1995 1994
Percent Percent Percent
of of of
1996 pretax 1995 pretax 1994 pretax
Amount income Amount income Amount income
------ ------ ------ ------ ------ ------
Provision computed
at normal rate $4,469,791 34% $3,009,600 34% $2,602,785 34%
Increases (reductions)
in taxes resulting from:
State income taxes 0 0 161,480 2 202,620 3
Tax benefit of exempt
foreign trade
income (731,265) (6) (807,905) (9) (574,422) (8)
Research and
development credits 0 0 (215,000) (3) (25,000) 0
Income tax recovery 0 0 0 0 (235,000) (3)
Other 171,474 2 2,328 0 (121,719) (2)
- -------------------------------------------------------------------------------
Provision for
income taxes $3,910,000 30% $2,150,503 24% $1,849,264 24%
===============================================================================
The tax effect of temporary differences that give rise to deferred tax
assets at June 30, 1996 and 1995 are as follows:
1996 1995
---- ----
Accrued warranty $1,011,000 $603,000
Inventory valuation 113,000 105,000
Allowance for doubtful accounts 828,000 440,000
Other 32,000 32,000
---------- ---------
$1,984,000 $1,180,000
========== ==========
(5) Marketable Securities
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses, and fair value for marketable securities at June 30, 1996 and
1995 were as follows:
Gross Gross
unrealized unrealized
Amortized holding holding
1996 cost gains losses Fair value
---- ---- ----- ------- ----------
Available-for-sale:
Current $2,318,279 $29,121 $ 0 $2,347,400
Due after
one year 1,028,088 0 0 1,028,088
---------- ------- ------- ----------
$3,346,367 $29,121 $ 0 $3,375,488
========== ======= ======= ==========
1995
----
Held-to-maturity:
Current $11,647,041 $14,672 ($6,576) $11,655,137
Due after
one year 4,322,629 31,184 (12,275) 4,341,538
----------- ------- --------- -----------
$15,969,670 $45,856 ($18,851) $15,996,675
=========== ======= ========= ===========
The scheduled maturities for investment securities at June 30, 1996 were
as follows:
Less than 6 months More than
6 months to 1 year 1 year Total
-------- --------- ------ -----
State and municipal bonds $876,325 $771,075 $1,028,088 $2,675,488
Other 700,000 0 0 700,000
---------- --------- ---------- ----------
$1,576,325 $771,075 $1,028,088 $3,375,488
========== ========= ========== ==========
The gross realized gains and losses on the sale of available-for-sale
investment securities for the year ended June 30, 1996 were not material.
The Company had historically reported its investment securities as
held-to-maturity. In December 1995, the Company changed its classification of
investments from held-to-maturity to available-for-sale. The impact of the
change in classification was not material to the consolidated financial
statements as book value approximated the fair value.
(6) Profit-sharing Plan
The Company has established a 401(k) profit-sharing plan covering
substantially all employees. Employer contributions to the plan are at the
discretion of the Board of Directors. The Company's policy is to fund
profit-sharing plan contributions as they accrue. Profit-sharing expense
amounted to $88,254, $69,186, and $61,562 for the years ended June 30, 1996,
1995, and 1994 respectively.
(7) Supplemental Sales and Customer Information
The Company's approximate revenues by geographic regions are as follows (in
thousands):
June 30, June 30, June 30,
1996 1995 1994
---- ---- ----
United States and Canada $30,835 $12,848 $7,553
Europe 11,140 9,114 6,090
Asia 14,760 14,284 8,891
Central and South America 10,124 8,326 7,493
------- ------- -------
$66,859 $44,572 $30,027
======= ======= =======
The Company sells its products to end-user customers or its distributors in
South America on financed terms. Generally, the financing is over a two- or
three-year time period and denominated in U.S. dollars. As of June 30, 1996,
1995, and 1994, the Company had approximately $12,541,000, $9,124,000, and
$6,295,000, respectively, of financed trade accounts receivable from South
American customers. The collateral for these receivables is generally the
equipment sold and mortgages on customers' real estate.
Sales to one distributor accounted for 13% of total sales for the year
ended June 30, 1996, 21% of total sales for the year ended June 30, 1995, and
17% of total sales for the year ended June 30, 1994.
(8) Fee Per Patient Program
The Company has entered into an agreement with a leasing company whereby
the Company sells its systems to the leasing company, which, in turn, leases the
systems to third parties on a fee-per-patient basis. Under the terms of the
agreement, the Company is contingently liable to the leasing company for
approximately $309,000 as of June 30, 1996.
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
LUNAR CORPORATION:
We have audited the accompanying consolidated balance sheets of Lunar
Corporation and subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended June 30, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lunar Corporation
and subsidiaries as of June 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
July 26, 1996
QUARTERLY FINANCIAL INFORMATION (unaudited)
The following table sets forth unaudited selected quarterly financial
information for each of the two most recent fiscal years.
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands except per-share data)
1996
----
Revenues $12,360 $16,934 $17,287 $20,278
Income from operations 1,398 2,753 3,474 4,210
Net income 1,327 2,244 2,588 3,077
Net income per share 0.15 0.25 0.29 0.34
1995
----
Revenues $9,113 $10,450 $12,231 $12,778
Income from operations 1,729 1,957 1,865 1,661
Net income 1,564 1,752 1,767 1,618
Net income per share 0.18 0.20 0.20 0.18
LUNAR is unable to predict the timing of purchase orders and the related
product shipments and is unable to predict demand for LUNAR's products in
specific foreign markets. Therefore, quarterly sales and earnings fluctuations
can be expected.
LUNAR has not paid any cash dividends on its shares of common stock
since its initial public offering on August 14, 1990, and does not expect to pay
any cash dividends in the foreseeable future. LUNAR intends to reinvest its
earnings on the continued development and operation of its business. Any payment
of dividends would depend upon LUNAR's pattern of growth, profitability,
financial condition, and such other factors as the Board of Directors may deem
relevant.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- ------------------------------------------------------------------------
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The Company incorporates by reference the information included in the
Company's definitive Proxy Statement for its 1996 Shareholders Meeting to be
held on November 21, 1996 ("Proxy Statement") under the caption "Purposes of the
Meeting - Election of Directors" which will be filed with the Securities and
Exchange Commission separately pursuant to Rule 14a-6 under the Securities
Exchange Act of 1934 and in accordance with General Instruction G(3) to Form
10-K, not later than 120 days after the end of the Company's fiscal year.
Information with respect to executive officers of the Company appears at the end
of Part I, page 10 of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The Company incorporates by reference the information included in the
Proxy Statement under the caption "Executive Compensation," other than the
information included in the Proxy Statement under the sub-captions "Board of
Directors Report on Executive Compensation" and "Performance Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The Company incorporates by reference the information included in the
Proxy Statement under the caption "Securities Beneficially Owned by Principal
Shareholders, Directors, and Executive Officers."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The Company incorporates by reference the information included in the Proxy
Statement under the caption "Certain Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) 1 and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Reference is made to the separate index to the Company's consolidated
financial statements and schedule contained on page 35 hereof.
3. EXHIBITS
Reference is made to the separate exhibit index contained on page 39
hereof.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter
ended June 30, 1996.
LUNAR CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
The following documents are filed Page(s) in
as part of this report: Form 10-K
(1) Financial Statements:
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . 31
Consolidated Balance Sheets at
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . .18-19
Consolidated Statements of Income
for the years ended June 30, 1996,
1995, and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Consolidated Statements of
Shareholders' Equity for the
years ended June 30, 1996,
1995, and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Consolidated Statements of Cash Flows
for the years ended June 30, 1996,
1995, and 1994 . . . . . . . . . . . . . . . . . . . . . . . . .21-22
Notes to Consolidated Financial Statements . . . . . . . . . . . . .23-30
Pages in
(2) Financial Statement Schedule: Form 10-K
---------
Report of Independent Auditors on
Financial Statement Schedule . . . . . . . . . . . . . . . . . . . 36
Schedule II - Valuation and Qualifying
Accounts for each of the years ended
June 30, 1996, 1995, and 1994. . . . . . . . . . . . . . . . . . . 37
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Lunar Corporation:
Under date of July 26, 1996, we reported on the consolidated balance sheets of
Lunar Corporation and subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended June 30, 1996, which are included
herein. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedule as listed in the accompanying index. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, this financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
July 26, 1996
Schedule II
LUNAR CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------------------------------------
Additions
---------------------
Balance Charged Other
at to Charged Charges Balance
Beginning Costs and to Other Add at End
Description of Year Expenses Account (Deduct) of Year
- -----------------------------------------------------------------------------
For the year ended June 30, 1996:
Allowance for
doubtful accounts $1,150,000 1,085,000 0 0 $2,235,000
For the year ended June 30, 1995:
Allowance for
doubtful accounts $900,000 $250,000 0 0 $1,150,000
For the year ended June 30, 1994:
Allowance for
doubtful accounts $700,000 $200,000 0 0 $900,000
- -----------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LUNAR CORPORATION
Date: September 25, 1996 By: Richard B. Mazess
-----------------------------
Richard B. Mazess, Ph.D.
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name
Richard B. Mazess President and September 25, 1996
- ------------------------ Director (Principal
Richard B. Mazess, Ph.D. Executive Officer)
Robert A. Beckman Vice President of September 25, 1996
- ------------------------ Finance (Principal
Robert A. Beckman Financial and
Accounting Officer)
Samuel E. Bradt Director September 25, 1996
- ------------------------
Samuel E. Bradt
John W. Brown Director September 25, 1996
- ------------------------
John W. Brown
Reed Coleman Director September 25, 1996
- ------------------------
Reed Coleman
John J. McDonough Director September 25, 1996
- ------------------------
John J. McDonough
Malcolm R. Powell Director September 25, 1996
- ------------------------
Malcolm R. Powell, M.D.
LUNAR CORPORATION
INDEX TO EXHIBITS
Exhibit
Number Document Description
- ------- --------------------
3.1 Articles of Amendment and Restated Articles of
Incorporation of Registrant
3.2 By-Laws of Registrant
10.1* Lunar Corporation Amended and Restated Stock Option Plan(1)
(Exhibit 10.4) and Forms of Stock Option Agreements
10.2* Forms of Stock Option Agreements(1) (Exhibit 10.4)
10.3 Distribution Agreement Between Bone Care and Lunar Corporation
10.4 Tax Disaffiliation Agreement Between Bone Care and Lunar
Corporation
10.5 Transition Agreement Between Bone Care and Lunar Corporation
11. Computation of Per Share Earnings
21. List of Subsidiaries of Registrant
23. Consent of Independent Auditors
27. Financial Data Schedule
(1)Incorporated by reference to exhibits filed with Registrant's Annual Report
on Form 10-K for the year ended June 30, 1992 (File No. 0-18643). Parenthetical
references to exhibit numbers are to the exhibit numbers on the Form 10-K
*Indicates a management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-K.
EXHIBIT 3.1
LUNAR CORPORATION AND SUBSIDIARIES
RESTATED ARTICLES OF INCORPORATION
OF
LUNAR CORPORATION
The following Restated Articles of Incorporation of Lunar Corporation
supersede and take the place of the heretofore existing Articles of
incorporation of said corporation and all prior amendments thereto.
ARTICLE I
The name of the corporation is LUNAR Corporation.
ARTICLE II
The purpose of purposes for which the corporation is organized are to
engage in any lawful activity with the purposes for which a corporation may be
organized under the Wisconsin Business Corporation Law, Chapter 180 of the
Wisconsin Statutes.
ARTICLE III
"The number of shares which the corporation shall be authorized to issue
is Twenty-Five Million (25,000,000) shares. Such shares shall be designated
common stock and shall have a par value of $.01 per share. The holders of the
common stock shall have no preemptive rights to purchase or to subscribe for
shares of any class of shares now or hereafter authorized."
ARTICLE IV
The address of the initial registered office of the corporation is 313
West Beltline Highway, Madison, Dane County, Wisconsin 53713, and the name of
its initial registered agent at such address is Richard B. Mazess.
ARTICLE V
The number of Directors constituting the Board of Directors of the
corporation, not less than six (6) nor more than twelve (12), shall be fixed
from time to time by the By-Laws of the corporation. The Board of Directors
of the corporation shall be divided into three (3) classes of not less than
two (2) nor more than four (4) Directors each. The term of office of the
first class of Directors shall expire at the first annual meeting after their
initial election under the provisions of this Article V, the term of office of
the second class shall expire at the second annual meeting after their initial
election under the provisions of this Article V, and that of the third class
shall expire at the third annual meeting after their initial election under
the provisions of this Article V. At each annual meeting under this Article
V, the class of Directors whose term expires at the time of such election
shall be elected t hold office until the third succeeding annual meeting.
Any Director may be removed from office by affirmative vote of 80 % of
the outstanding shares entitled to vote for the election of such director,
taken at an annual meeting or a special meeting of shareholders called for
that purpose, and any vacancy so created may be filled by the affirmative vote
of 80 % of such shares.
ARTICLE VI
The corporation is authorized by action of the Board of Directors,
without the consent of the shareholders, to purchase, take, receive, or
otherwise acquire, hold, own, pledge, transfer or dispose of its own shares,
subject to the provisions of section 180.385 of the Wisconsin Statutes.
ARTICLE VII
The corporation shall have the right, from time to time, to distribute to
its shareholders in partial liquidation, out of stated capital or net capital
surplus of the corporation, a portion of its assets, in cash or property,
subject to the provisions of Section 180.39 of the Wisconsin Statutes.
Exhibit 3.2
LUNAR CORPORATION AND SUBSIDIARIES
BY-LAWS
OF
LUNAR CORPORATION
(A Wisconsin Corporation)
BY-LAWS
OF
LUNAR CORPORATION
(A Wisconsin Corporation)
Introduction - Variable References
0.01. Date of annual shareholders' meeting (See Section 2.01):
1:00 p.m. First Saturday February 1991
(HOUR) (WEEK) (DAY) (MONTH) (FIRST YEAR)
0.02. Required notice of shareholders' meeting (See Section 2.04): not
less than 10 days.
0.03. Authorized number of Directors (see Section 3.01): 9.
0.04. Required notice of Directors' meeting (see Section 3.05):
(a) Not less than 72 hours if by mail, and
(b) Not less than 36 hours if by telegram or personal delivery.
0.05. Authorized number of Vice Presidents (see Section 4.01): 4.
TABLE OF CONTENTS
ARTICLE I. OFFICES
1.01 Principal and Business Offices. . . . . . . . . . . . . . . . . . . . . .1
1.02 Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II. SHAREHOLDERS
2.01 Annual Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.02 Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.03 Place of Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.04 Notice of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.05 Closing of Transfer Books or Fixing of Record Date. . . . . . . . . . . .2
2.06 Voting Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.07 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.08 Conduct of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.09 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.10 Voting of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.11 Voting of Shares by Certain Holders . . . . . . . . . . . . . . . . . . .3
(a) Other Corporations . . . . . . . . . . . . . . . . . . . . . . . . .3
(b) Legal Representatives and Fiduciaries. . . . . . . . . . . . . . . .4
(c) Pledgees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(d) Treasury Stock and Subsidiaries. . . . . . . . . . . . . . . . . . .4
(e) Minors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(f) Incompetents and Spendthrifts. . . . . . . . . . . . . . . . . . . .4
(g) Joint Tenants. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.12 Waiver of Notice by Shareholders. . . . . . . . . . . . . . . . . . . . .5
2.13 Unanimous Consent Without Meeting . . . . . . . . . . . . . . . . . . . .5
ARTICLE III. BOARD OF DIRECTORS
3.01 General Powers and Number . . . . . . . . . . . . . . . . . . . . . . . .5
3.02 Tenure and Qualifications . . . . . . . . . . . . . . . . . . . . . . . .5
3.03 Regular Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.04 Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.05 Notice; Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.06 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.07 Manner of Acting. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.08 Conduct of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.09 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.10 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.11 Presumption of Assent . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.12 Committees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.13 Unanimous Consent Without Meeting . . . . . . . . . . . . . . . . . . . .8
3.14 Meetings by Telephone or by Other Communication Technology. . . . . . . .8
ARTICLE IV. OFFICERS
4.01 Number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
4.02 Election and Term of Office . . . . . . . . . . . . . . . . . . . . . . .8
4.03 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
4.04 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
4.05 Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . .9
4.06 President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
4.07 The Executive Vice President. . . . . . . . . . . . . . . . . . . . . . .9
4.08 The Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . .9
4.09 The Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.10 The Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.11 Assistant Secretaries and Assistant Treasurers. . . . . . . . . . . . . 10
4.12 Other Assistants and Acting Officers. . . . . . . . . . . . . . . . . . 10
4.13 Salaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.01 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.02 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.03 Checks, Drafts, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.04 Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.05 Voting of Securities Owned by this Corporation. . . . . . . . . . . . . 12
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.01 Certificates for Shares . . . . . . . . . . . . . . . . . . . . . . . . 12
6.02 Facsimile Signatures and Seal . . . . . . . . . . . . . . . . . . . . . 12
6.03 Signature by Former Officers. . . . . . . . . . . . . . . . . . . . . . 12
6.04 Transfer of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.05 Restrictions on Transfer. . . . . . . . . . . . . . . . . . . . . . . . 13
6.06 Lost, Destroyed or Stolen Certificates. . . . . . . . . . . . . . . . . 13
6.07 Consideration for Shares. . . . . . . . . . . . . . . . . . . . . . . . 13
6.08 Stock Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VII. WAIVER OF NOTICE
ARTICLE VIII. UNANIMOUS CONSENT WITHOUT A MEETING
ARTICLE IX. INDEMNIFICATION
9.01 Indemnification for Successful Defense. . . . . . . . . . . . . . . . . 14
9.02 Other Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.03 Written Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.04 Nonduplication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.05 Determination of Right to Indemnification . . . . . . . . . . . . . . . 15
9.06 Advance Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.07 Nonexclusivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.08 Court-Ordered Indemnification . . . . . . . . . . . . . . . . . . . . . 17
9.09 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.10 Securities Law Claim. . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.11 Liberal Construction. . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.12 Definitions Applicable to This Article. . . . . . . . . . . . . . . . . 18
ARTICLE X. SEAL
ARTICLE XI. AMENDMENTS
11.01 By Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.02 By Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.03 Implied Amendments . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE I. OFFICES
1.01 Principal and Business Offices. The Corporation may have such
principal and other business offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
Corporation may require from time to time.
1.02 Registered Office. The registered office of the Corporation
required by the Wisconsin Business Corporation Law to be maintained in the
State of Wisconsin may be, but need not be, identical with the principal
office in the State of Wisconsin, and the address of the registered office may
be changed from time to time by the Board of Directors or by the registered
agent. The business office of the registered agent of the Corporation shall
be identical to such registered office.
ARTICLE II. SHAREHOLDERS
2.01 Annual Meeting. The annual meeting of the shareholders shall be
held at the date and hour in each year set forth in Section 0.01, or at such
other time and date within thirty days before or after said date as may be
fixed by or under the authority of the Board of Directors, for the purpose of
electing Directors and for the transaction of such other business as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday in the State of Wisconsin, such meeting shall be held on the next
succeeding business day. If the election of Directors shall not be held on
the day designated herein, or fixed as herein provided, for any annual meeting
of the shareholders, or at any adjournment thereof, the Board of Directors
shall cause the election to be held at a special meeting of the shareholders
as soon thereafter as conveniently may be.
2.02 Special Meeting. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the Chairman of the Board (if one be designated), or the President or the
Board of Directors or by the person designated in the written request of the
holders of not less than one-tenth of all shares of the Corporation entitled
to vote at the meeting.
2.03 Place of Meeting. The Board of Directors may designate any place,
either within or without the State of Wisconsin, as the place of meeting for
any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all shareholders entitled to vote at
a meeting may designate any place, either within or without the State of
Wisconsin, as the place for the holding of such meeting. If no designation is
made, or if a special meeting be otherwise called, the place of meeting shall
be the principal business office of the Corporation in the State of Wisconsin
or such other suitable place in the county of such principal office as may be
designated by the person calling such meeting, but any meeting may be
adjourned to reconvene at any place designated by vote of a majority of the
shares represented thereat.
2.04 Notice of Meeting. Written notice stating the place, day and hour
of the meeting and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than the number of
days set forth in Section 0.02 (unless a longer period is required by law or
the articles of incorporation) nor more than fifty days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman
of the Board (if one be designated), or the President, or the Secretary, or
other Officer or persons calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock record books of the
Corporation, with postage thereon prepaid.
2.05 Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled
to receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, fifty days. If the stock transfer books shall be closed
for the purpose of determining shareholders entitled to notice of or to vote
at a meeting of shareholders, such books shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than fifty days and, in case of a meeting of shareholders, not less than ten
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the stock transfer books
are not closed and no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders, or
shareholders entitled to receive payment of a dividend, the close of business
on the date on which notice of the meeting is mailed or on the date on which
the resolution of the Board of Directors declaring such dividend is adopted,
as the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall be applied to any adjournment thereof except where the
determination has been made through the closing of the stock transfer books
and the stated period of closing has expired.
2.06 Voting Record. The Officer or agent having charge of the stock
transfer books for shares of the Corporation shall, before each meeting of
shareholders, make a complete list of the shareholders entitled to vote at
such meeting, or any adjournment thereof, with the address of and the number
of shares held by each. Such record shall be produced and kept open at the
time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting for the purposes of the
meeting. The original stock transfer books shall be prima facie evidence as
to who are the shareholders entitled to examine such record or transfer books
or to vote at any meeting of shareholders. Failure to comply with the
requirements of this section shall not affect the validity of any action taken
at such meeting.
2.07 Quorum and Voting Requirements. Except as otherwise provided in the
articles of incorporation or the Wisconsin Business Corporation Law, a
majority of the votes entitled to be cast on a matter, represented in person
or by proxy, shall constitute a quorum for action on that matter. Once a
share is represented for any purpose at a meeting, other than for the purpose
of objecting to holding the meeting or transacting business at the meeting, it
is considered present for purposes of determining whether a quorum exists for
the remainder of the meeting and for any adjournment of that meeting unless a
new record date is or must be set for that adjourned meeting. If a quorum is
present, action on a matter, other than the election of directors, is approved
if the votes cast favoring the action exceed the votes cast opposing the
action. Directors are elected by a plurality of the votes cast by the shares
entitled to vote in the election at a meeting at which a quorum is present.
In the preceding sentence, "plurality" means that the individuals with the
largest number of votes are elected as directors up to the maximum number of
directors to be chosen at the election. Though less than a quorum of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the meeting
as originally notified.
2.08 Conduct of Meetings. The Chairman of the Board (if one be
designated), or in the Chairman's absence, the President, or in the
President's absence, the Executive Vice President (if one be designated), or
in the Executive Vice President's absence, a Vice President in the order
provided under Section 4.08, and in their absence, any person chosen by the
shareholders present shall call the meeting of the shareholders to order and
shall act as chairman of the meeting, and the Secretary of the Corporation
shall act as Secretary of all meetings of the shareholders, but, in the
absence of the Secretary, the presiding Officer may appoint any other person
to act as Secretary of the meeting.
2.09 Proxies. At all meetings of shareholders, a shareholder entitled
to vote may vote in person or by proxy appointed in writing by the shareholder
or by his or her duly authorized attorney-in-fact. Such proxy shall be filed
with the Secretary of the Corporation before or at the time of the meeting.
Unless otherwise provided in the proxy, a proxy may be revoked at any time
before it is voted, either by written notice filed with the Secretary or the
acting Secretary of the meeting or by oral notice given by the shareholder to
the presiding officer during the meeting. The presence of a shareholder who
has filed his or her proxy shall not of itself constitute a revocation. No
proxy shall be valid after eleven months from the date of its execution,
unless otherwise provided in the proxy. The Board of Directors shall have the
power and authority to make rules establishing presumptions as to the validity
and sufficiency of proxies.
2.10 Voting of Shares. Each outstanding share shall be entitled to one
vote upon each matter submitted to a vote at a meeting of shareholders, except
to the extent that the voting rights of the shares of any class or classes are
enlarged, limited or denied by the articles of incorporation.
2.11 Voting of Shares by Certain Holders.
(a) Other Corporations. Shares standing in the name of another
corporation may be voted either in person or by proxy, by the president of
such corporation or any other officer appointed by such president. A proxy
executed by any principal officer of such other corporation or assistant
thereto shall be conclusive evidence of the signer's authority to act, in the
absence of express notice to this Corporation, given in writing to the
Secretary of this Corporation, or the designation of some other person by the
Board of Directors or by the by-laws of such other corporation.
(b) Legal Representatives and Fiduciaries. Shares held by an
administrator, executor, guardian, conservator, trustee in bankruptcy,
receiver or assignee for creditors may be voted by him, either in person or by
proxy, without a transfer of such shares into his or her name, provided that
there is filed with the Secretary before or at the time of meeting proper
evidence of his or her incumbency and the number of shares held or her.
Shares standing in the name of a fiduciary may be voted by him, either in
person or by proxy. A proxy executed by a fiduciary shall be conclusive
evidence of the signer's authority to act, in the absence of express notice to
this Corporation, given in writing to the Secretary of this Corporation, that
such manner of voting is expressly prohibited or otherwise directed by the
document creating the fiduciary relationship.
(c) Pledgees. A shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have been transferred into the
name of the pledgee, and thereafter the pledgee shall be entitled to vote the
shares so transferred.
(d) Treasury Stock and Subsidiaries. Neither treasury shares, nor
shares held by another corporation if a majority of the shares entitled to
vote for the election of Directors of such other corporation is held by this
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares entitled to vote, but shares of its own issue
held by this Corporation in a fiduciary capacity, or held by such other
corporation in a fiduciary capacity, may be voted and shall be counted in
determining the total number of outstanding shares entitled to vote.
(e) Minors. Shares held by a minor may be voted by such minor in
person or by proxy and no such vote shall be subject to disaffirmance or
avoidance, unless prior to such vote the Secretary of the Corporation has
received written notice or has actual knowledge that such shareholder is a
minor.
(f) Incompetents and Spendthrifts. Shares held by an incompetent
or spendthrift may be voted by such incompetent or spendthrift in person or by
proxy and no such vote shall be subject to disaffirmance or avoidance, unless
prior to such vote the Secretary of the Corporation has actual knowledge that
such shareholder has been adjudicated an incompetent or spendthrift or actual
knowledge of filing of judicial proceedings for appointment of a guardian.
(g) Joint Tenants. Shares registered in the names of two or more
individuals who are named in the registration as joint tenants may be voted in
person or by proxy signed by any one or more of such individuals if either (i)
no other such individual or his or her legal representative is present and
claims the right to participate in the voting of such shares or prior to the
vote files with the Secretary of the Corporation a contrary written voting
authorization or direction or written denial or authority of the individual
present or signing the proxy proposed to be voted or (ii) all such other
individuals are deceased and the Secretary of the Corporation has no actual
knowledge that the survivor has been adjudicated not to be the successor to
the interests of those deceased.
2.12 Waiver of Notice by Shareholders. Whenever any notice whatever is
required to be given to any shareholder of the Corporation under the articles
of incorporation or by-laws or any provision of law, a waiver thereof in
writing, signed at any time, whether before or after the time of meeting,by
the shareholder entitled to such notice, shall be deemed equivalent to the
giving of such notice; provided that such waiver in respect to any matter of
which notice is required under any provision of the Wisconsin Business
Corporation Law, shall contain the same information as would have been
required to be included in such notice, except the time and place of meeting.
2.13 Unanimous Consent Without Meeting. Any action required or
permitted by the articles of incorporation or by-laws or any provision of law
to be taken at a meeting of the shareholders, may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the shareholders entitled to vote with respect to the subject matter
thereof.
ARTICLE III. BOARD OF DIRECTORS
3.01 General Powers and Number. The business and affairs of the
Corporation shall be managed by its Board of Directors. The number of
Directors of the Corporation shall be as provided in Section 0.03, but shall
not be less than six (6), nor more than twelve (12).
The Board of Directors shall be divided into three (3) classes of not
less than two (2) nor more than four (4) Directors each. The term of office
of the first class of Directors shall expire at the first annual meeting after
their initial election and until their successors are elected and qualified,
the term of office of the second class shall expire at the second annual
meeting after their initial election and until their successors are elected
and qualified, and the term of office of the third class shall expire at the
third annual meeting after the initial election and until their successors are
elected and qualified. At each annual meeting after the initial
classification of the Board of Directors, the class of Directors whose term
expires at the time of such election shall be elected to hold office until the
third succeeding annual meeting and until their successors are elected and
qualified.
3.02 Tenure and Qualifications. Each Director shall hold office until
the next annual meeting of shareholders in the year in which such Director's
term expires and until his successor shall have been elected, or until his
prior death, resignation or removal. A Director may be removed from office by
affirmative vote of 80% of the outstanding shares entitled to vote for the
election of such Director, taken at an annual meeting or a special meeting of
shareholders called for that purpose, and any vacancy so created may be filled
by the affirmative vote of 80% of such shares. A Director may resign at any
time by filing his written resignation with the Secretary of the Corporation.
Directors need not be residents of the State of Wisconsin or shareholders of
the Corporation.
3.03 Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this by-law immediately after the
annual meeting of shareholders, and each adjourned session thereof. The place
of such regular meeting shall be the same as the place of the meeting of
shareholders which precedes it, or such other suitable place as may be
announced at such meeting of shareholders. The Board of Directors may
provide, by resolution, the time and place, either within or without the State
of Wisconsin, for the holding of additional regular meetings without other
notice than such resolution.
3.04 Special Meetings. Special meetings of the Board of Directors may
be called by or at the request of the President, Secretary or any two
Directors. The President or Secretary calling any special meeting of the
Board of Directors may fix any place, either within or without the State of
Wisconsin, as the place for holding any special meeting of the Board of
Directors called by them, and if no other place is fixed, the place of meeting
shall be the principal business office of the Corporation in the State of
Wisconsin.
3.05 Notice; Waiver. Notice of each meeting of the Board of Directors
(unless otherwise provided in or pursuant to Section 3.03) shall be given by
written notice delivered personally or mailed or given by telegram to each
Director at his or her business address or at such other address as such
Director shall have designated in writing filed with the Secretary, in each
case not less than that number of hours prior thereto as set forth in Section
0.04. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail so addressed, with postage thereon prepaid. If
notice be given by telegram, such notice shall be deemed to be delivered when
the telegram is delivered to the telegraph company. Whenever any notice
whatever is required to be given to any Director of the Corporation under the
articles of incorporation or by-laws or any provision of law, a waiver thereof
in writing, signed at any time, whether before or after the time of meeting,
by the Director entitled to such notice, shall be deemed equivalent to the
giving of such notice. The attendance of a Director at a meeting shall
constitute a waiver of notice of such meeting, except where a Director attends
a meeting and objects thereat to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
3.06 Quorum. Except as otherwise provided by law or by the articles of
incorporation or these by-laws, a majority of the number of Directors as
provided in Section 0.03 shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, by a majority of the
Directors present (though less than such quorum) may adjourn the meeting from
time to time without further notice.
3.07 Manner of Acting. The act of the majority of the Directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors, unless the act of a greater number is required by law or by the
articles of incorporation of these by-laws.
3.08 Conduct of Meetings. The Chairman of the Board (if one be
designated), or in the Chairman's absence, the President, or in the
President's absence, the Executive Vice President (if one be designated), or
in the Executive Vice President's absence, a Vice President in the order
provided under Section 4.06, and in their absence, any Director chosen by the
Directors present, shall call meetings of the Board of Directors to order and
shall act as chairman of the meeting. The Secretary of the Corporation shall
act as Secretary of all meetings of the Board of Directors, but in the absence
of the Secretary, the presiding Officer may appoint any Assistant Secretary or
any Director or other person present to act as Secretary of the meeting.
3.09 Vacancies. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of Directors, may be
filled until the next succeeding annual election by the affirmative vote of a
majority of the Directors then in office, though less than a quorum of the
Board of Directors, provided that in case of a vacancy created by the removal
of a Director by vote of the shareholders, the shareholders shall have the
right to fill such vacancy at the same meeting or any adjournment thereof by
the affirmative vote of 80% of the outstanding shares entitled to vote for the
election of such Directors.
3.10 Compensation. The Board of Directors, by affirmative vote of a
majority of the Directors then in office, and irrespective of any personal
interest of any of its members, may establish reasonable compensation of all
Directors for services to the Corporation as Directors, Officers or otherwise,
or may delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or to delegate authority to
an appropriate committee to provide for reasonable pensions, disability or
death benefits, and other benefits of payments, to Directors, Officers and
employees and to their estates, families, dependents or beneficiaries on
account of prior services rendered by such Directors, Officers and employees
to the Corporation.
3.11 Presumption of Assent. A Director of the Corporation who is
present at a meeting of the Board of Directors or a committee thereof of which
he or she is a member, at which action on any corporate matter is taken, shall
be presumed to have assented to the action taken unless his or her dissent
shall be entered in to the minutes of the meeting or unless he or she shall
file his or her written dissent to such action with the person acting as the
Secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply
to a Director who voted in favor of such action.
3.12 Committees. The Board of Directors, by resolution adopted by the
affirmative vote of a majority of the number of Directors as provided in
Section 0.03, may designate one or more committees, each committee to consist
of three or more Directors elected by the Board of Directors, which to the
extent provided in said resolution as initially adopted, and as thereafter
supplemented or amended by further resolution adopted by a like vote, shall
have and may exercise, when the Board of Directors is not in session, the
powers of the Board of Directors in the management of the business and affairs
of the corporation, except action in respect to dividends to shareholders,
election of the principal officers or the filling of vacancies in the Board of
Directors or committees created pursuant to this section. The Board of
Directors may elect one or more of its members as alternate members of any
such committee who may take the place of any absent member or members at any
meeting of such committee, upon request by the President or upon request by
the chairman of such meeting. Each such committee shall fix its own rules
governing the conduct of its activities and shall make such reports to the
Board of Directors of its activities as the Board of Directors may request.
3.13 Unanimous Consent Without Meeting. Any action required or
permitted by the articles of incorporation or by-laws or any provision of law
to be taken by the Board of Directors at a meeting or by resolution may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the Directors then in office.
3.14 Meetings by Telephone or by Other Communication Technology.
Meetings of the Board of Directors or committees may be conducted by telephone
or by other communication technology in accordance with Section 180.0820 of
the Wisconsin Business Corporation Law. At any such meeting, all
participating directors shall be informed that a meeting is taking place at
which official business may be transacted.
ARTICLE IV. OFFICERS
4.01 Number. The principal Officers of the Corporation shall be a
President, the number of Vice Presidents as provided in Section 0.05, a
Secretary, and a Treasurer, each of whom shall be elected by the Board of
Directors. Such other Officers and Assistant Officers as may be deemed
necessary may be elected or appointed by the Board of Directors. Any two or
more offices may be held by the same person, except the offices of President
and Secretary and the offices of President and Vice President.
4.02 Election and Term of Office. The Officers of the Corporation to be
elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each
annual meeting of the shareholders. If the election of Officers shall not be
held at such meeting, such election shall be held as soon thereafter as
conveniently may be. Each Officer shall hold office until his or her
successor shall have been duly elected or until his or her prior to death,
resignation or removal.
4.03 Removal. Any Officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment shall not
of itself create contract rights.
4.04 Vacancies. A vacancy in any principal office because of death,
resignation, removal, disqualification, or otherwise shall be filled by the
Board of Directors for the unexpired portion of the term.
4.05 Chairman of the Board. The Board of Directors may at their
discretion elect a Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the shareholders and Board of Directors, and shall
carry out such other duties and have such responsibilities as may be specified
by the Board of Directors.
4.06 President. The President shall be the Chief Executive Officer of
the Corporation and, subject to the control of the Board of Directors, shall
in general supervise and control all of the business and affairs of the
Corporation. He or she shall, when present, preside at all meetings of the
shareholders and of the Board of Directors. He or she shall have authority,
subject to such rules as may be prescribed by the Board of Directors, to
appoint such agents and employees of the Corporation as he or she shall deem
necessary, to prescribe their powers, duties and compensation, and to delegate
authority to them. Such agents and employees shall hold office at the
discretion of the President. He or she shall have authority to sign, execute
and acknowledge, on behalf of the Corporation, all deeds, mortgages, bonds,
stock certificates, contracts, leases, reports and all other documents or
instruments necessary r proper to be executed in the course of the
Corporation's regular business, or which shall be authorized by resolution of
the Board of Directors; and, except as otherwise provided by law or the Board
of Directors, he or she may authorize any Vice President or other Officer or
agent of the Corporation to sign, execute and acknowledge such documents or
instruments in his or her place and stead. In general, he or she shall
perform all duties incident to the office of Chief Executive Officer and such
other duties as may be prescribed by the Board of Directors from time to time.
4.07 The Executive Vice President. The Executive Vice President, if one
be designated, shall assist the President in the discharge of supervisory,
managerial and executive duties and functions. In the absence of the
President or in the event of his or her death, inability or refusal to act,
the Executive Vice President shall perform the duties of the President, and
when so acting shall have all the powers and duties of the President. He or
she shall perform such other duties as from time to time may be assigned to
him or her by the Board of Directors or the President.
4.08 The Vice Presidents. In the absence of the President and the
Executive Vice President or in the event of their death, inability or refusal
to act, or in the event for any reason it shall be impracticable for them to
act personally, the Vice President (or in the event there be more than one
Vice President, the Vice Presidents in the order designated by the Board of
Directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Any Vice President may sign, with the Secretary or Assistant
Secretary, certificates for shares of the Corporation; and shall perform such
other duties and have such authority as from time to time may be delegated or
assigned to him or her by the President, the Executive Vice President or by
the Board of Directors. The execution of any instrument of the Corporation by
any Vice President shall be conclusive evidence, as to third parties, of his
or her authority to act in the stead of the President.
4.09 The Secretary. The Secretary shall: (a) keep the minutes of the
meetings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these by-laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all documents, the execution of
which on behalf of the Corporation under its seal is duly authorized; (d) keep
or arrange for the keeping of a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder; (e)
sign with the President, or a Vice President, certificates for shares of the
Corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of the stock transfer books of
the Corporation; and (g) in general, perform all duties incident to the office
of Secretary and have such other duties and exercise such authority as from
time to time may be delegated or assigned to him or her by the President or by
the Board of Directors.
4.10 The Treasurer. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the Corporation; (b)
receive and give receipts for moneys due and payable to the Corporation from
any source whatsoever, and deposit all such moneys in the name of the
Corporation in such banks, trust companies or other depositories as shall be
selected in accordance with the provisions of Section 5.04; and (c) in
general, perform all of the duties incident to the office of Treasurer and
have such other duties and exercise such other authority as from time to time
may be delegated or assigned to him or her by the President or by the Board of
Directors. If required by the Board of Directors, the Treasurer shall give a
bond for the faithful discharge of his duties in such sum and with such surety
or sureties as the Board of Directors shall determine.
4.11 Assistant Secretaries and Assistant Treasurers. There shall be
such number of Assistant Secretaries and Assistant Treasurers as the Board of
Directors may from time to time authorize. The Assistant Secretaries may sign
with the President or a Vice President certificates for shares of the
Corporation, the issuance of which shall have been authorized by a resolution
of the Board of Directors. The Assistant Treasurers shall, respectively, if
required by the Board of Directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the Board of Directors
shall determine. The Assistant Secretaries and Assistant Treasurers, in
general, shall perform such duties and have such authority as shall from time
to time be delegated or assigned to them by the Secretary of the Treasurer,
respectively, or by the President or the Board of Directors.
4.12 Other Assistants and Acting Officers. The Board of Directors shall
have the power to appoint any person to act as assistant to any Officer, or as
agent for the Corporation in his or her stead, or to perform the duties of
such Officer whenever for any reason it is impracticable for such Officer to
act personally and such assistant or acting Officer or other agent so
appointed by the Board of Directors shall have the power to perform all the
duties of the office to which he or she is so appointed to be assistant, or as
to which he or she is so appointed to act, except as such power may be
otherwise defined or restricted by the Board of Directors.
4.13 Salaries. The salaries of the principal Officers shall be fixed
from time to time by the Board of Directors or by a duly authorized committee
thereof, and no Officer shall be prevented from receiving such salary by
reason of the fact that he or she is also a Director of the Corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS:
SPECIAL CORPORATE ACTS
5.01 Contracts. The Board of Directors may authorize any Officer or
Officers, agent or agents, to enter into any contract or execute or deliver
any instrument in the name of and on behalf of the Corporation, and such
authorization may be general or confined in specific instances. No contract
or other transaction between the Corporation and one or more of its Directors
of any other corporation, firm, association, or entity in which one or more of
its Directors of Officers are financially interested, shall be either void or
voidable because of such relationship or interest or because such Director or
Directors are present at the meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction or
because his, or her, or their votes are counted for such purpose, if (a) the
fact of such relationship or interest is disclosed or known to the Board of
Directors or committee which authorizes, approves or ratifies the contract or
transaction by a vote or consent sufficient for the purpose without counting
the votes or consents of such interested Directors; or (b) the fact of such
relationship or interest is disclosed or known to the shareholders entitled to
vote and they authorize, approve or ratify such contract or transaction by
vote or written consent; or (c) the contract or transaction is fair and
reasonable to the Corporation. Common or interested Directors may be counted
in determining the presence of a quorum at a meeting of the Board of Directors
or a committee thereof which authorizes, approves or ratifies such contract or
transactions.
5.02 Loans. No indebtedness for borrowed money shall be contracted on
behalf of the Corporation and no evidences of such indebtedness shall be
issued in its name unless authorized by or under the authority of a resolution
of the Board of Directors. Such authorization may be general or confined to
specific instances.
5.03 Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the Corporation shall be signed by such Officer or Officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by or under the authority of a resolution of the Board of
Directors.
5.04 Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as may be selected by or under
the authority of a resolution of the Board of Directors.
5.05 Voting of Securities Owned by this Corporation. Subject always to
the specific directions of the Board of Directors, (a) any shares or other
securities issued by any other corporation and owned or controlled by this
Corporation may be voted at any meeting of security holders of such other
corporation by the President of this Corporation if he or she be present, or
in the President's absence by the Executive Vice President (if one be
designated), or in the Executive Vice President's absence, by any Vice
President of this Corporation who may be present, and (b) whenever, in the
judgment of the President, or in his absence, of the Executive Vice President
(if one be designated), or in the Executive Vice President's absence, of any
Vice President, it is desirable for this Corporation to execute a proxy or
written consent in respect to any shares or other securities issued by any
other corporation and owned by this Corporation, such proxy or consent shall
be executed in the name of this Corporation by the President, Executive Vice
President or one of the Vice Presidents of this Corporation in the order as
provided in clause (a) of this Section, without necessity of any authorization
by the Board of Directors, affixation of corporate seal or countersignature or
attestation by another officer. Any person or persons designated in the
manner above stated as the proxy or proxies of this Corporation shall have
full right, power and authority to vote the shares or other securities issued
by such other corporation and owned by this Corporation the same as such
shares or other securities might be voted by this Corporation.
ARTICLE VI. CERTIFICATES FOR SHARES AND
THEIR TRANSFER
6.01 Certificates for Shares. Certificates representing shares of the
Corporation shall be in such form, consistent with law, as shall be determined
by the Board of Directors. Such Certificates shall be signed by the President
or a Vice President and by the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the Corporation. All certificates
surrendered to the Corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and canceled, except as provided in Section
6.06.
6.02 Facsimile Signatures and Seals. The seal of the Corporation, if
the Corporation has elected to have a seal, on any certificates for shares may
be a facsimile. The signatures of the President or Vice President and the
Secretary or Assistant Secretary upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent, or a registrar,
other than the Corporation itself or an employee of the Corporation.
6.03 Signature by Former Officers. In case any Officer, who has signed
or whose facsimile signature has been placed upon, any certificate for shares,
shall have ceased to be such Officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he or she were such
Officer at the date of its issue.
6.04 Transfer of Shares. Prior to due presentment of a certificate for
shares for registration of transfer, the Corporation may treat the registered
owner of such shares as the person exclusively entitled to vote, to receive
notifications and otherwise to have and exercise all the rights and powers of
an owner. Where a certificate for shares is presented to the Corporation with
a request to register for transfer, the Corporation shall not be liable to the
owner or any other person suffering loss as a result of such registration of
transfer if (a) there were on or with the certificate the necessary
endorsements, and (b) the corporation had no duty to inquire into adverse
claims or has discharged any such duty. The Corporation may require
reasonable assurance that said endorsements are genuine and effective and in
compliance with such other regulations as may be prescribed by or under the
authority of the Board of Directors.
6.05 Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the Corporation upon the transfer of such shares.
6.06 Lost, Destroyed or Stolen Certificates. Where the owner claims
that his or her certificate for shares has been lost, destroyed or wrongfully
taken, a new certificate shall be issued in place thereof if the owner (a) so
requests before the Corporation has notice that such shares have been acquired
by a bona fide purchaser, and (b) files with the Corporation a sufficient
indemnity bond, and (c) satisfies such other reasonable requirements as may be
prescribed by or under the authority of the Board of Directors.
6.07 Consideration for Shares. The shares of the Corporation may be
issued for such consideration as shall be fixed from time to time by the Board
of Directors, provided that any shares having a par value shall not be issued
for a consideration less than the par value thereof. The consideration to be
paid for shares may be paid in whole or in part, in money, in other property,
tangible or intangible, or in labor or services actually performed for the
Corporation. When payment of the consideration for which shares are to be
issued shall have been received by the Corporation, such shares shall be
deemed to be fully paid and nonassessable by the Corporation. No certificate
shall be issued for any share until such share is fully paid.
6.08 Stock Regulations. The Board of Directors shall have the power and
authority to make all such further rules and regulations not inconsistent with
the statutes of the State of Wisconsin as it may deem expedient concerning the
issue, transfer and registration of certificates representing shares of the
Corporation.
ARTICLE VII. WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the provisions
of the Wisconsin Business Corporation Law or under the provisions of the
articles of incorporation or by-laws a waiver thereof in writing signed at any
time, whether before or after the time of the meeting, by the person or
persons entitled to such notice shall be deemed equivalent to the giving of
such notice. Such waiver by a shareholder in respect of any matter of which
notice is required under any provision of the Wisconsin Business Corporation
Law shall contain the same information as would have been required to be
included in such notice under any applicable provisions of said Law, except
that the time and place of meeting need not be stated.
ARTICLE VIII. UNANIMOUS CONSENT WITHOUT A MEETING
Any action required by the articles of incorporation or by-laws or any
provision of the Wisconsin Business Corporation Law to be taken at a meeting
or any other action which may be taken at a meeting may be taken without a
meeting if a consent in writing setting forth the action so taken shall be
signed by all of the shareholders, Directors or members of a committee thereof
entitled to vote with respect to the subject matter thereof and such consent
shall have the same force and effect as a unanimous vote.
ARTICLE IX. INDEMNIFICATION
9.01 Indemnification for Successful Defense. Within 20 days after
receipt of a written request pursuant to Section 9.03, the Corporation shall
indemnify a Director, Officer, Employee or Agent, to the extent he or she has
been successful on the merits or otherwise in the defense of a proceeding, for
all reasonable expenses incurred in the proceeding if the Director, Officer,
Employee or Agent was a party because he or she is a Director, Officer,
Employee or Agent of the Corporation.
9.02 Other Indemnification. (a) In cases not included under Section
9.01, the Corporation shall indemnify a Director, Officer, Employee or Agent
against all liabilities and expenses incurred by the Director, Officer,
Employee or Agent in a proceeding to which the Director, Officer, Employee or
Agent was a party because he or she is a Director, Officer, Employee, or Agent
of the Corporation, unless liability was incurred because the Director,
Officer, Employee or Agent breached or failed to perform a duty he or she owes
to the Corporation and the breach or failure to perform constitutes any of the
following:
(1) A willful failure to deal fairly with the Corporation or its
shareholders in connection with a matter in which the Director, Officer,
Employee or Agent has a material conflict of interest.
(2) A violation of criminal law, unless the Director, Officer,
Employee or Agent had reasonable cause to believe his or her conduct was
lawful or no reasonable cause to believe his or her conduct was unlawful.
(3) A transaction from which the Director, Officer, Employee or
Agent derived an improper personal profit.
(4) Willful misconduct.
(b) Determination of whether indemnification is required under this
Section shall be made pursuant to Section 9.05.
(c) The termination of a proceeding by judgment, order, settlement or
conviction, or upon a plea of no contest or an equivalent plea, does not, by
itself, create a presumption that indemnification of the Director, Officer,
Employee or Agent is not required under this Section.
9.03 Written Request. A Director, Officer, Employee or Agent who seeks
indemnification under Sections 9.01 or 9.02 shall make a written request to
the Corporation.
9.04 Nonduplication. The Corporation shall not indemnify a Director,
Officer, Employee or Agent under Sections 9.01 or 9.02 if the Director,
Officer, Employee or Agent has previously received indemnification or
allowance of expenses from any person, including the Corporation, in
connection with the same proceeding. However, the Director, Officer, Employee
or Agent has no affirmative duty to look to any other person for
indemnification nor to first exhaust his remedies to seek indemnification from
such other person.
9.05 Determination of Right to Indemnification.
(a) Unless otherwise provided by the articles of incorporation or by
written agreement between the Director, Officer, Employee or Agent, and the
Corporation, the Director, Officer, Employee or Agent seeking indemnification
under Section 9.02 shall select one of the following means for determining his
or her right to indemnification:
(1) By a majority vote of a quorum of the Board of Directors
consisting of Directors not at the time parties to the same or related
proceedings. If a quorum of disinterested Directors cannot be obtained,
by majority vote of a committee duly appointed by the Board of Directors
and consisting solely of 2 or more Directors not at the time parties to
the same or related proceedings. Directors who are parties to the same
or related proceedings may participate in the designation of members of
the committee.
(2) By independent legal counsel selected by a quorum of the Board
of Directors or its committee in the manner prescribed in sub. (1) or, if
unable to obtain such a quorum or committee, by a majority vote of the
full Board of Directors, including Directors who are parties to the same
or related proceedings.
(3) By a panel of 3 arbitrators consisting of one arbitrator
selected by those Directors entitled under sub. (2) to select independent
legal counsel, one arbitrator selected by the Director or Officer seeking
indemnification and one arbitrator selected by the 2 arbitrators
previously selected.
(4) By an affirmative vote of the majority of shares represented at
a meeting of shareholders at which a quorum is present. Shares owned by,
or voted under the control of, persons who are at the time parties to the
same or related proceedings, whether as plaintiffs or defendants or in
any other capacity, may not be voted in making the determination.
(5) By a court under Section 9.08.
(6) By any other method provided for in any additional right to
indemnification permitted under Section 9.07.
(b) In any determination under (a), the burden of proof is on the
Corporation to prove by clear and convincing evidence that indemnification
under Section 9.02 should not be allowed.
(c) A written determination as to a Director, Officer, Employee or
Agent's indemnification under Section 9.02 shall be submitted to both the
Corporation and the Director, Officer, Employee or Agent within 60 days of the
selection made under (a).
(d) If it is determined that indemnification is required under Section
9.02, the Corporation shall pay all liabilities and expenses not prohibited by
Section 9.04 within 10 days after receipt of the written determination under
(c). The Corporation shall also pay all expenses incurred by the Director,
Officer, Employee or Agent, in the determination process under (a).
9.06 Advance Expenses. Within 10 days after receipt of a written
request by a Director, Officer, Employee or Agent who is a party to a
proceeding, the Corporation shall pay or reimburse his or her reasonable
expenses as incurred if the Director, Officer, Employee or Agent provides the
Corporation with all of the following:
(1) A written affirmation of his or her good faith belief that he
or she has not breached or failed to perform his or her duties to the
Corporation.
(2) A written undertaking, executed personally or on his or her
behalf, to repay the allowance (together with reasonable interest
thereon) to the extent that it is ultimately determined under Section
9.05 that indemnification under Section 9.02 is not required and that
indemnification is not ordered by a court under Section 9.08(b)(2). The
undertaking under this subsection shall be an unlimited general
obligation of the Director, Officer, Employee or Agent, and may be
accepted without reference to his or her ability to repay the allowance.
The undertaking may be secured or unsecured.
9.07 Nonexclusivity.
(a) Except as provided in (b), Sections 9.01, 9.02 and 9.06 do not
preclude any additional right to indemnification or allowance of expenses that
a Director, Officer, Employee or Agent may have under any of the following:
(1) The articles of incorporation.
(2) A written agreement between the Director, Officer, Employee or
Agent, and the Corporation.
(3) A resolution of the Board of Directors.
(4) A resolution, after notice, adopted by a majority vote of all
of the Corporation's voting shares then issued and outstanding.
(b) Regardless of the existence of an additional right under (a), the
Corporation shall not indemnify a Director, Officer, Employee or Agent, or
permit a Director, Officer, Employee or Agent to retain any allowance of
expenses, unless it is determined by or on behalf of the Corporation that the
Director, Officer, Employee or Agent did not breach or fail to perform a duty
he or she owes to the Corporation which constitutes conduct under Section
9.02(a)(1), (2), (3) or (4). A Director, Officer, Employee or Agent who is a
party to the same or related proceeding for which indemnification or an
allowance of expenses is sought may not participate in a determination under
this subsection.
(c) Sections 9.01 to 9.12 do not affect the Corporation's power to pay
or reimburse expenses incurred by a Director, Officer, Employee or Agent in
any of the following circumstances:
(1) As a witness in a proceeding to which he or she is not a party.
(2) As a plaintiff or petitioner in a proceeding because he or she
is or was a Director, Officer, Employee or Agent of the Corporation.
9.08 Court-Ordered Indemnification.
(a) Except as provided otherwise by written agreement between the
Director, Officer, Employee, or Agent and the Corporation, a Director,
Officer, Employee, or Agent who is a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction. Application may be made for an initial determination
by the court under Section 9.05(a)(5) or for review by the court of an adverse
determination under Section 9.05(a) (1), (2), (3), (4) or (6). After receipt
of an application, the court shall give any notice it considers necessary.
(b) The court shall order indemnification if it determines any of the
following:
(1) That the Director, Officer, Employee or Agent is entitled to
indemnification under Sections 9.01 or 9.02.
(2) That the Director, Officer, Employee or Agent is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, regardless of whether indemnification is required under
Section 9.02.
(c) If the court determines under (b) that the Director, Officer,
Employee or Agent is entitled to indemnification, the Corporation shall pay
the Director, Officer, Employee or Agent's expenses incurred to obtain the
court-ordered indemnification.
9.09 Insurance. The Corporation may purchase and maintain insurance on
behalf of an individual who is a Director, Officer, Employee or Agent of the
Corporation against liability asserted against or incurred by the individual
in his or her capacity as a Director, Officer, Employee or Agent, regardless
of whether the Corporation is required or authorized to indemnify or allow
expenses to the individual against the same liability under Sections 9.01,
9.02, or 9.06.
9.10 Securities Law Claims.
(a) Pursuant to the public policy of the State of Wisconsin, the
Corporation shall provide indemnification, allowance of expenses and insurance
for any liability incurred in connection with a proceeding involving
securities regulation described under (b) to the extent required or permitted
under Sections 9.01 to 9.09.
(b) Sections 9.01 to 9.09 apply, to the extent applicable to any other
proceeding, to any proceeding involving a federal or state statute, rule or
regulation regulating the offer, sale or purchase of securities, securities
brokers or dealers, or investment companies or investment advisers.
9.11 Liberal Construction. In order for the corporation to obtain and
retain qualified Directors, Officers, Employees, and Agents, the foregoing
provisions shall be liberally administered in order to afford maximum
indemnification of Directors, Officers, Employees, or Agents, and accordingly,
the indemnification above provided for shall be granted in all cases unless to
do so would clearly contravene applicable law, controlling precedent or public
policy.
9.12 Definitions Applicable to This Article.
(a) "Affiliate" shall include, without limitation, any corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise
that directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Corporation.
(b) "Corporation" means this Corporation and any domestic or foreign
predecessor of this Corporation where the predecessor corporation's existence
ceased upon the consummation of a merger or other transaction.
(c) "Director, Officer, Employee or Agent" means any of the following:
(1) A natural person who is or was a director, officer, employee or
agent (including attorneys) of this Corporation, provided, however, that
no attorney of the Corporation shall be considered an agent with respect
to those actions taken by such attorney solely in his capacity as an
independent contractor to the Corporation.
(2) A natural person who, while a Director, Officer, Employee or
Agent, of this Corporation, is or was serving at the Corporation's
request as a Director, Officer, Employee, Agent, Partner, trustee, member
of any governing or decision-making committee of another Corporation or
foreign corporation, partnership, joint venture, trust or other
enterprise.
(3) A natural person who, while a Director, Officer, Employee or
Agent of this Corporation, is or was serving an employee benefit plan
because his or her duties to the Corporation also impose duties on, or
otherwise involve services by, the person to the plan or to participants
or beneficiaries of the plan.
(4) Unless the context requires otherwise, the estate or personal
representative of a Director, Officer, Employee or Agent.
For purposes of this Article, it shall be conclusively presumed that any
Director, Officer, Employee or Agent serving as a Director, Officer, Employee,
Agent, partner, trustee, member of any governing or decision-making committee
of an affiliate shall be so serving at the request of the Corporation.
(d) "Expenses" include fees, costs, charges, disbursements, attorney
fees and other expenses incurred in connection with a proceeding.
(e) "Liability" includes the obligation to pay a judgment, settlement,
penalty, assessment, forfeiture or fine, including an excise tax assessed with
respect to an employee benefit plan, and reasonable expenses.
(f) "Party" includes a natural person who was or is, or who is
threatened to be made, a named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending or completed civil,
criminal, administrative or investigative action, suit, arbitration or other
proceeding, whether formal or informal, which involves foreign, federal, state
or local law and which is brought by or in the right of the Corporation or by
any other person.
ARTICLE X. SEAL
There shall be no corporate seal.
ARTICLE XI. AMENDMENTS
11.01 By Shareholders. These by-laws may be altered, amended or
repealed and new by-laws may be adopted by the shareholders by affirmative
vote of not less than a majority of the shares present or represented at an
annual or special meeting of the shareholders at which a quorum is in
attendance.
11.02. By Directors. These by-laws may also be altered, amended or
repealed and new by-laws may be adopted by the board of Directors by
affirmative vote of a majority of the number of Directors present at any
meeting at which a quorum is in attendance, but no by-law adopted by the
shareholders or subscribers shall be amended or repealed by the Board of
Directors if the by-law so adopted so provides.
11.03 Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors, which would be inconsistent with
the by-laws then in effect but is taken or authorized by affirmative vote of
not less than the number of shares or the number of Directors required to
amend the by-laws so that the by-laws would be consistent with such action,
shall be given the same effect as though the by-laws had been temporarily
amended or suspended so far, but only so far, as is necessary to permit the
specific action so taken or authorized.
EXHIBIT 10.3
LUNAR CORPORATION AND SUBSIDIARIES
EXECUTION COPY
DISTRIBUTION AGREEMENT
dated as of
April 16, 1996
by and between
LUNAR CORPORATION
and
BONE CARE INTERNATIONAL, INC.
TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE II THE DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . .5
Section 2.1 Cooperation Prior to the Distribution . . . . . . . . . . .5
Section 2.2 Lunar Board Action; Conditions Precedent to
the Distribution . . . . . . . . . . . . . . . . . . . . .6
Section 2.3 The Distribution. . . . . . . . . . . . . . . . . . . . . .7
Section 2.4 Fees and Expenses of Distribution Agent . . . . . . . . . .7
ARTICLE III TRANSITION ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . .7
Section 3.1 Conduct of Bone Care Business Pending Distribution. . . . .7
Section 3.2 Capital Adjustments . . . . . . . . . . . . . . . . . . . .7
ARTICLE IV INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 4.1 Bone Care Indemnification of the Lunar Group . . . . . . .7
Section 4.2 Lunar Indemnification of the Bone Care Group . . . . . . .8
Section 4.3 Insurance and Third-Party Obligations . . . . . . . . . . .9
Section 4.4 Information Provided by Lunar . . . . . . . . . . . . . . .9
ARTICLE V INDENMNIFICATION PROCEDURES . . . . . . . . . . . . . . . . . . 10
Section 5.1 Notice and Payment of Claims. . . . . . . . . . . . . . . 10
Section 5.2 Notice and Defense of Third-Party Claims. . . . . . . . . 10
ARTICLE VI SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.1 Provision of Services . . . . . . . . . . . . . . . . . . 12
Section 6.2 Reimbursement . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VII EMPLOYEE MATTERS. . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7.1 General . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7.2 Lunar Employee Stock Options. . . . . . . . . . . . . . . 13
Section 7.3 No Third-Party Beneficiaries. . . . . . . . . . . . . . . 13
ARTICLE VIII INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.1 Provision of Corporate Records. . . . . . . . . . . . . . 13
Section 8.2 Access to Information . . . . . . . . . . . . . . . . . . 13
Section 8.3 Litigation Cooperation. . . . . . . . . . . . . . . . . . 13
Section 8.4 Reimbursement . . . . . . . . . . . . . . . . . . . . . . 14
Section 8.5 Retention of Records. . . . . . . . . . . . . . . . . . . 14
Section 8.6 Confidentiality . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 9.1 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 9.3 Amendment and Waiver. . . . . . . . . . . . . . . . . . . 15
Section 9.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . 15
Section 9.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . 16
Section 9.6 Entire Agreement. . . . . . . . . . . . . . . . . . . . . 16
Section 9.7 Parties in Interest . . . . . . . . . . . . . . . . . . . 16
Section 9.8 Tax Disaffiliation Agreement. . . . . . . . . . . . . . . 16
Section 9.9 Further Assurances and Consents . . . . . . . . . . . . . 16
Section 9.10 Agreement to Acquire. . . . . . . . . . . . . . . . . . . 17
Section 9.11 Arbitration . . . . . . . . . . . . . . . . . . . . . . . 17
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT ("Agreement") dated as of April 16, 1996 by and
between Lunar Corporation, a Wisconsin corporation (together with its successors
and permitted assigns, "Lunar"), and Bone Care International, Inc., a Wisconsin
corporation (together with its successors and permitted assigns, "Bone Care").
W I T N E S S E T H
WHEREAS, Lunar presently owns approximately 97.3% of the outstanding
Bone Care Common Stock (as defined herein);
WHEREAS, the Board of Directors of Lunar has determined that it is in
the best interest of Lunar and the shareholders of Lunar to distribute (the
"Distribution") to the holders of Lunar Common Stock (a defined herein) all of
the shares of Bone Care Common Stock owned by Lunar;
WHEREAS, it is the intention of the parties that the Distribution will
not be taxable to the shareholders of Lunar (pursuant to Section 355 of the Code
(as defined herein));
WHEREAS, the parties have determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
the Distribution and to set forth other agreements that will govern certain
other matters; and
WHEREAS, Lunar is concurrently herewith entering into the Tax
Disaffiliation Agreement (as defined herein) and the Transition Agreement (as
defined herein) with Bone Care.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements, provisions and covenants contained in this Agreement, the
parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used herein, the following terms have
the following meaning (such meanings to be equally applicable to both singular
and plural forms of the terms defined):
"AAA Rules" has the meaning set forth in Section 9.10.
"Action" means any claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, governmental or other regulatory or
administrative agency or commission or any other tribunal.
"Ancillary Agreements" means all of the agreements, instruments,
understandings, assignments and other arrangements entered into in connection
with the transactions contemplated hereby, including, without limitation, the
Tax Disaffiliation Agreement and the Transition Agreement.
"Bone Care Business" means the business of the Bone Care Group as
described in the Form 10.
"Bone Care By-Laws" means the Amended and Restated By-Laws of Bone
Care in the form filed or to be filed as an exhibit to the Form 10.
"Bone Care Certificate" means the Amended and Restated Certificate of
Incorporation of Bone Care in the form filed or to be filed as an exhibit to the
Form 10.
"Bone Care Common Stock" means the outstanding shares of common stock,
no par value, of Bone Care.
"Bone Care Employees" means all current employees and former employees
(including without limitation all terminated employees, retirees, lay-off
employees, employees on leave, or employees on short-term or long-term
disability) of the Bone Care Group or any former subsidiary or division thereof.
"Bone Care Group" means Bone Care and Continental Assays, in each case
on the date hereof.
"Bone Care Indemnities" has the meaning set forth in Section 4.2(a).
"Bone Care Liabilities" means all of (a) the Liabilities of Bone Care
under this Agreement and (b) the Liabilities arising from the conduct or
operation of the Bone Care Business or the ownership or use of assets or other
activities in connection therewith, whether arising before, on or after the
Distribution Date, including but not limited to any third party claims arising
from the conduct or operation of the Bone Care Business or the ownership or use
of assets in connection therewith and any Liabilities set forth or referenced in
the audited financial statements of Bone Care included in the Form 10.
Notwithstanding the foregoing, the Bone Care Liabilities shall not include
(i) any Liability specifically retained by Lunar pursuant to Article VII hereof
or (ii) any claims, losses, damages, demands, costs, expenses or liabilities for
any Taxes (which shall be governed by the Tax Sharing Agreement).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Continental Assays" means Continental Assays Corporation, a wholly
owned subsidiary of Bone Care.
"Disputes" has the meaning set forth in Section 9.10.
"Distribution Agent" means the distribution agent for the shareholders
of Lunar, as selected by Lunar, to distribute the Bone Care Common Stock owned
by Lunar in connection with the Distribution.
"Distribution Date" means the business day as of which the
Distribution shall be effective, as determined by the Board of Directors of
Lunar.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Form 10" means the registration statement on Form 10 filed by Bone
Care with the Commission to effect the registration of the Bone Care Common
Stock pursuant to the Exchange Act, as such registration statement may be
amended from time to time.
"Group" means either the Bone Care Group or the Lunar Group, as
appropriate.
"Indemnifiable Loss" has the meaning set forth in Section 4.1.
"Indemnified Party" has the meaning set forth in Section 5.1.
"Information Statement" means the information statement to be sent to
each holder of Lunar Common Stock in connection with the Distribution.
"Liabilities" means any and all claims, debts, liabilities and
obligations, absolute or contingent, matured or not matured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including all costs and expenses relating thereto, and including, without
limitation, those debts, liabilities and obligations arising under this
Agreement, any law, rule, regulation, action, order or consent decree of any
governmental entity or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
"Lunar Common Stock" means the outstanding shares of common stock, par
value $.01 per share, of Lunar.
"Lunar Employee" means any current employee (including without
limitation any terminated employee, retiree, lay-off employee, employee on
leave, or employee on short-term or long-term disability) of a member of the
Lunar Group.
"Lunar Group" means Lunar and its direct or indirect subsidiaries
(other than any member of the Bone Care Group) as of the date hereof.
"Lunar Indemnities" has the meaning set forth in Section 4.1(a).
"Lunar Liabilities" means all of (i) the Liabilities of Lunar under
this Agreement, (ii) the Liabilities of the Lunar Group (other than any Bone
Care Liabilities), whether arising before, on or after the Distribution Date,
(iii) any third party claims arising from the conduct or operation of the
business of the Lunar Group or the ownership or use of assets in connection
therewith (other than insurance related to matters described in Article VII,
which shall be dealt with as described therein) and (iv) any Liability
specifically retained by Lunar pursuant to Article VII hereof. Notwithstanding
the foregoing, the Lunar Liabilities shall not include any claims, losses,
damages, demands, costs, expenses or liabilities for any Taxes (which shall be
governed by the Tax Disaffiliation Agreement).
"Notice" has the meaning set forth in Section 9.10.
"Panel" has the meaning set forth in Section 9.10.
"Participant" has the meaning set forth in Section 7.1(b).
"Party" has the meaning set forth in Section 9.10.
"Plan" has the meaning set forth in Section 7.1(a).
"Record Date" means the date determined by Lunar's Board of Directors
as the record date for determining the shareholders of Lunar entitled to receive
Bone Care Common Stock in connection with the Distribution.
"Securities Act" means the Securities Act of 1933, as amended.
"Services" has the meaning set forth in Section 6.1.
"Tax Disaffiliation Agreement" means the Tax Disaffiliation Agreement
of even date herewith by and between Lunar and Bone Care, as amended from time
to time.
"Third Party Claim" has the meaning set forth in Section 5.2.
"Transition Agreement" means the Transition Agreement of even date
herewith by and between Lunar and Bone Care, as amended from time to time.
ARTICLE II
THE DISTRIBUTION
Section 2.1 Cooperation Prior to the Distribution.
(a) Lunar and Bone Care shall prepare, and Lunar shall mail to the
holders of Lunar Common Stock as of the Record Date, the Information Statement,
which shall set forth appropriate disclosure concerning Bone Care, the
Distribution and any other appropriate matters. Lunar and Bone Care shall also
prepare, and Bone Care shall file with the Commission, the Form 10, which shall
include or incorporate by reference the Information Statement. Lunar and Bone
Care shall use reasonable efforts to cause the Form 10 to become effective under
the Exchange Act; provided, however, that nothing contained in this Agreement
shall create an obligation for Lunar to complete the Distribution, it being
understood that Lunar, in its sole discretion, will decide if and when the
Distribution shall occur.
(b) Lunar and Bone Care shall cooperate in preparing, filing with the
Commission and causing to become effective any registration statements or amend-
ments thereto that are appropriate to reflect the establishment of or amendments
to any employee benefit and other plans contemplated by this Agreement.
(c) Lunar and Bone Care shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of states or
other political subdivisions of the United States in connection with the
transactions contemplated by this Agreement.
(d) Lunar and Bone Care shall have prepared, and Bone Care shall file
and pursue, an application to permit listing of the Bone Care Common Stock on
the Nasdaq SmallCap Market or any other national securities exchanges selected
by Bone Care.
Section 2.2 Lunar Board Action; Conditions Precedent to the
Distribution. Lunar's Board of Directors may, in its discretion, establish the
Record Date and the Distribution Date and any appropriate procedures in
connection with the Distribution. In no event shall the Distribution occur
unless the following conditions shall, unless waived by Lunar, have been
satisfied:
(a) all necessary regulatory approvals shall have been received;
(b) the Form 10 shall have become effective under the Exchange Act;
(c) Bone Care's Board of Directors, as named in the Form 10, shall
have been elected by the shareholders of Bone Care, and the Bone Care Certifi-
cate and Bone Care By-Laws shall be in effect;
(d) Lunar's Board of Directors shall have formally approved the
Distribution and shall not have abandoned, deferred or modified the Distribution
at any time prior to the Record Date;
(e) Lunar's Board of Directors shall have received an opinion of KPMG
Peat Marwick LLP acceptable to it with respect to certain federal income tax
consequences of the Distribution;
(f) the Bone Care Common Stock shall have been approved for listing
upon notice of issuance on the Nasdaq SmallCap Market or on any other exchange
selected by Bone Care pursuant to Section 2.1(d);
(g) Bone Care and Lunar shall have entered into each of the Ancillary
Agreements and each such agreement shall be in full force and effect;
(h) Lunar shall make a capital contribution of $10,000,000 to Bone
Care in exchange for newly issued Bone Care Common Stock;
(i) there shall have been no adverse change in the financial
condition of either Bone Care or Lunar from the date hereof; and
(j) there shall have been no adverse change in market conditions from
the date hereof.
Section 2.3 The Distribution. On the Distribution Date or as soon
thereafter as practicable, subject to the conditions set forth in this
Agreement, Lunar shall deliver to the Distribution Agent a certificate or
certificates representing all of the shares of Bone Care owned by the Lunar
Group, endorsed in blank, and shall instruct the Distribution Agent to
distribute to each holder of record of Lunar Common Stock on the Record Date a
certificate or certificates representing one share of Bone Care Common Stock for
every two shares of Lunar Common Stock so held. Bone Care agrees to provide all
certificates for shares of Bone Care Common stock that the Distribution Agent
shall require in order to affect the Distribution.
Section 2.4 Fees and Expenses of Distribution Agent. The fees and
expenses of the Distribution Agent shall be paid by Lunar.
ARTICLE III
TRANSITION ARRANGEMENTS
Section 3.1 Conduct of Bone Care Business Pending Distribution.
Pending consummation of the Distribution and except as provided herein, the
business of the Bone Care Group shall be operated in the ordinary course
consistent with past practices.
Section 3.2 Capital Adjustments. On or prior to the Record Date,
Lunar and Bone Care shall take all steps necessary to increase the outstanding
shares of Bone Care Common Stock and to cause a stock split or other adjustment
to the shares of Bone Care Common Stock outstanding so that Lunar will hold a
number of shares of Bone Care Common Stock equal to approximately 50% of the
number of shares of Lunar Common Stock outstanding on the Record Date.
ARTICLE IV
INDEMNIFICATION
Section 4.1 Bone Care Indemnification of the Lunar Group.
(a) Subject to Section 4.3, on and after the Distribution Date, Bone
Care shall indemnify, defend and hold harmless the Lunar Group, and each of
their respective directors, officers, employees and agents (the "Lunar
Indemnitees") from and against any and all damage, loss, liability and expense
(including, without limitation, reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any and all Actions
or threatened Actions) (collectively, "Indemnifiable Losses") incurred or
suffered by any of the Lunar Indemnitees and arising out of, or due to the
failure of any member of the Bone Care Group to pay, perform or otherwise
discharge, any of the Bone Care Liabilities.
(b) Subject to Section 4.3, Bone Care shall indemnify, defend and
hold harmless the Lunar Indemnitees and each person, if any, who controls any of
the Lunar Indemnitees within the meaning of Section 15 of the Securities Act
from any Indemnifiable Losses, joint or several, to which they or any of them
may become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, at common law or otherwise, as and when
incurred, insofar as such Indemnifiable Losses (or Actions in respect thereof)
arise out of, or are based upon, any untrue statement or alleged untrue
statement of a material fact contained in the Form 10 or in the Information
Statement, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or arise out of or are based upon any
violation by Bone Care of the Securities Act, any blue sky laws, securities laws
or other applicable laws of any state or country in which the securities covered
by the Form 10 are offered or distributed and relating to action or inaction
required of Bone Care in connection with such offering or distribution, and
agrees to promptly reimburse each such Lunar Indemnitee or such person con-
trolling such Lunar Indemnitee, as and when incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Indemnifiable Losses; provided, however, that Bone Care will
not be liable in any such case to the extent that any such Indemnifiable Losses
arise out of, or are based upon, any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to Bone Care by Lunar specifically
for use in connection with the preparation thereof.
Section 4.2 Lunar Indemnification of the Bone Care Group.
(a) Subject to Section 4.3, on and after the Distribution Date, Lunar
shall indemnify, defend and hold harmless the Bone Care Group, and each of its
respective directors, officers, employees and agents (the "Bone Care
Indemnitees") from and against any and all Indemnifiable Losses incurred or
suffered by any of the Bone Care Indemnitees and arising out of, or due to the
failure of any member of the Lunar Group to pay, perform or otherwise discharge,
any of the Lunar Liabilities.
(b) Subject to Section 4.3, Lunar shall indemnify, defend and hold
harmless the Bone Care indemnitees and each person, if any, who controls any of
the Bone Care Indemnities within the meaning of Section 15 of the Securities Act
from any Indemnifiable Losses, joint or several, to which they or any of them
may become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, at common law or otherwise, as and when
incurred, insofar as such Indemnifiable Losses (or Actions in respect thereof)
arise out of, or are based upon, any untrue statement or alleged untrue
statement of a material fact contained in the Form 10, or in the Information
Statement, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that the same was made therein in reliance upon and in conformity
with written information furnished to Bone Care by Lunar specifically for use in
connection with the preparation thereof, or arise out of or are based upon any
violation or alleged violation by Lunar of the Securities Act, any blue sky
laws, securities laws or other applicable laws of any state or country in which
the securities covered by the Form 10 are offered or distributed and relating to
action or inaction required of Lunar in connection with such offering or
distribution, and agrees to promptly reimburse each such Bone Care Indemnitee or
such person controlling such Bone Care Indemnitee, as and when incurred, for any
legal or other expense reasonably incurred by them in connection with
investigating or defending any such Indemnifiable Losses.
Section 4.3 Insurance and Third-Party Obligations. Any
indemnification pursuant to Section 4.1 or 4.2 shall be paid net of the amount
of any insurance (other than any insurance paid for by the applicable
Indemnitee) or other amounts that would be payable by any third party to the
indemnified party in the absence of this Agreement. It is expressly agreed that
no insurer or any other third party shall be (a) entitled to a benefit it would
not be entitled to receive in the absence of the foregoing indemnification
provisions, (b) relieved of the responsibility to pay any claims to which it is
obligated or (c) entitled to any subrogation rights with respect to any
obligation hereunder.
Section 4.4 Information Provided by Lunar. It is hereby agreed upon
by Lunar and Bone Care that for purposes of Sections 4.1(b) and 4.2(b), the
written information furnished to Bone Care by Lunar specifically for use in
connection with the preparation of the Form 10 and the Information Statement
contained therein, consists only of the information identified in Annex A
hereto, which the parties agree is preliminary. At the time of the mailing of
the Information Statement, the information listed on Annex A shall be revised
and initialed by the proper officer or officers of each of Lunar and Bone Care,
such initials representing the parties' agreement thereto.
ARTICLE V
INDENMNIFICATION PROCEDURES
Section 5.1 Notice and Payment of Claims. If any Lunar or Bone Care
Indemnitee (the "Indemnified Party") determines that it is or may be entitled to
indemnification by any party (the "Indemnifying Party") under Article IV (other
than in connection with any Action or claim subject to Section 5.2), the
Indemnified Party shall deliver to the Indemnifying Party a written notice
specifying, to the extent reasonably practicable, the basis for its claim for
indemnification and the amount for which the Indemnified Party reasonably
believes it is entitled to be indemnified. After the Indemnifying Party shall
have been notified of the amount for which the Indemnified Party seeks
indemnification, the Indemnifying Party shall, within 30 days after receipt of
such notice, pay the Indemnified Party such amount in cash or other immediately
available funds unless the Indemnifying Party objects to the claim for
indemnification or the amount thereof, in which case the parties shall comply
with Section 9.10 hereof. If the Indemnifying Party does not give the
Indemnified Party written notice objecting to such claim and setting forth the
grounds therefor within the same 30-day period, the Indemnifying Party shall be
deemed to have acknowledged its liability for such claim and the Indemnified
Party may exercise any and all of its rights under applicable law to collect
such amount.
Section 5.2 Notice and Defense of Third-Party Claims. Promptly
following the earlier of (a) receipt of notice of the commencement by a third
party of any Action against or otherwise involving any Indemnified Party or
(b) receipt of information from a third party alleging the existence of a claim
against an Indemnified Party, in either case, with respect to which
indemnification may be sought pursuant to this Agreement (a "Third-Party
Claim"), the Indemnified Party shall give the Indemnifying Party written notice
thereof. The failure of the Indemnified Party to give notice as provided in
this Section 5.2 shall not relieve the Indemnifying Party of its obligations
under this Agreement, except to the extent that the Indemnifying Party is
prejudiced by such failure to give notice. Within 30 days after receipt of such
notice, the Indemnifying Party may (a) by giving written notice thereof to the
Indemnified Party, acknowledge liability for and at its option elect to assume
the defense of such Third-Party Claim at its sole cost and expense or (b) object
to the claim of indemnification set forth in the notice delivered by the
Indemnified Party pursuant to the first sentence of this Section 5.2; provided
that if the Indemnifying Party does not within the same 30-day period give the
Indemnified Party written notice objecting to such claim and setting forth the
grounds therefor or electing to assume the defense, the Indemnifying Party shall
be deemed to have acknowledged its liability for such Third-Party Claim. Any
contest of a Third-Party Claim as to which the Indemnifying Party has elected to
assume the defense shall be conducted by attorneys employed by the Indemnifying
Party and reasonably satisfactory to the Indemnified Party; provided that the
Indemnified Party shall have the right to participate in such proceedings and to
be represented by attorneys of its own choosing at the Indemnified Party's sole
cost and expense. If the Indemnifying Party assumes the defense of a
Third-Party Claim, the Indemnifying Party may settle or compromise the claim
withoutthe prior written consent the Indemnified Party; provided that the
Indemnifying Party may not agree to any such settlement pursuant to which any
such remedy or relief, other than monetary damages for which the Indemnifying
Party shall be responsible hereunder, shall be applied to or against the
Indemnified Party, without the prior written consent of the Indemnified Party,
which consent shall not be unreasonably withheld. If the Indemnifying Party
does not assume the defense of a Third-Party Claim for which it has acknowledged
liability for indemnification under Article IV, the Indemnified Party may
require the Indemnifying Party to reimburse it on a current basis for its
reasonable expenses of investigation, reasonable attorney's fees and reasonable
out-of-pocket expenses incurred in defending against such Third-Party Claim and
the Indemnifying Party shall be bound by the result obtained with respect
thereto by the Indemnified Party; provided that the Indemnifying Party shall not
be liable for any settlement effected without its consent, which consent shall
not be unreasonably withheld. The Indemnifying Party shall pay to the
Indemnified Party in cash the amount for which the Indemnified Party is entitled
to be indemnified (if any) within 15 days after the final resolution of such
Third-Party Claim (whether by the final nonappealable judgment of a court of
competent jurisdiction or otherwise) or, in the case of any Third-Party Claim as
to which the Indemnifying Party has not acknowledged liability, within 15 days
after such Indemnifying Party's objection has been resolved pursuant to Section
9.10 or by settlement, compromise or the final nonappealable judgment of a court
of competent jurisdiction.
ARTICLE VI
SERVICES
Section 6.1 Provision of Services. Subject to the provisions of the
Tax Disaffiliation Agreement, each party shall make available to the other party
during normal business hours and in a manner that will not unreasonably
interfere with such party's business, its financial, tax, accounting, employee
benefits and similar staff and services (collectively, "Services") whenever and
to the extent that they may be reasonably required in connection with the
preparation of returns of taxes, audits, claims, litigation or administration of
employee benefit plans and otherwise to assist in effecting an orderly
transition following the date hereof. The Services shall be provided for a
period of up to five years following the Distribution Date.
Section 6.2 Reimbursement. A party providing Services to the other
party pursuant to this Article VI shall be entitled to receive from the
recipient upon the presentation of invoices therefor, payment for all
out-of-pocket costs and expenses, exclusive of wages and salaries of employees,
as may be reasonably incurred in providing such Services.
ARTICLE VII
EMPLOYEE MATTERS
Section 7.1 General.
(a) The Lunar Group shall retain any and all liabilities relating to
or arising out of any employee benefit, compensation, or welfare arrangement (a
"Plan") in respect of any Lunar Employee except as otherwise set forth in this
Article VII. Except as otherwise set forth in this Article VII, the Lunar Group
shall have no liability relating to or arising out of any Plan in respect of
Bone Care Employees.
(b) Except as otherwise set forth in this Article VII, Bone Care
shall retain any and all liabilities relating to or arising out of any Plan in
respect of a Bone Care Employee.
Section 7.2 Lunar Employee Stock Options.
(a) Lunar acknowledges that certain Persons that will be full time
employees of Bone Care after the Distribution were granted stock options to
purchase shares of Lunar Common Stock. Lunar agrees that it will take action to
amend the stock option agreements covering such persons to provide that such
persons will be treated as an employee of Lunar for so long as such person
remains an employee or consultant of Bone Care.
Section 7.3 No Third-Party Beneficiaries. Neither Bone Care
Employees nor any Lunar Employee shall be entitled to enforce the provisions of
this Article VII against the respective parties as third-party beneficiaries
thereof.
ARTICLE VIII
INFORMATION
Section 8.1 Provision of Corporate Records. Each Group hereto shall
arrange as soon as practicable following the date hereof for the provision to
the other party of existing corporate governance documents (e.g., minute books,
stock registers, stock certificates, documents of title, etc.) in its possession
relating to such other Group or its business and affairs.
Section 8.2 Access to Information. From and after the date hereof,
each Group shall afford the other Group and its accountants, counsel and other
designated representatives reasonable access (including using reasonable efforts
to give access to persons or firms possessing information) and duplicating
rights during normal business hours to all records, books, contacts,
instruments, computer data and other data and information in such Group's
possession relating to the business and affairs of such other party (other than
data and information subject to an attorney-client or other privilege), insofar
as such access is reasonably required by such other Group including, without
limitation, for audit, accounting and litigation purposes, as well as for
purposes of fulfilling disclosure and reporting obligations.
Section 8.3 Litigation Cooperation. Each Group shall use reasonable
efforts to make available to the other Group, upon written request, its
officers, directors, employees and agents as witnesses to the extent that such
persons may reasonably be required in connection with any legal, administrative
or other proceedings arising out of the business of the other party prior to the
date hereof in which the requesting party may from time to time be involved.
Section 8.4 Reimbursement. Each Group providing information or
witnesses under Section 8.1, 8.2 or 8.3 to the other Group shall be entitled to
receive from the recipient, upon the presentation of invoices therefor, payment
for all out-of-pocket costs and expenses as may be reasonably incurred in
providing such information or witnesses.
Section 8.5 Retention of Records. Except as otherwise required by
law or agreed to in writing, each party shall retain all information relating to
the other Group's business in accordance with the past practice of such party.
Notwithstanding the foregoing, except as provided in the Tax Sharing Agreement,
any party may destroy or otherwise dispose of any information at any time,
provided that, prior to such destruction or disposal, (a) such party shall
provide no less than 90 days' prior written notice to the other party,
specifying the information proposed to be destroyed or disposed of and (b) if
the recipient of such notice shall request in writing prior to the scheduled
date for such destruction or disposal that any of the information proposed to be
destroyed or disposed of be delivered to such requesting party, the party
proposing the destruction or disposal shall promptly arrange for the delivery of
such of the information as was requested at the expense of the requesting party.
Section 8.6 Confidentiality. Each party shall hold and shall cause
its directors, officers, employees, agents, consultants and advisors to hold in
strict confidence, unless compelled to disclose by judicial or administrative
process or, in the opinion of its counsel, by other requirements of law, all
information (other than any such information relating solely to the business or
affairs of such party) concerning the other party (except to the extent that
such information can be shown to have been (a) in the public domain through no
fault of such party or (b) later lawfully acquired on a non-confidential basis
from other sources by the party to which it was furnished), and neither party
shall release or disclose such information to any other person, except its
auditors, attorneys, financial advisors, bankers and other consultants and
advisors who shall be advised of and agree in writing to comply with the
provisions of this Section 8.6. Each party shall be deemed to have satisfied
its obligation to hold confidential information concerning or supplied by the
other party if it exercises the same care as it takes to preserve
confidentiality for its own similar information.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Expenses. Except as specifically provided in this
Agreement (or the Tax Disaffiliation Agreement, if relevant) or except as
otherwise agreed to in writing between Lunar and Bone Care, all costs and
expenses incurred in connection with the preparation, execution, delivery and
implementation of this Agreement and with the consummation of the transactions
contemplated by this Agreement (including transfer taxes and the fees and
expenses of all counsel, accountants and financial and other advisors) shall be
paid by the party incurring such cost or expense. Notwithstanding the
foregoing, it is understood and agreed that the Lunar Group shall pay the legal,
filing, accounting, printing and other accountable and out-of-pocket
expenditures in connection with the (i) preparation, printing and filing of the
Form 10 and (ii) preparation, printing and filing of the information statement
included as part of the Form 10.
Section 9.2 Notices. All notices and communications under this
Agreement shall be in writing and any communication or delivery hereunder shall
be deemed to have been duly given when received addressed as follow:
If to Lunar, to:
Lunar Corporation
313 West Beltline Highway
Madison, Wisconsin 53713
Attention: President
If to Bone Care, to:
Bone Care International, Inc.
313 West Beltline Highway
Madison, Wisconsin 53713
Attention: President
Any party may, by written notice so delivered to the other parties, change the
address to which delivery of any notice shall thereafter be made.
Section 9.3 Amendment and Waiver. This Agreement may not be altered
or amended, nor may rights hereunder be waived, except by an instrument in
writing executed by the party or parties to be charged with such amendment or
waiver. No waiver of any terms, provision or condition of or failure to
exercise or delay in exercising any rights or remedies under this Agreement, in
any one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, provision, condition, right or remedy or as
a waiver of any other term, provision or condition of this Agreement.
Section 9.4 Counterparts. This Agreement may be executed in one or
more counterparts each of which shall be deemed an original instrument, but all
of which together shall constitute but one and the same Agreement.
Section 9.5 Governing Law. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of Wisconsin, without
regard to the conflicts of law rules of such state.
Section 9.6 Entire Agreement. This Agreement, together with the
Ancillary Agreements, constitutes the entire understanding of the parties hereto
with respect to the subject matter hereof, superseding all negotiations, prior
discussions and prior agreements and understandings relating to such subject
matter. To the extent that the provisions of this Agreement are inconsistent
with the provisions of any Ancillary Agreements, the provisions of such
Ancillary Agreement shall prevail.
Section 9.7 Parties in Interest. None of the parties hereto may
assign its rights or delegate any of its duties under this Agreement without the
prior written consent of each other party. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. Nothing contained in this Agreement, express
or implied, is intended to confer any benefits, rights or remedies upon any
person or entity other than the Lunar Group and the Bone Care Group, and the
Lunar and Bone Care Indemnitees under Articles IV and V hereof.
Section 9.8 Tax Disaffiliation Agreement.
(a) This Agreement shall not govern any taxes, and any and all
claims, losses, damages, demands, costs, expenses, liabilities, refunds,
deductions, write-offs, or benefits relating to taxes shall be exclusively
governed by the Tax Disaffiliation Agreement.
(b) If at the time Bone Care is required to
make any payment to Lunar under this Agreement, Lunar owes Bone Care any amount
under the Tax Disaffiliation Agreement, then such amounts shall be offset and
the excess shall be paid by the party liable for such excess. Similarly, if at
the time Lunar is required to make any payment to Bone Care under this
Agreement, Bone Care owes Lunar any amount under the Tax Disaffiliation Agree-
ment, then such amounts shall be offset and the excess shall be paid by the
party liable for such excess.
Section 9.9 Further Assurances and Consents. In addition to the
actions specifically provided for elsewhere in this Agreement, each of the
parties hereto will use its reasonable efforts to (i) execute and deliver such
further instruments and documents and take such other actions as any other party
may reasonably request in order to effectuate the purposes of this Agreement and
to carry out the terms hereof and (ii) take, or cause to be taken, all actions,
and to do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements or otherwise to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, using its reasonable efforts to obtain any
consents and approvals and to make any filings and applications necessary or
desirable in order to consummate the transactions contemplated by this
Agreement; provided that no party hereto shall be obligated to pay any con-
sideration therefor (except for filing fees and other similar charges) to any
third party from whom such consents, approvals and amendments are requested or
to take any action or omit to take any action if the taking of or the omission
to take such action would be unreasonably burdensome to the party, its Group or
its Group's business.
Section 9.10 Agreement to Acquire. The parties acknowledge and agree
that this Agreement constitutes an agreement to acquire shares by the
shareholders of Lunar, which agreement has been entered into at a time when Bone
Care is not an issuing public corporation (as defined in Section 180.1150 of the
Wisconsin Statutes).
Section 9.11 Arbitration. Resolution of any and all disputes arising
from or in connection with this Agreement, whether based on contract, tort,
statute or otherwise, including, but not limited to, disputes over arbitrability
and disputes in connection with claims by third parties (collectively,
"Disputes") shall be exclusively governed by and settled in accordance with the
provisions of this Section 9.10; provided, however, that nothing contained
herein shall preclude either party from seeking or obtaining (a) injunctive
relief or (b) equitable or other judicial relief to enforce the provisions
hereof or to preserve the status quo pending resolution of Disputes hereunder;
provided further, that nothing contained herein shall preclude resolution of
Disputes by mutual agreement among the Parties to this Agreement. Lunar or Bone
Care (each a "Party") may commence proceedings hereunder by delivering a written
notice (the "Notice") to the other Party providing a reasonable description of
the Dispute to the other. The Parties hereby agree to submit all Disputes, if
not resolved between the Parties within 30 days of receipt of the Notice, to
arbitration under the terms hereof, which arbitration shall be final, conclusive
and binding upon the Parties, their successors and assigns. The arbitration
shall be conducted in Wisconsin by three arbitrators acting by majority vote
(the "Panel") selected by agreement of the Parties not later than ten days after
delivery of the Notice or, failing such agreement, appointed pursuant to the
commercial arbitration rules of the American Arbitration Association, as amended
from time to time (the "AAA Rules"). If an arbitrator so selected becomes
unable to serve, his or her successors shall be similarly selected or appointed.
The arbitration shall be conducted pursuant to the Federal Arbitration Act and
such procedures as to which the Parties may agree, or, in the absence of or
failing such agreement, pursuant to the AAA Rules. Notwithstanding the
foregoing: (a) each Party shall have the right to audit the books and records of
the other Party that are reasonably related to the Dispute; (b) each Party shall
provide to the other, reasonably in advance of any hearing, copies of all
documents which a Party intends to present in such hearing; (c) each Party shall
be allowed to conduct reasonable discovery through written requests for
information, document requests, requests for stipulation of fact and
depositions, the nature and extent of which discovery shall be determined by the
Panel, taking into account the needs of the Parties and the desirability of
making discovery expeditious and cost effective. All hearings shall be
conducted on an expedited schedule, and all proceedings shall be confidential.
Either Party may at its expense make a stenographic record thereof. The Panel
shall complete all hearings not later than 90 days after its selection or
appointment, and shall make a final award not later than 30 days thereafter.
The award shall be in writing and shall specify the factual and legal basis for
the award. The Panel shall apportion all costs and expenses of arbitration,
including the Panel's fees and expenses and fees and expenses of experts,
between the prevailing and non-prevailing Party as the Panel deems fair and
reasonable. Notwithstanding the foregoing, in no event may the Panel award
multiple, punitive or exemplary damages.
THIS AGREEMENT CONTAINS BINDING ARBITRATION PROVISIONS
WHICH MAY BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
LUNAR CORPORATION
By: Richard B. Mazess
-----------------------------------
Name: Richard B. Mazess, Ph.D.
Title: President
BONE CARE INTERNATIONAL, INC.
By: Charles W. Bishop
-----------------------------------
Name: Charles W. Bishop, Ph.D.
Title: President
Annex A
1. The first and second sentences of the first paragraph on the cover
page of the Information Statement;
2. the first sentence of the second paragraph on the cover page of the
Information Statement;
3. the full paragraphs under "Summary--The Distribution" discussing
"Shares to be Distributed," "Distribution Ratio," "Fractional Shares
of Bone Care Common Stock," "Certain Federal Income Tax Consequences
to Holders of Lunar Stock," "Record Date," "Distribution Date,"
"Mailing Date" and "Distribution Agent;"
4. the first two sentences under "Summary--The Distribution" discussing
"Capital Contributions" and the first sentence under "Summary--The
Distribution" discussing "Relationship with Lunar After the
Distribution;"
5. the three full paragraphs under "Introduction;"
6. the two full paragraphs under "The Distribution--Background and
Reasons for the Distribution;"
7. the second full paragraph under "The Distribution--Manner of Effecting
the Distribution;"
8. the first five paragraphs under "The Distribution--Certain Federal
Income Tax Consequences of the Distribution to Holders of Lunar
Stock;"
9. the full paragraph under "The Distribution--Reasons for Furnishing the
Information Statement;" and
10. the charts captioned "Summary Compensation Table," "Lunar Stock Option
Grants in Fiscal Year 1995" and "Aggregate Lunar Stock Option
Exercises in Fiscal Year 1995 and Fiscal Year End Under Stock Option
Values" under "Bone Care Management--Compensation of Executive
Officers."
EXHIBIT 10.4
LUNAR CORPORATION AND SUBSIDIARIES
TAX DISAFFILIATION AGREEMENT (this "Agreement") dated as of April 16,
1996, by and between Lunar Corporation, a Wisconsin corporation ("Lunar"), and
Bone Care International, Inc., a Wisconsin corporation ("Bone Care").
RECITALS
a. Lunar, pursuant to a Distribution Agreement dated April 16 ,
1996, by and between Lunar and Bone Care (the "Distribution
Agreement"), will distribute to the holders of the common stock of
Lunar approximately 97.3% of the outstanding shares of the common
stock of Bone Care (the "Distribution").
b. Lunar intends to contribute $725,000 to the capital of Bone Care
prior to the Distribution to reflect federal income tax savings
previously realized by Lunar that were attributable to losses incurred
by Bone Care prior to the Distribution (the "Lunar Tax Payment").
c. Lunar and Bone Care intend the Distribution to qualify as a
transaction described under Section 355 of the Code.
d. Lunar and Bone Care desire to set forth their rights and
obligations with respect to certain Tax liabilities.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement,
1.01 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.02 "Distribution" shall have the meaning set forth in the recitals
to this Agreement.
1.03 "Distribution Agreement" shall have the meaning set forth in the
recitals to this Agreement.
1.04 "Bone Care Group" shall mean, for any period, Bone Care and its
then Subsidiaries.
1.05 "Federal Income Taxes" shall mean United States federal income
taxes imposed by the Code and any penalties, fines, additions to tax and
interest related thereto.
1.06 "Final Determination" shall mean with respect to any issue (1) a
decision, judgment, decree or other order by any court of competent
jurisdiction, which decision, judgment, decree or other order has become final
and not subject to further appeal, (2) a closing agreement entered into under
Section 7121 of the Code or any other binding settlement agreement (whether or
not with the Internal Revenue Service) entered into in connection with or in
contemplation of an administrative or judicial proceeding, or (3) the completion
of the highest level of administrative proceedings if a judicial contest is not
or is no longer available.
1.07 "Indemnitor" shall have the meaning set forth in Section 5.02.
1.08 "Lunar Group" shall mean, for any period, Lunar and its then
Subsidiaries.
1.09 "Lunar Tax Payment" shall have the meaning set forth in the
recitals to this Agreement.
1.10 "Period After Distribution" shall mean any taxable year or other
taxable period beginning after the Date of Distribution and, in the case of any
taxable year or other taxable period that begins before and ends after the Date
of Distribution, that part of the taxable year or other taxable period that
begins after the close of the Date of Distribution.
1.11 "Period Before Distribution" shall mean any taxable year or other
taxable period that ends on or before the Date of Distribution and, in the case
of any taxable year or other taxable period that begins before and ends after
the Date of Distribution, the part of the taxable year or other taxable period
through the close of the Date of Distribution.
1.12 "Subsidiary" shall mean a corporation, partnership, joint venture
or other legal entity if 50% or more of the stock or other equity interests is
owned directly or indirectly by the corporation with respect to which such term
is used. In determining whether a Subsidiary is a Subsidiary of Bone Care or
Lunar for any period, Bone Care shall not be a Subsidiary of Lunar and any
Subsidiary of Bone Care shall be a Subsidiary of Bone Care, but not Lunar, for
such period.
1.13 "Tax" or "Taxes" whether used in the form of a noun or adjective,
shall mean taxes on or measured by income, franchise, gross receipts, sales,
use, excise, payroll, personal property, real property, ad valorem, value-added,
or other taxes, levies, imposts, duties, charges or withholding of any nature
(including, without limitation, any duty to reimburse another party for
indemnified taxes or refunds or credit of taxes), and any penalties, fines,
additions to tax and interest thereon.
1.14 "Tax Return" shall mean any report required to be filed for any
period with any taxing authority (whether domestic or foreign) in connection
with Taxes.
1.15 "Tax Sharing Agreement" shall mean any written or unwritten
agreement or arrangement for the allocation or payment of Tax liabilities or
payment of Tax benefits with respect to consolidated, combined or unitary Tax
Returns.
ARTICLE II
LUNAR TAX PAYMENT
Upon the execution of this Agreement, Lunar shall contribute an amount
of cash equal to the Lunar Tax Payment to the capital of Bone Care.
ARTICLE III
TAX RETURNS AND TAX PAYMENTS
3.01 Obligations to File Tax Returns. (a) Lunar shall file all Tax
Returns with respect to the business or operations of Lunar for any Period after
Distribution and shall file all Tax Returns with respect to the business or
operations of Lunar or Bone Care to the extent such Tax Returns are required to
be filed after the Date of Distribution and relate (in whole or in part) to any
Period Before Distribution and (b) Bone Care shall file all Tax Returns with
respect to the business or operations of Bone Care for any Period after
Distribution.
3.02 Obligations to Remit Taxes. Lunar and Bone Care shall each remit
any Taxes required to be paid with, or with respect to, a Tax Return required to
be filed by it pursuant to Section 3.01 and shall be entitled to reimbursement
for such payments to the extent provided in Section 3.03.
3.03 Tax Sharing Obligation
(a) Lunar shall be liable for and shall pay (i) any Federal Income
Taxes in respect of the business or operations of Bone Care for any Period
Before Distribution that exceed the amount of the Lunar Tax Payment and (ii) any
Taxes in respect of the business or operations of the Lunar Group (other than
Bone Care). Lunar shall indemnify Bone Care, on an after-Tax basis assuming the
highest marginal statutory federal and state Tax rates in effect at the time of
reimbursement, from and against all such Taxes. Lunar shall be entitled to
receive any refund of such Taxes for any such Tax periods. Such refunds of
Taxes, if any, received by Bone Care shall be remitted to Lunar within ten (10)
business days following receipt.
(b) Bone Care shall be liable for and shall pay (i) any Taxes
(other than Federal Income Taxes) in respect of the business or operations of
Bone Care for any Period Before Distribution, (ii) any Federal Income Taxes in
respect of the business or operations of Bone Care for any Period Before
Distribution that is equal to or less than the amount of the Lunar Tax Payment
and (iii) any Taxes in respect of the business or operations of Bone Care for
any Period After Distribution. Bone Care shall indemnify Lunar, on an after-Tax
basis assuming the highest marginal statutory federal and state Tax rates in
effect at the time of reimbursement, from and against all such Taxes. Bone Care
shall be entitled to receive any refund of such Taxes for any such Tax periods.
Such refunds of Taxes, if any, received by Lunar shall be remitted to Bone Care
within ten (10) business days following receipt.
(c) On the Date of Distribution, all Tax Sharing Agreements
between Lunar and Bone Care, other than this Agreement and any provisions
related to Taxes contained in the Distribution Agreement, shall terminate.
3.04 Period That Includes the Date of Distribution. If it is
necessary for purposes of this Agreement to determine Tax liability for a
taxable year that begins on or before and ends after the Date of Distribution,
the determination shall be made by closing the books at the close of the Date of
Distribution, except that exemptions, allowances or deductions that are
calculated on an annual basis shall be apportioned on a daily basis.
ARTICLE IV
PAYMENTS
4.01 Due Date. Taxes remitted by one party pursuant to Section 3.01
and 3.02 but which are the liability of other party pursuant to Section 3.03
shall be reimbursed by such other party within ten (10) business days of receipt
of written demand from the party remitting such Taxes. Other payments due to a
party under Section 3.03 shall be due not later than ten (10) business days
after the receipt of notice of Final Determination that the indemnified party is
liable (or, in the case of a refund due to a party under Section 3.03, not later
than ten (10) business day after the receipt of crediting of such refund).
4.02 Notice. Lunar and Bone Care shall give each other prompt notice
of any payment that may be due under this Agreement.
ARTICLE V
TAX AUDITS
5.01 General. Except as provided in Section 5.02, each of Lunar and
Bone Care shall have sole responsibility for all audits or other proceedings
with respect to Tax Returns that it is required to file under Section 3.01.
5.02 Indemnified Claims. Lunar and Bone Care shall promptly notify
the other in writing of any inquiry from any governmental authority, or any
proposed adjustment, in each case with respect to any Tax that may result in
liability of the other party (the "Indemnitor") under this Agreement. The
Indemnitor shall have the sole right to control any audit, examination, suit, or
other judicial or administrative proceeding regarding the proposed adjustment
and to employ counsel of its choice at its expense; provided, however, that if
the proposed adjustment Federal Income Taxes of Bone Care for any Period Before
Distribution, the Indemnitor shall not settle the proposed adjustment without
the consent of the other party (which consent shall not be unreasonably
withheld). The Indemnitor shall provide the other party with information about
the nature and amounts of the proposed adjustments and, in the sole discretion
of the Indemnitor, may permit the other party to participate in the Proceeding;
provided, however, that the other party shall be entitled to participate fully
in any proceeding relating to Federal Income Taxes of Bone Care for any Period
Before Distribution.
ARTICLE VI
COOPERATION
Lunar and Bone Care shall cooperate with each other in the filing of
any Tax Returns and the conduct of any audit or other proceeding and each shall
execute and deliver such powers of attorney and make available such other
documents as are necessary to carry out the intent of this Agreement. Each
party agrees to notify the other party of any audit adjustments which do not
result in Tax liability but can be reasonably expected to affect the Tax Returns
of the other party for a Period After Distribution.
ARTICLE VII
RETENTION OF RECORDS; ACCESS
The Lunar Group and the Bone Care Group shall:
(a) retain records, documents, accounting data and other
information (including computer data) necessary for the preparation and filing
of all Tax Returns in respect of Taxes of the Lunar Group or the Bone Care Group
or for the audit of such Tax Returns; and
(b) give to the other reasonable access to such records,
documents, accounting data and other information (including computer data) and
to its personnel and premises, for the purpose of the review or audit of such
Tax Returns to the extent relevant to an obligation or liability of a party
under this Agreement.
ARTICLE VIII
DISPUTES
If Lunar and Bone Care cannot agree on any calculation of any
liabilities under this Agreement, such calculation shall be made by an
independent public accounting firm acceptable to both Lunar and Bone Care. The
decision of such firm shall be final and binding. The fees and expenses
incurred in connection with such calculation shall be borne equally by Lunar and
Bone Care.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.01 Notices and Governing Laws. All notices required or
permitted to be given pursuant to this Agreement shall be given, and the
applicable law governing the interpretation of this Agreement shall be
determined, in accordance with the applicable provisions of the Distribution
Agreement.
9.02 Binding Effect: Assignment: No Third Party Beneficiaries.
This Agreement shall be binding on, and shall inure to the benefit of, the
parties and their respective successor and assigns. Lunar and Bone Care hereby
guarantee the performance of all actions, agreements and obligations provided
for under this Agreement of each member of the Lunar Group and the Bone Care
Group, respectively. Neither Lunar nor Bone Care shall assign any of its rights
or delegates any of its duties under this Agreement without the prior written
consent of the other party. No person (including, without limitation, any
employee of a party or any stockholder of a party) shall be, or shall be deemed
to be, a third party beneficiary of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
LUNAR CORPORATION
By: Richard B. Mazess
------------------------
Title: President
BONE CARE INTERNATIONAL INC.
By: Charles W. Bishop
----------------------
Title: President
EXHIBIT 10.5
LUNAR CORPORATION AND SUBSIDIARIES
TRANSITION AGREEMENT
This Agreement is made and entered into as of this 16th day of April, 1996
by and between Bone Care International, Inc. (''Company''), a Wisconsin
corporation, and Lunar Corporation (''Lunar''), a Wisconsin corporation, with
reference to the following facts:
A. Company is a susidiary of Lunar; and
B. At the close of business on or about April 29, 1996, Lunar will
distribute the shares of common stock it owns in Bone Care to the shareholders
of Lunar on a pro rata basis and for no consideration ( "the Distribution"); and
C. Lunar is experienced in matters relating to the provision of financial,
legal and administrative services (collectively "Management Services") and has
been providing such services to Company prior to the Distribution; and
D. Lunar has available for rent, office and laboratory facilities
("Facilities"), which Facilities were being rented by Company prior to the
Distribution; and
E. Company desires to continue to utilize Lunar's Management Services and
Facilities.
NOW, THEREFORE, the parties hereto agree as follows:
1. Company hereby agrees to rent Facilities having a total square footage of
approximately 3,000 and located at 313 West Beltline Highway, Madison,
Wisconsin.
2. Company hereby retains Lunar and Lunar agrees to provide Company with
Management Services under and subject to all of the terms, conditions and
provisions hereof.
3. Lunar hereby agrees to provide the services of Richard Mazess, Robert
Beckman and Carl Gulbrandsen (hereafter referred to collectively as "Lunar
Managers") and other employees of Lunar as needed by Company during the term
hereof. Lunar Managers shall render their services to Company by and subject to
the instruction and direction of Company's Board of Directors or the Board's
designated management to whom Lunar management and other employees of Lunar
shall report.
4. Lunar shall furnish and have available to furnish sufficient full and
part-time staff personnel for all financial, legal and administrative activities
as required by Company for the orderly operation of its business.
5. It is expressly understood by all parties hereto that throughout the term
hereof, Lunar Managers will diligently devote such time and best efforts as is
reasonably required to Company's business in the performance of her services and
will perform their services conscientiously, efficiently and to the best of
their ability. Except as otherwise set forth herein or in other agreements with
Company, nothing contained in this Agreement shall preclude Lunar Managers from
engaging in other business activities provided that said activities do not
interfere with the performance of their duties and responsibilities for Company.
6. In consideration for the Management Services to be rendered by Lunar
Managers, Company shall compensate Lunar in an amount as follows:
(a) $7,000.00 per month for all the above described Management Services,
with the exception of legal services in the area of intellectual property.
(b) $150.00 per hour for legal service rendered to Company by Carl
Gulbrandsen in the area of intellectual property.
(c) Management Services rendered by outside providers, e.g. accounting and
legal services (including legal services in the intellectual property area), are
not included in (a) or (b), above and will be billed directly to Company.
(d) $2,000.00 per month for rental of Facilities inclusive of utilities.
7. Payment of amounts specified in section 4(a) and (d) shall be paid
monthly to Lunar on or before the 10th day of each calendar month. Payment for
legal services in the intellectual property area shall be paid to Lunar within
30 days of receipt of invoice from Lunar.
8. All of Lunar's officers, directors, employees and contract personnel
working with Company shall be required to sign an agreement in a form acceptable
to Company relating to the nondisclosure of Company's trade secrets, proprietary
information, and other ideas or materials developed for use by (a copy of said
agreement is attached hereto as Exhibit A and made a part hereof).
9. The term of this Agreement shall be April 16, 1996 to and including
April 16, 1996.
10. This Agreement may be terminated by Company upon ninety (90) days' prior
written notice to Lunar. Accrued and unpaid compensation due Lunar as of the
date of termination payable pursuant to this agreement shall be paid within 10
days following the date of termination.
11. This Agreement may, at the option of Company be immediately terminated,
without prior notice, upon the death of one or more of Lunar Managers or if one
or more of Lunar Managers shall be rendered incapable by illness or any other
valid cause from complying with the terms, conditions and provisions on her part
to be kept, observed and performed pursuant to this agreement for a period of
time which Company determines to be unreasonable. In the event of termination
under this paragraph, the termination shall be effective as of the date of
notice of termination. Accrued and unpaid compensation due Lunar as of the date
of such death or disability pursuant to this agreement herein shall be paid
within 10 days following the date of death or disability.
12. Company shall have the option to terminate this Agreement for cause,
immediately upon notice to Lunar, upon the occurrence of any of the following
events:
(a) Lunar materially breaches any of the terms or provisions of this
Agreement;
(b) Lunar Managers habitually neglects his/their duties as contemplated
under this Agreement;
(c) Lunar Managers is/are convicted of a felony or a misdemeanor involving
moral turpitude.
If this Agreement is terminated for cause as herein provided,
accrued and unpaid compensation due Lunar as of the date of termination pursuant
to this agreement shall be paid within 10 days following the date of
termination.
13. This Agreement may not be assigned by Lunar without the prior written
approval of Company, which approval shall not be unreasonably withheld.
14. Lunar expressly agrees that all books and records relating in any manner
whatsoever to the business of Company, and all other files, books and records
and other materials owned by Company or used by it in connection with the
conduct of its business, whether prepared by Lunar Managers, Lunar personnel,
contract employees or otherwise coming into Lunar Managers's or Lunar's
possession, shall be the exclusive property of Company regardless of who
actually prepared the original material, books or records. All such books and
records and other materials shall be returned immediately to Company upon the
termination of Lunar's services.
15. Any notice required or permitted to be given under this Agreement by one
party hereto to the other shall be in writing and shall be deemed to have been
given as of the second business day following the date of mailing if mailed to
the party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid and properly addressed as follows:
To Lunar: 313 West Beltline Highway
Madison, Wisconsin 53713
Attention: President
To Company: 313 West Beltline Highway
Madison, Wisconsin 53713
Attention: President
or to such other addresses as the respective parties may in writing to the other
designate.
16. This Agreement and all rights and obligations hereunder, including
matters of construction, validity and performance, shall be governed by the laws
of Wisconsin. If any legal action or other proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach, default
or misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in connection with that
action or proceeding, in addition to any other relief to which such party or
parties may be entitled.
17. No claim, demand, action, proceeding, arbitration, litigation, hearing,
motion or lawsuit arising herefrom or with respect hereto shall be commenced or
prosecuted in any jurisdiction other than in the State of Wisconsin and any
judgment, determination, finding or conclusion reached or rendered in any other
jurisdiction shall be null and void between the parties hereto.
18. The parties hereto agree that this Agreement constitutes the entire and
exclusive agreement between them pertaining to the subject matter contained in
it, and supersedes all prior or contemporaneous agreements, oral or written,
conditions, representations, warranties, proposals and understandings of the
parties pertaining to such subject matter.
19. The provisions of this Agreement inure to the benefit of and are binding
on the successors and assigns of Company and the successors and assigns of
Lunar.
20. Should any paragraph or provision of this Agreement be held to be void,
invalid or inoperative, it shall not affect any other paragraph or provision
hereof, and the remainder of this Agreement shall be effective as though such
void, invalid, or inoperative paragraph or provision had not been contained
herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
BONE CARE INTERNATIONAL, INC. LUNAR CORPORATION
By: Charles W. Bishop By: Richard B. Mazess
---------------------------- --------------------------
Name: Charles W. Bishop, Ph.D. Name: Richard B. Mazess, Ph.D.
Title: President Title: President
Exhibit 11
LUNAR CORPORATION AND SUBSIDIARIES
Computation of Per-Share Earnings
June 30, 1996 June 30, 1995 June 30, 1994
------------- ------------- -------------
Net income $9,236,444 $6,701,262 $5,805,987
========== ========== ==========
Weighted average shares outstanding 8,194,821 7,904,565 7,809,957
Effect of stock options calculated
according to the treasury stock
method 713,002 919,700 716,173
---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding 8,907,823 8,824,265 8,526,130
========== ========== ==========
Net income per common and common-
equivalent share $1.04 $0.76 $0.68
===== ===== =====
EXHIBIT 21
LUNAR CORPORATION AND SUBSIDIARIES
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
Bona Fide, Ltd. Wisconsin
Lunar FSC, Inc. U.S. Virgin Islands
Lunar GmbH Germany
Lunar Europe, N.V. Belgium
Exhibit 23
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Lunar Corporation:
We consent to incorporation by reference in the registration statements on Form
S-8 (File Nos. 33-38043 and 33-63891) of Lunar Corporation of our reports dated
July 26, 1996, relating to the consolidated balance sheets of Lunar Corporation
and subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity, and cash flows and the related
financial statement schedule for each of the years in the three-year period
ended June 30, 1996, which reports appear in the June 30, 1996 annual report on
Form 10-K of Lunar Corporation.
KPMG Peat Marwick LLP
Chicago, Illinois
September 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-K FOR THE YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,002
<SECURITIES> 3,375
<RECEIVABLES> 38,188
<ALLOWANCES> 2,235
<INVENTORY> 8,675
<CURRENT-ASSETS> 49,466
<PP&E> 6,566
<DEPRECIATION> 2,977
<TOTAL-ASSETS> 62,872
<CURRENT-LIABILITIES> 10,467
<BONDS> 0
<COMMON> 85
0
0
<OTHER-SE> 52,320
<TOTAL-LIABILITY-AND-EQUITY> 62,872
<SALES> 66,859
<TOTAL-REVENUES> 66,859
<CGS> 30,236
<TOTAL-COSTS> 55,025
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,146
<INCOME-TAX> 3,910
<INCOME-CONTINUING> 9,236
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,236
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
</TABLE>
