<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission file number 0-26224
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0317849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 Morgan Lane
Plainsboro, New Jersey 08536
(Address of principal executive offices) (Zip code)
(609) 275-0500
(Registrant's telephone number, including area code)
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.
/X/ - Yes / / - No
As of May 5, 2000 the registrant had outstanding 16,347,810 shares of
Common Stock, $.01 par value.
<PAGE>
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999 (Unaudited) 3
Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (Unaudited) 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 18
Exhibits 19
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands)
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 23,366 $ 19,301
Short-term investments............................................ 206 4,311
Accounts receivable, net of allowances of $944 and $944........... 8,719 8,365
Inventories....................................................... 10,667 10,111
Prepaid expenses and other current assets......................... 695 718
---------- ----------
Total current assets.......................................... 43,653 42,806
Property and equipment, net........................................... 10,547 9,699
Goodwill and intangible assets, net................................... 18,809 13,219
Other assets.......................................................... 684 529
---------- ----------
Total assets....................................................... $ 73,693 $ 66,253
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term loans and current maturities of long-term loans.......... $ 2,601 $ 2,254
Current portion of note payable..................................... 1,450 --
Accounts payable, trade............................................. 1,717 994
Accrued expenses.................................................... 5,484 5,540
Income taxes payable................................................ 751 643
Customer advances and deposits...................................... 3,100 3,901
Deferred revenue.................................................... 1,276 1,460
---------- ----------
Total current liabilities..................................... 16,379 14,792
Long-term loan........................................................ 7,000 7,625
Note payable.......................................................... 1,204 --
Deferred revenue...................................................... 4,824 5,049
Other liabilities..................................................... 804 798
---------- ----------
Total liabilities............................................. 30,211 28,264
---------- ----------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value (15,000 authorized shares; 500 Series A
Convertible shares issued and outstanding at March 31, 2000 and December 31,
1999, $4,000 liquidation preference; 100 Series B Convertible shares issued
and outstanding at March 31, 2000 and December 31, 1999, $10,100 with a 10%
compounded annual dividend liquidation preference; 54 Series C Convertible
shares issued and outstanding at March 31, 2000, $5,400 with a 10% compounded
annual dividend liquidation preference).............................. 7 6
Common stock, $.01 par value (60,000 authorized shares; 16,314 and
16,131 shares issued at March 31, 2000 and December 31,
1999, respectively).................................................. 163 161
Additional paid-in capital............................................. 138,754 132,340
Treasury stock, cost (1 share at March 31, 2000 and December 31, 1999). (7) (7)
Other.................................................................. (128) (143)
Accumulated other comprehensive income (loss).......................... 60 (64)
Accumulated deficit.................................................... (95,367) (94,304)
---------- ----------
Total stockholders' equity.................................... 43,482 37,989
---------- ----------
Total liabilities and stockholders' equity............................ $ 73,693 $ 66,253
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
3
<PAGE>
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
---- ----
<S> <C> <C>
REVENUES
Product sales ........................................................... $ 13,236 $ 4,605
Other revenue ........................................................... 1,171 363
-------- --------
Total revenue ........................................................ 14,407 4,968
COSTS AND EXPENSES
Cost of product sales, including depreciation
of $370 and $292 ..................................................... 6,592 2,694
Research and development ................................................ 1,828 1,940
Selling and marketing ................................................... 2,917 1,560
General and administrative .............................................. 3,608 2,151
Amortization and other depreciation ..................................... 712 151
-------- --------
Total costs and expenses ............................................. 15,657 8,496
Operating loss .......................................................... (1,250) (3,528)
Interest income ......................................................... 291 278
Interest expense ........................................................ (280) (27)
Gain on disposition of product line ..................................... 115 4,161
Other income ............................................................ 123 2
-------- --------
Net income (loss) before income taxes ................................... (1,001) 886
Provision for income taxes .............................................. 62 460
-------- --------
Net income (loss) ....................................................... $ (1,063) $ 426
======== ========
Basic net income (loss) per share ....................................... $ (0.32) $ 0.02
Diluted net income (loss) per share ..................................... $ (0.32) $ 0.02
Weighted average common shares outstanding
Basic ................................................................ 17,224 16,731
Diluted .............................................................. 17,224 17,256
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
4
<PAGE>
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)...................................................... $ (1,063) $ 426
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization....................................... 1,082 443
Gain on sale of product line and investments........................ (326) (4,161)
Amortization of discount and interest on investments................ -- (104)
Amortization of unearned compensation............................... 24 50
Changes in assets and liabilities, net of business acquisitions:
Accounts receivable.............................................. (353) (712)
Inventories...................................................... 104 452
Prepaid expenses and other current assets........................ (31) (51)
Non-current assets............................................... (221) (21)
Accounts payable, accrued expenses and other liabilities......... 734 755
Customer advances and deposits................................... (801) 244
Deferred revenue................................................. (409) --
-------- --------
Net cash used in operating activities............................... (1,260) (2,679)
-------- --------
INVESTING ACTIVITIES:
Proceeds from sale of product line and other assets.................... 150 6,354
Proceeds from sale/maturity of investments............................. 15,072 6,000
Purchases of available-for-sale investments............................ (10,601) (2,966)
Cash used in business acquisition, net of cash acquired................ (4,075) (13,935)
Purchases of property and equipment.................................... (1,351) (388)
-------- --------
Net cash used in investing activities............................... (805) (4,935)
-------- --------
FINANCING ACTIVITIES:
Net proceeds from revolving credit facility............................ 97 --
Repayments of term loan................................................ (375) --
Proceeds from sale of preferred stock.................................. 5,375 10,000
Proceeds from exercised stock options.................................. 1,053 --
Treasury stock purchases............................................... -- --
Preferred dividends paid............................................... (20) (20)
-------- --------
Net cash provided by financing activities........................... 6,130 9,980
-------- --------
Net increase in cash and cash equivalents.................................. 4,065 2,366
Cash and cash equivalents at beginning of period........................... 19,301 5,277
-------- --------
Cash and cash equivalents at end of period................................. $ 23,366 $ 7,643
======== ========
Non-cash investing and financing activities:
Note issued in a business acquisition................................. $ 2,654 $ --
Term loan assumed in connection with a business acquisition........... -- 11,000
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
5
<PAGE>
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
In the opinion of management, the March 31 unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) which the Company considers necessary for a fair presentation of the
financial position and results of operations of the Company. Operating results
for the three-month period ended March 31, 2000 are not necessarily indicative
of the results to be expected for the entire year. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
including disclosures of contingent assets and liabilities and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates. These unaudited consolidated financial
statements should be read in conjunction with the Company's consolidated
financial statements for the year ended December 31, 1999 included in the
Company's Annual Report on Form 10-K.
2. Acquisition
On January 17, 2000, the Company purchased the business, including certain
assets and liabilities, of Clinical Neuro Systems, Inc. ("CNS") for $6.8
million. CNS designs, manufactures and sells neurosurgical external ventricular
drainage systems, including catheters and drainage bags, as well as cranial
access kits. The purchase price consisted of $4.0 million in cash and a 5% $2.8
million promissory note issued to the seller. The promissory note, which is
payable in two principal payments of $1.4 million each, plus accrued interest,
in January 2001 and 2002, is collateralized by inventory, property and equipment
of the CNS business and by a collateral assignment of a $2.8 million promissory
note from one of the Company's subsidiaries.
This acquisition has been accounted for using the purchase method of accounting,
and the results of operations of the acquired business have been included in the
consolidated financial statements since the date of acquisition. The allocation
of the purchase price resulted in acquired intangible assets, consisting
primarily of completed technology, customer list and trademarks, of $4.2 million
and residual goodwill of $1.8 million, which are being amortized on a
straight-line basis over a weighted average life of 14 years and 15 years,
respectively.
The following unaudited pro forma financial information assumes that the
acquisition had occurred as of the beginning of each period (in thousands):
For the Three Months
Ended March 31,
2000 1999
----- -----
Total revenue ....................... $14,577 $ 5,524
Net loss ............................ (1,004) (3,448)
Basic and diluted loss per share..... $ (0.32) $ (0.21)
Excluded from the pro forma results for the three months ended March 31, 1999 is
the $3.7 million gain, net of tax ($0.22 per share), from the sale of a product
line. The pro forma results do not necessarily represent results that would have
occurred if the acquisition had taken place on the basis assumed above, nor are
they indicative of the results of future combined operations.
6
<PAGE>
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Issuance of Series C Preferred Stock
On March 29, 2000, the Company issued 54,000 shares of Series C Convertible
Preferred Stock ("Series C Preferred") and warrants to purchase 300,000 shares
of common stock at $9.00 per share to affiliates of Soros Private Equity
Partners LLC for $5,374,000, net of issuance costs. The Series C Preferred is
convertible into 600,000 shares of common stock and has a liquidation preference
of $5.4 million with a 10% annual cumulative dividend associated with the
liquidation preference. The Series C Preferred was issued with a beneficial
conversion feature that resulted in a nonrecurring, non-cash dividend of
$4,170,000, which has been reflected in the net loss per share applicable to
common stock for the three months ended March 31, 2000. The beneficial
conversion dividend is based upon the excess of the closing price of the
underlying common stock as compared to the fixed conversion price of the Series
C Preferred Stock, after taking into account the value assigned to the common
stock warrants.
4. Income (Loss) per Share
Basic and diluted net income (loss) per share for the three months ended March
31 were as follows:
<TABLE>
<CAPTION>
2000 1999
----- -----
(In thousands)
<S> <C> <C>
Basic per share computation:
Net income (loss)................................ $ (1,063) $ 426
Dividends on Series A preferred stock............ (20) (20)
Dividends on Series B preferred stock............ (275) --
Beneficial conversion feature on Series C
preferred stock.............................. (4,170) --
-------- --------
Net income (loss) available to common stock...... $ (5,528) $ 406
======== ========
Average number of shares outstanding............. 17,224 16,731
Basic net income (loss) per share................ $ (0.32) $ 0.02
======== ========
Diluted per share computation:
Net income (loss) available to common stock...... $ (5,528) $ 426
Average number of shares outstanding............. 17,224 16,731
Effect of dilutive stock options................. -- 187
Effect of preferred stock and dilutive warrants.. -- 338
-------- --------
Average dilutive number of shares outstanding.... 17,224 17,256
======== ========
Diluted net income (loss) per share.............. $ (0.32) $ 0.02
======== ========
</TABLE>
Option and warrants to purchase 3,732,562 shares of common stock and preferred
stock convertible into 3,467,801 shares of common stock at March 31, 2000 were
not included in the computation of diluted net loss per share for the three
months ended March 31, 2000 because their effect would have been antidilutive.
Options and warrants to purchase 2,539,068 shares of common stock (at a price
range of $4.31 to $23.00) outstanding at March 31, 1999 were not included in the
computation of diluted net income per share for the three months ended March 31,
1999 because the exercise prices were greater than the average market price of
the common stock for the period.
7
<PAGE>
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Comprehensive Income (Loss)
Comprehensive income (loss) for the three months ended March 31 was as follows:
2000 1999
-------- --------
(In thousands)
Net income (loss).............................. $ (1,063) $ 426
Unrealized gains on investments................ 300 16
Reclassification adjustment for gains
included in net income..................... (176) --
-------- --------
Comprehensive income (loss).................... $ (939) $ 442
======== ========
6. Inventories
Inventories consist of the following:
March 31, December 31,
2000 1999
-------- -----------
(In thousands)
Finished goods........... $ 4,363 $ 3,786
Work-in-process.......... 2,962 2,224
Raw materials............ 3,342 4,101
-------- --------
$10,667 $ 10,111
======== ========
7. Current Liabilities
Accrued expenses consist of the following:
March 31, December 31,
2000 1999
-------- ----------
(In thousands)
Legal fees................... $ 702 $ 526
Vacation..................... 578 533
Acquisition related costs.... -- 658
Contract research............ 359 378
Other........................ 3,845 3,445
-------- --------
$ 5,484 $ 5,540
======== ========
8
<PAGE>
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. Segment Reporting
The Company's reportable business segments consist of the Integra NeuroSciences
division, which is a leading provider of implants, instruments and monitors used
in neurosurgery, neurotrauma, and related critical care, and the Integra
LifeSciences division, which develops and manufactures a variety of medical
products and devices, including products based on the Company's proprietary
tissue regeneration technology, which are used to treat soft-tissue and
orthopedic conditions. Integra NeuroSciences sells primarily through a direct
sales organization, and Integra LifeSciences sells primarily through strategic
alliances and distributors. Selected financial information on the Company's
business segments is reported below (in thousands):
<TABLE>
<CAPTION>
Total
Integra Integra Reportable
LifeSciences NeuroSciences Segments Corporate Total
------------- -------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
First Quarter 2000
Product sales $ 4,479 $ 8,757 $ 13,236 $ -- $ 13,326
Total revenue 5,400 9,007 14,407 -- 14,407
Operating costs 5,216 8,529 13,745 1,912 15,657
Operating income (loss) 184 478 662 (1,912) (1,250)
First Quarter 1999
Product sales $ 4,084 $ 521 $ 4,605 $ -- $ 4,605
Total revenue 4,447 521 4,968 -- 4,968
Operating costs 6,222 773 6,995 1,501 8,496
Operating income (loss) (1,775) (252) (2,027) (1,501) (3,528)
</TABLE>
Included in operating expenses were the following amounts of depreciation and
amortization:
<TABLE>
<CAPTION>
Total
Integra Integra Reportable
LifeSciences NeuroSciences Segments Corporate Total
------------- -------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
First Quarter 2000 310 711 1,021 61 1,082
First Quarter 1999 371 40 411 32 443
</TABLE>
For the three months ended March 31, 2000 and 1999, the Company's foreign sales,
primarily to Europe and the Asia Pacific regions, were 20% and 18% of total
product sales, respectively.
9. Legal Matters
In July 1996, the Company filed a patent infringement lawsuit in the United
States District Court for the Southern District of California against Merck
KGaA, a German corporation, Scripps Research Institute, a California nonprofit
corporation, and David A. Cheresh, Ph.D., a research scientist with Scripps,
seeking damages and injunctive relief. The complaint charged, among other
things, that the defendant Merck KGaA willfully and deliberately induced, and
continues to willfully and deliberately induce, defendants Scripps Research
Institute and Dr. David A. Cheresh to infringe certain of the Company's patents.
These patents are part of a group of patents granted to The Burnham Institute
and licensed by the Company that are based on the interaction between a family
of cell surface proteins called integrins and the arginine-glycine-aspartic acid
(known as "RGD") peptide sequence found in many extracellular matrix proteins.
The defendants filed a countersuit asking for an award of defendants' reasonable
attorney fees. This case went to trial in February 2000, and on March 17, 2000,
a jury found that Merck KgaA had willfully
9
<PAGE>
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. Legal Matters, continued
induced infringement of the Company's patents and awarded the Company $15.0
million in damages. This award may be adjusted by the court. The Company expects
that Merck KgaA will appeal various decisions of the court and request a new
trial, and it has requested a reduction in damages and a judgment as a matter of
law notwithstanding the verdict. No amounts for this favorable verdict have been
reflected in the Company's financial statements.
Bruce D. Butler, Ph.D., Bruce A. McKinley, Ph.D., and C. Lee Parmley (the "Optex
Claimants"), each parties to a Letter Agreement (the "Letter Agreement") with
Camino NeuroCare, Inc., a wholly-owned subsidiary of the Company ("Camino"),
dated as of December 18, 1996, have alleged that Camino breached the terms of
the Letter Agreement prior to the Company's acquisition of the NeuroCare Group
(Camino's prior parent company). The Letter Agreement contains arbitration
provisions, and the Company and the Optex Claimants have agreed to negotiate
rather than seek arbitration for a limited time. While we believe that Camino
has valid legal and factual defenses, the Optex Claimants have asserted
unspecified significant damages, and we believe that the Optex Claimants are
likely to pursue arbitration under the Letter Agreement if the matter is not
settled otherwise. We cannot predict the outcome of such an arbitration, were it
to take place. In addition, we have asserted a right to indemnification from the
seller of the NeuroCare businesses, but there can be no assurance that
indemnification, if any, will be obtained.
10. Subsequent Events
On April 6, 2000, the Company purchased the Selector(R) Ultrasonic Aspirator,
Ruggles(TM) hand-held neurosurgical instruments and cryosurgery product lines,
including certain assets and liabilities, from NMT Medical, Inc. for $12.0
million in cash. Revenues of the acquired product lines during 1999 were
approximately $12.1 million. This acquisition will be accounted for using the
purchase method of accounting and its results of operations will be included in
the Company's consolidated financial statements as of the date of acquisition.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Company's
consolidated financial statements, the notes thereto and the other financial
information included elsewhere in this report and in the Company's 1999 Annual
Report on Form 10-K filed with the Securities and Exchange Commission.
General
The Company develops, manufactures and markets medical devices, implants and
biomaterials. The Company's operations consist of (1) Integra NeuroSciences,
which is a leading provider of implants, instruments, and monitors used in
neurosurgery, neurotrauma, and related critical care and (2) Integra
LifeSciences, which develops and manufactures a variety of medical products and
devices, including products based on our proprietary tissue regeneration
technology which are used to treat soft tissue and orthopedic conditions.
Integra NeuroSciences sells primarily through a direct sales organization, and
Integra LifeSciences sells primarily through strategic alliances and
distributors.
As a result of the acquisitions of the NeuroCare Group of companies
("NeuroCare") in March 1999 and the business, including certain assets and
liabilities, of Clinical Neuro Systems, Inc. ("CNS") in January 2000, and the
transition of all selling and marketing efforts related to INTEGRA(R) Artificial
Skin to Johnson & Johnson Medical ("JJM") under an agreement with JJM (the "JJM
Agreement") in June 1999, the Company's segment financial results for the three
months ended March 31, 2000 and 1999 may not be directly comparable.
Additionally, the financial information discussed below should be considered in
light of the acquisition of certain assets and liabilities from NMT Medical,
Inc. in April 2000.
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Overall, the Company recorded a net loss of $1.1 million for the three months
ended March 31, 2000, as compared to net income of $0.4 million for the
comparable period in 1999. Included in the 1999 results is a $4.2 million gain
($3.7 million net of taxes) related to the sale of a product line. Operating
results for the three months ended March 31, 2000 improved by $2.2 million, with
an operating loss of $1.3 million recorded in 2000 as compared to a $3.5 million
operating loss in 1999. The improvement in 2000 operating results was primarily
due to the successful integration of recent business acquisitions, including the
$25.4 million NeuroCare acquisition in March 1999 and the $6.8 million
acquisition of CNS in January 2000, the implementation of the JJM Agreement and
the launch of the DuraGen(TM) Dural Graft Matrix product in the third quarter of
1999.
Total revenues increased by $9.4 million to $14.4 million for the three months
ended March 31, 2000 as compared to $5.0 million for the three months ended
March 31, 1999, primarily as a result of business acquisitions. Product sales
increased by $8.6 million to $13.2 million for the three months ended March 31,
2000 as compared to $4.6 million for the three months ended March 31, 1999.
Product sales and cost of product sales were as follows (in thousands):
Integra Integra
NeuroSciences LifeSciences Consolidated
------------- ------------ ------------
Three months ended March 31, 2000:
Product sales................... $ 8,757 $ 4,479 $ 13,236
Cost of product sales........... 4,119 2,473 6,592
Gross margin on product sales... 4,638 2,006 6,644
Gross margin percentage......... 53% 45% 50%
11
<PAGE>
Integra Integra
NeuroSciences LifeSciences Consolidated
------------- ------------ ------------
Three months ended March 31, 1999:
Product sales................... $ 521 $ 4,084 $ 4,605
Cost of product sales........... 298 2,396 2,694
Gross margin on product sales... 223 1,688 1,911
Gross margin percentage......... 43% 41% 41%
Product sales in the Integra NeuroSciences division increased as a result of
acquired product lines and the launch of the DuraGen(TM) product in the third
quarter of 1999. Gross margin on product sales increased to 53% for the three
months ended March 31, 2000, with $95,000 of fair value purchase accounting
adjustments from the CNS acquisition recorded in cost of product sales in the
first quarter of 2000. Gross margin on product sales for the quarter ended March
31, 1999 included the effects of $65,000 of fair value purchase accounting
adjustments recorded in cost of product sales. Excluding purchase accounting
adjustments, gross margin on product sales would have been 54% and 55% in the
first quarter of 2000 and 1999, respectively.
Product sales in the Integra LifeSciences division increased primarily because
of acquired product lines and the first commercial sale of tyrosine
polycarbonate polymers for use in the clinical development of various fixation
devices, all of which were offset by lower sales prices of INTEGRA(R) Artificial
Skin to JJM under the JJM Agreement. Gross margin on product sales increased to
45% for the three months ended March 31, 2000, as compared to 41% for the three
months ended March 31, 1999. Excluding $145,000 of fair value purchase
accounting adjustments recorded in the first quarter of 1999, gross margin on
product sales in 1999 would have been 45%. Lower gross margins on sales of
INTEGRA(R) Artificial Skin to JJM during the three months ended March 31, 2000
and lower utilization of the INTEGRA(R) Artificial Skin manufacturing facility
in the comparable period ended March 31, 1999 resulted in lower overall margins
for the Integra LifeSciences division.
Other revenue in the Integra NeuroSciences segment increased $0.3 million to
$0.3 million for the three months ended March 31, 2000 and consisted of royalty
income. Other revenue in the Integra LifeSciences segment increased to $0.9
million for the three months ended March 31, 2000, as compared to $0.4 million
for the three months ended March 31, 1999. The majority of this increase relates
to contract research funding related to INTEGRA(R) Artificial Skin received
under the JJM Agreement.
Research and development expenses were as follows (in thousands):
Three Months Ended March 31,
2000 1999
----- -----
Integra NeuroSciences $ 491 $ 112
Integra LifeSciences 1,337 1,828
----- -----
Total $1,828 $1,940
Research and development expense in the Integra NeuroSciences segment increased
$0.4 million to $0.5 million for the three months ended March 31, 2000 primarily
due to the NeuroCare acquisition. Research and development activities within the
Integra LifeSciences segment decreased $0.5 million to $1.3 million for the
three months ended March 31, 2000 primarily because of reduced headcount and the
elimination of several research programs that were ongoing in the first quarter
of 1999. The Company has substantially completed the reorganization of its
research and development resources and does not expect further reductions in
research and development expense going forward. Future expenditures will
12
<PAGE>
depend upon the progress of ongoing research and development programs, including
those for which the Company receives funding from third parties.
Approximately 41% and 16% of the Company's total research and development
expenses for the three months ended March 31, 2000 and 1999, respectively, were
funded through external grants and development funding programs. The increase in
funded research in 2000 is primarily the result of research funding received
from JJM under the JJM Agreement related to research on INTEGRA(R) Artificial
Skin.
Selling and marketing expenses were as follows (in thousands):
Three Months Ended March 31,
2000 1999
----- -----
Integra NeuroSciences $ 2,417 $ 290
Integra LifeSciences 500 1,270
----- -----
Total $ 2,917 $1,560
Integra NeuroSciences selling and marketing expenses increased by $2.1 million
to $2.4 million for the three months ended March 31, 2000 primarily due to the
NeuroCare and CNS acquisitions. The decrease of $0.8 million in Integra
LifeSciences selling and marketing expenses to $0.5 million for the three months
ended March 31, 2000 is primarily the result of the transition of INTEGRA(R)
Artificial Skin selling and marketing activities to JJM.
General and administrative expenses were as follows (in thousands):
Three Months Ended March 31,
2000 1999
----- -----
Integra NeuroSciences $ 968 $ 55
Integra LifeSciences 789 627
Corporate 1,851 1,469
----- -----
Total $3,608 $2,151
Integra NeuroSciences general and administrative expenses increased to $1.0
million for the three months ended March 31, 2000 primarily due to the NeuroCare
and CNS acquisitions. General and administrative expenses in the Integra
LifeSciences segment increased $0.2 million to $0.8 million for the three months
ended March 31, 2000 primarily due to additional headcount. The increase of $0.4
million in corporate general and administrative expenses to $1.9 million for the
three months ended March 31, 2000 resulted primarily from increased legal fees
associated with the Merck KGaA litigation and additional headcount and facility
costs.
Amortization and other depreciation (excluding $370,000 and $292,000 of
depreciation included in cost of sales for the three months ended March 31, 2000
and 1999, respectively) were as follows (in thousands):
Three Months Ended March 31,
2000 1999
----- -----
Integra NeuroSciences $ 534 $ 18
Integra LifeSciences 117 101
Corporate 61 32
----- -----
Total $ 712 $ 151
13
<PAGE>
Amortization and other depreciation in the Integra NeuroSciences segment
increased to $0.5 million for the three months ended March 31, 2000 as a result
of the NeuroCare and CNS acquisitions. Included in this amount is $473,000 of
amortization of goodwill and other intangibles and $61,000 of depreciation.
Amortization and other depreciation in the Integra LifeSciences segment
consisted almost entirely of depreciation.
Interest expense of $280,000 for the three months ended March 31, 2000 consisted
of interest associated with the term loan and revolving credit facility assumed
in the NeuroCare acquisition and interest accrued on the $2.8 million note
payable to the seller of the CNS business.
For the three months ended March 31, 2000 and 1999, the Company recorded a gain
of $115,000 and $4.2 million, respectively, in connection with the sale of a
product line. In the first quarter of 1999, the Company recorded an income tax
provision of $460,000 in connection with the gain on the sale of the product
line.
Liquidity and Capital Resources
The Company has incurred losses from operations since its inception and will
continue to incur such losses unless and until product sales and research and
collaborative arrangements generate sufficient revenue to fund continuing
operations. As of March 31, 2000, the Company had an accumulated deficit of
$95.4 million.
The Company has funded its operations to date primarily through private and
public offerings of equity securities, product revenues, research and
collaboration funding, borrowings under a revolving credit line and cash
acquired in connection with business acquisitions and dispositions. At March 31,
2000, the Company had cash, cash equivalents and short-term investments of
approximately $23.6 million (of which $12.0 million was subsequently used in
April 2000 in the acquisition of certain product lines assets and liabilities
from NMT Medical, Inc.) and $12.3 million in short and long-term borrowings. The
Company's principal uses of funds during the three months ended March 31, 2000
were $4.0 million for the acquisition of CNS, $1.4 million in purchases of
property and equipment and $1.3 million used in operations. During this same
period, the Company raised $5.4 million from the sale of Series C Preferred
Stock and warrants to affiliates of Soros Private Equity Partners LLC and $1.1
million from the issuance of common stock through exercised stock options.
The Company maintains a term loan and the revolving credit facility from Fleet
Capital Corporation (collectively, the "Fleet Credit Facility"), which is
collateralized by all the assets and ownership interests of various subsidiaries
of the Company including Integra NeuroCare LLC, and NeuroCare Holding
Corporation (the parent company of Integra NeuroCare LLC) has guaranteed Integra
NeuroCare LLC's obligations. Integra NeuroCare LLC is subject to various
financial and non-financial covenants under the Fleet Credit Facility, including
significant restrictions on its ability to transfer funds to the Company or the
Company's other subsidiaries. The financial covenants specify minimum levels of
interest and fixed charge coverage and net worth, and also specify maximum
levels of capital expenditures and total indebtedness to operating cash flow,
among others. While the Company anticipates that Integra NeuroCare LLC will be
able to satisfy the requirements of these financial covenants, there can be no
assurance that Integra NeuroCare LLC will generate sufficient earnings before
interest, taxes, depreciation and amortization to meet the requirements of such
covenants. The term loan is subject to mandatory prepayment amounts if certain
levels of cash flow are achieved.
14
<PAGE>
Additionally, in January 2000, the Company issued a 5% $2.8 million promissory
note to the seller of the CNS business. The promissory note, which is payable in
two principal payments of $1.4 million each, plus accrued interest, in January
2001 and 2002, is collateralized by inventory, property and equipment of the CNS
business and by a collateral assignment of a $2.8 million promissory note from
one of the Company's subsidiaries.
In the short-term, the Company believes that it has sufficient resources to fund
its operations. However, in the longer-term, there can be no assurance that the
Company will be able to generate sufficient revenues to obtain positive
operating cash flows or profitability.
Other Matters
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Investments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards for derivatives and hedging activities and supercedes
several existing standards. SFAS No. 133, as amended by SFAS No. 137, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company does not expect that the adoption of SFAS No. 133 will have a
material impact on the consolidated financial statements.
In December 1999 (as amended in March 2000) the staff of the Securities and
Exchange Commission ("SEC") issued Staff Accounting Bulletin 101, Revenue
Recognition (the "SAB"). To the extent the guidance in the SAB differs from
generally accepted accounting principles previously utilized by an SEC
registrant, the SAB indicates that the SEC staff will not object to reporting
the cumulative effect of a change in accounting principle.
Prior to promulgation of the SAB, the Company had reported some non-refundable,
up-front and milestone fees received pursuant to distribution agreements in the
period earned, which was deemed to be the date when all related material
commitments had been satisfied and no future consideration was required. While
the Company believes the related supply arrangements entered into with its
distributors provides for arms-length pricing of product sales, the SAB requires
that the distribution agreement fees now be linked to the supply arrangements
and reported as additional revenue from product sales made pursuant to those
arrangements. As a result, up-front distribution agreement fees are initially
deferred and subsequently amortized on a straight-line basis over the
contractual period of the supply arrangements.
The Company is currently assessing the full impact that the SAB will have on its
financial statements. Once the final assessment is complete, the total financial
impact of the SAB will be recorded as a cumulative effect of a change in
accounting principle in the second quarter of 2000. The Company currently
anticipates that the cumulative effect as of April 1, 2000 of the change in
accounting principle (if measured at April 1, 2000) would be within a range of
$1.3 million to $3.2 million.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In July 1996, the Company filed a patent infringement lawsuit in the United
States District Court for the Southern District of California against Merck
KGaA, a German corporation, Scripps Research Institute, a California nonprofit
corporation, and David A. Cheresh, Ph.D., a research scientist with Scripps,
seeking damages and injunctive relief. The complaint charged, among other
things, that the defendant Merck KGaA willfully and deliberately induced, and
continues to willfully and deliberately induce, defendants Scripps Research
Institute and Dr. David A. Cheresh to infringe certain of the Company's patents.
These patents are part of a group of patents granted to The Burnham Institute
and licensed by the Company that are based on the interaction between a family
of cell surface proteins called integrins and the arginine-glycine-aspartic acid
(known as "RGD") peptide sequence found in many extracellular matrix proteins.
The defendants filed a countersuit asking for an award of defendants' reasonable
attorney fees. This case went to trial in February 2000, and on March 17, 2000,
a jury found that Merck KgaA had willfully induced infringement of the Company's
patents and awarded the Company $15.0 million in damages. This award may be
adjusted by the court. The Company expects that Merck KgaA will appeal various
decisions of the court and request a new trial, and it has requested a reduction
in damages and a judgment as a matter of law notwithstanding the verdict. No
amounts for this favorable verdict have been reflected in the Company's
financial statements.
Item 2. Changes in Securities and Use of Proceeds
On March 29, 2000, the Company issued and sold to affiliates of Soros
Private Equity Partners LLC 54,000 shares of Series C Convertible Preferred
Stock and warrants to purchase 300,000 shares of common stock of the Company at
an exercise price of $9.00 per share. The aggregate purchase paid by the
purchasers was $5.4 million. The shares of Series C Preferred Stock are
currently convertible into 600,000 shares of common stock of the Company. The
foregoing securities were issued by the Company in reliance upon Section 4(2) of
the Securities Act of 1933, as amended, and Rule 506 thereunder.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
- ------ ----------------------
2.1 Asset Purchase Agreement, dated as of January 14, 2000,
among Clinical Neuro Systems Holdings LLC, Clinical Neuro
Systems, Inc., Surgical Sales Corporation (trading as
Connell Neurosurgical) and George J. Connell.
2.2 Asset Purchase Agreement dated March 20, 2000 by and among
Integra Selector Corporation, NMT Neurosciences (US), Inc.
and NMT Medical, Inc.
2.3 Purchase Agreement dated March 20, 2000 by and among NMT
Medical, Inc., NMT Neurosciences (US), Inc., NMT Neurosciences
Holdings (UK) Ltd., NMT Neurosciences (UK) Ltd., Spembly
Medical Ltd., Spembly Cryosurgery Ltd., Swedemed AB, Integra
Neurosciences Holdings (UK) Ltd. and Integra Selector
Corporation.
4.1 Certificate of Designation, Rights and Preferences of Series C
Convertible Preferred Stock of Integra LifeSciences Holdings
Corporation dated March 21, 2000.
16
<PAGE>
4.2 Certificate of Amendment of Certificate of
Designation, Rights and Preferences of Series B
Convertible Preferred Stock of Integra LifeSciences
Holdings Corporation dated March 21, 2000.
4.3 Warrant to Purchase 270,550 Shares of Common Stock of Integra
LifeSciences Holdings Corporation issued to Quantum Industrial
Partners LDC.
4.4 Warrant to Purchase 29,450 Shares of Common Stock of Integra
LifeSciences Holdings Corporation issued to SFM Domestic
Investments LLC.
10.1 Secured Promissory Note, dated January 14, 2000, from
Clinical Neuro Systems Holdings LLC to Clinical Neuro
Systems, Inc.
10.2 Security Agreement, dated as of January 14, 2000, among
Clinical Neuro Systems Holdings LLC, Clinical Neuro Systems,
Inc. and George J. Connell.
10.3 Collateral Assignment, dated as of January 14, 2000, from
Clinical Neuro Systems Holdings LLC to Clinical Neuro
Systems, Inc. and George J. Connell.
10.4 Subordinated Promissory Note, dated January 14, 2000, from
Integra LifeSciences Corporation to Clinical Neuro Systems
Holdings LLC.
10.5 Consulting Agreement, dated January 14, 2000, between
Integra LifeSciences Corporation and George J. Connell
10.6 Series C Convertible Preferred Stock and Warrant Purchase
Agreement dated February 16, 2000 among Integra LifeSciences
Holdings Corporation, Quantum Industrial Partners LDC and SFM
Domestic Investments LLC.
10.7 Amended and Restated Registration Rights Agreement dated
March 29, 2000 among Integra LifeSciences Holdings
Corporation, Quantum Industrial Partners LDC and SFM
Domestic Investments LLC.
10.8 Employment Agreement between Michael D. Pierschbacher and
the Company dated December 31, 1998.
10.9 Employment Agreement between Donald R. Nociolo and the
Company dated December 31, 1998.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed with the Securities and Exchange Commission a Report on Form
8-K dated January 14, 2000 with respect to the Company's acquisition of the
business, including certain assets and liabilities, of Clinical Neuro Systems,
Inc.
The Company filed with the Securities and Exchange Commission a Report on Form
8-K dated March 20, 2000 with respect to (i) the verdict reached in the case
Integra LifeSciences (and certain affiliates) and The Burnham Institute vs.
Merck KGaA and (ii) the announcement of the Company's agreement to acquire
certain assets and liabilities from NMT Medical, Inc.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
Date: May 12, 2000 /s/ Stuart M. Essig
--------------------
Stuart M. Essig
President and Chief Executive Officer
Date: May 12,2000 /s/ David B. Holtz
-------------------
David B. Holtz
Vice President, Finance and Treasurer
18
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Location
- ------ ---------------------- --------
<S> <C> <C>
2.1 Asset Purchase Agreement, dated as of January 14, 2000, (Exh. 2)
among Clinical Neuro Systems Holdings LLC, Clinical Neuro
Systems, Inc., Surgical Sales Corporation (trading as
Connell Neurosurgical) and George J. Connell. (1)
2.2 Asset Purchase Agreement dated March 20, 2000 by and among (Exh. 2.1)
Integra Selector Corporation, NMT Neurosciences (US), Inc.
and NMT Medical, Inc. (2)
2.3 Purchase Agreement dated March 20, 2000 by and among NMT (Exh. 2.2)
Medical, Inc., NMT Neurosciences (US), Inc., NMT Neurosciences
Holdings (UK) Ltd., NMT Neurosciences (UK) Ltd., Spembly
Medical Ltd., Spembly Cryosurgery Ltd., Swedemed AB, Integra
Neurosciences Holdings (UK) Ltd. and Integra Selector
Corporation.(2)
4.1 Certificate of Designation, Rights and Preferences of Series C (Exh. 4.1)
Convertible Preferred Stock of Integra LifeSciences Holdings
Corporation dated March 21, 2000. (3)
4.2 Certificate of Amendment of Certificate of Designation, Rights and (Exh. 4.2)
Preferences of Series B Convertible Preferred Stock of Integra
LifeSciences Holdings Corporation dated March 21, 2000. (3)
4.3 Warrant to Purchase 270,550 Shares of Common Stock of Integra (Exh. 4.3)
LifeSciences Holdings Corporation issued to Quantum Industrial
Partners LDC. (3)
4.4 Warrant to Purchase 29,450 Shares of Common Stock of Integra (Exh. 4.4)
LifeSciences Holdings Corporation issued to SFM Domestic
Investments LLC. (3)
10.1 Secured Promissory Note, dated January 14, 2000, from (Exh. 10.1)
Clinical Neuro Systems Holdings LLC to Clinical Neuro
Systems, Inc. (1)
10.2 Security Agreement, dated as of January 14, 2000, among (Exh. 10.2)
Clinical Neuro Systems Holdings LLC, Clinical Neuro Systems,
Inc. and George J. Connell. (1)
10.3 Collateral Assignment, dated as of January 14, 2000, from (Exh. 10.3)
Clinical Neuro Systems Holdings LLC to Clinical Neuro
Systems, Inc. and George J. Connell. (1)
10.4 Subordinated Promissory Note, dated January 14, 2000, from (Exh. 10.4)
Integra LifeSciences Corporation to Clinical Neuro Systems
Holdings LLC. (1)
10.5 Consulting Agreement, dated January 14, 2000, between (Exh. 10.5)
Integra LifeSciences Corporation and George J. Connell (1)
10.6 Series C Convertible Preferred Stock and Warrant Purchase (Exh. 10.1)
Agreement dated February 16, 2000 among Integra LifeSciences
Holdings Corporation, Quantum Industrial Partners LDC and SFM
Domestic Investments LLC. (3)
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.7 Amended and Restated Registration Rights Agreement dated (Exh. 10.2)
March 29, 2000 among Integra LifeSciences Holdings
Corporation, Quantum Industrial Partners LDC and SFM
Domestic Investments LLC. (3)
10.8 Employment Agreement between Michael D. Pierschbacher and
the Company dated December 31, 1998. (4)
10.9 Employment Agreement between Donald R. Nociolo and the
Company dated December 31, 1998. (4)
27 Financial Data Schedule (4)
</TABLE>
(1) Incorporated by reference to the indicated exhibit to the Company's
Report on Form 8-K filed with the Commission on January 27, 2000.
(2) Incorporated by reference to the indicated exhibit to the Company's
Report on Form 8-K filed with the Commission on March 28, 2000.
(3) Incorporated by reference to the indicated exhibit to the Company's
Report on Form 8-K filed with the Commission on April 10, 2000.
(4) Filed herewith.
20
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this " Agreement") is made this 31st day of
December, 1998 by and between Integra LifeSciences Corporation, a Delaware
corporation, and Michael Pierschbacher ("Executive").
Background
Executive is currently the Senior Vice President, Research & Development
and Director, Corporate Research Center of Company. Company desires to continue
to employ Executive, and Executive desires to remain in the employ of Company,
on the terms and conditions contained in this Agreement. Executive will be
substantially involved with Company's operations and management and will learn
trade secrets and other confidential information relating to Company and its
customers; accordingly, the noncompetition covenant and other restrictive
covenants contained in Section 14 of this Agreement constitute essential
elements hereof.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and intending to be legally bound hereby, the parties hereto
agree as follows:
Terms
1. Definitions. The following words and phrases shall have the meanings
set forth below for the purposes of this Agreement (unless the context clearly
indicates otherwise):
(a) "Base Salary" shall have the meaning set forth in Section 5.
(b) "Board" shall mean the Board of Directors of Company, or any successor
thereto.
(c) "Cause," as determined by the Board in good faith, shall mean
Executive has --
(1) failed to perform his stated duties and not cured such failure
(if curable) within 15 days of his receipt of written notice of the failure;
(2) breached any provision of this Agreement and not cured such
breach (if curable) within 15 days of his receipt of written notice of the
breach;
(3) demonstrated his personal dishonesty in connection with his
employment by Company;
(4) engaged in willful misconduct;
(5) engaged in a breach of fiduciary duty;
(6) willfully violated any law, rule or regulation, or final
cease-and-desist order (other than traffic violations or similar offenses); or
(7) engaged in other serious misconduct of such a nature that his
continued employment may reasonably be expected to affect Company adversely.
(d) A "Change in Control" of Company shall be deemed to have occurred:
(1) if the "beneficial ownership" (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934) of securities representing more than fifty
percent (50%) of the combined voting power of Company Voting Securities (as
herein defined) is acquired, by any individual, entity or group (a "Person"),
Company, any trustee or other fiduciary holding securities under any employee
of benefit plan of Company or an affiliate thereof, or any corporation owned,
directly or indirectly, by the stockholders of Company in substantially the same
proportions as their ownership of stock of Company (for purposes of this
Agreement, "Company Voting in Securities" shall mean the then outstanding voting
<PAGE>
securities of Company entitled to vote generally in the election of directors);
provided, however, that any acquisition from Company or any acquisition pursuant
to a transaction which complies with clauses (i) , (ii) and (iii) of paragraph
(3) of this definition shall not be a Change in Control under this paragraph
(1); or
(2) if individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however,: that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be, considered as though
such individual were a member of the, Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(3) upon consummation by Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of Company or the acquisition of assets or stock of another entity (a
"Business Combination"), in each case, unless immediately following such
Business Combination: (i) more than 50% of the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors of (x) the corporation resulting from such Business Combination (the
"Surviving Corporation"), or (y) if applicable, a corporation which as a result
of such transaction owns Company or all or substantially all of Company's assets
either directly or through one or more subsidiaries (the "Parent Corporation"),
is represented, directly or indirectly, [Company Voting Securities outstanding
immediately prior to such Business Combination (or, if applicable, is
represented by shares into which such Company Voting Securities were converted
pursuant to such Business Combination), and such voting power among the holders
thereof is in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Company Voting
Securities; (ii) no Person (excluding any employee benefit plan (or related
trust) of Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly,] by 50% or more of the combined
voting power of the then outstanding voting securities eligible to elect directs
of the Parent Corporation (or, if there is no Parent Corporation, the Surviving
corporation) except to the extent that such ownership of the Company existed
prior to the Business Combination; and (iii) at least a majority of the members
of the board of directors of the Parent Corporation (or, if there is no Parent
Corporation, the surviving Corporation) were members of the Incumbent Board at
the time of the execution of the initial agreement, or the action of the Board,
providing for such Business Combination; or
(4) Upon approval by the stockholders of company if a complete
liquidation or dissolution of company.
(e) "Code" shall mean the internal Revenue code of 1986, as amended.
(f) "Company" shall mean Integra LifeSciences corporation and any
corporation, partnership of other entity owned directly or indirectly, in whole
or in part, by Integra LifeSciences Corporation
(g) "Disability" shall mean Executive's inability to perform his duties
hereunder by reason of any medically determinable physical or mental impairment
which is expected to result in death or which has lasted or is expected to last
for a continuous period of not fewer than six months.
(h) "Good Reason" shall mean:
(1) a material breach of this Agreement by company which is not
cured by Company within 15 days of its receipt of written notice
of the breach;
(2) without Executive's express written consent, the Board reduces
Executive's Base Salary or the aggregate fringe benefits
provided to Executive (except to the extent permitted by Section
5 or section 6, respectively); provided, Executive resigns with
30 days after the change objected to; or
(3) Company fails to obtain the assumption of this Agreement by any
successor to Company.
(i) "Principal Executive Office" shall mean Company's principal office
for executives, presently located at 105 Morgan Lane, Plainsboro, New Jersey
08536.
(j) "Retirement" shall mean the termination of Executive's employment with
Company in accordance with the retirement policies, including early retirement
policies, generally applicable to Company's salaried employees.
(k) "Termination Date" shall mean the date specified in the Termination
Notice.
<PAGE>
(l) "Termination Notice" shall mean a dated notice which: (i) indicates
the specific termination provision in this Agreement relied upon (if any); (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for the termination of Executive's employment under such provision; (iii)
specifies a Termination Date; and (iv) is given in the manner specified in
Section 15(h).
2. Employment. Company hereby employs Executive as Senior Vice President,
Research & Development and Director, Corporate Research Center and Executive
hereby agrees to continue such employment and agrees to render services to
Company in such capacity (or in such other capacity in the future as the Chief
Executive Officer may decide in his sole discretion) on the terms and conditions
set forth in this Agreement.
Executive's primary place of employment shall be at the Principal Executive
Office or other corporate location, as the Chief Executive Officer deems
appropriate.
3. Term.
(a) Term and Renewal of Agreement. Unless earlier terminated by
Executive or Company as provided in Section 10 hereof, the term of Executive's
employment under this Agreement shall be two (2) years, commencing on the date
of this Agreement and, subject to subsection 3(b), shall be deemed
automatically, without further action, to extend for an additional year on each
annual anniversary of the date of this Agreement.
(b) Annual Review. Prior to the second annual anniversary of the
date of this Agreement and each annual anniversary thereafter, the Board shall
consider extending the term of this Agreement. The term shall continue to
extend in the manner set forth in subsection 3(a) unless either the Board does
not approve the extension and provides written notice to Executive of such
event, or Executive gives written notice to Company Executive's election not to
extend the term. In either case, the written notice shall be given not fewer
than 30 days prior to any such anniversary date. References herein to the term
of this Agreement shall refer both to the initial term and successive terms.
4. Duties. Executive shall:
(a) Faithfully and diligently do and perform all such acts and
duties, and furnish such services as are assigned to Executive as of the date
this Agreement is signed, and (subject to Section 2) such additional or
different acts, duties and services as the Chief Executive Officer may assign in
the future; and
(b) devote his full professional time, energy, skill and best
efforts to the performance of his duties hereunder, in a manner that will
faithfully and diligently further the business and interests of Company, and
shall not be employed by or participate or engage in or in any manner be a part
of the management or operations of any business enterprise other than Company
without the prior written consent of the Board, which consent may be granted or
withheld in its sole discretion.
5. Compensation. Company shall compensate Executive for his services at a
minimum base salary of$198,000 per year ("Base Salary"), payable in periodic
installments in accordance with Company's regular payroll practices in effect
from time to time. Executive's Base Salary may be increased from time to time in
such amounts as may be determined by the Board, but may not be decreased
without Executive's express written consent (unless the decrease is pursuant to
a general compensation reduction applicable to all, or substantially all,
executive officers of Company). Bonus payments may be made as determined
appropriate by the Board in its sole discretion.
6. Benefit Plans. Executive shall be entitled to participate in and
receive benefits under any employee benefit plan or stock-based plan of Company,
and shall be eligible for any other plans and benefits covering executives of
Company, to the extent commensurate with his then duties and responsibilities
fixed by the Board. Company shall not make any change in such plans or benefits,
which would adversely affect Executive's rights thereunder, unless such change
affects all, or substantially all, executive officers of Company.
7. Vacation. Executive shall be entitled to pay annual vacation in
accordance with the policies established from time to time by the Board, which
shall in no event be fewer than three weeks per annum. Regardless of what the
Company's standard vacation policy may be, Executive shall not be entitled to
extra cash payments for any vacation he does not utilize.
8. Business Expenses. Company shall reimburse Executive or otherwise pay
for all reasonable expenses incurred by Executive in furtherance of or in
connection with the business of Company, including, but not limited to,
automobile and traveling expenses and all reasonable entertainment expenses,
subject to such reasonable documentation and other limitations as may be
established by the Board.
<PAGE>
9. Disability. In the event Executive incurs a Disability, Executive's
obligation to perform services under this Agreement will terminate, and the
Board may terminate this Agreement upon written notice to Executive.
10. Termination
(a} Termination without Salary Continuation. In the event (i}
Executive terminates his employment hereunder other than for Good Reason, or
(ii} Executive's employment is terminated by Company due to his Retirement,
Disability or death, or for Cause, Executive shall have no right to compensation
or other benefits pursuant to this Agreement for any period after his last day
of active employment.
(b} Termination with Salary Continuation (No Change in Control}.
Except as provided in subsection 1O(c} in the event of a Change in Control, in
the event (i} Executive's employment is terminated by Company for a reason other
than Retirement, Disability, death or Cause, or (ii} Executive terminates his
employment for Good Reason, then Company shall:
(1) Pay Executive a severance amount equal to the greater of
(i} one times Executive's Base Salary as of his last day of active
employment, or (ii} the unpaid portion of Executive's Base Salary
for the remainder of the then current term of this Agreement; the
severance amount shall be paid in a single sum on the first business
day of the month following the Termination Date (unless Executive
elects, in writing and on, or not later than 30 days after, the date
this Agreement is executed, to receive the severance payment divided
into 24 equal monthly installments, paid beginning on the first
business day of the month following the Termination Date); and
(2) Maintain and provide to Executive, at no cost to
Executive, for a period ending at the earliest of (i) the expiration
of 12 months from Executive's last day of active employment; (ii)
the date of Executive's full-time employment by another employer; or
(iii) Executive's death, continued participation in all group
insurance, life insurance, health and accident, disability, and
other employee benefit plans in which Executive would have been
entitled to participate had his employment with Company continued
throughout such period, provided that such participation is not
prohibited by the terms of the plan or by Company for legal reasons.
(c) Termination with Salary Continuation (Change in Control}.
Notwithstanding anything to the contrary set forth in subsection 10(b), in the
event within six months of a Change in Control: (i) Executive terminates his
employment for Good Reason; or (ii) Executive's employment is terminated by
Company for a reason other than Retirement, Disability, death or Cause, then
Company shall:
(1) Pay Executive a severance amount equal to 2.99 times
Executive's Base Salary as of his last day of active Employment; the
severance amount shall be paid in a single sum on the first business
day of the month following the Termination Date (unless Executive
elects, in writing and on, or not later than 30 days after, the date
this Agreement is executed, to receive the severance payment divided
into 24 equal monthly installments, paid beginning on the first
business day of the month following the Termination Date); and
(2) Maintain and provide to Executive, at no cost to
Executive, for a period ending at the earliest of (i) the expiration
of 12 months from Executive's last day of active employment; (ii)
the date of Executive's full-time employment by another employer; or
(iii) Executive's death, continued participation in all group
insurance, life insurance, health and accident, disability, and
other employee benefit plans in which Executive would have been
entitled to participate had his employment with Company continued
throughout such period, provided that such participation is not
prohibited by the terms of the plan or by Company for legal
reasons.
(d) Termination Notice. Except in the event of Executive's death, a
termination under this Agreement shall be effected by means of a Termination
Notice.
11. Withholding. Company shall have the right to withhold from all
payments made pursuant to this Agreement any federal, state, or local taxes and
such other amounts as may be required by law to be withheld from such payments.
12. Assignability. Company may assign this Agreement and its rights and
obligations hereunder in whole, but not in part, to any entity to which Company
may transfer all or substantially all of its assets, if in any such case said
entity shall expressly in writing assume all obligations of Company hereunder as
fully as if it had been originally made a party hereto. Company may not
otherwise assign this Agreement or its rights and obligations hereunder. This
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Agreement is personal to Executive and his rights and duties hereunder shall
not be assigned except as expressly agreed to in writing by Company.
13. Death of Executive. Any amounts due Executive under this Agreement
(not including any Base Salary not yet earned by Executive) unpaid as of the
date of Executive' s death shall be paid in a single sum as soon as practicable
after Executive's death to Executive's surviving spouse, or if none, to the duly
appointed personal representative of his estate.
14. Restrictive Covenants.
(a) Covenant Not to Compete. During the term of this Agreement and
for a period of one (1) year following the Termination Date, Executive shall not
directly or indirectly: (i) engage, anywhere within the geographical areas in
which Company is conducting business operations or providing services as of the
date of Executive's termination of employment, in the tissue engineering
business (the use of implantable absorbable materials, with or without a
bioactive component, to attempt to elicit a specific cellular response in order
to regenerate tissue or to impede the growth of tissue or migration of cells)
(the "Tissue Engineering Business" or the "Business") ; (ii) be or become a
stockholder, partner, owner, officer, director or employee or agent of, or a
consultant to or give financial or other assistance to, any person or entity
engaged primarily in the Business; (iii) seek in competition with the business
of Company to procure orders from or do business with any customer of Company;
(iv) solicit or contact with a view to the engagement or employment by any
person or entity of any person who is an employee of Company; (v) solicit (in
such a way as to adversely affect or interfere with the business of Company) any
person or entity who has been contracted with or engaged to manufacture,
assemble, supply or deliver products, goods, materials or services to Company;
or (vi) intentionally undertake to induce any of the customers, associates,
consultants, or employees of Company to take any action which might be
disadvantageous to Company; provided, however, that nothing herein shall
prohibit Executive and his affiliates from owning, as passive investors, in the
aggregate not more than 5% of the outstanding publicly traded stock of any
corporation so engaged.
(b) Confidentiality. Executive acknowledges a duty of
confidentiality owed to Company and shall not, at any time during or after his
employment by Company, retain in writing, use, divulge, furnish, or make
accessible to anyone, without the express authorization of the Board, any trade
secret, private or confidential information or knowledge of Company obtained or
acquired by him while so employed. All computer software, business cards,
telephone lists, customer lists, price lists, contract forms, catalogs, Company
books, records, files and know-how acquired while an employee of Company are
acknowledged to be the property of Company and shall not be duplicated, removed
from Company's possession or premises or made use of other than in pursuit of
Company's business or as may otherwise be required by law or any legal process,
or as is necessary in connection with any adversarial proceeding against Company
and, upon termination of employment for any reason, Executive shall deliver to
Company, without further demand, all copies thereof which are then in his
possession or under his control. No information shall be treated as
"confidential information" if it is generally available public knowledge at the
time of disclosure or use by Executive.
(c) Inventions and Improvements. Executive shall promptly communicate to
Company all ideas, discoveries and inventions which are or may be useful to
Company or its business. Executive acknowledges that all such ideas,
discoveries, inventions, and improvements which heretofore have been or are
hereafter made, conceived, or reduced to practice by him at any time during his
employment with Company heretofore or hereafter gained by him at any time during
his employment with Company are the property of Company, and Executive hereby
irrevocably assigns all such ideas, discoveries, inventions, and improvements to
Company for its sole use and benefit, without additional compensation. The
provisions of this Section 14(c) shall apply whether such ideas, discoveries,
inventions, or improvements were or are conceived, made or gained by him alone
or with others, whether during or after usual working hours, whether on or off
the job, whether applicable to matters directly or indirectly related to
Company's business interests (including potential business interests), and
whether or not within the specific realm of his duties. Executive shall, upon
request of Company, but at no expense to Executive, at any time during or after
his employment with Company, sign all instruments and documents reasonably
requested by Company and otherwise cooperate with Company to protect its right
to such ideas, discoveries, inventions, or improvements including applying for,
obtaining, and enforcing patents and copyrights thereon in such countries as
Company shall determine.
(d) Breach of Covenant. Any breach or violation of the provisions in this
Section 14 by Executive will result in forfeiture by Executive and all other
persons of all rights to any further payments or benefits under this Agreement,
and in such event Company shall have no further obligation to pay any amounts
related thereto. Executive expressly acknowledges that damages alone will be an
inadequate remedy for any breach or violation of any of the provisions of this
Section 14 and that Company, in addition to all other remedies, shall be
entitled as a matter of right to equitable relief, including injunctions and
specific performance, in any court of competent jurisdiction. If any of the
provisions of this Section 14 are held to be in any respect unenforceable, then
they shall be deemed to extend only over the maximum period of time, geographic
area, or range of activities as to which they may be enforceable.
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15 .Miscellaneous
(a) Amendment. No provision of this Agreement may be amended unless such
amendment is signed by Executive and such officer as may be specifically
designated by the Board to sign on Company's behalf.
(b) Nature of Obligations. Nothing contained herein shall create or
require Company to create a trust of any kind to fund any benefits which may be
payable hereunder, and to the extent that Executive acquires a right to receive
benefits from Company hereunder, such right shall be no greater than the right
of any unsecured general creditor of Company.
(c) Prior Employment. Executive represents and warrants that his
acceptance of employment with Company has not breached, and the performance of
his duties hereunder will not breach, any duty owed by him to any prior employer
or other person.
(d) Headings. The Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In the event of a conflict between. a heading
and the content of a Section, the content of the Section shall control.
(e) Gender and Number. Whenever used in this Agreement, a masculine
pronoun is deemed to include the feminine and a neuter pronoun is deemed to
include both the masculine and feminine, unless the context clearly indicates
otherwise. The singular form, whenever used herein, shall mean or include the
plural form where applicable.
(f) Severability .If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable under
any applicable law, such event shall not affect or render invalid or
unenforceable any other provision of this Agreement and shall not affect the
application of any provision to other persons or circumstances.
(g) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the party's hereto and there respective successors, permitted
assigns, heirs, executors, and administrators.
(h) Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given if hand-delivered, sent by documented overnight
delivery service or by certified or registered mail, return receipt requested,
postage prepaid, addressed to the respective addresses set forth below:
To the Company:
Integra LifeSciences Corporation
105 Morgan Lane
Plainsboro, New Jersey 08536
Attn: President
To the Executive:
Mr. Michael Pierschbacher
148 W. Spruce Street
San Diego, CA 92103
(i) Entire Agreement. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements, arrangements and
communications, whether oral or written, pertaining to the subject matter
hereof.
(j) Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the laws of the State of New Jersey.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
INTEGRA LIFESCIENCES CORPORATION
/s/ Stuart Essig
----------------
President
EXECUTIVE
/s/ Michael D. Pierschbacher
----------------------------
<PAGE>
Exhibit 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made this 31st day
of December, 1998 by and between Integra LifeSciences Corporation, a
Delaware corporation, and Donald Nociolo ("Executive").
Background
Executive is currently the Vice President, Manufacturing Operations of Company.
Company desires to continue to employ Executive, and Executive desires to remain
in the employ of Company, on the terms and conditions contained in this
Agreement. Executive will be substantially involved with Company's operations
and management and will learn trade secrets and other confidential information
relating to Company and its customers; accordingly, the noncompetition covenant
and other restrictive covenants contained in Section 13 of this Agreement
constitute essential elements hereof.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and intending to be legally bound hereby, the parties hereto
agree as follows:
Terms
1.Definitions. The following words and phrases shall have the meanings set forth
below for the purposes of this Agreement (unless the context clearly indicates
otherwise):
(a)"Base Salary" shall have the meaning set forth in Section 5.
(b)"Board" shall mean the Board of Directors of Company, or any successor
thereto.
(c)"Cause, " as determined by the Board in good faith, shall mean
Executive has -
(1)failed to perform his stated duties and not cured such
failure (if curable) within 15 days of his receipt of written notice of the
failure;
(2)breached any provision of this Agreement and not cured such
breach (if curable) within 15 days of his receipt of written notice
of the breach;
(3)demonstrated his personal dishonesty in connection with his
employment by Company;
(4)engaged in willful misconduct;
(5)engaged in a breach of fiduciary duty:
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(6)willfully violated any law, rule or regulation, or final
cease-and-desist order (other than traffic violations or similar
offenses); or
(7)engaged in other serious misconduct of such a nature that
his continued employment may reasonably be expected to affect
Company adversely.
(d)A "Change in Control" of Company shall be deemed to have occurred:
(1) if the "beneficial ownership" (as defined in Rule l3d-3
under the Securities Exchange Act of 1934) of securities representing more than
fifty percent (50%) of the combined voting power of Company Voting Securities
(as herein defined) is acquired by any individual, entity or group (a "Person"),
Company, any trustee or other fiduciary holding securities under any employee
benefit plan of Company or an affiliate thereof, or any corporation owned,
directly or indirectly, by the stockholders of Company in substantially the same
proportions as their ownership of stock of Company (for purposes of this
Agreement, "Company Voting Securities" shall mean the then outstanding voting
securities of Company entitled to vote generally in the election of directors);
provided, however, that any acquisition from Company or any acquisition pursuant
to a transaction which complies with clauses (i), (ii) and (iii) of paragraph
(3) of this definition shall not be a Change in Control under this paragraph
(1); or
(2) if individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(3) upon consummation by Company of a reorganization, merger
or consolidation or sale or other disposition of all or substantially all of the
assets of Company or the acquisition of assets or stock of another entity (a
"Business Combination"), in each case, unless immediately following such
Business Combination: (i) more than 50% of the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors of (x) the corporation resulting from such Business Combination (the
"Surviving Corporation"), or (y) if applicable, a corporation which as a result
of such transaction owns Company or all or substantially all of Company's assets
either directly or through one or more subsidiaries (the "Parent Corporation"),
is represented, directly or indirectly, by Company Voting Securities outstanding
immediately prior to such Business Combination (or, if applicable, is
represented by shares into which such Company Voting Securities were converted
pursuant to such Business Combination), and such voting power among the holders
thereof is in substantially the same proportions as their ownership, immediately
prior to such Business Combination, of the Company Voting Securities; (ii) no
Person (excluding any employee benefit plan (or related trust) of Company or
such corporation resulting from such Business Combination) beneficially
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owns, directly or indirectly, 50% or more of the combined voting power of the
then outstanding voting securities eligible to elect directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving Corporation)
except to the extent that such ownership of Company existed prior to the
Business Combination; and (iii) at least a majority of the members of the board
of directors of the Parent Corporation (or, if there is no Parent Corporation,
the Surviving Corporation) were members of the Incumbent Board at the time of
the execution of the initial agreement, or the action of the Board, providing
for such Business Combination; or
(4) upon approval by the stockholders of Company of a complete
liquidation or dissolution of Company.
(e)"Code" shall mean the Internal Revenue Code of 1986, as amended.
(f)"Company" shall mean Integra LifeSciences Corporation and any
corporation, partnership or other entity owned directly or indirectly, in whole
or in part, by Integra LifeSciences Corporation.
(g)"Disability" shall mean Executive's inability to perform his duties
hereunder by reason of any medically determinable physical or mental impairment
which is expected to result in death or which has lasted or is expected to last
for a continuous period of not fewer than six months.
(h)"Good Reason" shall mean:
(l)a material breach of this Agreement by Company which is not
cured by Company within 15 days of its receipt of written notice of
the breach;
(2)without Executive's express written consent, the Board
reduces Executive's Base Salary or the aggregate fringe benefits
provided to Executive (except to the extent permitted by Section 5
or Section 6, respectively); provided, Executive resigns within 30
days after the change objected to; or
(3)Company fails to obtain the assumption of this Agreement by
any successor to Company.
(i)"Principal Executive Office" shall mean Company's principal office for
executives, presently located at 105 Morgan Lane, Plainsboro, New Jersey 08536.
(j)"Retirement" shall mean the termination of Executive's employment with
Company in accordance with the retirement policies, including early retirement
policies, generally applicable to Company's salaried employees.
(k)"Termination Date" shall mean the date specified in the Termination
Notice.
(l)"Termination Notice" shall mean a dated notice which: (i) indicates the
specific termination provision in this Agreement relied upon (if any); (ii) sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for the termination of Executive's employment under such provision; (iii)
specifies a Termination Date; and (iv) is given in the
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manner specified in Section l4(h).
2.Employment. Company hereby employs Executive as Vice President, Manufacturing
Operations and Executive hereby agrees to continue such employment and agrees to
render services to Company in such capacity (or in such other capacity in the
future as the Chief Executive Officer may decide in his sole discretion) on the
terms and conditions set forth in this Agreement. Executive's primary place of
employment shall be at the Principal Executive Office or other corporate
location, as the Chief Executive Officer deems appropriate.
3.Term.
(a)Term and Renewal of Agreement. Unless earlier terminated by Executive
or Company as provided in Section 9 hereof, the term of Executive's employment
under this Agreement shall be two (2) years, commencing on the date of this
Agreement and, subject to subsection 3(b), shall be deemed automatically,
without further action, to extend for an additional year on each annual
anniversary of the date of this Agreement.
(b)Annual Review. Prior to the second annual anniversary of the date of
this Agreement and each annual anniversary thereafter, the Board shall consider
extending the term of this Agreement. The term shall continue to extend in the
manner set forth in subsection 3(a) unless either the Board does not approve the
extension and provides written notice to Executive of such event, or Executive
gives written notice to Company of Executive's election not to extend the term.
In either case, the written notice shall be given not fewer than 30 days prior
to any such anniversary date. References herein to the term of this Agreement
shall refer both to the initial term and successive terms.
4.Duties. Executive shall:
(a)faithfully and diligently do and perform all such acts and duties, and
furnish such services as are assigned to Executive as of the date this Agreement
is signed, and (subject to Section 2) such additional or different acts, duties
and services as the Chief Executive Officer may assign in the future; and
(b)devote his full professional time, energy, skill and best efforts to
the performance of his duties hereunder, in a manner that will faithfully and
diligently further the business and interests of Company, and shall not be
employed by or participate or engage in or in any manner be a part of the
management or operations of any business enterprise other than Company without
the prior written consent of the Board or the Chief Executive Officer, which
consent may be granted or withheld in its or his sole discretion.
5.Compensation. Company shall compensate Executive for his services at a minimum
base salary of$125,000 per year ("Base Salary"), payable in periodic
installments in accordance with Company's regular payroll practices in effect
from time to time. Executive's Base Salary shall be subject to annual reviews,
but may not be decreased without Executive's express written consent (unless the
decrease is pursuant to a general compensation reduction applicable to all, or
substantially all, executive officers of Company). Bonus payments may be made as
determined
<PAGE>
appropriate by the Board in its sole discretion.
7.Benefit Plans. Executive shall be entitled to participate in and receive
benefits under any employee benefit plan or stock-based plan of Company, and
shall be eligible for any other plans and benefits covering executives of
Company, to the extent commensurate with his then duties and responsibilities
fixed by the Board. Company shall not make any change in such plans or benefits
which would adversely affect Executive's rights thereunder, unless such change
affects all, or substantially all, executive officers of Company.
8. Vacation. Executive shall be entitled to paid annual vacation in accordance
with the policies established from time to time by the Board, which shall in no
event be fewer than three weeks per annum:
9.Disability .In the event Executive incurs a Disability, Executive's obligation
to perform services under this Agreement will terminate, and the Board may
terminate this Agreement upon written notice to Executive.
10.Termination.
(a)Termination without Salary Continuation. In the event (i) Executive
terminates his employment hereunder other than for Good Reason, or (ii)
Executive's employment is terminated by Company due to his Retirement,
Disability or death, or for Cause, Executive shall have no right to compensation
or other benefits pursuant to this Agreement for any period after his last day
of active employment.
(b)Termination with Salary Continuation (No Change in Control). Except as
provided in subsection 9( c) in the event of a Change in Control, in the event
(i) Executive's employment is terminated by Company for a reason other than
Retirement, Disability, death or Cause, or (ii) Executive terminates his
employment for Good Reason, then Company shall:
(1) pay Executive a severance amount equal to the
greater of (i) one times Executive's Base Salary as of his
last day of active employment, or (ii) the unpaid portion of
Executive's Base Salary for the remainder of the then current
term of this Agreement; the severance amount shall be paid in
a single sum on the first business day of the month following
the Termination Date (unless Executive elects, in writing and
on, or not later than 30 days after, the date this Agreement
is executed, to receive the severance payment divided into 24
equal monthly installments, paid beginning on the first
business day of the month following the Termination Date); and
(2) maintain and provide to Executive, at no cost to
Executive, for a period ending at the earliest of (i) the
expiration of 12 months from Executive's last day of active
employment; (ii) the date of Executive's full-time employment
by another employer; or (iii) Executive's death, continued
participation in all group insurance, life insurance, health
and accident, disability, and other employee benefit plans in
which Executive would have been entitled to
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participate had his employment with Company continued
throughout such period, provided that such participation is
not prohibited by the terms of the plan or by Company for
legal reasons.
(c)Termination with Salary Continuation (Change in Control).
Notwithstanding anything to the contrary set forth in subsection 9(b), in
the event within six months of a Change in Control: (i) Executive
terminates his employment for Good Reason; or (ii) Executive's employment
is terminated by Company for a reason other than Retirement, Disability,
death or Cause, then Company shall:
(l)pay Executive a severance amount equal to 1.99 times
Executive's Base Salary as of his last day of active
employment prior to the Change in Control; the severance
amount shall be paid in a single sum on the first business day
of the month following the Termination Date (unless Executive
elects, in writing and on, or not later than 30 days after,
the date this Agreement is executed, to receive the severance
payment divided into 24 equal monthly installments, paid
beginning on the first business day of the month following the
Termination Date); and
(2)maintain and provide to Executive, at no cost to
Executive, for a period ending at the earliest of (i) the
expiration of 12 months from Executive's last day of active
employment; (ii) the date of Executive's full-time employment
by another employer; or (iii) Executive's death, continued
participation in all group insurance, life insurance, health
and accident, disability, and other employee benefit plans in
which Executive would have been entitled to participate had
his employment with Company continued throughout such period,
provided that such participation is not prohibited by the
terms of the plan or by Company for legal reasons.
(d)Termination Notice. Except in the event of Executive's death, a
termination under this Agreement shall be effected by means of a
Termination Notice.
11. Withholding. Company shall have the right to withhold from all payments made
pursuant to this Agreement any federal, state, or local taxes and such other
amounts as may be required by law to be withheld from such payments.
12.Assignability . Company may assign this Agreement and its rights and
obligations hereunder in whole, but not in part, to any entity to which Company
may transfer all or substantially all of its assets, if in any such case said
entity shall expressly in writing assume all obligations of Company hereunder as
fully as if it had been originally made a party hereto. Company may not
otherwise assign this Agreement or its rights and obligations hereunder. This
Agreement is personal to Executive and his rights and duties hereunder shall not
be assigned except as expressly agreed to in writing by Company.
13.Death of Executive. Any amounts due Executive under this Agreement (not
including any Base Salary not yet earned by Executive) unpaid as of the date of
Executive's death shall be paid in a single sum as soon as practicable after
Executive's death to Executive's surviving spouse, or if none, to the duly
appointed personal representative of his estate.
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14.Restrictive Covenants.
(a)Covenant Not to Compete. During the term of this Agreement and for a
period of two (2) years following the Termination Date, Executive shall not
directly or indirectly: (i) engage, anywhere within the geographical areas in
which Company is conducting business operations or providing services as of the
date of Executive's termination of employment, in the tissue engineering
business (the use of implantable absorbable materials, with or without a
bioactive component, to attempt to elicit a specific cellular response in order
to regenerate tissue or to impede the growth of tissue or migration of cells)
(the "Tissue Engineering Business") or any other business the revenues of which
constituted at least 30% of Company's revenues during the six (6) month period
prior to the Termination Date (together with the Tissue Engineering Business,
the "Business"); (ii) be or become a stockholder, partner, owner, officer,
director or employee or agent of, or a consultant to or give financial or other
assistance to, any person or entity engaged in the Business; (iii) seek in
competition with the business of Company to procure orders from or do business
with any customer of Company; (iv) solicit or contact with a view to the
engagement or employment by any person or entity of any person who is an
employee of Company; (v) seek to contract with or engage (in such a way as to
adversely affect or interfere with the business of Company) any person or entity
who has been contracted with or engaged to manufacture, assemble, supply or
deliver products, goods, materials or services to Company; or (vi) engage in or
participate in any effort or act to induce any of the customers, associates,
consultants, or employees of Company to take any action which might be
disadvantageous to Company; Provided, however, that nothing herein shall
prohibit Executive and his affiliates from owning, as passive investors, in the
aggregate not more than 5% of the outstanding publicly traded stock of any
corporation so engaged.
(b) Confidentiality. Executive acknowledges a duty of confidentiality owed
to Company and shall not, at any time during or after his employment by Company,
retain in writing, use, divulge, furnish, or make accessible to anyone, without
the express authorization of the Board, any trade secret, private or
confidential information or knowledge of Company obtained or acquired by him
while so employed. All computer software, business cards, telephone lists,
customer lists, price lists, contract forms, catalogs, Company books, records,
files and know-how acquired while an employee of Company are acknowledged to be
the property of Company and shall not be duplicated, removed from Company's
possession or premises or made use of other than in pursuit of Company's
business or as may otherwise be required by law or any legal process, or as is
necessary in connection with any adversarial proceeding against Company and,
upon termination of employment for any reason, Executive shall deliver to
Company, without further demand, all copies thereof which are then in his
possession or under his control. No information shall be treated, as
"confidential information" if it is generally available public knowledge at the
time of disclosure or use by Executive.
(c) Inventions and Improvements. Executive shall promptly communicate to
Company all ideas, discoveries and inventions, which are or may be useful to
Company or its business. Executive acknowledges that all such ideas,
discoveries, inventions, and improvements which heretofore have been or are
hereafter made, conceived, or reduced to practice by him at any time during his
employment with Company heretofore or hereafter gained by him at any time during
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his employment with Company are the property of Company, and Executive hereby
irrevocably assigns all such ideas, discoveries, inventions, and improvements to
Company for its sole use and benefit, without additional compensation. The
provisions of this Section 13(c) shall apply whether such ideas, discoveries,
inventions, or improvements were or are conceived, made or gained by him alone
or with others, whether during or after usual working hours, whether on or off
the job, whether applicable to matters directly or indirectly related to
Company's business interests (including potential business interests), and
whether or not within the specific realm of his duties. Executive shall, upon
request of Company, but at no expense to Executive, at any time during or after
his employment with Company, sign all instruments and documents reasonably
requested by Company and otherwise cooperate with Company to protect its right
to such ideas, discoveries, inventions, or improvements including applying for,
obtaining, and enforcing patents and copyrights thereon in such countries as
Company shall determine.
(d)Breach of Covenant. Any breach or violation of the provisions in this
Section 13 by Executive will result in forfeiture by Executive and all other
persons of all rights to any further payments or benefits under this Agreement,
and in such event Company shall have no further obligation to pay any amounts
related thereto. Executive expressly acknowledges that damages alone will be an
inadequate remedy for any breach or violation of any of the provisions of this
Section 13 and that Company, in addition to all other remedies, shall be
entitled as a matter of right to equitable relief, including injunctions and
specific performance, in any court of competent jurisdiction. If any of the
provisions of this Section 13 are held to be in any respect unenforceable, then
they shall be deemed to extend only over the maximum period of time, geographic
area, or range of activities as to which they may be enforceable.
15.Miscellaneous.
(a)Amendment. No provision of this Agreement may be amended unless such
amendment is signed by Executive and such officer as may be specifically
designated by the Board to sign on Company's behalf.
(b)Nature of Obligations. Nothing contained herein shall create or require
Company to create a trust of any kind to fund any benefits which may be payable
hereunder, and to the extent that Executive acquires a right to receive benefits
from Company hereunder, such right shall be no greater than the right of any
unsecured general creditor of Company.
(c)Prior Employment. Executive represents and warrants that his acceptance
of employment with Company has not breached, and the performance of his duties
hereunder will not breach, any duty owed by him to any prior employer or other
person.
(d)Headings. The Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In the event of a conflict between a heading
and the content of a Section, the content of the Section shall control.
(e)Gender and Number. Whenever used in this Agreement, a masculine pronoun
is deemed to include the feminine and a neuter pronoun is deemed to include both
the masculine and
8
<PAGE>
feminine, unless the context clearly indicates otherwise. The singular form,
whenever used herein, shall mean or include the plural form where applicable.
(f)Severability .If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable under
any applicable law, such event shall not affect or render invalid or
unenforceable any other provision of this Agreement and shall not affect the
application of any provision to other persons or circumstances.
(g)Binding Effect. This Agreement shall be binding upon and inure to
the-benefit of the parties hereto and their respective successors, permitted
assigns, heirs, executors, and administrators.
(h)Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given if hand- delivered, sent by documented overnight
delivery service or by certified or registered mail, return receipt requested,
postage prepaid, addressed to the respective addresses set forth below:
To the Company:
Integra LifeSciences Corporation
105 Morgan Lane
Plainsboro, New Jersey 08536
Attn: President
To the Executive:
Mr .Donald Nociolo
98 Nassau Street
Apt 2
Princeton, NJ 08540
(i) Entire Agreement. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements, arrangements and
communications, whether oral or written, pertaining to the subject matter
hereof.
(j) Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the laws of the State of New Jersey.
9
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
INTEGRA LIFESCIENCES
CORPORATION
By: /s/ Stuart Essig
--------------------
Title: President
EXECUTIVE
/s/ Donald Nociolo
------------------
10
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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<INVENTORY> 10,667
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<PP&E> 10,547
<DEPRECIATION> (8,583)
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<CURRENT-LIABILITIES> 16,379
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0
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<SALES> 13,236
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<INCOME-PRETAX> (1,001)
<INCOME-TAX> 62
<INCOME-CONTINUING> (1,063)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (1,063)
<EPS-BASIC> (0.32)
<EPS-DILUTED> (0.32)
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