UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NO. 0-26224
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 51-0317849
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
311 ENTERPRISE DRIVE
PLAINSBORO, NEW JERSEY 08536
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(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 275-0500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act. Yes [ ] No [X]
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of large
accelerated filer and accelerated filer in Rule 12b-2 of the Exchange Act).
Large accelerated filer Yes [ ] No [X] Accelerated filer Yes [X] No [ ]
Non-accelerated filer Yes [ ] No [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of June 30, 2005, the aggregate market value of the registrant's common stock
held by non-affiliates was approximately $590.0 million based upon the closing
sales price of the registrant's common stock on The NASDAQ National Market on
such date.
The number of shares of the registrant's Common Stock outstanding as of March
10, 2006 was 28,435,001.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive proxy statement relating to its
scheduled May 17, 2006 Annual Meeting of Stockholders are incorporated by
reference in Part III of this report.
PART I
ITEM 1. BUSINESS
OVERVIEW
The terms "we," "our," "us," "Company" and "Integra" refer to Integra
LifeSciences Holdings Corporation, a Delaware corporation, and its subsidiaries
unless the context suggests otherwise.
Integra is a market leading, innovative medical device company focused on
helping the medical professional enhance the standard of care for patients.
Integra provides customers with clinically relevant, innovative and
cost-effective products that improve the quality of life for patients. We focus
on cranial and spinal procedures, peripheral nerve repair, small bone and joint
injuries, and the repair and reconstruction of soft tissue.
Integra was founded in 1989 and since then has leveraged its expertise in
regenerative technologies to develop numerous products based on its Ultra Pure
Collagen(TM) technology. Early in Integra's history, these regenerative products
were sold through a number of private label arrangements with other large
medical device companies. In 1999, we entered the neurosurgery market through an
acquisition and the launch of our DuraGen(R) Dural Graft Matrix product for the
repair of the dura mater. Since our entry into the neurosurgery field in 1999,
we have entered the surgical instruments and reconstructive surgery businesses.
We have increased our consolidated revenues from $42.9 million in 1999 to $277.9
million in 2005, a compound annual growth rate of 37%, and we have broadened our
product offerings to include more than 15,300 products. We have achieved this
growth in our business by developing and introducing new products, expanding our
sales and distribution channels and acquiring new businesses and product lines.
Financial information about our geographical areas is set forth in our financial
statements under "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - International Product Revenues and
Operations" and Note 15 "Segment and Geographic Information" to our Consolidated
Financial Statements.
STRATEGY
Our goal is to become a global leader in the development, manufacturing and
marketing of medical devices, implants, biomaterials and instruments in the
neurosurgery, reconstructive surgery and general surgery markets. Key elements
of our strategy include the following:
o Marketing innovative medical devices to underserved markets
o Investing in sales distribution channels to increase market penetration
o Developing innovative products based on core technologies
o Acquiring businesses that fit existing sales channels or build out new
sales channels
Marketing innovative medical devices to underserved markets. We have developed a
number of innovative medical devices for neurosurgery and reconstructive
surgery. Reconstructive surgery includes treatment of burns and wounds (chronic
and trauma-related), peripheral nerve repair, and small bone and joint fixation
procedures. Traditionally these markets have been underserved by the largest
medical device manufacturers.
Investing in sales distribution channels to increase market penetration. We have
a mix of direct and indirect sales distribution channels. We created our first
direct sales force in 1999 with the creation of our Integra NeuroSciences sales
force. Since then, the number of sales representatives (whom we call
neurospecialists) in that sales force has grown to over 100. In 2003, we created
our reconstructive surgery sales force, and this group now has over 50 sales
representatives. Between these two sales forces, we reach neurosurgeons, plastic
and reconstructive surgeons, orthopedic surgeons and podiatrists.
Developing innovative products based on core technologies. We have become a
leader in regenerative technology. Our Ultra Pure Collagen(TM) technology is the
basis for a number of regenerative products that we sell through both our own
sales network and through alliances with other companies in private label
arrangements. This technology has been deployed in our products relating to
duraplasty, dermal regeneration, nerve repair and collagen matrices used for
bone regeneration in the orthopedic implant market. We are a leading marketer of
neurological products used in the diagnosis, monitoring and treatment of chronic
diseases and acute injuries, and we are a leading provider of surgical
instruments.
Acquiring businesses that fit existing sales channels or build out new sales
channels. We have demonstrated that we can quickly integrate acquisitions into
our existing distribution channels and drive revenue growth. Since 1999, we have
completed more than 20 acquisitions focused primarily on our neurosurgical
product lines, reconstructive surgery, surgical instrumentation and orthopedic
surgery. We regularly evaluate potential acquisition candidates in these markets
and in other specialty medical technology markets characterized by high margins,
fragmented competition and focused target customers.
We believe that executing the above strategy will enable us to expand our
presence in hospitals and other health care facilities, to integrate acquired
products and businesses efficiently and effectively, to create new sales
platforms and to drive both long-term and short-term revenue and earnings
growth.
PRODUCTS GROUPS, MARKETING AND SALES
We have four distribution channels that sell four groups of products. Our
distribution channels include two direct sales organizations (Integra
NeuroSciences and Integra Reconstructive Surgery), a network managed by a direct
sales organization (JARIT(R) Surgical Instruments) and strategic alliances. Our
product groups include Instruments, Implants, Monitoring Products, and Private
Label Products. We sell the products in our four product groups through our
various distribution channels, as follows:
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DISTRIBUTION CHANNELS
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PRODUCT GROUPS Integra Integra JARIT Surgical Strategic
NeuroSciences Reconstructive Instruments Alliances
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Instruments X X X
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Implants X X
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Monitoring X
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Private Label X
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Distribution Channels
At the heart of our business strategy is creation of and investment in our
distribution channels.
Direct Sales Forces. Our direct sales forces include the following:
o Integra NeuroSciences(R). Integra NeuroSciences' direct sales effort in
the United States and Europe currently involves more than 150
professionals, including direct sales representatives (called
neurospecialists in the United States), sales management, marketing
managers and clinical educators who educate and train both our
salespeople and customers in the use of our products. Neurospecialists
call primarily on neurosurgeons, intensivists, other physicians,
nurses, hospitals and surgery centers. Our Integra NeuroSciences sales
and marketing team effectively reaches its hospital customers in the
United States and those portions of Europe where we sell directly to
customers. In certain international markets, we sell through
distributors. We plan to create a separate team of 20 intensive care
unit specialists in 2006 to provide a greater focus on our
neuro-monitoring products.
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o Reconstructive Surgery. Our reconstructive surgery sales and marketing
organization in the United States and Europe consists of approximately
65 professionals, including direct salespeople, sales management,
clinical educators and marketing managers. This sales and marketing
organization sells medical devices to orthopedic surgeons, podiatric
surgeons, trauma and reconstructive surgeons, burn surgeons, hospitals,
surgery centers and other physicians.
o JARIT Surgical Instruments. Our JARIT organization in the United States
employs 25 professionals, including sales management, instrument
specialists and marketing managers. These individuals work with over
100 manufacturers' representatives. The JARIT organization sells the
JARIT line of general and specialty instruments for open and endoscopic
surgery and a line of specialty instruments for spinal surgery,
neurosurgery and plastic surgery. Our JARIT organization sells its
products to more than 6,000 hospitals and surgery centers worldwide.
We have direct sales forces in France, Germany, the United Kingdom and the
Benelux (Belgium, Netherlands, Luxembourg) region. Independent distributors
market and sell our products in those countries where we do not have a direct
sales force. These distributors are managed by our nine distributor sales
managers.
Strategic Alliances. We market our private label products through strategic
partners or original equipment manufacturer customers. Our private label
products address large, diverse markets, and we believe that we can develop and
promote these products more cost-effectively through leveraging the product
development and distribution systems of our strategic partners than through
developing the products ourselves or selling them through our own direct sales
infrastructure. We have partnered with market leaders, such as Johnson &
Johnson, Medtronic Sofamor Danek, Inc., Wyeth BioPharma and Zimmer Holdings,
Inc., for the development and marketing efforts related to many of these
products.
Integra NeuroSciences Product Portfolio
Instruments
Ultrasonic Surgery Systems for Tissue Ablation. More than 145,000 primary and
metastatic brain tumors are diagnosed annually in the United States alone. Our
ultrasonic surgery systems address surgeons' needs for the surgical
fragmentation and removal of malignant and non-malignant tumors and other
tissue. Our acquisition of the Radionics business has increased our product
offerings in this area. We offer certain of our ultrasonic surgery products only
outside the United States.
Our ultrasonic surgery systems use very high frequency sound waves to ablate
cancer tumors and allow the surgeon to remove the damaged tumor tissue by
aspiration. Unlike other surgical techniques, ultrasonic surgery selectively
dissects and fragments soft tissue leaving fibrous tissues, such as nerves and
blood vessels, intact. Ultrasonic aspiration facilitates the removal of unwanted
tissue adjacent or attached to vital structures.
Integra Radionics. The Integra Radionics business, which we acquired in March
2006, is a leader in the design, manufacture and sale of advanced
minimally-invasive medical instruments in the fields of neurosurgery and
radiation therapy. Radionics' products include the CRW(R) stereotactic system,
the XKnife(TM) stereotactic radiosurgery system and the OmniSight(R) EXcel image
guided surgery system.
The Radionics products are primarily utilized by neurosurgeons in the diagnosis
and treatment of cancer and in the treatment of movement disorders. These
products are sold in over 75 countries, with approximately 50 percent of sales
occurring outside of the United States.
The Radionics business includes the CUSA EXcel(TM) ultrasonic surgical
aspirator, which we will continue to sell along with our existing ultrasonic
aspirator systems.
Among other benefits, the acquisition of Radionics increases our global
neurosurgery product offerings, positions us to offer new stereotactic surgery
products, secures entry into new business, adds to our manufacturing and
research and development expertise and enhances the efficiency of our global
infrastructure and distribution network.
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Cranial Stabilization and Brain Retraction Systems. The MAYFIELD(R) Headrest
System is the market leader in cranial stabilization equipment. We work closely
with surgeons and other health care providers throughout the world to develop
unique cranial stabilization products.
Neurosurgical and Spinal Instrumentation. We provide neurosurgeons and spine
surgeons with a full line of specialty hand-held spinal and neurosurgical
instruments. We sell instruments under the R&B Redmond(TM) name primarily for
spinal procedures (including neuro-spine) and under the Ruggles(TM) brand name
primarily for cranial surgery.
Implants
Duraplasty Solutions. We provide dural grafts that are indicated for the repair
of the dura mater surrounding the brain and spine, which is often penetrated
during brain surgery and often damaged during spine surgery. These products
serve as an alternative to using a graft of tissue taken from elsewhere in the
patient's body. We are committed to providing surgeons with a full compliment of
products that provide solutions for a wide variety of possible procedures. We
estimate the worldwide market for dural repair, including cranial and spinal
applications, to be $120 million.
Our line of duraplasty products includes the DuraGen(R) Dural Graft Matrix, the
DuraGen Plus(R) Dural Regeneration Matrix and the Suturable DuraGen(TM) Dural
Regeneration Matrix. Clinical trials have shown our duraplasty products to be an
effective means for closing the dura mater without the need for suturing. This
allows the neurosurgeon to conclude the operation more efficiently. In addition,
because the human body ultimately absorbs our duraplasty products and replaces
them with new natural tissues, the patient avoids some of the risks associated
with a permanent implant inside the cranium or spinal cavity. Our Suturable
DuraGenTM Dural Regeneration Matrix grafts have the added benefit of being able
to anchor to the patient's dura with sutures. To complement these resorbable
products, we also provide the Endura(TM) No-React(R) Dural Substitute, a
permanent suture-only graft, which is optimal for more challenging procedures
that require a stronger and more permanent graft.
Adhesion Barrier for the Spine. The DuraGen Plus(TM) Adhesion Barrier Matrix is
an absorbable collagen product, which is CE marked in the European Union as a
barrier against adhesions and for repair and restoration of the dura mater
following spinal and cranial surgery. To obtain approval to market this product
in the United States, we are initiating a pivotal randomized prospective
clinical trial under an Investigational Device Exemption from the Food and Drug
Administration (FDA). The trial is anticipated to begin during the third quarter
of 2006, with the first patient expected to be enrolled by the fourth quarter of
2006. We estimate that the worldwide market for treatment of spinal adhesions
exceeds $300 million.
Hydrocephalus Management. We sell a wide variety of devices, known as shunts,
used in the treatment of hydrocephalus. Hydrocephalus is an incurable condition
resulting from an imbalance between the amount of cerebrospinal fluid produced
by the brain and the rate at which the body absorbs cerebrospinal fluid.
Hydrocephalus is most commonly treated by inserting a shunt into the ventricular
system of the brain to divert the flow of cerebrospinal fluid out of the brain
and using a pressure valve to maintain a normal level of cerebrospinal fluid
within the ventricles. We estimate the total United States market for shunts
used in hydrocephalus management to be $200 million.
In 2004, we introduced the NPH(TM) Low Flow Hydrocephalus Valve that regulates
the flow of cerebrospinal fluid out of the brain. Designed specifically to meet
the needs of patients with normal pressure hydrocephalus (NPH), the NPH(TM) Low
Flow Hydrocephalus Valve controls cerebrospinal fluid flow at a lower rate than
our other flow-control valves. While many surgeons view shunting as the
preferred treatment method for patients diagnosed with NPH, only approximately
5% of those with NPH are currently treated with a surgically implanted shunt.
Based on these current treatment statistics, we estimate the current market for
shunt systems designed to treat NPH to be approximately $35 million. Certain
reports estimate that approximately 20% of total cerebrospinal fluid shunt sales
address normal pressure hydrocephalus. Based on the NPH population as a whole,
we estimate that the potential market opportunity exceeds $500 million.
In 2005, we acquired the intellectual property estate of Eunoe, Inc., including
the innovative COGNIShunt(R) system, which was being evaluated under an
Investigational Device Exemption for the treatment of Alzheimer's disease
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patients. The COGNIShunt(R) system is designed to increase the flow of cerebral
spinal fluid (CSF) and improve clearance of potential neurotoxins, which are
believed to contribute to the progression of Alzheimer's disease. The
COGNIShunt(R) system has not received FDA clearance or approval for sale.
Monitoring Products
Monitoring Of Brain Parameters. Neurosurgeons use intracranial monitors to
diagnose and treat cases of severe head trauma and other diseases. There are
approximately 500,000 cases of head trauma each year in the United States. We
estimate the market for monitoring and intervention to be $110 million.
We sell intracranial monitoring systems under the Camino(R), Ventrix(R) and
LICOX(R) names. Currently more than 3,000 of our intracranial monitors are
installed and in use worldwide
Cranial Access And External Ventricular Drainage. Neurosurgeons use cranial
access kits and external drainage systems to gain access to the cranial cavity
and to drain excess cerebrospinal fluid from the ventricles of the brain into an
external container. We manufacture and market a broad line of cranial access
kits and ventricular and lumbar external drainage systems.
Epilepsy Electrodes. We sell epilepsy electrodes that neurosurgeons use for the
intra-operative monitoring of seizures to determine if surgical options can be
used in the treatment of epilepsy. We estimate the worldwide market for
intra-operative epilepsy electrodes to be $10 million.
Reconstructive Product Portfolio
Implants
Small Bone And Joint Fixation Devices and Instruments. The Newdeal foot and
ankle surgery devices address the reconstructive and fracture repair portion of
the orthopedic market. The Newdeal line of implants include a wide range of
products for the forefoot, the mid-foot and the hind foot, including the Bold(R)
Screw, the Uniclip(R) Compression Staple, the Hallu-Fix(R) plate system and the
HINTEGRA(R) total ankle prosthesis. These implants and the instruments used to
implant them are specifically designed for foot and ankle surgery. We estimate
that the current Newdeal products address an approximately $500 million
worldwide market. The HINTEGRA(R) total ankle prosthesis has been approved for
sale only outside the United States.
Dermal Regeneration and Engineered Wound Dressings. Our skin replacement
products address the market need created by severe burns, reconstructive
surgery, trauma and chronic wounds. We estimate that the worldwide market now
addressable by our skin replacement products exceeds $1.0 billion.
The INTEGRA(R) Dermal Regeneration Template is designed to enable the human body
to regenerate functional dermal tissue. We sell this product under a Premarket
Approval (PMA) issued by the Food and Drug Administration for the
post-excisional treatment of life-threatening deep or full-thickness dermal
injury where sufficient autograft is not available at the time of excision or is
not desirable due to the physiological condition of the patient and for the
repair of scar contractures in patients who have already recovered from their
initial wound.
The INTEGRA(R) Bilayer Matrix Wound Dressing and INTEGRA(TM) Matrix Wound
Dressing are advanced wound care devices indicated for the management of soft
tissue wounds including: partial and full-thickness wounds, pressure ulcers,
venous ulcers, diabetic ulcers, chronic vascular ulcers, surgical wounds (donor
sites/grafts, post-Moh's surgery, post-laser surgery, podiatric and wound
dehiscence), trauma wounds (abrasions, lacerations, second-degree burns and skin
tears) and draining wounds. We expect the rapid growth of our reconstructive
surgery sales force to drive sales growth of this important product line.
Repair and Protection of Peripheral Nerves. Peripheral nerves may become severed
or damaged through traumatic accidents or surgical injuries, often resulting in
the permanent loss of motor and sensory function. Although severed peripheral
nerves regenerate spontaneously, they do not establish functional connections
unless the nerve stumps are surgically reconnected. We estimate the worldwide
market for the repair of severed and damaged peripheral nerves to be $110
million.
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Our nerve repair products are absorbable collagen implants for the repair and
protection of severed and injured peripheral nerves. The NeuraGen(R) Nerve Guide
is a collagen conduit designed to provide an environment for the repair and
regeneration of severed nerves. The NeuraWrap(TM) Nerve Protector provides a
protective environment for the healing of injured, compressed or scarred nerves.
Both our Integra NeuroSciences and Integra Reconstructive sales forces sell
these products to our hospital-based customers.
Instruments
Dermatomes and Meshers. We sell a range of manual and powered dermatomes and
related disposables for harvesting skin grafts under the Padgett Instruments(TM)
name. In 2003, we launched our new Padgett Dermatome-S, which is lighter, more
ergonomic and more powerful than the other dermatomes in our line. Our variable
skin mesher is designed to expand skin grafts prior to implantation to provide
for greater coverage.
JARIT(R) Surgical Instruments
For more than 30 years, JARIT has marketed a wide variety of high quality,
reusable surgical instruments to virtually all surgical disciplines. With more
than 5,000 instrument patterns, the JARIT brand has a strong reputation for
high-quality surgical instruments and customer service.
Our Jarit Surgical Instrument channel sells directly to central supply and
purchasing at hospitals. This channel has expanded beyond the JARIT(R) product
line to sell products under the Padgett Instruments(TM) and R&B Redmond(TM)
product lines. More than 25 sales and marketing professionals supervise a group
of over 100 manufacturers' representatives.
Strategic Alliances
Orthopedic Biomaterials. Since 1994, we have supplied Wyeth BioPharma with
Absorbable Collagen Sponges for use in developing bone regeneration implants,
including use with Wyeth BioPharma's recombinant human bone morphogenetic
protein-2 (rhBMP-2). Wyeth BioPharma sells Absorbable Collagen Sponges to
Medtronic Sofamor Danek. The FDA has approved Medtronic Sofamor Danek's
InFUSE(TM) Bone Graft used with the LT-CAGE(TM) Lumbar Tapered Fusion Device for
use in spinal fusion procedures and the InFUSE(TM) Bone Graft for the treatment
of open, acute tibial shaft fractures. The InFUSE(TM) Bone Graft eliminates the
need for a secondary, painful procedure to harvest pieces of bone from the
patient's own hip (known as an autograft).
More recently, we developed a compression resistant collagen ceramic matrix for
Medtronic Sofamor Danek. The device, the MasterGraftTM Matrix, is a
3-dimensional, osteoconductive, porous implant that allows for bony ingrowth
across the graft site while resorbing at a rate consistent with bone healing.
Guided Tissue Regeneration In Periodontal Surgery. Our BioMend(R) Absorbable
Collagen Membrane and BioMend(R) Extend Absorbable Collagen Membrane are sold
through Zimmer Holdings, Inc. They are used for guided tissue regeneration in
periodontal surgery. The body absorbs the BioMend(R) products, avoiding the
requirement for additional surgical procedures to remove a non-absorbable
membrane.
Other Private Label Products. Our current private label products also include
the VitaCuff(R) catheter access infection control device and the BioPatch(R)
anti-microbial wound dressing.
RESEARCH AND DEVELOPMENT STRATEGY
Integra's research and development activities focus on identifying and
evaluating unmet surgical needs and product improvement opportunities to drive
the development of innovative solutions and products. We apply our technological
and developmental core competencies to develop regenerative products for
neurosurgical and reconstructive applications, neuro-monitoring and CSF
management, cranial stabilization and closure, tissue ablation, surgical
instruments and extremity small bone and joint fixation. Our activities include
both internal product development initiatives and the acquisition of proprietary
rights to strategic technological platforms.
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Our regenerative product development portfolio is focused on applying our
expertise in biomaterials and collagen matrices to support the development of
innovative products targeted at neurosurgical, orthopedic and spinal surgery
applications, as well as dermal regeneration, nerve repair, and wound dressing
applications. Our focus on technological advancement, product segmentation and
differentiation activities will continue to drive our activities in each of
these areas.
Research and development in neuro-monitoring applications remains focused on the
improvement of our existing advanced neuromonitors and the evaluation of new and
innovative technologies that afford significant advancements in monitoring
ability. For CSF management, opportunities for the improvement of long-standing
product applications are being explored and existing products are being updated
to meet evolving needs. Our industry leading cranial stabilization product
expertise is focused on the advancement of mechanical stabilization techniques
and the application of new materials to further the state-of-the-art of cranial
stabilization. For tissue ablation, our existing development resources will be
coupled with those gained through the acquisition of Radionics to drive
multi-technology based tissue ablation modalities to offer a broad array of
products. Finally, we have an on-going program of identifying, developing and
commercializing powered and hand-held surgical instruments.
As our expansion into the orthopedic reconstructive market continues, our
research and development activities have targeted extremity small bone and joint
fixation. Leveraging the development expertise from our acquisition of Newdeal
Technologies, we are developing a robust new product development program that
will advance our product offering to both United States and European markets.
We spent $12.8 million, $14.1 million, and $12.0 million in 2003, 2004 and 2005,
respectively, on research and development activities. The 2003 amount includes
$400,000 of acquired in-process research and development charge recorded in
connection with acquisitions. The 2004 amount includes a $1.4 million milestone
payment relating to the completion of certain development activities for an
advanced neuro-monitoring system and a $0.5 million licensing fee paid for the
development of a data acquisition system to support the integration of our
advanced monitoring products. The 2005 amount includes a $0.5 million in-process
research and development charges recorded in connection with an acquisition. In
addition to internal research and development activities, we may continue to
acquire businesses that include research and development programs, which could
result in additional in-process research and development charges in the future.
COMPETITION
Our largest competitors in the neurosurgery markets are the Medtronic
Neurosurgery division of Medtronic, Inc., the Codman division of Johnson &
Johnson and the Aesculap division of B. Braun. In addition, many of our
neurosurgery product lines compete with smaller specialized companies or larger
companies that do not otherwise focus on neurosurgery.
Our competition in reconstructive surgery can be divided into two areas that
correspond to our main reconstructive product categories. Our skin and advanced
wound healing products compete with those of LifeCell Corporation, Organogenesis
Inc. and Wright Medical Group, Inc. Our orthopedic products compete with those
of the DePuy division of Johnson & Johnson, Synthes, Inc. and Stryker
Corporation, as well as other major orthopedic companies that carry a full line
of reconstructive surgery products. We also compete with Wright Medical Group in
the orthopedic category.
We believe that we are the second largest re-usable surgical instrument company
in the United States. We compete with the largest re-usable instrument company,
V. Mueller, a division of Cardinal Healthcare, as well as the Aesculap division
of B. Braun. In addition, the Codman division of Johnson & Johnson and many
smaller instrument companies compete with both re-usable and disposable
specialty instruments. We rely on the depth and breadth of our sales and
marketing organization and our procurement operation to maintain our competitive
position in surgical instruments.
Our private label products face diverse and broad competition, depending on the
market addressed by the product.
Finally, in certain cases our products compete primarily against medical
practices that treat a condition without using a medical device, rather than any
particular product. Depending on the product line, we compete on the basis of
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our products' features, strength of our sales force or marketing partner,
sophistication of our technology and cost effectiveness of our solution to the
customer's medical requirements.
GOVERNMENT REGULATION
As a manufacturer and marketer of medical devices, we are subject to extensive
regulation by the FDA and, in some jurisdictions, by state and foreign
governmental authorities. These regulations govern the introduction of new
medical devices, the observance of certain standards with respect to the design,
manufacture, testing, labeling and promotion of the devices, the maintenance of
certain records, the ability to track devices, the reporting of potential
product defects, the export of devices and other matters. We believe that we are
in substantial compliance with these governmental regulations.
The regulatory process of obtaining product approvals and clearances can be
onerous and costly. The Food and Drug Administration requires, as a condition of
marketing a medical device in the United States, that we secure a Premarket
Notification clearance pursuant to Section 510(k) of the Federal Food, Drug and
Cosmetic Act, an approved Premarket Approval (PMA) application (or supplemental
PMA application) or an approved Product Development Protocol. Obtaining these
approvals and clearances can take up to several years and involve preclinical
studies and clinical testing. To perform clinical testing in the United States
on an unapproved product, we are required to obtain an Investigational Device
Exemption from the FDA. FDA rules may also require a filing and FDA approval
prior to marketing products that are modifications of existing products or new
indications for existing products. Moreover, after clearance is given, if the
product is shown to be hazardous or defective, the FDA and foreign regulatory
agencies have the power to withdraw the clearance or require us to change the
device, its manufacturing process or its labeling, to supply additional proof of
its safety and effectiveness or to recall, repair, replace or refund the cost of
the medical device. Because we currently export medical devices manufactured in
the United States that have not been approved by the FDA for distribution in the
United States, we are required to provide notices to the FDA, to maintain
certain records relating to exports and make these records available to the FDA
for inspection, if required.
We are also required to register with the FDA as a device manufacturer. As such,
we are subject to periodic inspection by the FDA for compliance with the FDA's
Quality System Regulations. These regulations require that we manufacture our
products and maintain our documents in a prescribed manner with respect to
design, manufacturing, testing and control activities. Further, we are required
to comply with various FDA requirements and other legal requirements for
labeling and promotion. The Medical Device Reporting regulations require that we
provide information to the FDA whenever there is evidence to reasonably suggest
that one of our devices may have caused or contributed to a death or serious
injury or, if a malfunction were to recur, could cause or contribute to a death
or serious injury. Under FDA regulations, we are required to submit reports of
certain voluntary recalls and corrections to the FDA. If the FDA believes that a
company is not in compliance with applicable regulations, it can institute
proceedings to detain or seize products, issue a warning letter, issue a recall
order, impose operating restrictions, enjoin future violations and assess civil
penalties against that company, its officers or its employees and can recommend
criminal prosecution to the Department of Justice.
Medical device regulations also are in effect in many of the countries outside
the United States in which we do business. These laws range from comprehensive
device approval and quality system requirements for some or all of our medical
device products to simpler requests for product data or certifications. The
number and scope of these requirements are increasing. Under the European Union
Medical Device Directive, all medical devices must meet the Medical Device
Directive standards and receive CE Mark certification. CE Mark certification
requires a comprehensive Quality System program and submission of data on a
product to a "Notified Body" in Europe. The Medical Device Directive, ISO 9000
series and ISO 13485 are recognized international quality standards that are
designed to ensure that we develop and manufacture quality medical devices. A
recognized Notified Body (an organization designated by the national governments
of the European Union member states to make independent judgments about whether
or not a product complies with the protection requirements established by each
CE marking directive) audits our facilities annually to verify our compliance
with these standards.
We are subject to laws and regulations that regulate the means by which
companies in the health care industry may market their products to hospitals and
health care professionals and may compete by discounting the prices of their
8
products. This requires that we exercise care in structuring our sales and
marketing practices and customer discount arrangements.
Our international operations subject us to laws regarding sanctioned countries,
entities and persons, customs, import-export and other laws regarding
transactions in foreign countries. Among other things, these laws restrict, and
in some cases prohibit, United States companies from directly or indirectly
selling goods, technology or services to people or entities in certain
countries. In addition, these laws require that we exercise care in structuring
our sales and marketing practices in foreign counties.
Our research, development and manufacturing processes involve the controlled use
of certain hazardous materials. We are subject to federal, state and local laws
and regulations governing the use, manufacture, storage, handling and disposal
of these materials and certain waste products. Although we believe that our
safety procedures for handling and disposing of these materials comply with the
standards prescribed by the controlling laws and regulations, the risk of
accidental contamination or injury from these materials cannot be eliminated. In
the event of this type of an accident, we could be held liable for any damages
that result and any liability could exceed our resources. Although we believe
that we are in compliance in all material respects with applicable environmental
laws and regulations, we could incur significant costs to comply with
environmental laws and regulations in the future, and our operations, business
or assets could be materially adversely affected by current or future
environmental laws or regulations.
In addition to the above regulations, we are and may be subject to regulation
under federal and state laws, including, but not limited to, requirements
regarding occupational health and safety, laboratory practices and the
maintenance of personal health information. As a public company, we are subject
to the securities laws and regulations, including the Sarbanes-Oxley Act of
2002. We may also be subject to other present and possible future local, state,
federal and foreign regulations.
PATENTS AND INTELLECTUAL PROPERTY
We seek patent protection of our key technology, products and product
improvements, both in the United States and in selected foreign countries. When
determined appropriate, we have enforced and plan to continue to enforce and
defend our patent rights. In general, however, we do not rely on our patent
estate to provide us with any significant competitive advantages as it relates
to our existing product lines. We rely upon trade secrets and continuing
technological innovations to develop and maintain our competitive position. In
an effort to protect our trade secrets, we have a policy of requiring our
employees, consultants and advisors to execute proprietary information and
invention assignment agreements upon commencement of employment or consulting
relationships with us. These agreements provide that all confidential
information developed or made known to the individual during the course of their
relationship with us must be kept confidential, except in specified
circumstances.
ACCU-DISC(TM), BioMend(R), Bold(R), BUDDE(R), CALCANEA(R), Camino(R),
COGNIShunt(R), CollaPlug(R), CollaStat(TM), CollaTape(R), CRW(R), CUSA(R), CUSA
EXcel(TM), Dissectron(R), DuraGen(R), DuraGen Plus(R), Elektrotom(R),
EquiFlow(R), Eunoe, Inc.(R), Hallu-Fix(R), Helistat(R), Helitene(R),
Heyer-Schulte(R), HINTEGRA(R), INTEGRA(R), INTEGRA(TM) Bilayer Matrix Wound
Dressing(R), INTEGRA(R) Dermal Regeneration Template, Integra LifeSciences
Corporation(R), Integra NeuroSciences(R), Integra NeuroSupplies(TM), Integra
Supplies(TM), JARIT(R), LICOX(R), LPV(R), Moni-Torr(TM), NeuraGen(R),
NeuraWrap(TM), Neurosensor(R), OmniSight(R), Orbis-Sigma(R), Osteoject(R),
Padgett Instruments, Inc(R), Pudenz(TM), Radionics(R), Redmond(TM), Ruggles(TM),
Selector(R), Sonotom(R), Spetzler(R), Spin(R), Spinal Specialties(TM),
Sundt(TM), Suturable DuraGenTM, Ultra Pure Collagen(TM), Uniclip(R), Ventrix(R),
VitaCuff(R) and XKnife(TM) are some of the trademarks of Integra and its
subsidiaries. All other brand names, trademarks and service marks appearing in
this report are the property of their respective holders, including MAYFIELD(R),
which is a registered trademark of SM USA, Inc., a wholly owned subsidiary of
Schaerer Mayfield USA, Inc.
EMPLOYEES
At December 31, 2005, we had approximately 1,000 full-time employees and 180
temporary employees engaged in production and production support (including
warehouse, engineering and facilities personnel), quality assurance/quality
9
control, research and development, regulatory and clinical affairs, sales,
marketing, administration and finance. Except for certain employees at our
facilities in France, none of our employees are subject to a collective
bargaining agreement.
Many of our employees, including those holding senior positions in our
regulatory, operations, research and development, and sales and marketing
departments, have prior experience working for large pharmaceutical or medical
technology companies. Our sales representatives and regional sales managers
attend in-depth product training meetings throughout the year, and our clinical
development team consists of medical professionals who specialize in specific
therapeutic areas that our products serve. We believe that our clinical
development team differentiates us from our competition, as their knowledge and
experience as medical professionals allows them to more effectively educate and
train both our sales force and the customers who use our products. This team is
especially valuable in communicating the clinical benefits of new products.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act
of 1934. In accordance with the Exchange Act, we file annual, quarterly and
special reports, proxy statements and other information with the Securities and
Exchange Commission. You may view our financial information, including the
information contained in this report, and other reports we file with the
Securities and Exchange Commission, on the Internet, without charge as soon as
reasonably practicable after we file them with the Securities and Exchange
Commission, in the "SEC Filings" page of the Investor Relations section of our
website at www.Integra-LS.com. You may also obtain a copy of any of these
reports, without charge, from our investor relations department, 311 Enterprise
Drive, Plainsboro, NJ 08536. Alternatively, you may view or obtain reports filed
with the Securities and Exchange Commission at the SEC Public Reference Room at
100 F Street, N.E. in Washington, D.C. 20549, or at the SEC's Internet site at
www.sec.gov. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the operation of the public reference
facilities.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements in this report, including statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," that constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are subject to a number
of risks, uncertainties and assumptions about us including, among other things:
o general economic and business conditions, both nationally and in our
international markets;
o our expectations and estimates concerning future financial performance,
financing plans and the impact of competition;
o anticipated trends in our business;
o existing and future regulations affecting our business;
o our ability to obtain additional debt and equity financing to fund
capital expenditures and working capital requirements and acquisitions;
o physicians' willingness to adopt our recently launched and planned
products, third-party payors' willingness to provide reimbursement for
these products and our ability to secure regulatory approval for
products in development;
o our ability to protect our intellectual property, including trade
secrets;
o our ability to complete acquisitions, integrate operations
post-acquisition and maintain relationships with customers of acquired
entities;
o work stoppages at our facilities; and
o other risk factors described in the section entitled "Factors That May
Affect Our Future Performance" in this report.
You can identify these forward-looking statements by forward-looking words such
as believe, may, could, will, estimate, continue, anticipate, intend, seek,
plan, expect, should, would and similar expressions in this report.
10
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this report may not occur and actual results could
differ materially from those anticipated or implied in the forward-looking
statements.
ITEM 1A. RISK FACTORS
Our Operating Results May Fluctuate.
Our operating results, including components of operating results, such as gross
margin on product sales, may fluctuate from time to time, and such fluctuations
could affect our stock price. Our operating results have fluctuated in the past
and can be expected to fluctuate from time to time in the future. Some of the
factors that may cause these fluctuations include:
o the impact of acquisitions;
o the timing of significant customer orders;
o market acceptance of our existing products, as well as products in
development;
o the timing of regulatory approvals;
o changes in the rate of exchange between the U.S. dollar and other
currencies of foreign countries in which we do business, such as the
euro and the British pound;
o expenses incurred and business lost in connection with product field
corrections or recalls;
o increases in the cost of energy and steel;
o our ability to manufacture our products efficiently; and
o the timing of our research and development expenditures.
The Industry And Market Segments in Which We Operate Are Highly Competitive,
And We May Be Unable To Compete Effectively With Other Companies.
In general, there is intense competition among medical device companies. We
compete with established medical technology and pharmaceutical companies in many
of our product areas. Competition also comes from early stage companies that
have alternative technological solutions for our primary clinical targets, as
well as universities, research institutions and other non-profit entities. Many
of our competitors have access to greater financial, technical, research and
development, marketing, manufacturing, sales, distribution services and other
resources than we do. Our competitors may be more effective at implementing
their technologies to develop commercial products. Our competitors may be able
to gain market share by offering lower-cost products.
Our competitive position will depend on our ability to achieve market acceptance
for our products, develop new products, implement production and marketing
plans, secure regulatory approval for products under development, obtain
reimbursement under Medicare and obtain patent protection. We may need to
develop new applications for our products to remain competitive. Technological
advances by one or more of our current or future competitors could render our
present or future products obsolete or uneconomical. Our future success will
depend upon our ability to compete effectively against current technology as
well as to respond effectively to technological advances. Competitive pressures
could adversely affect our profitability. For example, two of our largest
competitors introduced an onlay dural graft matrix during 2004, and other
companies have introduced and may be preparing to introduce similar products.
The introduction of such products could reduce the sales, growth in sales and
profitability of our duraplasty products.
Our largest competitors in the neurosurgery markets are the Medtronic
Neurosurgery division of Medtronic, Inc., the Codman division of Johnson &
Johnson, the Aesculap division of B. Braun Medical Inc. and the Valleylab
division of Tyco International Ltd. In addition, many of our product lines
compete with smaller specialized companies or larger companies that do not
otherwise focus on neurosurgery. Our competitors in reconstructive surgery
include LifeCell Corporation, Organogenesis Inc., Wright Medical Group, Inc.,
the DePuy division of Johnson & Johnson, Synthes, Inc. and Stryker Corporation.
Some of these are major orthopedic companies that carry a full line of
reconstructive products. Our private label products face diverse and broad
competition, depending on the market that an individual product addresses.
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Finally, in certain cases our products compete primarily against medical
practices that treat a condition without using a device, rather than any
particular product, such as autograft tissue as an alternative for our dermal
regeneration products, our duraplasty products and our nerve repair products.
Our Current Strategy Involves Growth Through Acquisitions, Which Requires Us To
Incur Substantial Costs And Potential Liabilities For Which We May Never
Realize The Anticipated Benefits.
In addition to internal growth, our current strategy involves growth through
acquisitions. Since 1999, we have acquired 22 businesses or product lines at a
total cost of approximately $289 million.
We may be unable to continue to implement our growth strategy, and our strategy
ultimately may be unsuccessful. A significant portion of our growth in revenues
has resulted from, and is expected to continue to result from, the acquisition
of businesses complementary to our own. We engage in evaluations of potential
acquisitions and are in various stages of discussion regarding possible
acquisitions, certain of which, if consummated, could be significant to us. Any
potential acquisitions may result in material transaction expenses, increased
interest and amortization expense, increased depreciation expense and increased
operating expense, any of which could have a material adverse effect on our
operating results. As we grow by acquisitions, we must integrate and manage the
new businesses to realize economies of scale and control costs. In addition,
acquisitions involve other risks, including diversion of management resources
otherwise available for ongoing development of our business and risks associated
with entering new markets with which our marketing and sales force has limited
experience or where experienced distribution alliances are not available. Our
future profitability will depend in part upon our ability to develop further our
resources to adapt to these new products or business areas and to identify and
enter into satisfactory distribution networks. We may not be able to identify
suitable acquisition candidates in the future, obtain acceptable financing or
consummate any future acquisitions. If we cannot integrate acquired operations,
manage the cost of providing our products or price our products appropriately,
our profitability could suffer. In addition, as a result of our acquisitions of
other healthcare businesses, we may be subject to the risk of unanticipated
business uncertainties, regulatory matters or legal liabilities relating to
those acquired businesses for which the sellers of the acquired businesses may
not indemnify us.
To Market Our Products Under Development We Will First Need To Obtain Regulatory
Approval. Further, If We Fail To Comply With The Extensive Governmental
Regulations That Affect Our Business, We Could Be Subject To Penalties And Could
Be Precluded From Marketing Our Products.
Our research and development activities and the manufacturing, labeling,
distribution and marketing of our existing and future products are subject to
regulation by numerous governmental agencies in the United States and in other
countries. The Food and Drug Administration (FDA) and comparable agencies in
other countries impose mandatory procedures and standards for the conduct of
clinical trials and the production and marketing of products for diagnostic and
human therapeutic use.
Our products under development are subject to FDA approval or clearance prior to
marketing for commercial use. The process of obtaining necessary FDA approvals
or clearances can take years and is expensive and full of uncertainties. Our
inability to obtain required regulatory approval on a timely or acceptable basis
could harm our business. Further, approval or clearance may place substantial
restrictions on the indications for which the product may be marketed or to whom
it may be marketed, the warnings that may be required to accompany the product
or additional restrictions placed on the sale and/or use of the product. Further
studies, including clinical trials and FDA approvals, may be required to gain
approval for the use of a product for clinical indications other than those for
which the product was initially approved or cleared or for significant changes
to the product. In addition, for products with an approved Pre-Marketing
Approval (PMA), the FDA requires annual reports and may require post-approval
surveillance programs to monitor the products' safety and effectiveness. Results
of post-approval programs may limit or expand the further marketing of the
product.
Another risk of application to the FDA relates to the regulatory classification
of new products or proposed new uses for existing products. In the filing of
each application, we make a legal judgment about the appropriate form and
content of the application. If the FDA disagrees with our judgment in any
particular case and, for example, requires us to file a PMA application rather
than allowing us to market for approved uses while we seek broader approvals or
requires extensive additional clinical data, the time and expense required to
obtain the required approval might be significantly increased or approval might
not be granted.
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Approved products are subject to continuing FDA requirements relating to quality
control and quality assurance, maintenance of records, reporting of adverse
events and product recalls, documentation, and labeling and promotion of medical
devices.
The FDA and foreign regulatory authorities require that our products be
manufactured according to rigorous standards. These regulatory requirements may
significantly increase our production or purchasing costs and may even prevent
us from making or obtaining our products in amounts sufficient to meet market
demand. If we or a third-party manufacturer change our approved manufacturing
process, the FDA may require a new approval before that process may be used.
Failure to develop our manufacturing capability may mean that even if we develop
promising new products, we may not be able to produce them profitably, as a
result of delays and additional capital investment costs. Manufacturing
facilities, both international and domestic, are also subject to inspections by
or under the authority of the FDA. In addition, failure to comply with
applicable regulatory requirements could subject us to enforcement action,
including product seizures, recalls, withdrawal of clearances or approvals,
restrictions on or injunctions against marketing our product or products based
on our technology, cessation of operations and civil and criminal penalties.
We are also subject to the regulatory requirements of countries outside of the
United States where we do business. For example, Japan is in the process of
reforming its medical device regulations. A recent amendment to Japan's
Pharmaceutical Affairs Law went into effect on April 1, 2005. New regulations
and requirements exist for obtaining approval of medical devices, including new
requirements governing the conduct of clinical trials, the manufacturing of
products and the distribution of products in Japan. Significant resources also
may be needed to comply with the extensive auditing of and requests for
documentation relating to all manufacturing facilities of our company and our
vendors by the Ministry of Health, Labor and Welfare in Japan to comply with the
amendment to the Pharmaceutical Affairs Law. These new regulations may affect
our ability to obtain approvals of new products for sale in Japan.
Certain Of Our Products Contain Materials Derived From Animal Sources And May
Become Subject To Additional Regulation.
Certain of our products, including our dermal regeneration products, our
duraplasty products and our nerve repair products, contain material derived from
bovine tissue. Products that contain materials derived from animal sources,
including food as well as pharmaceuticals and medical devices, are increasingly
subject to scrutiny in the press and by regulatory authorities. Regulatory
authorities are concerned about the potential for the transmission of disease
from animals to humans via those materials. This public scrutiny has been
particularly acute in Japan and Western Europe with respect to products derived
from animal sources, because of concern that materials infected with the agent
that causes bovine spongiform encephalopathy, otherwise known as BSE or mad cow
disease, may, if ingested or implanted, cause a variant of the human
Creutzfeldt-Jakob Disease, an ultimately fatal disease with no known cure.
Recent cases of BSE in cattle discovered in Canada and the United States have
increased awareness of the issue in North America.
We take great care to provide that our products are safe and free of agents that
can cause disease. In particular, the collagen used in the products that Integra
manufactures is derived only from the deep flexor tendon of cattle less than 24
months old from New Zealand, a country that has never had a case of BSE, or the
United States. The collagen used in a product that we sell, but do not
manufacture, is derived from bovine pericardium. We are also qualifying sources
of collagen from other countries that are considered BSE-free. The World Health
Organization classifies different types of cattle tissue for relative risk of
BSE transmission. Deep flexor tendon and bovine pericardium are in the lowest
risk categories for BSE transmission (the same category as milk, for example),
and are therefore considered to have a negligible risk of containing the agent
that causes BSE (an improperly folded protein known as a prion). Nevertheless,
products that contain materials derived from animals, including our products,
may become subject to additional regulation, or even be banned in certain
countries, because of concern over the potential for prion transmission.
Significant new regulation, or a ban of our products, could have a material
adverse effect on our current business or our ability to expand our business.
In addition, we have been notified that Japan has issued new regulations
regarding medical devices that contain tissue of animal origin. Among other
regulations, Japan may require that the tendon used in the manufacture of
medical devices sold in Japan originate in a country that has never had a case
13
of BSE. Currently, we purchase our tendon from the United States and New
Zealand. If we cannot continue to use or qualify a source of tendon from New
Zealand or another country that has never had a case of BSE, we will not be
permitted to sell our collagen hemostatic agents and products for oral surgery
in Japan. We do not currently sell our dural or skin repair products in Japan.
Lack Of Market Acceptance For Our Products Or Market Preference For
Technologies That Compete With Our Products Could Reduce Our Revenues And
Profitability.
We cannot be certain that our current products or any other products that we may
develop or market will achieve or maintain market acceptance. Certain of the
medical indications that can be treated by our devices can also be treated by
other medical devices or by medical practices that do not include a device. The
medical community widely accepts many alternative treatments, and certain of
these other treatments have a long history of use. For example, the use of
autograft tissue is a well-established means for repairing the dermis, and it
competes for acceptance in the market with the INTEGRA(R) Dermal Regeneration
Template. In addition, the acceptance of our Newdeal products, which previously
were distributed by third parties, faces similar competition.
We cannot be certain that our devices and procedures will be able to replace
those established treatments or that either physicians or the medical community
in general will accept and utilize our devices or any other medical products
that we may develop.
In addition, our future success depends, in part, on our ability to develop
additional products. Even if we determine that a product candidate has medical
benefits, the cost of commercializing that product candidate may be too high to
justify development. Competitors may develop products that are more effective,
achieve more favorable reimbursement status from third-party payors, cost less
or are ready for commercial introduction before our products. If we are unable
to develop additional commercially viable products, our future prospects could
be adversely affected.
Market acceptance of our products depends on many factors, including our ability
to convince prospective collaborators and customers that our technology is an
attractive alternative to other technologies, to manufacture products in
sufficient quantities and at acceptable costs, and to supply and service
sufficient quantities of our products directly or through our distribution
alliances. In addition, unfavorable reimbursement methodologies of third-party
payors could harm acceptance of our products. The industry is subject to rapid
and continuous change arising from, among other things, consolidation and
technological improvements. One or more of these factors may vary unpredictably,
which could have a material adverse effect on our competitive position. We may
not be able to adjust our contemplated plan of development to meet changing
market demands.
Our Intellectual Property Rights May Not Provide Meaningful Commercial
Protection For Our Products, Which Could Enable Third Parties To Use Our
Technology Or Very Similar Technology And Could Reduce Our Ability To Compete
In The Market.
Our ability to compete effectively depends in part, on our ability to maintain
the proprietary nature of our technologies and manufacturing processes, which
includes the ability to obtain, protect and enforce patents on our technology
and to protect our trade secrets. We own or have licensed patents that cover
aspects of some of our product lines. However, you should not rely on our
patents to provide us with any significant competitive advantage. Others may
challenge our patents and, as a result, our patents could be narrowed,
invalidated or rendered unenforceable. Competitors may develop products similar
to ours that our patents do not cover. In addition, our current and future
patent applications may not result in the issuance of patents in the United
States or foreign countries. Further, there is a substantial backlog of patent
applications at the U.S. Patent and Trademark Office, and the approval or
rejection of patent applications usually takes approximately two years.
Our Competitive Position Depends, In Part, Upon Unpatented Trade Secrets Which
We May Be Unable To Protect.
Our competitive position also depends upon unpatented trade secrets. Trade
secrets are difficult to protect. We cannot assure you that others will not
independently develop substantially equivalent proprietary information and
14
techniques or otherwise gain access to our trade secrets, that our trade secrets
will not be disclosed or that we can effectively protect our rights to
unpatented trade secrets.
In an effort to protect our trade secrets, we require our employees, consultants
and advisors to execute proprietary information and invention assignment
agreements upon commencement of employment or consulting relationships with us.
These agreements provide that, except in specified circumstances, all
confidential information developed or made known to the individual during the
course of their relationship with us must be kept confidential. We cannot assure
you, however, that these agreements will provide meaningful protection for our
trade secrets or other proprietary information in the event of the unauthorized
use or disclosure of confidential information.
Our Success Will Depend Partly On Our Ability To Operate Without Infringing Or
Misappropriating The Proprietary Rights Of Others.
We may be sued for infringing the intellectual property rights of others. In
addition, we may find it necessary, if threatened, to initiate a lawsuit seeking
a declaration from a court that we do not infringe the proprietary rights of
others or that their rights are invalid or unenforceable. If we do not prevail
in any litigation, in addition to any damages we might have to pay, we would be
required to stop the infringing activity or obtain a license for the proprietary
rights involved. Any required license may be unavailable to us on acceptable
terms, or at all. In addition, some licenses may be nonexclusive and allow our
competitors to access the same technology we license. If we fail to obtain a
required license or are unable to design our product so as not to infringe on
the proprietary rights of others, we may be unable to sell some of our products,
which could have a material adverse effect on our revenues and profitability.
We May Be Involved In Lawsuits Relating To Our Intellectual Property Rights And
Promotional Practices, Which May Be Expensive.
To protect or enforce our intellectual property rights, we may have to initiate
legal proceedings, such as infringement suits or interference proceedings,
against third parties. For example, in December 2005 our Newdeal subsidiary sued
Wright Medical Group, Inc. and Wright Medical's French subsidiary alleging that
certain products within Wright Medical's "Charlotte System" of foot and ankle
products infringe upon Newdeal's foot-and-ankle system. In addition, we may have
to institute proceedings regarding our competitors' promotional practices.
Litigation is costly, and, even if we prevail, the cost of that litigation could
affect our profitability. In addition, litigation is time consuming and could
divert management attention and resources away from our business. We may also
provoke these third parties to assert claims against us.
It May Be Difficult To Replace Some Of Our Suppliers.
Outside vendors, some of whom are sole-source suppliers, provide key components
and raw materials used in the manufacture of our products. Although we believe
that alternative sources for many of these components and raw materials are
available, any supply interruption in a limited or sole source component or raw
material could harm our ability to manufacture our products until a new source
of supply is identified and qualified. In addition, an uncorrected defect or
supplier's variation in a component or raw material, either unknown to us or
incompatible with our manufacturing process, could harm our ability to
manufacture products. We may not be able to find a sufficient alternative
supplier in a reasonable time period, or on commercially reasonable terms, if at
all, and our ability to produce and supply our products could be impaired. We
believe that these factors are most likely to affect the following products that
we manufacture:
o our collagen-based products, such as the INTEGRA(R) Dermal Regeneration
Template and wound dressing products, the DuraGen(R) family of
products, and our Absorbable Collagen Sponges;
o our products made from silicone, such as our neurosurgical shunts and
drainage systems and hemodynamic shunts; and
o products which use many different electronic parts from numerous
suppliers, such as our intracranial monitors and catheters.
If we were suddenly unable to purchase products from one or more of these
companies, we would need a significant period of time to qualify a replacement,
and the production of any affected products could be disrupted. While it is our
policy to maintain sufficient inventory of components so that our production
15
will not be significantly disrupted even if a particular component or material
is not available for a period of time, we remain at risk that we will not be
able to qualify new components or materials quickly enough to prevent a
disruption if one or more of our suppliers ceases production of important
components or materials.
If Any Of Our Manufacturing Facilities Were Damaged And/Or Our Manufacturing Or
Business Processes Interrupted, We Could Experience Lost Revenues And Our
Business Could Be Seriously Harmed.
We manufacture our products in a limited number of facilities. Damage to our
manufacturing, development or research facilities due to fire, natural disaster,
power loss, communications failure, unauthorized entry or other events could
cause us to cease development and manufacturing of some or all of our products.
In particular, our San Diego, California facility that manufactures our
Camino(R), Ventrix(R) and LICOX(R) catheter product lines is as susceptible to
earthquake damage, wildfire damage and power losses from electrical shortages as
are other businesses in the Southern California area. Our Anasco, Puerto Rico
plant, where we manufacture collagen, silicone and our private label products,
is vulnerable to hurricane, storm and wind damage. Although we maintain property
damage and business interruption insurance coverage on these facilities, our
insurance might not cover all losses under such circumstances and we may not be
able to renew or obtain such insurance in the future on acceptable terms with
adequate coverage or at reasonable costs.
In addition, we began implementing an enterprise business system in 2004, which
we intend to use in all of our facilities. This system, the hosting and
maintenance of which we outsource, replaces several systems on which we
previously relied and will be implemented in several stages. We have outsourced
our product distribution function in the United States and in the fourth quarter
of 2005 began to outsource our European product distribution function. A delay
or other problem with the system or in our implementation schedule for any of
these initiatives could have a material adverse effect on our operations.
We Are Exposed To A Variety Of Risks Relating To Our International Sales And
Operations, Including Fluctuations In Exchange Rates, Local Economic Conditions
And Delays In Collection Of Accounts Receivable.
We generate significant revenues outside the United States in euros, British
pounds and in U.S. dollar-denominated transactions conducted with customers who
generate revenue in currencies other than the U.S. dollar. For those foreign
customers who purchase our products in U.S. dollars, currency fluctuations
between the U.S. dollar and the currencies in which those customers do business
may have an impact on the demand for our products in foreign countries where the
U.S. dollar has increased in value compared to the local currency.
Because we have operations based in Europe and we generate revenues and incur
operating expenses in euros and British pounds, we experience currency exchange
risk with respect to those foreign currency-denominated revenues and expenses.
In 2004 and 2005, the cost of products we manufactured in our European
facilities or purchased in foreign currencies exceeded our foreign
currency-denominated revenues. We expect this imbalance to continue.
Accordingly, a weakening of the dollar against the euro and British pound could
negatively affect future gross margins and operating margins.
Currently, we do not use derivative financial instruments to manage operating
foreign currency risk. As the volume of our business transacted in foreign
currencies increases, we expect to continue to assess the potential effects that
changes in foreign currency exchange rates could have on our business. If we
believe that this potential impact presents a significant risk to our business,
we may enter into derivative financial instruments to mitigate this risk.
In general, we cannot predict the consolidated effects of exchange rate
fluctuations upon our future operating results because of the number of
currencies involved, the variability of currency exposure and the potential
volatility of currency exchange rates.
Our international operations subject us to customs and import-export laws. These
laws restrict, and in some cases prohibit, United States companies from directly
or indirectly selling goods, technology or services to people or entities in
certain countries. These laws also prohibit transactions with certain designated
persons.
Our sales to foreign markets also may be affected by local economic conditions,
legal, regulatory or political considerations, the effectiveness of our sales
representatives and distributors, local competition and changes in local medical
16
practice. Relationships with customers and effective terms of sale frequently
vary by country, often with longer-term receivables than are typical in the
United States.
Changes In The Health Care Industry May Require Us To Decrease The Selling Price
For Our Products Or May Reduce The Size Of The Market For Our Products, Either
Of Which Could Have A Negative Impact On Our Financial Performance.
Trends toward managed care, health care cost containment and other changes in
government and private sector initiatives in the United States and other
countries in which we do business are placing increased emphasis on the delivery
of more cost-effective medical therapies that could adversely affect the sale
and/or the prices of our products. For example:
o major third-party payors of hospital services and hospital outpatient
services, including Medicare, Medicaid and private health care
insurers, annually revise their payment methodologies, which can result
in stricter standards for reimbursement of hospital charges for certain
medical procedures;
o Medicare, Medicaid and private health care insurer cutbacks could
create downward price pressure on our products;
o potential legislative proposals have been considered that would result
in major reforms in the U.S. health care system that could have an
adverse effect on our business;
o there has been a consolidation among health care facilities and
purchasers of medical devices in the United States who prefer to limit
the number of suppliers from whom they purchase medical products, and
these entities may decide to stop purchasing our products or demand
discounts on our prices;
o we are party to contracts with group purchasing organizations, which
negotiate pricing for many member hospitals, that require us to
discount our prices for certain of our products and limit our ability
to raise prices for certain of our products, particularly surgical
instruments;
o there is economic pressure to contain health care costs in domestic and
international markets;
o there are proposed and existing laws, regulations and industry policies
in domestic and international markets regulating the sales and
marketing practices and the pricing and profitability of companies in
the health care industry;
o proposed laws or regulations that will permit hospitals to provide
financial incentives to doctors for reducing hospital costs (known as
gainsharing) and to award physician efficiency (known as physician
profiling) could reduce prices; and
o there have been initiatives by third-party payors to challenge the
prices charged for medical products that could affect our ability to
sell products on a competitive basis.
Both the pressures to reduce prices for our products in response to these trends
and the decrease in the size of the market as a result of these trends could
adversely affect our levels of revenues and profitability of sales.
Regulatory Oversight Of The Medical Device Industry Might Affect The Manner In
Which We May Sell Medical Devices
There are laws and regulations that regulate the means by which companies in the
health care industry may market their products to health care professionals and
may compete by discounting the prices of their products. Although we exercise
care in structuring our sales and marketing practices and customer discount
arrangements to comply with those laws and regulations, we cannot assure you
that:
o government officials charged with responsibility for enforcing those
laws will not assert that our sales and marketing practices or customer
discount arrangements are in violation of those laws or regulations; or
o government regulators or courts will interpret those laws or
regulations in a manner consistent with our interpretation.
In January 2004, ADVAMED, the principal U.S. trade association for the medical
device industry, put in place a model "code of conduct" that sets forth
standards by which its members should abide in the promotion of their products.
We have in place policies and procedures for compliance that we believe are at
17
least as stringent as those set forth in the ADVAMED Code, and we provide
routine training to our sales and marketing personnel on our policies regarding
sales and marketing practices. Nevertheless, the sales and marketing practices
of our industry has been the subject of increased scrutiny from government
agencies, and we believe that this trend will continue.
Our Private Label Business Depends Significantly On Key Relationships With Third
Parties, Which We May Be Unable To Establish And Maintain.
Our private label business depends in part on our entering into and maintaining
collaborative or alliance agreements with third parties concerning product
marketing, as well as research and development programs. Our most important
alliance is our agreement with the Wyeth BioPharma division of Wyeth for the
development of collagen matrices to be used in conjunction with Wyeth
BioPharma's recombinant bone protein, a protein that stimulates the growth of
bone in humans. The third parties with whom we have entered into agreements
might terminate these agreements for a variety of reasons, including developing
other sources for the product supplied by us. Termination of any of our
alliances would require us to develop other means to distribute the affected
products and could adversely affect our expectations for the growth of private
label products.
We May Have Significant Product Liability Exposure And Our Insurance May Not
Cover All Potential Claims.
We are exposed to product liability and other claims in the event that our
technologies or products are alleged to have caused harm. We may not be able to
obtain insurance for the potential liability on acceptable terms with adequate
coverage or at reasonable costs. Any potential product liability claims could
exceed the amount of our insurance coverage or may be excluded from coverage
under the terms of the policy. Our insurance may not be renewed at a cost and
level of coverage comparable to that then in effect.
We Are Subject To Regulatory Requirements Relating To The Use Of Hazardous
Substances Which May Impose Significant Compliance Costs On Us.
Our research, development and manufacturing processes involve the controlled use
of certain hazardous materials. We are subject to federal, state and local laws
and regulations governing the use, manufacture, storage, handling and disposal
of these materials and certain waste products. Although we believe that our
safety procedures for handling and disposing of those materials comply with the
standards prescribed by the applicable laws and regulations, the risk of
accidental contamination or injury from these materials cannot be eliminated. In
the event of such an accident, we could be held liable for any damages that
result and any related liability could exceed the limits or fall outside the
coverage of our insurance and could exceed our resources. We may not be able to
maintain insurance on acceptable terms or at all.
The Loss Of Key Personnel Could Harm Our Business.
We believe our success depends on the contributions of a number of our key
personnel, including Stuart M. Essig, our President and Chief Executive Officer.
If we lose the services of key personnel, those losses could materially harm our
business. We maintain key person life insurance on Mr. Essig and two other
members of management.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal executive offices are located in Plainsboro, New Jersey. Principal
manufacturing and research facilities are located in New Jersey, Massachusetts,
Ohio, California, Puerto Rico, England and France. Our instrument procurement
operations are located in Germany. Our primary distribution centers are located
in Nevada, New York, England, France and Belgium. In addition, we lease several
smaller facilities to support additional administrative, assembly, and
distribution operations. The Sparkes, Nevada and Ghent, Belgium facilities are
owned and operated by third parties. We lease all of our facilities other than
our facilities in England, and Biot, France, which we own.
18
All of our manufacturing facilities (other than one outside of the United
States) are registered with the FDA. Our facilities are subject to FDA
inspection to assure compliance with Quality System Regulations. We believe that
our manufacturing facilities are in substantial compliance with Quality System
Regulations, suitable for their intended purposes and have capacities adequate
for current and projected needs for existing products. Some capacity of the
plants is being converted, with any needed modification, to meet the current and
projected requirements of existing and future products.
ITEM 3. LEGAL PROCEEDINGS
In July 1996, we filed a patent infringement lawsuit in the United States
District Court for the Southern District of California (the "Trial Court")
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 willfully and deliberately to induce,
defendants Scripps Research Institute and Dr. Cheresh to infringe certain of our
patents. These patents are part of a group of patents granted to The Burnham
Institute and licensed by us that are based on the interaction between a family
of cell surface proteins called integrins and the arginine-glycine-aspartic acid
("RGD") peptide sequence found in many extracellular matrix proteins. The
defendants filed a countersuit asking for an award of defendants' reasonable
attorney fees.
In March 2000, a jury returned a unanimous verdict in our favor and awarded us
$15.0 million in damages, finding that Merck KGaA had willfully infringed and
induced the infringement of our patents. The Trial Court dismissed Scripps and
Dr. Cheresh from the case.
In October 2000, the Trial Court entered judgment in our favor and against Merck
KGaA in the case. In entering the judgment, the Trial Court also granted to us
pre-judgment interest of $1.4 million, bringing the total award to $16.4
million, plus post-judgment interest. Merck KGaA filed various post-trial
motions requesting a judgment as a matter of law notwithstanding the verdict or
a new trial, in each case regarding infringement, invalidity and damages. In
September 2001, the Trial Court entered orders in favor of us and against Merck
KGaA on the final post-judgment motions in the case, and denied Merck KGaA's
motions for judgment as a matter of law and for a new trial.
Merck KGaA and we each appealed various decisions of the Trial Court to the
United States Court of Appeals for the Federal Circuit (the "Circuit Court"). In
June 2003, the Circuit Court affirmed the Trial Court's finding that Merck KGaA
had infringed our patents. The Circuit Court also held that the basis of the
jury's calculation of damages was not clear from the trial record, and remanded
the case to the Trial Court for further factual development and a new
calculation of damages consistent with the Circuit Court's decision. In
September 2004, the Trial Court ordered Merck KgaA to pay us $6.4 million in
damages following the Circuit Court's order. Merck KgaA filed a writ for
certiorari with the United States Supreme Court seeking review of the Circuit
Court's decision, and the Supreme Court granted the writ in January 2005.
On June 13, 2005, the Supreme Court vacated the June 2003 judgment of the
Circuit Court. The Supreme Court held that the Circuit Court applied an
erroneous interpretation of 35 U.S.C. ss.271(e)(1) when it rejected the
challenge of Merck KGaA to the jury's finding that Merck KGaA failed to show
that its activities were exempt from claims of patent infringement under that
statute. On remand, the Circuit Court will review the evidence under a
reasonableness test that does not provide categorical exclusions of certain
types of activities.
Further enforcement of the Trial Court's order has been stayed. We have not
recorded any gain in connection with this matter, pending final resolution and
completion of the appeals process.
Three of our French subsidiaries that were acquired from the neurosciences
division of NMT Medical, Inc. received a tax reassessment notice from the French
tax authorities seeking in excess of 1.7 million euros in back taxes, interest
and penalties. NMT Medical, the former owner of these entities, has agreed to
indemnify us against direct damages and liability arising from
misrepresentations in connection with these tax claims. In April 2005, NMT
Medical, Inc. negotiated a settlement agreement with the French authorities that
19
satisfied the outstanding tax assessments. In connection with this settlement,
we recognized net operating loss carryforwards in France and recorded this
benefit as a $0.5 million tax benefit in 2005.
In addition to these matters, we are subject to various claims, lawsuits and
proceedings in the ordinary course of our business, including claims by current
or former employees, distributors and competitors and with respect to our
products. In the opinion of management, such claims are either adequately
covered by insurance or otherwise indemnified, or are not expected, individually
or in the aggregate, to result in a material adverse effect on our financial
condition. However, it is possible that our results of operations, financial
position and cash flows in a particular period could be materially affected by
these contingencies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
ADDITIONAL INFORMATION:
The following information is furnished in this Part I pursuant to Instruction 3
to Item 401(b) of Regulation S-K.
Executive Officers of the Company
Our executive officers are appointed annually and serve at the discretion of the
Board of Directors. The only family relationship between any of our executive
officers and directors is that Mr. Holtz is the nephew of Richard E. Caruso,
Ph.D., the Chairman of the Board of Directors. The following information
indicates the position and age of our executive officers as of the date of this
report and their previous business experience.
NAME AGE POSITION
Stuart M. Essig ................... 44 President, Chief Executive Officer and Director
Maureen B. Bellantoni ............. 56 Executive Vice President and Chief Financial Officer
Gerard S. Carlozzi ................ 50 Executive Vice President and Chief Operating Officer
John B. Henneman, III ............. 44 Executive Vice President, Chief Administrative Officer and
Secretary
David B. Holtz .................... 39 Senior Vice President, Finance
Deborah A. Leonetti ............... 50 Senior Vice President, Global Marketing
Donald R. Nociolo ................. 43 Senior Vice President, Operations
Judith E. O'Grady ................. 55 Senior Vice President, Regulatory, Quality Assurance and
Clinical Affairs
Robert D. Paltridge ............... 48 Senior Vice President, Global Sales
Stuart M. Essig has served as President and Chief Executive Officer and a
director of Integra since December 1997. Before joining Integra, Mr. Essig
supervised the medical technology practice at Goldman, Sachs & Co. as a managing
director. Mr. Essig had ten years of broad health care experience at Goldman
Sachs serving as a senior merger and acquisitions advisor to a broad range of
domestic and international medical technology, pharmaceutical and biotechnology
clients. Mr. Essig also serves on the Board of Directors of St. Jude Medical
20
Corporation, Zimmer Holdings, Inc. and ADVAMED, the Advanced Medical Technology
Association. Mr. Essig received an A.B. degree from the Woodrow Wilson School of
Public and International Affairs at Princeton University and an M.B.A. and a
Ph.D. degree in Financial Economics from the University of Chicago, Graduate
School of Business.
Maureen B. Bellantoni is Integra's Executive Vice President and Chief Financial
Officer, and is responsible for the company's finance department, including the
corporate controller, financial reporting, internal audit, tax, and treasury
functions of the company. Ms. Bellantoni joined Integra in January 2006. Ms.
Bellantoni served as Senior Vice President and Chief Financial Officer of CP
Kelco, a global leader in the hydrocolloids market from 2003 through its sale to
J.M. Huber in October 2004. From 2000 to 2002, Ms. Bellantoni served as Chief
Financial Officer North America and Senior Vice President of Finance of Burger
King. During 1999 to 2000, she served as Executive Vice President Finance, for
Rohn Industries Inc. a publicly traded telecommunications company. From 1993 to
1998, she served at Sara Lee Corporation as President and Chief Operating
Officer for their Bil Mar Foods division, Vice President, Finance and Chief
Financial Officer for Sara Lee Meats, and Vice President, Finance and Chief
Financial Officer for PYA/Monarch, Inc. From 1985 to 1993, Ms. Bellantoni was
with Emerson Electric Company, as Vice President, Finance and Chief Financial
Officer for their Automatic Switch Division and Vice President, Far East and
Vice President, Finance and Chief Financial Officer for the Branson Ultrasonics
Corporation. Ms. Bellantoni received a B.S. degree in finance from the
University of Bridgeport and an M.B.A. from the University of Connecticut.
Gerard S. Carlozzi is Integra's Executive Vice President and Chief Operating
Officer, and is responsible for the company's marketing, sales, manufacturing,
distribution and research and development functions. Mr. Carlozzi joined Integra
in September 2003, after serving as a consultant to the Company from March 2003
to September 2003. Prior to joining Integra, Mr. Carlozzi had spent over 25
years in the medical device industry. From 1999 to 2003, he was President, Chief
Executive Officer and a director of Bionx Implants, a company focused on the
development of novel biomaterial devices for various surgical specialties. Prior
to 1999, he held various management positions with Synthes USA, Acufex
microsurgical and Infusaid Corporation. Mr. Carlozzi also serves on the Board of
Directors of Cascade Medical Corporation and Scandius Biomedical, Inc.,
privately held companies. Mr. Carlozzi received a B.S. degree in engineering and
an M.B.A. from Northeastern University.
John B. Henneman, III is Integra's Executive Vice President, Chief
Administrative Officer and Secretary, and is responsible for the law department,
regulatory affairs, corporate quality systems, clinical affairs, business
development, human resources, information management and investor relations. Mr.
Henneman was our General Counsel from September 1998 until September 2000 and
our Senior Vice President, Chief Administrative Officer and Secretary from
September 2000 until February 2003. Prior to joining Integra in August 1998, Mr.
Henneman served Neuromedical Systems, Inc., a public company developer and
manufacturer of in vitro diagnostic equipment, in various capacities for more
than four years. Mr. Henneman received an A.B. degree from Princeton University
and a J.D. from the University of Michigan Law School.
David B. Holtz joined Integra as Controller in 1993, served as Vice President,
Finance and Treasurer from March 1997 to January 2001, was promoted to Senior
Vice President, Finance and Treasurer in February 2001 and served as Treasurer
until 2004. From August 2002 through October 2003, Mr. Holtz was given
responsibility for managing Integra's European operations to support the
transition of our acquisitions in Europe. His current responsibilities include
managing all financial reporting and accounting functions. Before joining
Integra, Mr. Holtz was an associate with Coopers & Lybrand, L.L.P. in
Philadelphia and Cono Leasing Corporation, a private leasing company. Mr. Holtz
received a B.S. degree in Business Administration from Susquehanna University
and has been certified as a public accountant.
Deborah A. Leonetti joined Integra in May of 1997 as Director of Marketing, was
promoted to Vice President, Global Marketing in April 1999 and to Senior Vice
President, Global Marketing in May 2004. Her responsibilities include worldwide
strategic marketing for all Integra products. From September 1989 through May
1997, Ms. Leonetti worked for Cabot Medical, which was later acquired by Circon
Corporation, and held positions in sales, sales training, and marketing. Prior
to her experience at Cabot-Circon, Ms. Leonetti completed fifteen years of
clinical practice as a registered nurse at St. Christopher's Hospital for
Children in Philadelphia. Ms. Leonetti received a nursing degree from St.
Joseph's Hospital School of Nursing and La Salle University.
Donald R. Nociolo joined Integra as Director of Manufacturing in 1994, and was
promoted to Vice President, Operations in March 1997 and to Senior Vice
President, Operations in May 2000. He is responsible for managing Integra's
21
worldwide manufacturing operations. Mr. Nociolo has approximately 20 years
experience working in engineering and manufacturing management in the medical
device industry. Six of those years were spent working at ETHICON, Inc., a
division of Johnson & Johnson. Mr. Nociolo received a B.S. degree in Industrial
Engineering from Rutgers University and an M.B.A. in Industrial Management from
Fairleigh Dickinson University.
Judith E. O'Grady joined Integra as Senior Vice President of Regulatory Affairs,
Quality Assurance and Clinical Affairs in 1985. Ms. O'Grady has worked in the
areas of medical devices and collagen technology for over 20 years. Prior to
joining Integra, Ms. O'Grady worked for Colla-Tec, Inc., a Marion Merrell Dow
Company. During her career she has held positions with Surgikos, a Johnson &
Johnson Company, and was on the faculty of Boston University College of Nursing
and Medical School. Ms. O'Grady led the team that obtained the FDA approval for
INTEGRA(R) Dermal Regeneration Template, the first regenerative product approved
by the FDA, and has led teams responsible for approvals of the Company's other
regenerative product lines as well as more than 500 FDA and international
submissions. Ms. O'Grady received a B.S. degree from Marquette University and
M.S.N. in Nursing from Boston University.
Robert D. Paltridge joined Integra as National Sales Director in February 1995
and was appointed Vice President, North American Sales in September 1997. He was
promoted to Vice President, Global Sales in October 2002 and Senior Vice
President, Global Sales in January 2003. His responsibilities include managing
the worldwide sales activities of Integra's three sales organizations and
third-party distributors. Mr. Paltridge has over 20 years of sales and sales
management experience in the medical device industry. Before joining Integra, he
was National Sales Manager at Strato Medical, a division of Pfizer, Inc. He
received a B.S. degree in Business Administration from Rutgers University.
22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information, Holders and Dividends
Our common stock trades on The NASDAQ National Market under the symbol "IART".
The following table lists the high and low sales prices for our common stock for
each quarter for the last two years:
HIGH LOW HIGH LOW
2005 2004
------------------ ------------------
Fourth Quarter $ 38.89 $ 32.00 $ 37.36 $ 29.41
Third Quarter $ 38.26 $ 28.74 $ 35.79 $ 27.14
Second Quarter $ 37.31 $ 28.69 $ 36.00 $ 29.76
First Quarter $ 39.87 $ 34.75 $ 33.86 $ 28.74
We have not paid any cash dividends on our common stock since our formation. Our
credit facility limits the amount of dividends that we may pay. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - Requirements and Capital
Resources." Any future determinations to pay cash dividends on the common stock
will be at the discretion of our Board of Directors and will depend upon our
results of operations and financial condition and other factors deemed relevant
by the Board of Directors.
The number of stockholders of record as of March 11, 2006 was approximately 530,
which includes stockholders whose shares were held in nominee name.
Issuer Purchases of Equity Securities
In May 2005, our Board of Directors authorized us to repurchase shares of our
common stock for an aggregate purchase price not to exceed $40 million through
December 31, 2006. We were authorized to repurchase no more than 1.5 million
shares under this program. During the quarter ended June 30, 2005, we
repurchased 750,000 shares of our common stock for $24.7 million under the May
2005 repurchase program. In October 2005, our Board of Directors terminated the
May 2005 repurchase program and adopted a new program that authorized us to
repurchase shares of our common stock for an aggregate purchase price not to
exceed $50 million through December 31, 2006. During the quarter ended December
31, 2005, we repurchased 900,000 shares of our common stock for $31.7 million
under the October 2005 repurchase program. In February 2006, our Board of
Directors terminated the October 2005 repurchase program and adopted a new
program that authorizes us to repurchase shares of our common stock for an
aggregate purchase price not to exceed $50 million through December 31, 2006.
Shares may be purchased either in the open market or in privately negotiated
transactions.
The following table summarizes our repurchases of our common stock during the
quarter ended December 31, 2005 under the October 2005 repurchase program:
Shares Dollar Value of
Purchased as Shares that May
Total Number Average Part of Publicly Yet be Purchased
of Shares Price Paid Announced Under the
Period Purchased per Share Program Program
- --------------------- ------------ ----------- ---------------- --------------
October 1, 2005 -
October 31, 2005 37,000 34.14 37,000 $48,736,713
November 1, 2005 -
November 30, 2005 798,107 35.15 798,107 20,682,146
December 1, 2005 -
December 31, 2005 64,893 36.56 64,893 18,309,396
- --------------------- ------------ ---------- ---------------- --------------
Total 900,000 $ 35.21 900,000 $18,309,396
23
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes included
elsewhere in this report. We have acquired numerous businesses and product lines
during the previous five years. As a result of these acquisitions, the
consolidated financial results and balance sheet data for certain of the periods
presented below may not be directly comparable.
Years Ended December 31,
2005 2004 2003 2002 2001
------ ------ ------ ------ ------
(in thousands, except per share data)
Operating Results:
Total revenues (1) ..................................... $277,935 $229,825 $185,599 $117,822 $ 93,442
Total operating costs and expenses (2) ................. 221,830 205,046 145,952 98,635 79,156
------- ------ ------ ------ ------
Operating income ....................................... 56,105 24,779 39,647 19,187 14,286
Interest income (expense), net ......................... (265) 555 471 3,535 1,393
Other income (expense), net (3) ........................ (739) 2,674 3,071 3 (392)
------ ------ ------ ------ ------
Income before income taxes ............................. 55,101 28,008 43,189 22,725 15,287
Income tax expense (benefit) (4) ....................... 17,907 10,811 16,328 (12,552) (10,876)
------ ------ ------ ------ ------
Net income ............................................. $37,194 $17,197 $26,861 $35,277 $ 26,163
====== ====== ====== ====== ======
Diluted net income per share ........................... $ 1.15 $ 0.55 $ 0.86 $ 1.14 $ 0.92
Weighted average shares outstanding .................... 34,565 31,102 33,104 30,720 27,196
December 31,
2005 2004 2003 2002 2001
------ ------ ------ ------ ------
(in thousands)
Financial Position:
Cash, cash equivalents, and marketable securities (5) .. $143,384 $195,982 $206,743 $132,311 $131,036
Total assets ........................................... 448,432 456,713 412,526 274,668 227,588
Long-term debt (5) ..................................... 118,378 118,900 119,427 -- --
Retained earnings/(accumulated deficit) ................ 36,929 (265) (17,462) (44,323) (79,600)
Stockholders' equity ................................... 289,818 307,823 268,530 247,597 204,056
(1) In 2003, we recorded $11.0 million of other revenue related to the
acceleration of the recognition of unused minimum purchase payments and
deferred license fee revenue from ETHICON, Inc., a division of Johnson &
Johnson, following the termination of the supply distribution and
collaboration agreement with ETHICON in December 2003.
(2) In 2004, we recorded $23.9 million in share-based compensation charges
incurred in connection with the extension of the employment agreement of
our President and Chief Executive Officer.
(3) In 2004, we recorded a $1.4 million gain in other income related to an
unrealized gain on a foreign currency collar which was used to reduce our
exposure to fluctuations in the exchange rate between the euro and the US
dollar as a result of our commitment to acquire Newdeal Technologies SAS
for 38.5 million euros. The collar contract expired on January 3, 2005,
concurrent with our acquisition of Newdeal Technologies. In 2003, we
recorded a $2.0 million gain in other income (expense) associated with a
termination payment received from ETHICON.
(4) In 2002 and 2001, we recognized a deferred income tax benefit of $20.4
million and $11.5 million, respectively, primarily related to the reduction
of a portion of the valuation allowance recorded against our deferred tax
assets.
(5) In 2003, we issued $120.0 million of 2.5% contingent convertible
subordinated notes due 2008. The net proceeds generated by the notes, after
expenses, were $115.9 million. The notes are convertible into approximately
3.5 million shares of our common stock.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our financial condition and results of
operations should be read together with the selected consolidated financial data
and our financial statements and the related notes appearing elsewhere in this
report. This discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of many factors, including but not limited to those under the heading
"Factors That May Affect Our Future Performance."
Regulation G, "Conditions for Use of Non-GAAP Financial Measures," and other
provisions of the Securities Exchange Act of 1934, as amended, define and
prescribe the conditions for the use of certain non-GAAP financial information.
In Management's Discussion and Analysis of Financial Condition and Results of
Operations, we provide information regarding growth in product revenues
excluding recently acquired product lines, which is a non-GAAP financial
measure. A reconciliation of this non-GAAP financial measure to the most
comparable GAAP measure is provided in this annual report.
This non-GAAP financial measure should not be relied upon to the exclusion of
GAAP financial measures. Management believes that this non-GAAP financial
measure constitutes important supplemental information to investors which
reflects an additional way of viewing aspects of our operations that, when
viewed with our GAAP results and the accompanying reconciliations, provides a
more complete understanding of factors and trends affecting our ongoing business
and operations. Management strongly encourages investors to review our financial
statements and publicly filed reports in their entirely and to not rely on any
single financial measure. Because non-GAAP financial measures are not
standardized, it may not be possible to compare these financial measures with
other companies' non-GAAP financial measures having the same or similar names.
GENERAL
Integra is a market-leading, innovative medical device company focused on
helping the medical professional enhance the standard of care for patients.
Integra provides customers with clinically relevant, innovative and
cost-effective products that improve the quality of life for patients. We focus
on cranial and spinal procedures, peripheral nerve repair, small bone and joint
injuries, and the repair and reconstruction of soft tissue.
Our distribution channels include two direct sales organizations (Integra
NeuroSciences and Integra Reconstructive Surgery), one network of manufacturer's
representatives managed by a direct sales organization (JARIT Surgical
Instruments) and strategic alliances with market leaders such as Johnson &
Johnson, Medtronic, Inc., Wyeth and Zimmer Holdings, Inc. We have direct sales
forces in the United States, Germany, the United Kingdom, the Benelux (Belgium,
Netherlands, Luxembourg) region and France. Elsewhere throughout the world, our
products are distributed through a number of independent distributors. We invest
substantial resources and management effort to develop our sales organizations,
and we believe that we compete very effectively in this aspect of our business.
Our product groups include Instruments, Implants, Monitoring Products, and
Private Label Products. Our Instruments product group includes ultrasonic
surgery systems for tissue ablation, cranial stabilization and brain retraction
systems, and instrumentation used in general, neurosurgical, spinal and plastic
and reconstructive surgery. Our Implants product group includes dural grafts
that are indicated for the repair of the dura mater, dermal regeneration and
engineered wound dressings, and implants used in small bone and joint fixation,
repair of peripheral nerves, and hydrocephalus management. Our Monitoring
Products group includes systems for the measurement of various brain parameters
and devices used to gain access to the cranial cavity and to drain excess
cerebrospinal fluid from the ventricles of the brain. Our Private Label product
group includes implants used in bone regeneration and in guided tissue
regeneration in periodontal surgery.
We manufacture many of our implant, monitoring and private label products in
various plants located in the United States, Puerto Rico, France, the United
Kingdom and Germany. We also manufacture the ultrasonic surgical instruments and
source most of our hand-held surgical instruments through specialized
third-party vendors.
We believe that we have a particular advantage in the development, manufacture
and sale of specialty tissue repair products derived from bovine collagen. We
25
develop and manufacture these products primarily in our facility in Plainsboro,
New Jersey. Taken together, these products accounted for approximately 31%, 31%
and 27% of product revenues in the years ended December 31, 2005, 2004 and 2003,
respectively.
We manage these multiple product groups and distribution channels on a
centralized basis. Accordingly, we report our financial results under a single
operating segment - the development, manufacturing and distribution of medical
devices.
Our objective is to continue to build a customer-focused and profitable medical
device company by developing or acquiring innovative medical devices and other
products to sell through our sales channels. Our strategy therefore entails
substantial growth in product revenues both through internal means - through
launching new and innovative products and selling existing products more
intensively - and by acquiring existing businesses or already successful product
lines.
We aim to achieve this growth in revenues while maintaining strong financial
results. While we pay attention to any meaningful trend in our financial
results, we pay particular attention to measurements that tend to support the
view that our profitability can grow for a period of years. These measurements
include revenue growth, derived through acquisitions and products developed
internally, gross margins on products revenues, which we aim to increase to more
than 65% over a period of several years, operating margins, which we aim to
continually expand on as we leverage our existing infrastructure, and earnings
per fully diluted share of common stock.
ACQUISITIONS
Our strategy for growing our business includes the acquisition of complementary
product lines and companies. Our recent acquisitions of businesses, assets and
product lines may make our financial results for the year ended December 31,
2005 not directly comparable to those of the corresponding prior year periods.
Since the beginning of 2003, we have acquired the following businesses, assets
and product lines:
In March 2006, Integra acquired the assets of the Radionics Division of Tyco
Healthcare Group, L.P. for approximately $76 million in cash, subject to certain
adjustments. Radionics, based in Burlington, Massachusetts, is a leader in the
design, manufacture and sale of advanced minimally invasive medical instruments
in the fields of neurosurgery and radiation therapy. Radionics' products include
the CUSA EXcel(R) ultrasonic surgical aspiration system, the CRW(R) stereotactic
system, the XKnife(R) stereotactic radiosurgery system, and the OmniSight(R)
EXcel image guided surgery system.
Tyco Healthcare sold the Radionics products in over 75 countries, using a
network of independent distributors in the United States and both independent
distributors and Tyco Healthcare affiliates internationally. We are likely to
use distributors in many of the markets in which Tyco Healthcare sold direct. As
a result, we expect that revenue and pre-tax income attributable to the acquired
product lines will be reduced from the 2005 reported levels. In addition,
because the CUSA Excel ultrasonic aspiration system competes with our existing
line of ultrasonic surgery systems, our sales force may, in some situations,
sell the CUSA system in lieu of our existing ultrasonic aspirator products.
Overall, the acquired business has been growing at rates below our corporate
growth rate targets.
In September 2005, we acquired the intellectual property estate of Eunoe, Inc.
for $0.5 million in cash. Prior to ceasing operations, Eunoe, Inc. was engaged
in the development of its innovative COGNIShunt(R) system for the treatment of
Alzheimer's disease patients. The acquired intellectual property has not been
developed into a product that has been approved or cleared by the FDA and has no
future alternative use other than in clinical applications involving the
regulation of cerebrospinal fluid. Accordingly, we recorded the entire
acquisition price as an in-process research and development charge in 2005.
In January 2005, we acquired all of the outstanding capital stock of Newdeal
Technologies SAS. We paid $51.9 million (38.3 million euros) in cash at closing,
a $0.7 million working capital adjustment paid in January 2006, and $0.8 million
of acquisition related expenses.
Newdeal is a leading developer and marketer of specialty implants and
instruments specifically designed for foot and ankle surgery. Newdeal's products
include a wide range of products for the forefoot, the mid-foot and the hind
26
foot, including the Bold(R) Screw, Hallu-Fix(R) plate system and the HINTEGRA(R)
total ankle prosthesis. At the time of the acquisition, Newdeal sold its
products through a direct sales force in France, Belgium and the Netherlands,
and through distributors in more than 30 countries, including the United States
and Canada. During 2005, we began to market the Newdeal products directly in the
United States through our Integra Reconstructive Surgery sales force. Newdeal's
target physicians include orthopedic surgeons specializing in injuries of the
foot, ankle and extremities, as well as podiatric surgeons.
In May 2004, we acquired the MAYFIELD(R) Cranial Stabilization and Positioning
Systems and the BUDDE(R) Halo Retractor System business from Schaerer Mayfield
USA, Inc. (formerly Ohio Medical Instrument Company) for $20.0 million in cash
paid at closing, a $0.3 million working capital adjustment and $0.3 million of
acquisition related expenses. The MAYFIELD(R) and BUDDE(R) lines include skull
clamps, headrests, reusable and disposable skull pins, blades, retractor systems
and spinal implants. MAYFIELD systems are the market leader in the United States
and have been used by neurosurgeons for over thirty years. The products are sold
in the United States through our Integra NeuroSciences(TM) direct sales
organization and in international markets through distributors.
In May 2004, we acquired all of the capital stock of Berchtold
Medizin-Elektronik GmbH, now named Integra ME GmbH, from Berchtold Holding GmbH
for $5.0 million in cash. Integra ME manufactures and markets the ELEKTROTOM(R)
line of electrosurgery generators and the SONOTOM(R) ultrasonic surgical
aspirator, as well as a broad line of related handpieces, instruments and
disposables used in many surgical procedures, including neurosurgery.
In January 2004, we acquired two small instruments businesses: the R&B
instrument business from R&B Surgical Solutions, LLC for $2.0 million in cash
and the Sparta disposable critical care devices and surgical instruments
business from Fleetwood Medical, Inc. for $1.6 million in cash. The R&B
instrument line is a complete line of high-quality handheld surgical instruments
used in neuro- and spinal surgery. The Sparta product line includes products
used in plastic and reconstructive, ear, nose and throat (ENT), neuro,
ophthalmic and general surgery.
In December 2003, we acquired the assets of Reconstructive Technologies, Inc.
for $0.4 million in cash and an agreement to make future payments based on
product sales. Reconstructive Technologies was the developer of the Automated
Cyclic Expansion System (ACE System(TM)), a tissue expansion device. As the ACE
system was not yet approved for sale, we recorded a $0.4 million in-process
research and development charge in connection with this acquisition. We are
evaluating the regulatory, engineering, and clinical efforts necessary to
develop and launch the ACE System.
RESTRUCTURING ACTIVITIES
During the second quarter of 2005, we announced plans to restructure certain of
our European operations. The restructuring plan included closing our Integra ME
production facility in Tuttlingen, Germany and reducing the manufacturing
overhead workforce in our production facility located in Biot, France, both of
which were completed in December 2005. We transitioned the manufacturing
operations of Integra ME to our production facility in Andover, England. During
the second quarter of 2005, we also eliminated some duplicative sales and
marketing positions, primarily in Europe. Approximately 68 individuals were
identified for termination under the European restructuring plan. As of December
31, 2005, we terminated 65 of these individuals.
In 2005, we also completed the transfer of the Spinal Specialties assembly
operations from our San Antonio, Texas plant to our San Diego, California plant
and we continue to transfer certain assembly, processing and packaging
operations to our San Diego and Puerto Rico facilities.
In connection with these restructuring activities, we recorded $4.0 million of
charges in 2005 for the estimated costs of employee termination benefits to be
provided to the affected employees and related facility exit costs.
While we expect a positive impact of the restructuring and integration
activities, such results remain uncertain. We expect to reinvest most of the
savings from these restructuring and integration activities in further expanding
our European sales, marketing and distribution organization, and adding the
Newdeal group's business to our existing sales and distribution network.
27
RESULTS OF OPERATIONS
Net income in 2005 was $37.2 million, or $1.15 per diluted share, as compared to
net income of $17.2 million, or $0.55 per diluted share, in 2004 and net income
of $26.9 million, or $0.86 per diluted share, in 2003. These amounts include the
following charges:
(in thousands) 2005 2004 2003
------ ------ ------
CHARGES:
- --------
Involuntary employee termination costs ........... $ 3,861 $ -- $ 120
Facility consolidation, acquisition
integration and related costs ................ 2,340 -- 987
Acquired in-process research and development ..... 500 -- 400
Costs associated with discontinued
products lines ............................... 478 -- --
Inventory fair market value purchase accounting
adjustments .................................. 466 270 1,261
Cash donation to the Integra Foundation .......... 250 -- 2,000
Acquired technology licensing and
milestone payments ........................... -- 1,855 --
Tax charge incurred in connection with the
reorganization of certain European operations. -- 1,300 --
------ ------ ------
Total ......................................... $ 7,895 $ 3,425 $ 4,768
In 2004, we recognized $1.4 million of other income related to an unrealized
gain on a foreign currency collar, which was used to reduce our exposure to
fluctuations in the exchange rate between the euro and the US dollar as a result
of our commitment to acquire Newdeal Technologies for 38.5 million euros. The
foreign currency collar expired in January 2005, concurrent with our acquisition
of Newdeal Technologies.
We believe that, given our ongoing, active strategy of seeking acquisitions, our
current focus on rationalizing our existing manufacturing and distribution
infrastructure, and our recent review of various product lines in relation to
our current business strategy, the charges and amounts recorded to other income
discussed above could recur with similar materiality in the future. We believe
that the delineation of these costs provides useful information to measure the
comparative performance of our business operations.
Net income also includes the following amounts:
In 2005, we recognized an additional $1.3 million of royalty revenue related to
a change in the manner we use to estimate royalties earned based on Medtronic's
sales of its INFUSE(TM) bone graft product. Prior to 2005, we recognized this
royalty revenue when Wyeth paid us royalties because Wyeth did not provide
information to us about the royalty amount earned each quarter prior to us
reporting our quarterly financial results and we did not have a reliable basis
for otherwise estimating and recording royalty revenue in the same quarter it
was earned. However, we now receive quarterly royalty revenue information from
Wyeth more quickly, we have sufficient historical information available to help
us estimate, and the volatility in the royalty earned each quarter has decreased
significantly. Accordingly, we started recognizing this royalty on an accrual
basis in the quarter earned.
In 2004, we recognized a $23.9 million non-cash compensation charge related to
the renewal of our Chief Executive Officer's employment agreement.
In 2003, we recorded $11.0 million of other revenue related to the acceleration
of the recognition of unused minimum purchase payments and unamortized license
fee revenue from ETHICON following the termination of the Supply, Distribution
and Collaboration agreement in December 2003. We also received a $2.0 million
payment from ETHICON from the termination of our agreement with them, which is
included in other income.
These amounts represent revenues, gains, and charges resulting from facts and
circumstances that, based on our recent history and future expectations, are not
expected to recur with similar materiality or impact on continuing operations.
28
We believe that the identification of these revenues, charges and gains that
meet these criteria promotes comparability of reported financial results for the
periods presented.
Total Revenues and Gross Margin on Product Revenues (Exclusive of Amortization
Related to Acquired Intangible Assets)
(in thousands, except per share data) 2005 2004 2003
-------- -------- --------
Monitoring products ................................. $ 48,940 $ 48,217 $ 44,229
Implant products ......... .......................... 108,156 78,418 53,301
Instruments ......................................... 91,918 77,667 47,168
Private label products .............................. 28,757 24,188 21,997
-------- -------- --------
Total product revenues ................................. 277,771 228,490 166,695
Other revenue .......................................... 164 1,335 18,904
-------- -------- --------
Total revenues.......................................... 277,935 229,825 185,599
Cost of product revenues (exclusive of amortization
related to acquired intangible assets) ............. 105,536 87,299 70,597
Gross margin on product revenues ....................... 172,235 141,191 96,098
Gross margin as a percentage of product revenues ....... 62% 62% 58%
In 2005, total revenues increased 21% over 2004 to $277.9 million, led by a
$49.3 million, or 22%, increase in product revenues to $277.8 million. Domestic
product revenues increased $26.4 million in 2005 to $207.2 million, or 75% of
total product revenues, as compared to 79% and 80% of product revenues in 2004
and 2003, respectively. Sales of instruments and implant products, which
reported a 38% and 18% increase, respectively, in sales over 2004, led our
growth in product revenues in 2005.
In 2004, total revenues increased 24% over 2003 to $229.8 million, led by a
$61.8 million, or 37%, increase in product revenues to $228.5 million. Domestic
product revenues increased $48.1 million in 2004 to $180.9 million. Sales of
instruments and implant products, which reported a 65% and 47% increase,
respectively, in sales over 2003, led our growth in product revenues in 2004.
Reported product revenues for 2005 and 2004 included the following amounts in
revenues from acquired product lines:
2005 Revenues 2004 Revenues % change
--------------- --------------- ----------
(in thousands)
Total Product Revenues
Products acquired during 2005 ........... $ 17,033 $ -- N/M
Products acquired during 2004 ........... 9,343 2,770 N/M
All other product revenues .............. 251,395 225,720 11%
--------- --------
Total product revenues .................. 277,771 228,490 22%
All of the products acquired in 2005 were added to the implants product group,
while all of the products acquired in 2004 were added to the instrument product
group.
Product revenues excluding 2005 and 2004 acquisitions grew at 11% for the year
ended December 31, 2005 as compared to 2004. Increased sales of our implant
products used for skin replacement and wound dressings, dural repair, and repair
and protection of peripheral nerves, our surgical instrumentation and ultrasonic
surgery systems for tissue ablation, and revenues from our Absorbable Collagen
Sponge product sold to Wyeth accounted for a significant portion of this growth.
Changes in foreign currency exchange rates did not have a significant effect on
the year-over-year increase in product revenues.
29
Product revenues in 2004 and 2003, included $53.5 million and $24.5 million,
respectively, in sales of products acquired in either 2003 or 2004. Increased
sales of our implant products used for skin replacement and wound dressings and
dural repair and increased revenues from our Absorbable Collagen Sponge product
sold to Wyeth drove this revenue growth. Changes in foreign currency exchange
rates in 2004 had a $2.8 million favorable effect on the year-over-year increase
in product revenues.
We have developed a new targeted account sales and marketing strategy for
products in the monitoring category and expect that it will contribute to
improvements in the performance of our monitoring products in future periods.
We have generated our product revenue growth through acquisitions, new product
launches and increased direct sales and marketing efforts both domestically and
in Europe. We expect that our expanded domestic sales force, the recent
conversion of JARIT domestic sales from a distributor billing model to a direct
billing model, the continued implementation of our direct sales strategy in
Europe and sales of internally developed and acquired products will drive our
future revenue growth. We also intend to continue to acquire businesses that
complement our existing businesses and products. Overall, we expect our revenues
to continue to grow in the range of 20% to 30% per annum. We expect organic
revenue growth in excess of 15% per annum.
Gross margin as a percentage of product revenues (exclusive of amortization
related to acquired intangible assets) was 62% in 2005, 62% in 2004 and 58% in
2003. Cost of product revenues included $0.5 million, $0.3 million, and $1.3
million in fair value inventory purchase accounting adjustments recorded in
connection with acquisitions in 2005, 2004 and 2003, respectively. Our gross
margin in 2005 was also negatively affected by $2.6 million of termination costs
incurred in connection with our European restructuring activities, $0.9 million
of charges associated with facility consolidations and $0.3 million of charges
associated with a discontinued product line. Continued growth in sales of
higher-margin products, including our skin replacement and wound dressing
implants, dural repair implants, cranial stabilization systems, and recently
acquired foot and ankle implant products offset the impact of the charges
recorded in 2005.
In 2006, we expect our consolidated gross margin to increase. We expect that
sales of our higher gross margin products will continue to increase as a
proportion of total product revenues. Also, we have begun to bill hospital
customers directly for sales of JARIT instruments to them, rather than
distributors. We expect that this will result in increased product revenues, a
higher gross margin, and increased selling expenses. We anticipate that the
relatively lower gross margin generated from sales of Radionics products will
offset some of these benefits.
Gross margins in 2004 improved as compared to 2003 as a result of increased
sales of higher margin products, including our skin replacement and wound
dressing implants and dural repair implants and the cranial stabilization
systems acquired in 2004, and from the negative impact of the $1.3 million in
fair value inventory purchase accounting adjustments recorded in 2003.
Other Operating Expenses
The following is a summary of other operating expenses as a percent of total
revenues:
2005 2004 2003
-------- -------- --------
Research and development ............................... 4% 6% 7%
Selling, general and administrative .................... 35% 43% 32%
We reported in-process research and development charges of $0.5 million and $0.4
million in 2005 and 2003, respectively. The $0.5 million in-process research and
development charge in 2005 related to intellectual property acquired from Eunoe,
Inc in September 2005. Prior to ceasing operations, Eunoe, Inc. was engaged in
the development of its innovative COGNIShunt(R) system for the treatment of
Alzheimer's disease patients. The acquisition of the Eunoe intellectual property
estate and clinical trial data extends Integra's technology to regulate the flow
of cerebrospinal fluid within the brain. The acquired intellectual property has
not been developed into a product that has been approved or cleared by the FDA
and has no future alternative use other than in clinical applications involving
the regulation of cerebrospinal fluid.
30
Research and development costs have continued to decline as a percentage of
total revenue as we continue to restructure our research and development
activities. The percentage declines are also the result of significant increases
in hand-held instrument sales, which by their nature require less research and
development expenditures compared to our other product lines. In 2005, our
research and development expenses decreased $2.2 million to $12.0 million
because of decreased development efforts related to our next generation
ultrasonic aspirator and from the impact of the $1.4 million milestone payment
related to the completion of certain development activities for an advanced
neuro-monitoring system made in 2004. Our 2004 research and development expenses
increased $1.3 million to $14.1 million and included the $1.4 million milestone
payment and a $0.5 million licensing fee paid for the development of a data
acquisition system to support the integration of our advanced monitoring
products. In 2003, we incurred $1.1 million of expenses related to the
consolidation of our San Diego research center with our other facilities.
In 2006, we expect our research and development expenses as a percentage of
total revenues to increase slightly as we increase expenditures on research and
clinical activities directed toward expanding the indications for use of our
absorbable implant technology products, including a multi-center clinical trial
suitable to support an application to the FDA for approval of the DuraGen
Plus(TM) Adhesion Barrier Matrix product in the United States. The recently
acquired Radionics business also spends proportionately more on research and
development.
We capitalize inventory costs associated with certain products prior to
regulatory approval, based on management's judgment of probable future
commercialization. We could be required to expense previously capitalized costs
related to pre-approval inventory upon a change in such judgment, due to, among
other potential factors, a denial or delay of approval by necessary regulatory
bodies or a decision by management to discontinue the related development
program. At December 31, 2005, we capitalized approximately $0.9 million of
pre-approval inventory.
In 2004, our selling, general and administrative expenses included a $23.9
million share-based compensation charge related to the renewal of our President
and Chief Executive Officer's employment agreement. Excluding the impact of this
charge, selling, general and administrative expenses increased in 2005 because
of the continued expansion of our direct sales and marketing organizations
around all three direct selling platforms, increased corporate staff to support
the recent growth in our business and costs associated with our restructuring,
acquisition integration and systems implementation activities. Since 2004, we
have been investing resources in the implementation of a new global enterprise
business system. In 2004 and 2005, we relocated and expanded most of our
domestic and international distribution capabilities through third-party service
providers.
In 2005, we recorded $1.1 million of employee termination costs and $1.4 million
of charges associated with facility consolidations, acquisition integrations and
related costs incurred in connection with our restructuring activities in
selling, general and administrative expenses. We do not expect that the costs to
complete these activities in 2006 will be as significant, although there may be
additional significant costs incurred to integrate the Radionics business.
In 2005, we also recorded $8.3 million of selling, general and administrative
expenses associated with the recently acquired Newdeal businesses. These costs
included a $1.4 million compensation charge related to the sellers' obligation
to continue their employment with Integra through the end of 2005.
In 2006, we expect our selling, general and administrative costs as a percentage
of revenue to increase as compared to 2005 as a result of the impact of
expensing all share-based compensation following the adoption of SFAS No. 123(R)
and from higher commissions associated with the conversion of JARIT domestic
sales from a distributor billing model to a direct billing model.
Amortization expense increased to $6.1 million in 2005 because of amortization
on intangible assets acquired through our business acquisitions. Including the
impact of intangible assets acquired in the Radionics acquisition, we expect
annual amortization expense to be approximately $8.1 million in 2006, $8.3
million in 2007, $8.0 million in 2008, $7.3 million in 2009 and $6.7 million in
2010.
31
Non-Operating Income and Expenses
In 2003, we received approximately $115.9 million of net proceeds from the sale
of $120.0 million of our 2 1/2% contingent convertible subordinated notes due in
March 2008. In 2005, 2004, and 2003, we recorded interest expense of $3.9
million, $3.5 million, and $2.7 million, respectively, in connection with these
notes, which was offset by $3.9 million, $4.0 million, and $3.2 million,
respectively, of interest income on our invested cash and marketable debt
securities.
We will pay additional interest ("contingent interest") on our convertible notes
if, at thirty days prior to maturity, our common stock price is greater than
$37.56 per share. We recorded a $0.4 million liability related to the estimated
fair value of the contingent interest obligation at the time the notes were
issued. The contingent interest obligation is marked to its fair value at each
balance sheet date, with changes in the fair value recorded to interest expense.
At December 31, 2005, the estimated fair value of the contingent interest
obligation was $0.7 million. In 2005, interest expense associated with changes
in the estimated fair value of the contingent interest obligation was not
significant. In 2004, and 2003, respectively, we recorded $0.3 million and $0.1
million of interest expense associated with changes in the estimated fair value
of the contingent interest obligation.
In August 2003, we entered into an interest rate swap agreement with a $50.0
million notional amount to hedge the risk of changes in fair value attributable
to interest rate risk with respect to a portion of our fixed rate convertible
notes. We receive a 2 1/2% fixed rate from the counterparty, payable on a
semi-annual basis, and pay to the counterparty a floating rate based on 3-month
LIBOR minus 35 basis points, payable on a quarterly basis. The interest rate
swap agreement terminates in March 2008, subject to early termination upon the
occurrence of certain events, including redemption or conversion of the
convertible notes.
The interest rate swap agreement qualifies as a fair value hedge under SFAS No.
133, as amended "Accounting for Derivative Instruments and Hedging Activities."
The net amount to be paid or received under the interest rate swap agreement is
recorded as a component of interest expense. In 2005, we recorded an additional
$0.2 million of interest expense associated with the interest rate swap, while
we recorded a $0.7 million and $0.3 million reduction in interest expense in
2004 and 2003, respectively.
The net fair value of the interest rate swap at December 31, 2005 was $2.0
million. We recorded the following changes in the net fair values of the
interest rate swap and the hedged portion of the contingent convertible notes:
2005 2004 2003
-------- -------- --------
(in thousands)
Interest rate swap ............................... $ 690 $ 287 $ 305
Contingent convertible notes ..................... (821) (430) (433)
-------- -------- --------
Net increase (decrease) in liabilities ........... $ (131) $ (143) $ (128)
The net decrease in liabilities represents the ineffective portion of the
hedging relationship, and these amounts are recorded in other income (expense),
net.
Our net other income (expense) declined in 2005 by $3.4 million to $0.7 million
of expense. In 2004, we recorded a $1.4 million unrealized gain associated with
a 38.5 million euro foreign currency collar contract that expired on January 3,
2005. We entered into this contract to reduce our exposure to fluctuations in
the exchange rate between the euro and the dollar as a result of our commitment
to acquire Newdeal in January 2005 for euro 38.5 million. The collar contract
did not qualify as a hedge under SFAS No. 133. Accordingly, the collar contract
was recorded at fair value and changes in fair value were recorded in other
income (expense), net. The foreign currency collar expired in January 2005,
concurrent with our acquisition of Newdeal Technologies.
Income Taxes
In 2005, our effective income tax rate was 32.5% of income before income taxes,
compared to 38.6% in 2004 and 37.8% in 2003. Our 2004 rate includes a $1.3
million tax charge related to the transfer of intangible assets. The reduction
in our effective tax rate from 2004 to 2005 was primarily related to the impact
of this charge on our 2004 effective rate and the favorable impact of various
planning and reorganization initiatives that we recently implemented.
32
Our effective tax rate may vary from year to year depending on, among other
factors, the geographic and business mix of taxable earnings and losses. We
consider these factors and others, including our history of generating taxable
earnings, in assessing our ability to realize deferred tax assets.
The net decrease in our tax asset valuation allowance was $0.2 million, $0, and
$2.3 million in 2005, 2004 and 2003, respectively.
A valuation allowance of $5.1 million is recorded against the remaining $27.3
million of net deferred tax assets recorded at December 31, 2005. This valuation
allowance relates to deferred tax assets for certain expenses which will be
deductible for tax purposes in very limited circumstances and for which we
believe it is unlikely that we will recognize the associated tax benefit. We do
not anticipate additional income tax benefits through future reductions in the
valuation allowance. However, if we determine that we would be able to realize
more or less than the recorded amount of net deferred tax assets, we will record
an adjustment to the deferred tax asset valuation allowance in the period such a
determination is made.
At December 31, 2005, we had net operating loss carryforwards of $15.8 million
for federal income tax purposes and $0.4 million for foreign income tax purposes
to offset future taxable income. The federal net operating loss carryforwards
expire through 2024 and the foreign net operating loss carryforwards have no
expiration. We expect to use all of our remaining unrestricted net operating
loss carryforwards in 2006.
At December 31, 2005, several of our subsidiaries had unused net operating loss
carryforwards and tax credit carryforwards arising from periods prior to our
ownership which expire through 2010. The Internal Revenue Code limits the timing
and manner in which we may use any acquired net operating losses or tax credits.
We do not provide income taxes on undistributed earnings of non-U.S.
subsidiaries because such earnings are expected to be permanently reinvested.
Undistributed earnings of foreign subsidiaries totaled $8.5 million and $2.6
million, at December 31, 2005 and 2004, respectively.
The American Jobs Creation Act of 2004 was signed into law in October 2004 and
has several provisions that may impact our income taxes in the future, including
the repeal of the extraterritorial income exclusion and a deduction related to
qualified production activities income. The qualified production activities
deduction is a special deduction and will have no impact on deferred taxes
existing at the enactment date. Rather, the impact of this deduction will be
reported in the period in which the deduction is claimed on our tax return.
Pursuant to United States Department of Treasury Regulations issued in October
2005, we believe that we will realize a tax benefit on qualified production
activities income once we have completely utilized our unrestricted net
operating losses, which is expected to occur in 2006.
INTERNATIONAL PRODUCT REVENUES AND OPERATIONS
Product revenues by major geographic area are summarized below:
United Asia Other
States Europe Pacific Foreign Consolidated
-------- -------- --------- --------- --------------
(in thousands)
2005 ..................... $207,245 $ 48,645 $ 11,403 $ 10,478 $277,771
2004 ..................... 180,887 30,941 8,535 8,127 228,490
2003 ..................... 132,805 21,433 5,828 6,629 166,695
In 2005, product revenues from customers outside the United States totaled $70.5
million, or 25% of consolidated product revenues, of which approximately 69%
were to European customers. Revenues from customers outside the United States
included $55.2 million of revenues generated in foreign currencies.
In 2004, product revenues from customers outside the United States totaled $47.6
million, or 21% of consolidated product revenues, of which approximately 65%
33
were to European customers. Revenues from customers outside the United States
included $33.6 million of revenues generated in foreign currencies.
In 2003, product revenues from customers outside the United States totaled $33.9
million, or 20% of consolidated product revenues, of which approximately 63%
were to European customers. Revenues from customers outside the United States
included $21.3 million of revenues generated in foreign currencies.
Because we have operations based in Europe and we generate revenues and incur
operating expenses in euros and British pounds, we will experience currency
exchange risk with respect to those foreign currency denominated revenues or
expenses.
In 2005, 2004 and 2003, the cost of products we manufactured in our European
facilities or purchased in foreign currencies exceeded our foreign
currency-denominated revenues. We expect this imbalance to continue into 2006.
We currently do not hedge our exposure to operating foreign currency risk.
Accordingly, a weakening of the dollar against the euro and British pound could
negatively affect future gross margins and operating margins. We will continue
to assess the potential effects that changes in foreign currency exchange rates
could have on our business. If we believe this potential impact presents a
significant risk to our business, we may enter into derivative financial
instruments to mitigate this risk.
Additionally, we generate significant revenues outside the United States, a
portion of which are U.S. dollar-denominated transactions conducted with
customers who generate revenue in currencies other than the U.S. dollar. As a
result, currency fluctuations between the U.S. dollar and the currencies in
which those customers do business may have an impact on the demand for our
products in foreign countries.
Local economic conditions, regulatory or political considerations, the
effectiveness of our sales representatives and distributors, local competition
and changes in local medical practice all may combine to affect our sales into
markets outside the United States.
Relationships with customers and effective terms of sale frequently vary by
country, often with longer-term receivables than are typical in the United
States.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Marketable Securities
At December 31, 2005, we had cash, cash equivalents and marketable securities
totaling $143.4 million. Investments consist almost entirely of highly liquid,
interest bearing debt securities.
Cash Flows
We generated positive operating cash flows of $57.0 million, $39.0 million and
$34.8 million in 2005, 2004 and 2003, respectively. Operating cash flows
continued to improve primarily as a result of higher pre-tax income, improved
working capital management, and the benefits from the continued utilization of
our net operating loss carryforwards and tax deductions generated by employee
stock option exercises. In 2005 and 2004, changes in working capital items
reduced operating cash flows by $4.7 million and $20.2 million, respectively. In
2004, we experienced delays in customer collections related to business systems
transitions. The improvement in working capital in 2005 relates to an
improvement in the collection cycle for accounts receivable. In 2006, we are
targeting a decrease in days on hand in inventory to further improve operating
cash flows. We expect to use all of our remaining unrestricted net operating
loss carryforwards in 2006. Accordingly, we do not expect to realize the same
level of benefits to our operating cash flows in 2006 as compared to prior
years.
In 2005, we used $56.3 million to repurchase 1.7 million shares of our common
stock, which was partially offset by $9.4 million in cash flows generated from
the issuance of common stock under employee benefit plans. Other principal uses
of funds in 2005 were $50.6 million for acquisitions and $8.1 million for
capital expenditures. In 2005, we generated $27.8 million of cash flows from the
net sales and maturities of our investments in marketable debt securities.
34
In 2004, we generated $6.1 million from the issuance of common stock under
employee benefit plans. We used $29.3 million of cash for acquisitions, $50.6
million for the net purchases of marketable debt securities, $14.2 million for
the repurchase of 500,000 shares of our common stock and $8.5 million for
capital expenditures.
In 2003, we generated $14.2 million from the issuance of common stock under
employee benefit plans and $115.9 million of net proceeds from the sale of
$120.0 million of our contingent convertible subordinated notes. We used $50.4
million of cash for acquisitions, $72.9 million for the net purchases of
marketable debt securities, $35.4 million for the repurchase of 1.5 million
shares our common stock and $3.8 million for capital expenditures. The
significant repurchase of our common stock in 2003 was made simultaneously with
the issuance of our convertible notes.
Working Capital
At December 31, 2005 and 2004, working capital was $234.7 million and $192.0
million, respectively. The increase in working capital in 2005 was primarily due
to increases in short-term investments as our non-current investment portfolio
came closer to maturity in 2005.
Convertible Debt and Related Hedging Activities
We pay interest on our contingent convertible subordinated notes at an annual
rate of 2 1/2% each September 15th and March 15th. We will also pay contingent
interest on the notes if, at thirty days prior to maturity, our common stock
price is greater than $37.56. The contingent interest will be payable at
maturity for each of the last three years the notes remain outstanding in an
amount equal to the greater of (1) 0.50% of the face amount of the notes and (2)
the amount of regular cash dividends paid during each such year on the number of
shares of common stock into which each note is convertible. Holders of the notes
may convert the notes into shares of our common stock under certain
circumstances, including when the market price of our common stock on the
previous trading day is more than $37.56 per share, based on an initial
conversion price of $34.15 per share.
The notes are general, unsecured obligations of Integra and will be subordinate
to any future senior indebtedness. We cannot redeem the notes prior to their
maturity, and the notes' holders may compel us to repurchase the notes upon a
change of control. There are no financial covenants associated with the
convertible notes.
We entered into an interest rate swap agreement with a $50 million notional
amount to hedge the risk of changes in fair value attributable to interest rate
risk with respect to a portion of the notes. See "- Results of Operations -
Non-Operating Income and Expenses." We receive a 2 1/2% fixed rate from the
counterparty and pay to the counterparty a floating rate based on 3-month LIBOR
minus 35 basis points. Our effective interest rate on the hedged portion of the
notes was 3.7% as of December 31, 2005.
Share Repurchase Plans
During 2005, 2004 and 2003, we repurchased 1.7 million, 0.5 million, and 1.5
million shares, respectively, of our common stock under authorized share
repurchase programs.
In May 2005, our Board of Directors authorized us to repurchase shares of our
common stock for an aggregate purchase price not to exceed $40 million through
December 31, 2006. We were authorized to repurchase no more than 1.5 million
shares under this program. In October 2005, our Board of Directors terminated
the May 2005 repurchase program and adopted a new program that authorized us to
repurchase shares of our common stock for an aggregate purchase price not to
exceed $50 million through December 31, 2006. During 2005, we repurchased
approximately 1.7 million shares of our common stock for $56.3 million under the
May 2005 and October 2005 repurchase programs. In February 2006, our Board of
Directors terminated the October 2005 repurchase program and adopted a new
program that authorizes us to repurchase shares of our common stock for an
aggregate purchase price not to exceed $50 million through December 31, 2006.
Shares may be purchased either in the open market or in privately negotiated
transactions.
35
Dividend Policy
We have not paid any cash dividends on our common stock since our formation. Any
future determinations to pay cash dividends on our common stock will be at the
discretion of our Board of Directors and will depend upon our financial
condition, results of operations, cash flows and other factors deemed relevant
by the Board of Directors.
Requirements and Capital Resources
We believe that our cash and marketable securities are sufficient to finance our
operations and capital expenditures in the near term.
In March 2006, we used approximately $76.0 million in cash to complete the
acquisition of the Radionics Division of Tyco Healthcare Group, L.P. and pay
related transaction expenses. Given the significant level of liquid assets and
our objective to grow by acquisition and alliances, our financial position could
change significantly if we were to complete another business acquisition by
utilizing a significant portion of our liquid assets.
In December 2005, we established a $200 million, five-year, senior secured
revolving credit facility. The credit facility currently allows for revolving
credit borrowings in a principal amount of up to $200 million, which can be
increased to $250 million should additional financing be required in the future.
We plan to utilize the credit facility for working capital, capital
expenditures, share repurchases, acquisitions and other general corporate
purposes. We did not draw any amounts against this credit facility in 2005.
The indebtedness under the credit facility is guaranteed by the Company's
domestic subsidiaries. The Company's obligations under the credit facility and
the guarantees of the guarantors are secured by a first-priority security
interest in all present and future capital stock of (or other ownership or
profit interest in) each guarantor and substantially all of the Company's and
the guarantors' other assets, other than real estate, intellectual property and
capital stock of foreign subsidiaries.
Borrowings under the credit facility bear interest, at our option, at a rate
equal to (i) the Eurodollar Rate in effect from time to time plus an applicable
rate (ranging from 0.75% to 1.5%) or (ii) the higher of (x) the weighted average
overnight Federal funds rate, as published by the Federal Reserve Bank of New
York, plus 0.5%, and (y) the prime commercial lending rate of Bank of America,
N.A. plus an applicable rate (ranging from 0% to 0.5%). The applicable rates are
based on a financial ratio at the time of the applicable borrowing.
We will also pay an annual commitment fee (ranging from 0.15% to 0.25%) on the
daily amount by which the commitments under the credit facility exceed the
outstanding loans and letters of credit under the credit facility.
The credit facility requires us to maintain various financial covenants,
including leverage ratios, a minimum fixed charge coverage ratio and a minimum
liquidity ratio. The credit facility also contains customary affirmative and
negative covenants, including those that limit the Company's and its
subsidiaries' ability to incur additional debt, incur liens, make investments,
enter into mergers and acquisitions, liquidate or dissolve, sell or dispose of
assets, repurchase stock and pay dividends, engage in transactions with
affiliates, engage in certain lines of business and enter into sale and
leaseback transactions.
In March 2006, we borrowed $16.0 million under the credit facility in connection
with the acquisition of Radionics.
Contractual Obligations and Commitments
As of December 31, 2005, we were obligated to pay the following amounts under
various agreements:
Less than More than
Total 1 year 1-3 Years 3-5 Years 5 years
------- ----------- ----------- ----------- -----------
(in millions)
Long Term Debt............... $120.0 $ -- $120.0 $ -- $ --
Interest on Long Term Debt... 7.5 3.0 4.5 -- --
Operating Leases............. 12.3 2.4 2.3 1.1 6.5
Purchase Obligations......... 2.8 2.8 -- -- --
Pension Contributions ....... 0.3 0.3 -- -- --
-------- ------- ------- -------- ------
Total........................ $142.9 $ 8.5 $126.8 $ 1.1 $ 6.5
36
In addition, under other agreements we are required to make payments based on
sales levels of certain products.
The above table does not include contingent interest that we may be obligated to
pay on our contingent convertible subordinated notes due in March 2008. See "-
Results of Operations - --Non-Operating Income and Expenses."
OFF-BALANCE SHEET ARRANGEMENTS
The $120.0 million of outstanding contingent convertible subordinated notes we
have outstanding at December 31, 2005 are convertible into approximately 3.5
million shares of our common stock. If all these notes were converted, our
stockholders could experience significant dilution. We would not receive any
additional cash proceeds upon the conversion of the notes.
CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities, and the reported amounts
of revenues and expenses. Significant estimates affecting amounts reported or
disclosed in the consolidated financial statements include allowances for
doubtful accounts receivable and sales returns and allowances, net realizable
value of inventories, amortization periods for acquired intangible assets, and
loss contingencies. These estimates are based on historical experience and on
various other assumptions that are believed to be reasonable under the current
circumstances. Actual results could differ from these estimates.
We believe the following accounting policies, which form the basis for
developing these estimates, are those that are most critical to the presentation
of our financial statements and require the most difficult, subjective and
complex judgments:
Allowances For Doubtful Accounts And Sales Returns and Allowances
We evaluate the collectibility of accounts receivable based on a combination of
factors. In circumstances where a specific customer is unable to meet its
financial obligations to us, we record an allowance against amounts due to
reduce the net recognized receivable to the amount that we reasonably expect to
collect. For all other customers, we record allowances for doubtful accounts
based on the length of time the receivables are past due, the current business
environment and our historical experience. If the financial condition of
customers or the length of time that receivables are past due were to change, we
may change the recorded amount of allowances for doubtful accounts in the future
through charges or reductions to selling, general and administrative expense.
We record a provision for estimated sales returns and allowances on product
revenues in the same period as the related revenues are recorded. We base these
estimates on historical sales returns and allowances and other known factors. If
actual returns or allowances are different from our estimates and the related
provisions for sales returns and allowances, we may change the sales returns and
allowances provision in the future through an increase or decrease in product
revenues.
Inventories
Inventories, consisting of purchased materials, direct labor and manufacturing
overhead, are stated at the lower of cost (determined by the first-in, first-out
method) or market. At each balance sheet date, we evaluate ending inventories
for excess quantities, obsolescence or shelf life expiration. Our evaluation
includes an analysis of historical sales levels by product, projections of
future demand by product, the risk of technological or competitive obsolescence
for our products, general market conditions, a review of the shelf life
expiration dates for our products, and the feasibility of reworking or using
excess or obsolete products or components in the production or assembly of other
37
products that are not obsolete or for which we do not have excess quantities in
inventory. To the extent that we determine there are excess or obsolete
quantities or quantities with a shelf life that is too near its expiration for
us to reasonably expect that we can sell those products prior to their
expiration, we record valuation reserves against all or a portion of the value
of the related products to adjust their carrying value to estimated net
realizable value. If future demand or market conditions are different from our
projections, or if we are unable to rework excess or obsolete quantities into
other products, we may change the recorded amount of inventory valuation
reserves through a charge or reduction in cost of product revenues in the period
the revision is made.
We capitalize inventory costs associated with certain products prior to
regulatory approval, based on management's judgment of probable future
commercialization. We could be required to expense previously capitalized costs
related to pre-approval inventory upon a change in such judgment, due to, among
other potential factors, a denial or delay of approval by necessary regulatory
bodies or a decision by management to discontinue the related development
program. At December 31, 2005, we capitalized approximately $0.9 million of
pre-approval inventory. If management decides to discontinue the related
development program or we are not able to get the required approvals from
regulatory bodies to market these products, we would expense the value of the
capitalized pre-approval inventory to research and development expense.
Amortization Periods
We provide for amortization using the straight-line method over the estimated
useful lives of acquired intangible assets. We base the determination of these
useful lives on the period over which we expect the related assets to contribute
to our cash flows or a shorter period such that recognition of the amortization
better corresponds with the distribution of expected revenues. If our assessment
of the useful lives of intangible assets changes, we may change future
amortization expense.
Loss Contingencies
We are subject to claims and lawsuits in the ordinary course of our business,
including claims by employees or former employees, with respect to our products
and involving commercial disputes. Our financial statements do not reflect any
material amounts related to possible unfavorable outcomes of claims and lawsuits
to which we are currently a party because we currently believe that such claims
and lawsuits are either adequately covered by insurance or otherwise
indemnified, or are not expected, individually or in the aggregate, to result in
a material adverse effect on our financial condition. However, it is possible
these contingencies could materially affect our results of operations, financial
position and cash flows in a particular period if we change our assessment of
the likely outcome of these matters.
OTHER MATTERS
Recently Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board issued Statement No.
123 (revised 2004), "Share-Based Payment," which is a revision of Statement No.
123, "Accounting for Stock-Based Compensation." Statement 123(R) replaces APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and amends Statement
No. 95, "Statement of Cash Flows." Statement 123(R) requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair value. Pro forma
footnote disclosure will no longer be an alternative to financial statement
recognition. We adopted Statement 123(R) on January 1, 2006 using the "modified
prospective" method. We expect to record $14 million of share-based compensation
expense in 2006 as a result of the adoption of FAS 123R. However, our estimate
of future share-based compensation expense is affected by our stock price, the
number of share-based awards that we may grant in 2006, as well as a number of
complex and subjective valuation assumptions and the related tax effects. These
valuation assumptions include, but are not limited to, the volatility of our
stock price and employee stock option exercise behavior.
Information about the historical impact of Statement 123 on our reported
financial information can be found in Note 2 to the Consolidated Financial
Statements, which are included herein under Item 8. We expect that the most
38
significant impact of the adoption of Statement 123(R) in 2006 will be to our
selling, general and administrative expenses.
Information about other recently issued accounting standards is included in Note
2 to the Consolidated Financial Statements.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, including changes in foreign currency
exchange rates and interest rates that could adversely affect our results of
operations and financial condition. To manage the volatility relating to these
typical business exposures, we may enter into various derivative transactions
when appropriate. We do not hold or issue derivative instruments for trading or
other speculative purposes.
Foreign Currency Exchange Rate Risk
Because we have operations based in Europe and we generate revenues and incur
operating expenses in euros and British pounds, we will experience currency
exchange risk with respect to those foreign currency denominated revenues or
expenses. In 2005, the total cost of products we manufacture in or purchase in
foreign currencies and other operating expenses that we incur in foreign
currencies exceeded our total foreign currency-denominated revenues. We expect
this imbalance to continue into 2006. A weakening of the dollar against the euro
and British pound could positively affect future revenues and negatively affect
future gross margins and operating margins, while strengthening of the dollar
against the euro and the British pound could negatively affect future revenues
and positively affect future gross margins and operating margins.
In November 2004, we entered into a collar contract that expired on January 3,
2005 for 38.5 million euros to reduce our exposure to fluctuations in the
exchange rate between the euro and the US dollar as a result of our commitment
to acquire Newdeal in January 2005 for 38.5 million euros. The collar contract
did not qualify as a hedge under SFAS No. 133. Accordingly, the collar contract
was recorded at fair value and changes in fair value were recorded in other
income (expense), net. In 2004, we recorded a $1.4 million unrealized gain
related to the change in the fair value of the collar contract as of December
31, 2004. The foreign currency collar expired in January 2005, concurrent with
our acquisition of Newdeal Technologies.
Other than this foreign currency collar, we have not used derivative financial
instruments to manage foreign currency risk. As the volume of our business
transacted in foreign currencies increases, we will continue to assess the
potential effects that changes in foreign currency exchange rates could have on
our business. If we believe this potential impact presents a significant risk to
our business, we may enter into additional derivative financial instruments to
mitigate this risk.
Interest Rate Risk - Marketable Debt Securities
We are exposed to the risk of interest rate fluctuations on the fair value and
interest income earned on our cash and cash equivalents and investments in
available-for-sale marketable debt securities. A hypothetical 100 basis point
movement in interest rates applicable to our cash and cash equivalents and
investments in marketable debt securities outstanding at December 31, 2005 would
increase or decrease interest income by approximately $1.4 million on an annual
basis. We are not subject to material foreign currency exchange risk with
respect to these investments.
Interest Rate Risk - Long-Term Debt and Related Hedging Instruments
We are exposed to the risk of interest rate fluctuations on the net interest
received or paid under the terms of an interest rate swap. At December 31, 2005,
we had outstanding a $50.0 million notional amount interest rate swap used to
hedge the risk of changes in fair value attributable to interest rate risk with
respect to a portion of our $120.0 million principal amount fixed rate 2 1/2%
contingent convertible subordinated notes due March 2008. We receive a 2 1/2%
fixed rate from the counterparty, payable on a semi-annual basis, and pay to the
counterparty a floating rate based on 3-month LIBOR minus 35 basis points,
payable on a quarterly basis. The floating rate resets each quarter. The
interest rate swap agreement terminates on March 15, 2008, subject to early
termination upon the occurrence of certain events, including redemption or
conversion of our contingent convertible notes. Our effective interest rate
payable on the floating rate portion of the swap was 3.7% as of December 31,
2005.
39
Our interest rate swap agreement qualifies as a fair value hedge under SFAS No.
133, as amended, "Accounting for Derivative Instruments and Hedging Activities."
At December 31, 2005, the net fair value of the interest rate swap approximated
$2.0 million and is included in other liabilities. The net fair value of the
interest rate swap represents the estimated receipts or payments that would be
made to terminate the agreement. A hypothetical 100 basis point movement in
interest rates applicable to the interest rate swap would increase or decrease
interest expense by $0.5 million on an annual basis.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and the financial statement schedules specified by this
Item, together with the reports thereon of PricewaterhouseCoopers LLP, are
presented following Item 15 of this report.
Information on quarterly results of operations is set forth in our financial
statements under Note 16 "Selected Quarterly Information - Unaudited" to the
Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms and that such information
is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate, to allow for
timely decisions regarding required disclosure. Disclosure controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Management has designed our disclosure
controls and procedures to provide reasonable assurance of achieving the desired
control objectives.
As required by Exchange Act Rule 13a-15(b), we have carried out an evaluation,
under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2005. Based on the foregoing, our principal
executive officer and principal financial officer concluded that our disclosure
controls and procedures were effective at the reasonable assurance level.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in Internal Control -
Integrated Framework, our management concluded that our internal control over
financial reporting was effective as of December 31, 2005. Our management's
assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which
is included herein.
In conducting our evaluation of the effectiveness of our internal control over
financial reporting, we have excluded the acquisition of Newdeal Technologies
SAS, which was completed on January 3, 2005. The total assets and total revenues
40
associated with transactions and balances accounted for under Newdeal
Technologies' internal controls over financial reporting represent 13% and 6%,
respectively, of the related consolidated financial statement amounts as of and
for the year ended December 31, 2005.
Internal control over financial reporting cannot provide absolute assurance of
achieving financial reporting objectives because of its inherent limitations.
Internal control over financial reporting is a process that involves human
diligence and compliance and is subject to lapses in judgment and breakdowns
resulting from human failures. Internal control over financial reporting also
can be circumvented by collusion or improper management override. Because of
such limitations, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known features of the
financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
Changes in Internal Control Over Financial Reporting
No changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter
ended December 31, 2005, that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
INCORPORATED BY REFERENCE
The information called for by Item 10. Directors and Executive Officers of the
Registrant (other than the information concerning executive officers set forth
after Item 4 of Part I herein), Item 11. Executive Compensation, Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters, Item 13. Certain Relationships and Related Transactions and
Item 14. Principal Accountant Fees and Services is incorporated herein by
reference to the Company's definitive proxy statement for its Annual Meeting of
Stockholders scheduled to be held on May 17, 2006, which definitive proxy
statement is expected to be filed with the Commission not later than 120 days
after the end of the fiscal year to which this report relates.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as a part of this report.
1. Financial Statements.
The following financial statements and financial statement schedules are filed
as a part of this report.
Report of Independent Registered Public Accounting Firm ................... F-1
Consolidated Statements of Operations for the years ended December 31, 2005,
2004 and 2003 ...................................................... F-3
Consolidated Balance Sheets as of December 31, 2005 and 2004 ............... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2005,
2004 and 2003 .............................................................. F-5
Consolidated Statements of Changes in Stockholders' Equity
For the years ended December 31, 2005, 2004 and 2003 .................... F-6
Notes to Consolidated Financial Statements ..................................F-7
2. Financial Statement Schedules.
41
All other schedules not listed above have been omitted, because they are not
applicable or are not required, or because the required information is included
in the consolidated financial statements or notes thereto.
3. Exhibits required to be filed by Item 601 of Regulation S-K.
3.1(a) Amended and Restated Certificate of Incorporation of the
Company
3.1(b) Certificate of Amendment to Amended and Restated Certificate
of Incorporation dated May 22, 1998 (Incorporated by reference
to Exhibit 3.1(b) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998)
3.1(c) Certificate of Amendment to Amended and Restated Certificate
of Incorporation dated May 17, 1999 (Incorporated by reference
to Exhibit 3.1(c) to the Company's Annual Report on Form 10-K
for the year ended December 31, 2004)
3.2 Amended and Restated By-laws of the Company (Incorporated by
reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K filed on February 24, 2005)
4.1 Indenture, dated as of March 31, 2003, between the Company and
Wells Fargo Bank Minnesota, National Association (Incorporated
by reference to Exhibit 4.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 2003)
4.2 Registration Rights Agreement, dated as of March 31, 2003,
between the Company and Credit Suisse First Boston, LLC, Banc
of America Securities LLC and U.S. Bancorp Piper Jaffray Inc.
(Incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-3 filed on June 30, 2003
(File No. 333-106625))
4.3(a) Credit Agreement, dated as of December 22, 2005, among Integra
LifeSciences Holdings Corporation, the lenders party thereto,
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C Issuer, Citibank FSB and SunTrust Bank, as
Co-Syndication Agents, and Royal Bank of Canada and Wachovia
Bank, National Association, as Co-Documentation Agents
(Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on December 29, 2005)
4.3(b) First Amendment, dated as of February 15, 2006, among Integra
LifeSciences Holdings Corporation, the lenders party thereto,
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C Issuer, Citibank FSB and SunTrust Bank, as
Co-Syndication Agents, and Royal Bank of Canada and Wachovia
Bank, National Association, as Co-Documentation Agents
4.4 Security Agreement, dated as of December 22, 2005, among
Integra LifeSciences Holdings Corporation and the additional
grantors party thereto in favor of Bank of America, N.A., as
administrative and collateral agent
4.5 Pledge Agreement, dated as of December 22, 2005, among Integra
LifeSciences Holdings Corporation and the additional grantors
party thereto in favor of Bank of America, N.A., as
administrative and collateral agent
4.6 Subsidiary Guaranty Agreement, dated as of December 22, 2005,
among the guarantors party thereto and individually as a
"Guarantor"), in favor of Bank of America, N.A., as
administrative and collateral agent
42
10.1(a) Lease between Plainsboro Associates and American Biomaterials
Corporation dated as of April 16, 1985, as assigned to
Colla-Tec, Inc. on October 24, 1989 and as amended through
November 1, 1992 (Incorporated by reference to Exhibit 10.30
to the Company's Registration Statement on Form 10/A (File No.
0-26224) which became effective on August 8, 1995)
10.1(b) Lease Modification #2 entered into as of the 28th day of
October, 2005, by and between Plainsboro Associates and
Integra LifeSciences Corporation (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed
on November 2, 2005)
10.2 Equipment Lease Agreement between Medicus Corporation and the
Company, dated as of June 1, 2000 (Incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000)
10.3 Form of Indemnification Agreement between the Company and [ ]
dated August 16, 1995, including a schedule identifying the
individuals that are a party to such Indemnification
Agreements (Incorporated by reference to Exhibit 10.37 to the
Company's Registration Statement on Form S-1 (File No.
33-98698) which became effective on January 24, 1996)
10.4 1993 Incentive Stock Option and Non-Qualified Stock Option
Plan (Incorporated by reference to Exhibit 10.32 to the
Company's Registration Statement on Form 10/A (File No.
0-26224) which became effective on August 8, 1995)
10.5 1996 Incentive Stock Option and Non-Qualified Stock Option
Plan (as amended through December 27, 1997) (Incorporated by
reference to Exhibit 10.4 to the Company's Current Report on
Form 8-K filed on February 3, 1998)
10.6 1998 Stock Option Plan (amended and restated as of July 26,
2005)(Incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2005)
10.7 1999 Stock Option Plan (amended and restated as of July 26,
2005) (Incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2005)
10.8(a) Employee Stock Purchase Plan (as amended on May 17, 2004)
(Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (Registration No.
333-127488) filed on August 12, 2005)
10.8(b) First Amendment to the Company's Employee Stock Purchase Plan,
dated October 26, 2005 (Incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed on
November 1, 2005)
10.9 Deferred Compensation Plan (Incorporated by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999)
10.10 2000 Equity Incentive Plan (amended and restated as of July
26, 2005)(Incorporated by reference to Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2005)
10.11 2001 Equity Incentive Plan (amended and restated as of July
26, 2005)(Incorporated by reference to Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2005)
43
10.12 2003 Equity Incentive Plan (amended and restated as of July
26, 2005)(Incorporated by reference to Exhibit 10.7 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2005)
10.13 Second Amended and Restated Employment Agreement dated July
27, 2004 between the Company and Stuart M. Essig (Incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2004)
10.14 Indemnity letter agreement dated December 27, 1997 from the
Company to Stuart M. Essig (Incorporated by reference to
Exhibit 10.5 to the Company's Current Report on Form 8-K filed
on February 3, 1998)
10.15(a) Registration Rights Provisions for Stuart Essig (Incorporated
by reference to Exhibit B of Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on February 3, 1998)
10.15(b) Registration Rights Provisions for Stuart Essig (Incorporated
by reference to Exhibit 10.2 to the Company's Current Report
on Form 8-K filed on January 8, 2001)
10.15(c) Registration Rights Provisions for Stuart Essig (Incorporated
by reference to Exhibit B of Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 2004)
10.16 Amended and Restated 2005 Employment Agreement between John B.
Henneman, III and the Company dated December 19, 2005
10.17 Amended and Restated 2005 Employment Agreement between Gerard
S. Carlozzi and the Company dated December 19, 2005
10.18 Employment Agreement between Judith O'Grady and the Company
dated February 20, 2003 (Incorporated by reference to Exhibit
10.17 to the Company's Report on Form 10-K for the year ended
December 31, 2002)
10.19 Amended and Restated 2005 Employment Agreement between David
B. Holtz and the Company dated December 19, 2005
10.20 Employment Agreement between Donald Nociolo and the Company
dated February 20, 2003 (Incorporated by reference to Exhibit
10.20 to the Company's Report on Form 10-K for the year ended
December 31, 2003)
10.21 Retention Agreement between Robert Paltridge and the Company
dated February 20, 2003 (Incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003)
10.22 Severance Agreement between Deborah Leonetti and the Company
dated February 20, 2003 (Incorporated by reference to Exhibit
10.22 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2004)
10.23(a) Lease Contract dated June 30, 1994 between the Puerto Rico
Industrial Development Company and Heyer-Schulte NeuroCare,
Inc. (Incorporated by reference to Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999)
10.23(b) Construction and Lease Contract dated April 11, 2003 between
the Puerto Rico Industrial Development Company and Integra
NeuroSciences P.R., Inc. (Incorporated by reference to Exhibit
10.23(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 2004)
10.23(c) Supplement and Amendment to Lease Contract, dated October 24,
2005, to the Construction and Lease Contract dated April 11,
2003 between Integra NeuroSciences PR, Inc. and the Puerto
Rico Industrial Development Company (Incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on November 22, 2005)
10.24(a) Industrial Real Estate Triple Net Sublease dated July 1, 2001
between Sorrento Montana, L.P. and Camino NeuroCare, Inc.
(Incorporated by reference to Exhibit 10.24(a) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2004)
44
10.24(b) First Amendment to Sublease dated as of July 1, 2003 by and
between Sorrento Montana, L.P. and Camino NeuroCare, Inc.
(Incorporated by reference to Exhibit 10.24(b) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2004)
10.24(c) Second Amendment to Sublease dated as of June 1, 2004 by and
between Sorrento Montana, L.P. and Camino NeuroCare, Inc.
(Incorporated by reference to Exhibit 10.24(c) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2004)
10.24(d) Third Amendment to Sublease dated as of June 15, 2004 by and
between Sorrento Montana, L.P. and Integra LifeSciences
Corporation (Incorporated by reference to Exhibit 10.24(d) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 2004)
10.25 Restricted Units Agreement dated December 27, 1997 between the
Company and Stuart M. Essig (Incorporated by reference to
Exhibit 10.3 to the Company's Current Report on Form 8-K filed
on February 3, 1998)
10.26 Stock Option Grant and Agreement dated December 22, 2000
between the Company and Stuart M. Essig (Incorporated by
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K filed on January 8, 2001)
10.27 Stock Option Grant and Agreement dated December 22, 2000
between the Company and Stuart M. Essig (Incorporated by
reference to Exhibit 4.2 to the Company's Current Report on
Form 8-K filed on January 8, 2001)
10.28 Restricted Units Agreement dated December 22, 2000 Between the
Company and Stuart M. Essig (Incorporated by reference to
Exhibit 4.3 to the Company's Current Report on Form 8-K filed
on January 8, 2001)
10.29 Stock Option Grant and Agreement dated July 27, 2004 between
the Company and Stuart M. Essig (Incorporated by reference to
Exhibit 10.30 to the Company's Annual Report on Form 10-K for
the year ended December 31, 2004)
10.30 Contract Stock/Restricted Units Agreement dated July 27, 2004
between the Company and Stuart M. Essig (Incorporated by
reference to Exhibit 10.31 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2004)
10.31 Form of Stock Option Grant and Agreement between the Company
and Stuart M. Essig (Incorporated by reference to Exhibit
10.32 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2004)
10.32 Share Purchase Agreement dated November 10, 2004 between
Integra LifeSciences Corporation and Eric Fourcault, Theo
Knevels, Jean-Christophe Giet and Bertrand Gauneau
(Incorporated by reference to Exhibit 10.33 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2004)
10.33 Form of Notice of Grant of Stock Option and Stock Option
Agreement* (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on July 29, 2005)
10.34 Form of Non-Qualified Stock Option Agreement (Non-Directors)
(Incorporated by reference to Exhibit 10.35 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2004)
45
10.35 Form of Incentive Stock Option Agreement (Incorporated by
reference to Exhibit 10.36 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2004)
10.36 Form of Non-Qualified Stock Option Agreement (Directors)
(Incorporated by reference to Exhibit 10.37 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2004)
10.37 Compensation of Directors of the Company (Incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed on February 28, 2006)
10.38 Form of Restricted Stock Agreement for Non-Employee Directors
under the Integra LifeSciences Holdings Corporation 2003
Equity Incentive Plan (Incorporated by reference to Exhibit
10.2 to the Company's Current Report on Form 8-K filed on May
17, 2005)
10.39 Form of Restricted Stock Agreement for Executive Officers
(Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on January 9, 2006)
10.40 Asset Purchase Agreement, dated as of September 7, 2005, by
and between Tyco Healthcare Group LP and Sherwood Services, AG
and Integra LifeSciences Corporation and Integra LifeSciences
(Ireland) Limited (Incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K filed on September
13, 2005)
10.41 Restricted Stock Agreement by and between David B. Holtz and
the Company dated December 19, 2005
10.42 Performance Stock Agreement by and between John B. Henneman,
III and the Company dated January 3, 2006
10.43 Performance Stock Agreement by and between Gerard S. Carlozzi
and the Company dated January 3, 2006
10.44 Employment Agreement by and between Maureen Bellantoni and the
Company dated January 10, 2006
10.45 Performance Stock Agreement by and between Maureen Bellantoni
and the Company dated January 10, 2006
21 Subsidiaries of the Company
23 Consent of PricewaterhouseCoopers LLP
31.1 Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Principal Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Principal Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
The Company's Commission File Number for Reports on Form 10-K, Form 10-Q and
Form 8-K is 0-26224.
46
SIGNATURES
Pursuant to the requirements of Section 13 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: March 15, 2006 By: /s/ Stuart M. Essig
-------------------------------------
Stuart M. Essig
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons, on behalf of the registrant in
the capacities indicated.
Signature Title Date
------------ ------ ------
/s/ Stuart M. Essig President, Chief Executive Officer and March 15, 2006
- ---------------------------- Director (Principal Executive Officer)
Stuart M. Essig
/s/ Maureen B. Bellantoni Executive Vice President and Chief March 15, 2006
- ---------------------------- Financial Officer (Principal Financial
Maureen B. Bellantoni Officer)
/s/ David B. Holtz Senior Vice President, Finance March 15, 2006
- ---------------------------- (Principal Accounting Officer)
David B. Holtz
/s/ Richard E. Caruso, Ph.D. Chairman of the Board March 15, 2006
- ----------------------------
Richard E. Caruso, Ph.D.
/s/ David Auth Director March 15, 2006
- ----------------------------
David Auth
/s/ Keith Bradley, Ph.D. Director March 15, 2006
- ----------------------------
Keith Bradley, Ph.D.
/s/ James M. Sullivan Director March 15, 2006
- ----------------------------
James M. Sullivan
/s/ Anne M. VanLent Director March 15, 2006
- ----------------------------
Anne M. VanLent
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Board of Directors and Stockholders of Integra LifeSciences Holdings
Corporation and Subsidiaries:
We have completed integrated audits of Integra LifeSciences Holdings
Corporation's 2005 and 2004 consolidated financial statements and of its
internal control over financial reporting as of December 31, 2005, and an audit
of its 2003 consolidated financial statements in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Our opinions,
based on our audits, are presented below.
Consolidated financial statements and financial statement schedule
In our opinion, the consolidated financial statements listed in the accompanying
index appearing under Item 15(a)(1) "Exhibits and Financial Statement Schedules"
present fairly, in all material respects, the financial position of Integra
LifeSciences and its subsidiaries (the "Company") at December 31, 2005 and
December 31, 2004, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2005 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 15(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit of financial statements
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, management's assessment, included in Management's Report
on Internal Control Over Financial Reporting appearing in Item 9A "Controls and
Procedures", that the Company maintained effective internal control over
financial reporting as of December 31, 2005 based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), is fairly stated, in all
material respects, based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2005, based on criteria established in
Internal Control - Integrated Framework issued by the COSO. The Company's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express opinions on
management's assessment and on the effectiveness of the Company's internal
control over financial reporting based on our audit. We conducted our audit of
internal control over financial reporting in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. An audit of internal control over financial reporting
includes obtaining an understanding of internal control over financial
reporting, evaluating management's assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
F-1
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
As described in Management's Report on Internal Control Over Financial Reporting
appearing in Item 9A "Controls and Procedures", management has excluded Newdeal
Technologies SAS ("Newdeal") from its assessment of internal control over
financial reporting as of December 31, 2005 because it was acquired by the
Company in a purchase business combination during 2005. We have also excluded
Newdeal from our audit of internal control over financial reporting. New Deal is
a wholly-owned subsidiary whose total assets and total revenues represent 13%
and 6%, respectively, of the related consolidated financial statement amounts as
of and for the year ended December 31, 2005.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 15, 2006
F-2
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share amounts
Years Ended December 31,
--------------------------------
2005 2004 2003
-------- -------- --------
Total revenues .................................. $277,935 $229,825 $185,599
COSTS AND EXPENSES
Cost of product revenues (exclusive of
amortization related to acquired intangible
assets) ...................................... 105,536 87,299 70,597
Research and development ........................ 11,960 14,121 12,814
Selling, general and administrative ............. 98,273 99,360 59,461
Amortization .................................... 6,061 4,266 3,080
-------- -------- --------
Total costs and expenses .................... 221,830 205,046 145,952
Operating income ................................ 56,105 24,779 39,647
Interest income ................................. 3,900 4,030 3,195
Interest expense ................................ (4,165) (3,475) (2,724)
Other income (expense), net ..................... (739) 2,674 3,071
-------- -------- --------
Income before income taxes ...................... 55,101 28,008 43,189
Provision for income taxes ...................... 17,907 10,811 16,328
-------- -------- --------
Net income ...................................... $ 37,194 $ 17,197 $ 26,861
======== ======== ========
Basic net income per share ................... $ 1.23 $ 0.57 $ 0.92
Diluted net income per share ................. $ 1.15 $ 0.55 $ 0.86
Weighted average common shares outstanding:
Basic ........................................ 30,195 30,064 29,071
Diluted ...................................... 34,565 31,102 33,104
The accompanying notes are an integral part of these consolidated financial
statements
F-3
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
In thousands, except per share amounts
December 31,
-----------------------
ASSETS 2005 2004
--------- ---------
Current Assets:
Cash and cash equivalents ...................................... $ 46,889 $ 69,855
Short-term investments ......................................... 80,327 30,955
Trade accounts receivable, net of allowances
of $3,508 and $2,749 ....................................... 49,007 46,765
Inventories .... ............................................... 67,476 55,947
Deferred tax assets ............................................ 10,842 3,966
Prepaid expenses and other current assets ...................... 11,411 8,750
--------- ---------
Total current assets ....................................... 265,952 216,238
Non-current investments ......................................... 16,168 95,172
Property, plant, and equipment, net ............................. 27,451 25,461
Deferred tax assets ............................................. -- 15,787
Intangible assets, net .......................................... 64,569 59,817
Goodwill ........................................................ 68,364 39,237
Other assets .................................................... 5,928 5,001
--------- ---------
Total assets ..................................................... $ 448,432 $ 456,713
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade ........................................ $ 8,978 $ 10,160
Income taxes payable ........................................ .. 715 1,022
Accrued compensation ........................................... 8,761 4,212
Accrued expenses and other current liabilities ................. 12,833 8,840
--------- ---------
Total current liabilities .................................. 31,287 24,234
Long term debt .................................................. 118,378 118,900
Deferred tax liabilities ........................................ 2,520 --
Other liabilities ............................................... 6,429 5,756
--------- ---------
Total liabilities ................................................ 158,614 148,890
Commitments and contingencies
Stockholders' Equity:
Common stock; $.01 par value; 60,000 authorized shares; 29,823
and 29,202 issued ........................................... 298 292
Additional paid-in capital ..................................... 333,179 320,602
Treasury stock, at cost; 2,368 and 718 shares .................. (75,815) (19,474)
Accumulated other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities,
net of tax ............................................. (801) (818)
Foreign currency translation adjustment ..................... (2,300) 9,266
Minimum pension liability adjustment, net of tax ............ (1,672) (1,780)
Retained earnings/(accumulated deficit) ........................ 36,929 (265)
--------- ---------
Total stockholders' equity ................................... 289,818 307,823
--------- ---------
Total liabilities and stockholders' equity ...................... $ 448,432 $ 456,713
========= =========
The accompanying notes are an integral part of these consolidated financial
statements
F-4
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
Years Ended December 31,
------------------------------
2005 2004 2003
-------- -------- --------
OPERATING ACTIVITIES:
Net income ............................................... $ 37,194 $ 17,197 $ 26,861
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................... 11,313 9,087 7,030
In process research and development charge .............. 500 -- 400
Deferred income tax provision ........................... 9,895 6,101 12,357
Amortization of discount/premium on investments ......... 1,908 2,505 2,013
Share-based compensation ................................ 146 23,572 26
Other, net .............................................. 779 696 776
Changes in assets and liabilities, net of business
acquisitions:
Accounts receivable ................................... 491 (13,287) (4,819)
Inventories ........................................... (9,984) (9,738) (1,829)
Prepaid expenses and other current assets ............. 30 (1,949) (505)
Non-current assets .................................... (66) (169) 480
Accounts payable, accrued expenses and other
liabilities ........................................ 4,800 6,029 2,537
Customer advances and deposits ........................ -- (959) (6,431)
Deferred revenue ...................................... (158) (110) (4,070)
-------- -------- --------
Net cash provided by operating activities ................ $ 56,848 $ 38,975 $ 34,826
-------- -------- --------
INVESTING ACTIVITIES:
Proceeds from the sales/maturities of investments ......... 93,315 241,440 287,558
Purchases of available for sale investments ............... (65,499) (190,888) (360,470)
Purchases of property and equipment ....................... (8,053) (8,508) (3,843)
Payment of product license fee ............................ -- -- (1,500)
Cash used in acquisitions, net of cash acquired ........... (50,602) (29,302) (50,405)
-------- -------- --------
Net cash provided by (used in) investing activities ...... $(30,839) $ 12,742 $(128,660)
-------- -------- --------
FINANCING ACTIVITIES:
Fees paid in connection with bank line of credit .......... (1,132) -- --
Repayment of bank loans ................................... (245) -- --
Proceeds from exercised stock options and warrants ........ 9,382 6,123 14,152
Purchases of treasury stock ............................... (56,341) (14,238) (35,402)
Proceeds from issuance of convertible notes, net........... -- -- 115,923
-------- -------- --------
Net cash provided by (used in) financing activities ...... $(48,336) $ (8,115) $ 94,673
Effect of exchange rate changes on cash and cash equivalents .. (639) 199 232
-------- -------- --------
Net increase (decrease) in cash and cash equivalents .......... $(22,966) 43,801 1,071
Cash and cash equivalents at beginning of period .............. 69,855 26,054 24,983
-------- -------- --------
Cash and cash equivalents at end of period .................... $ 46,889 $ 69,855 $ 26,054
======== ======== ========
Cash paid during the year for interest ........................ $ 3,275 $ 2,331 $ 1,476
Cash paid during the year for income taxes .................... 7,721 1,789 1,309
Supplemental non-cash disclosure:
Acquisition fees included in liabilities ...................... $ 1,123 -- --
Property and equipment purchases included in liabilities ...... 199 969 2,000
The accompanying notes are an integral part of these consolidated financial
statements
F-5
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
In thousands
Accumulated Retained
Additional Other Earnings/
Preferred Common Treasury Paid-In Comprehensive (Accumulated Total
Stock Stock Stock Capital Other Income (Loss) Deficit) Equity
--------- -------- --------- ---------- --------- ------------- ----------- ----------
Balance, December 31, 2002 ............... -- 272 (1,812) 292,007 (15) 1,468 (44,323) $ 247,597
========= ======== ========= ========== ========= ============= =========== ==========
Net income ............................... 26,861 26,861
Realized gains on investments............. (210) (210)
Unrealized losses on investments, net
of tax .............................. (588) (588)
Foreign currency translation ............. 3,673 3,673
Minimum pension liability adjustment,
net of tax .......................... (112) (112)
---------
Total comprehensive income ........ $ 29,624
=========
Issuance of 1,788 shares of common stock
through employee benefit plans ......... 4 31,978 (17,880) 14,102
Warrants exercised for cash ......... .... 50 50
Conversion of 1,000 Restricted Units into
1,000 shares of common stock........... 10 (10) --
Share-based compensation ................. 16 10 26
Tax benefit related to stock option
exercises ............................. 12,533 12,533
Repurchase 1,503 shares of common stock... (35,402) (35,402)
Balance, December 31, 2003 ............... $ -- $ 286 $(5,236) $ 286,716 $ (5) $ 4,231 $ (17,462) $ 268,530
========= ========= ========= ========== ========= ============ =========== ==========
Net income................................ 17,197 17,197
Realized gains on investments............. 88 88
Unrealized losses on investments, net
of tax .............................. (969) (969)
Foreign currency translation.............. 3,683 3,683
Minimum pension liability adjustment,
net of tax .......................... (365) (365)
---------
Total comprehensive income......... $ 19,634
=========
Issuance of 592 shares of common stock
through employee benefit plans.......... 6 6,492 6,498
Issuance of contract stock unit award for
750 shares of common stock .......... 23,535 23,535
Other share-based compensation ........... 30 5 35
Tax benefit related to stock option
exercises.............................. 3,829 3,829
Repurchase 500 shares of common stock..... (14,238) (14,238)
Balance, December 31, 2004............... $ -- $ 292 $(19,474) $ 320,602 $ -- $ 6,668 $ (265) $ 307,823
========= ========= ========= ========== ========= ============ =========== ==========
Net income................................ 37,194 37,194
Realized gains on investments............. 18 18
Unrealized losses on investments, net
of tax .............................. (1) (1)
Foreign currency translation.............. (11,375) (11,375)
Minimum pension liability adjustment,
net of tax .......................... (83) (83)
---------
Total comprehensive income......... $ 25,753
=========
Issuance of 621 shares of common stock
through employee benefit plans.......... 6 9,170 9,176
Share-based compensation ................. 146 146
Tax benefit related to stock option
exercises.............................. 3,261 3,261
Repurchase 1,650 shares of common stock .. (56,341) (56,341)
Balance, December 31, 2005............... $ -- $ 298 $(75,815) $ 333,179 $ -- $ (4,773) $ 36,929 $ 289,818
========= ========= ========= ========== ========= ============ =========== ==========
A significant portion of the foreign currency translation adjustment recorded in
2005 was related to the appreciation of the U.S. dollar against the euro
following the Company's acquisition of Newdeal Technologies, whose functional
currency is the euro, on January 3, 2005.
The accompanying notes are an integral part of these consolidated financial
statements
F-6
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Integra LifeSciences Holdings Corporation (the "Company") is a market-leading,
innovative medical device company focused on helping the medical professional
enhance the standard of care for patients. Integra provides customers with
clinically relevant, innovative and cost-effective products that improve the
quality of life for patients. The Company focuses on cranial and spinal
procedures, peripheral nerve repair, small bone and joint injuries, and the
repair and reconstruction of soft tissue.
The Company sells its products directly through various sales forces and through
a variety of other distribution channels.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All intercompany accounts and
transactions are eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
FINANCIAL INSTRUMENTS
Investments in marketable debt and equity securities are classified and
accounted for as available-for-sale securities and are carried at fair value,
which is based on quoted market prices. Unrealized gains and losses are reported
as a component of accumulated other comprehensive income (loss). Realized gains
and losses are determined on the specific identification cost basis and reported
in other income (expense), net. Investment balances as of December 31, 2005 and
2004 were as follows:
Unrealized Fair
Cost Gains Losses Value
------- ------- ------- -------
(in thousands)
2005
- -----
Marketable Securities, current
Corporate Debt Securities with continuous
unrealized losses greater than 1 year ....... $ 37,248 $ -- $ (372) $ 36,876
Auction Rate Securities ............................ 2,650 -- -- 2,650
U.S. Government Debt Securities with continuous
unrealized losses greater than 1 year ....... 39,201 -- (427) 38,774
Other Securities with continuous
unrealized losses greater than 1 year ....... 2,054 -- (27) 2,027
------- ------- ------- -------
Total marketable securities, current ............ $ 81,153 $ -- $ (826) $ 80,327
Marketable Securities, non-current
Corporate Debt Securities with continuous
unrealized losses greater than 1 year ....... $ 10,330 $ -- $ (277) 10,053
U.S. Government Debt Securities with continuous
unrealized losses greater than 1 year ....... 6,252 -- (137) 6,115
------- ------- ------- -------
Total marketable securities, non-current ........ $ 16,582 $ -- $ (414) $ 16,168
2004:
- -----
Marketable securities, current ..................... $31,191 $ -- $ (236) $ 30,955
Marketable securities, non-current ................. 96,278 30 (1,136) 95,172
------- ------- -------- --------
$ 127,469 $ 30 $(1,372) $126,127
F-7
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unrealized losses on the Company's marketable debt securities are primarily
related to the increase in interest rates since the Company acquired these
investments. Management does not believe that the unrealized losses on these
marketable securities are other than temporary because of its intent and ability
to hold these investments for a sufficiently long period of time such that
recovery of these unrealized losses is expected as the investments get closer to
their maturity. The maturity dates or interest rate reset periods for marketable
debt securities classified as current are less than one year. The maturity dates
for marketable debt securities classified as non-current are less than 31 months
and less than 45 months as of December 31, 2005 and 2004, respectively.
The fair value of the Company's $120.0 million principal amount 2 1/2%
contingent convertible subordinated notes outstanding at December 31, 2005 and
2004 was $114.3 million and $115.5 million, respectively.
The carrying values of all other financial instruments were not materially
different from their estimated fair values.
TRADE ACCOUNTS RECEIVABLE, ALLOWANCES FOR DOUBTFUL ACCOUNTS RECEIVABLE AND SALES
RETURNS
Trade accounts receivable are recorded at the invoiced amount and do not bear
interest. The Company grants credit to customers in the normal course of
business, but generally does not require collateral or any other security to
support its receivables.
The Company evaluates the collectibility of accounts receivable based on a
combination of factors. In circumstances where a specific customer is unable to
meet its financial obligations to the Company, a provision to the allowances for
doubtful accounts is recorded against amounts due to reduce the net recognized
receivable to the amount that is reasonably expected to be collected. For all
other customers, a provision to the allowances for doubtful accounts is recorded
based on the length of time the receivables are past due, the current business
environment and the Company's historical experience. Provisions to the
allowances for doubtful accounts are recorded to selling, general and
administrative expenses. Account balances are charged off against the allowance
when the Company feels it is probable the receivable will not be recovered.
The Company records a provision for estimated returns and allowances on product
revenues in the same period as the related revenues are recorded. These
estimates are based on historical sales returns and discounts and other known
factors. The provisions are recorded as a reduction to revenues.
INVENTORIES
Inventories, consisting of purchased materials, direct labor and manufacturing
overhead, are stated at the lower of cost, the value determined by the first-in,
first-out method, or market. Inventories consisted of the following:
December 31,
2005 2004
---------- ----------
(in thousands)
Finished goods .......................... $ 44,500 $ 36,490
Work in process ......................... 9,801 7,496
Raw materials ........................... 13,175 11,961
---------- ----------
$ 67,476 $ 55,947
At each balance sheet date, the Company evaluates ending inventories for excess
quantities, obsolescence or shelf-life expiration. This evaluation includes
analyses of historical sales levels by product, projections of future demand,
the risk of technological or competitive obsolescence for products, general
market conditions, a review of the shelf life expiration dates for products, and
the feasibility of reworking or using excess or obsolete products or components
F-8
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in the production or assembly of other products that are not obsolete or for
which there are not excess quantities in inventory. To the extent that
management determines there are excess or obsolete or expired inventory
quantities or quantities with a shelf life that is too near its expiration for
the Company to reasonably expect that it can sell those products prior to their
expiration, valuation reserves are recorded against all or a portion of the
value of the related products to adjust their carrying value to estimated net
realizable value.
The Company capitalizes inventory costs associated with certain products prior
to regulatory approval, based on management's judgment of probable future
commercialization. The Company could be required to expense previously
capitalized costs related to pre-approval inventory upon a change in such
judgment, due to, among other potential factors, a denial or delay of approval
by necessary regulatory bodies or a decision by management to discontinue the
related development program. At December 31, 2005, we capitalized approximately
$0.9 million of pre-approval inventory.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The Company provides for
depreciation using the straight-line method over the estimated useful lives of
the assets. Leasehold improvements are amortized over the lesser of the lease
term or the useful life. The cost of major additions and improvements is
capitalized, while maintenance and repair costs that do not improve or extend
the lives of the respective assets are charged to operations as incurred.
Property, plant and equipment balances and corresponding lives were as follows:
December 31,
2005 2004 Lives
---------- ---------- ---------------
(in thousands)
Land ............................................ $ 890 $ 941
Buildings and leasehold improvements ............ 15,208 12,886 2 - 40 years
Machinery and equipment ......................... 20,732 19,369 3 - 15 years
Furniture ,fixtures and information systems .... 15,310 11,569 5 - 7 years
Construction in progress ........................ 2,007 3,252
---------- ----------
54,147 48,017
Less: Accumulated depreciation .................. (26,696) (22,556)
---------- ----------
$ 27,451 $ 25,461
Depreciation expense associated with property, plant and equipment was $5.3
million, $4.8 million, and $3.9 million, in 2005, 2004, and 2003 respectively.
GOODWILL AND OTHER INTANGIBLE ASSETS
The excess of the cost over the fair value of net assets of acquired businesses
is recorded as goodwill. Goodwill is not subject to amortization, but is
reviewed for impairment at the reporting unit level annually, or more frequently
if impairment indicators arise. The Company's assessment of the recoverability
of goodwill is based upon a comparison of the carrying value of goodwill with
its estimated fair value. The Company conducted its annual impairment review for
goodwill as of June 30, 2005 and determined that its goodwill was not impaired.
F-9
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the carrying amount of goodwill in 2005 and 2004 were as follows:
2005 2004
---------- ---------
(in thousands)
Goodwill, beginning of year ....................................... $ 39,237 $ 26,683
Acquisitions ...................................................... 35,668 11,596
Foreign currency translation and other............................. (6,541) 958
---------- ---------
Goodwill, end of year ............................................. $ 68,364 $ 39,237
========== =========
The components of the Company's identifiable intangible assets were as follows:
December 31, 2005 December 31, 2004
Weighted ---------------------- ----------------------
Average Accumulated Accumulated
Life Cost Amortization Cost Amortization
-------- -------- ------------ -------- ------------
(in thousands)
Completed technology ........... 14 years $ 18,921 $ (5,691) $ 17,108 $ (4,505)
Customer relationships ......... 18 years 22,550 (4,823) 17,417 (3,214)
Trademarks / brand names ....... 36 years 31,175 (2,802) 28,689 (1,862)
Noncompetetion agreements ...... 5 years 6,943 (2,607) 6,352 (1,198)
All other ...................... 11 years 2,233 (1,330) 2,233 (1,203)
-------- ------------ -------- ------------
$ 81,822 $(17,253) $ 71,799 $(11,982)
Accumulated amortization .................... (17,253) (11,982)
-------- --------
$ 64,569 $ 59,817
======== ========
The Company does not have any indefinite life intangible assets.
The Company discontinued a product line in June 2005. As a result, the Company
recorded a $215,000 charge to amortization expense related to the impairment of
a technology-based intangible asset associated with this discontinued product
line.
Excluding the impact of intangible assets acquired in the Radionics acquisition
discussed in Note 17, annual amortization expense is expected to approximate
$5.6 million in 2006, $5.3 million in 2007, $5.0 million in 2008, $4.3 million
in 2009, and $3.7 million in 2010. Identifiable intangible assets are initially
recorded at fair market value at the time of acquisition generally using an
income or cost approach.
LONG-LIVED ASSETS
Long-lived assets held and used by the Company, including property, plant and
equipment and intangible assets, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. For purposes of evaluating the recoverability of long-lived
assets to be held and used, a recoverability test is performed using projected
undiscounted net cash flows applicable to the long-lived assets. If an
impairment exists, the amount of such impairment is calculated based on the
estimated fair value of the asset. Impairments to long-lived assets to be
disposed of are recorded based upon the fair value of the applicable assets.
INTEGRA FOUNDATION
The Company may periodically, at the discretion of its Board of Directors, make
a contribution to the Integra Foundation, Inc. The Integra Foundation was
incorporated in 2002 exclusively for charitable, educational, and scientific
purposes and qualifies under IRC 501(c)(3) as an exempt private foundation.
Under its charter, the Integra Foundation engages in activities that promote
health, the diagnosis and treatment of disease, and the development of medical
science through grants, contributions and other appropriate means. The Integra
Foundation is a separate legal entity and is not a subsidiary of the Company.
F-10
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Therefore, its results are not included in these consolidated financial
statements. The Company contributed $0.3 million and $2.0 million to the Integra
Foundation in 2005 and 2003, respectively. These contributions were recorded in
selling, general, and administrative expense.
DERIVATIVES
The Company reports all derivatives at their estimated fair value and records
changes in fair value in current earnings or defers these changes until a
related hedged item is recognized in earnings, depending on the nature and
effectiveness of the hedging relationship. The designation of a derivative as a
hedge is made on the date the derivative contract is executed. On an ongoing
basis, the Company assesses whether each derivative continues to be highly
effective in offsetting changes in the fair value or cash flows of hedged items.
If and when a derivative is no longer expected to be highly effective, the
Company discontinues hedge accounting. All hedge ineffectiveness is included in
current period earnings in other income (expense), net.
The Company documents all relationships between hedged items and derivatives.
The Company's overall risk management strategy describes the circumstances under
which it may undertake hedge transactions and enter into derivatives. The
objective of the Company's current risk management strategy is to hedge the risk
of changes in fair value attributable to interest rate risk with respect to a
portion of fixed rate debt.
The determination of fair value of derivatives is based on valuation models that
use observable market quotes or projected cash flows and the Company's view of
the creditworthiness of the derivative counterparty.
FOREIGN CURRENCY
All assets and liabilities of foreign subsidiaries are translated at the rate of
exchange at year-end, while elements of the income statement are translated at
the average exchange rates in effect during the year. The net effect of these
translation adjustments is shown as a component of accumulated other
comprehensive income (loss). These currency translation adjustments are not
currently adjusted for income taxes as they relate to permanent investments in
non-U.S. subsidiaries. Foreign currency transaction gains and losses are
reported in other income (expense), net.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period when the change is enacted.
REVENUE RECOGNITION
Total revenues include product sales and product royalties and other operating
revenues, such as fees received under research, licensing, and distribution
arrangements, research grants, and technology-related royalties. Total revenues
for 2005, 2004 and 2003 consisted of the following:
2005 2004 2003
---------- ---------- ----------
Product sales and product royalties ............ $ 277,771 $ 228,490 $ 166,695
Other operating revenues ....................... 164 1,335 18,904
---------- ---------- ----------
Total revenues ................................. $ 277,935 $ 229,825 $ 185,599
Product sales are recognized when delivery has occurred and title and risk of
loss has passed to the customer, there is a fixed or determinable sales price,
and collectibility of that sales price is reasonably assured.
F-11
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Product royalties are estimated and recognized in the same period that the
royalty products are sold by our customers. The Company estimates and recognizes
royalty revenue based upon communication with licensees, historical information,
and expected sales trends. Differences between actual revenues and estimated
royalty revenues are adjusted for in the period in which they become known,
which is typically the following quarter. Historically, such adjustments have
not been significant.
In the fourth quarter ended December 31, 2005, the Company recognized an
additional $1.3 million of royalty revenue related to a change in the manner
used to estimate royalties earned based on Medtronic's sales of its INFUSE(TM)
bone graft product. Prior to the quarter ended December 31, 2005, the Company
recognized this royalty revenue when paid by Wyeth because Wyeth did not provide
information to the Company about the royalty amount earned each quarter prior to
the Company reporting its quarterly financial results and the Company did not
have a reliable basis for otherwise estimating and recording royalty revenue in
the same quarter it was earned. However, the Company now receives quarterly
royalty revenue information from Wyeth more quickly, sufficient historical
information is available to help the Company estimate, and the volatility in the
royalty earned each quarter has decreased significantly. Accordingly, the
Company started recognizing this royalty on an accrual basis in the quarter
earned starting in the quarter ended December 31, 2005.
Other operating revenues include fees received under research, licensing, and
distribution arrangements, technology-related royalties, and research grants.
Non-refundable fees received under research, licensing and distribution
arrangements or for the licensing of technology are recognized as revenue when
received if the Company has no continuing obligations to the other party. For
those arrangements where the Company has continuing performance obligations,
revenue is recognized using the lesser of the amount of non-refundable cash
received or the result achieved using the proportional performance method of
accounting based upon the estimated cost to complete these obligations. Research
grant revenue is recognized when the related expenses are incurred.
SHIPPING AND HANDLING FEES AND COSTS
Amounts billed to customers for shipping and handling are included in product
revenues. The related shipping and freight charges incurred by the Company are
included in cost of product revenues. Distribution and handling costs of $5.9
million, $3.8 million, and $2.6 million are recorded in selling, general and
administrative expense during 2005, 2004, and 2003, respectively.
PRODUCT WARRANTIES
Certain of the Company's medical devices, including monitoring systems and
neurosurgical systems, are reusable and are designed to operate over long
periods of time. These products are sold with warranties generally extending for
up to two years from date of purchase. The Company accrues estimated product
warranty costs at the time of sale based on historical experience. Any
additional amounts are recorded when such costs are probable and can be
reasonably estimated.
Accrued warranty expense consisted of the following:
December 31,
2005 2004
-------- --------
(in thousands)
Beginning balance .................. $ 748 $ 403
Liability acquired through acquisition -- 255
Charged to expense ................. 191 258
Deductions ......................... (243) (168)
-------- --------
Ending balance ..................... $ 696 $ 748
RESEARCH AND DEVELOPMENT
Research and development costs, including salaries, depreciation, consultant and
other external fees, and facility costs directly attributable to research and
development activities, are expensed in the period in which they are incurred.
F-12
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In-process research and development charges recorded in connection with
acquisitions represent the value assigned to acquired assets to be used in
research and development activities and for which there is no alternative use.
Value is generally assigned to these assets based on the net present value of
the projected cash flows expected to be generated by those assets.
In 2005, the Company recorded a $0.5 million in-process research and development
charge from its acquisition of intellectual property and clinical trial data
related to technology that can be used in the management of cerebrospinal fluid
flow within the brain. In 2004, the Company recorded to research and development
expense a $1.4 million charge for a milestone payment related to the completion
of certain development activities for an advanced neuro-monitoring system and a
$0.5 million charge for a licensing fee paid for the development of a data
acquisition system to support the integration of the Company's advanced
monitoring products. The Company recorded $0.4 million of in-process research
and development charges in connection with acquisitions during 2003.
EMPLOYEE TERMINATION BENEFITS AND OTHER EXIT-RELATED COSTS
The Company does not have a written severance plan, and it does not offer
similar termination benefits to affected employees in all restructuring
initiatives. Accordingly, in situations where minimum statutory termination
benefits must be paid to the affected employees, the Company records employee
severance costs associated with these restructuring activities in accordance
with SFAS No. 112, "Employer's Accounting for Postemployment Benefits." Charges
associated with these activities are recorded when the payment of benefits is
probable and can be reasonably estimated. In all other situations where the
Company pays out termination benefits, including supplemental benefits paid in
excess of statutory minimum amounts and benefits offered to affected employees
based on management's discretion, the Company records these termination costs in
accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities."
The timing of the recognition of charges for employee severance costs depends on
whether the affected employees are required to render service beyond their legal
notification period in order to receive the benefits. If affected employees are
required to render service beyond their legal notification period, charges are
recognized ratably over the future service period. Otherwise, charges are
recognized when management has approved a specific plan and required employee
communication requirements have been met.
For leased facilities and equipment that have been abandoned, the Company
records estimated lease losses based on the fair value of the lease liability,
as measured by the present value of future lease payments subsequent to
abandonment, less the present value of any estimated sublease income. For owned
facilities and equipment that will be disposed of, the Company records
impairment losses based on fair value less costs to sell. The Company also
reviews the remaining useful life of long-lived assets following a decision to
exit a facility and may accelerate depreciation or amortization of these assets,
as appropriate.
STOCK BASED COMPENSATION
Employee stock based compensation is recognized using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" and Financial Accounting Standards Board Interpretation No.
44 "Accounting for Certain Transactions Involving Stock Compensation -an
interpretation of APB Opinion No. 25".
F-13
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Had the compensation cost for the Company's stock option plans been determined
based on the fair value at the grant consistent with the provisions of Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation", the Company's net income and basic and diluted net income per
share would have been as follows:
2005 2004 2003
-------- -------- --------
< (in thousands, except per share amounts)
Net income:
As reported ...................................... $ 37,194 $ 17,197 $ 26,861
Add back: Total share-based employee
compensation expense determined
under the intrinsic value-based
method for all awards, net
of related tax effects ............ 103 15,372 --
Less: Total share-based employee compensation
expense determined under the fair
value-based method for all awards, net
of related tax effects ................ (7,264) (21,799) (5,537)
-------- -------- --------
Pro forma ........................................ $ 30,033 $ 10,770 $ 21,324
Net income per share:
Basic
As reported ...................................... $ 1.23 $ 0.57 $ 0.92
Pro forma ........................................ $ 0.99 $ 0.36 $ 0.73
Diluted
As reported ...................................... $ 1.15 $ 0.55 $ 0.86
Pro forma ........................................ $ 0.94 $ 0.35 $ 0.70
As options vest over a varying number of years and awards are generally made
each year, the pro forma impacts shown above may not be representative of future
pro forma expense amounts. The pro forma additional compensation expense related
to all options granted prior to October 1, 2004 was calculated based on the fair
value of each option grant using the Black-Scholes model, while the pro forma
additional compensation expense related to all options granted on or after
October 1, 2004 was calculated based on the fair value of each option grant
using the binomial distribution model. The following weighted-average
assumptions were used in the calculation of fair value:
2005 2004 2003
---------- ---------- ----------
Dividend yield ....................... 0% 0% 0%
Expected volatility .................. 43% 48% 61%
Risk free interest rate .............. 3.8% 3.2% 2.9%
Expected life of option from
grant date ......................... 5.4 years 4.7 years 4.5 years
The effect of the change in estimate related to the use of the bionomial
distribution model has been accounted for on a prospective basis. The Company
will value all future stock option grants using the binomial distribution model.
Management believes that the binomial distribution model is better than the
Black-Scholes model because the binomial distribution model is a more flexible
model that considers the impact of non-transferability, vesting and forfeiture
provisions in the valuation of employee stock options.
In December 2004, the Financial Accounting Standards Board issued Statement No.
123 (revised 2004), "Share-Based Payment," which is a revision of Statement No.
123, "Accounting for Stock-Based Compensation." Statement 123(R) replaces APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and amends Statement
No. 95, "Statement of Cash Flows." Statement 123(R) requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair value. Pro forma
footnote disclosure will no longer be an alternative to financial statement
recognition. The Company adopted Statement 123(R) on January 1, 2006 using the
"modified prospective" method. The Company expects to record $14 million of
share-based compensation expense in 2006 in connection with the adoption of FAS
123R. However, this estimate of future share-based compensation expense is
affected by the Company's stock price, the number of share-based awards that the
F-14
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company may grant in 2006, as well as a number of complex and subjective
valuation assumptions and the related tax effects. These valuation assumptions
include, but are not limited to, the volatility of the Company's stock price and
employee stock option exercise behavior.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash and cash equivalents, which are held
at major financial institutions, investment-grade marketable debt securities and
trade receivables. The Company's products are sold on an uncollateralized basis
and on credit terms based upon a credit risk assessment of each customer.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities, the
disclosure of contingent liabilities, and the reported amounts of revenues and
expenses. Significant estimates affecting amounts reported or disclosed in the
consolidated financial statements include allowances for doubtful accounts
receivable and sales returns and allowances, net realizable value of
inventories, estimates of projected cash flows and discount rates used to value
and test impairments of long-lived assets, depreciation and amortization periods
for long-lived assets, valuation allowances recorded against deferred tax
assets, loss contingencies, and in-process research and development charges.
These estimates are based on historical experience and on various other
assumptions that are believed to be reasonable under the current circumstances.
Actual results could differ from these estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In November 2005, the Financial Accounting Standards Board (FASB) issued FSP FAS
115-1, which nullifies the guidance in paragraphs 10-18 of Emerging Issues Task
Force Issue 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments" and references existing other than temporary
impairment guidance. FSP FAS 115-1 clarifies that an investor should recognize
an impairment loss no later than when the impairment is deemed
other-than-temporary, even if a decision to sell the security has not been made,
and also provides guidance on the subsequent accounting for an impaired debt
security. FSP FAS 115-1 is effective for reporting periods beginning after
December 15, 2005. Management does not expect that the adoption of FSP FAS 115-1
will have a material impact on the Company's financial statements.
In May 2005, the FASB issued Statement No. 154, "Accounting Changes and Error
Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS
154 requires retrospective application to prior periods' financial statements of
a voluntary change in accounting principle. Previously, voluntary changes in
accounting principles were accounted for by including a one-time cumulative
effect in the period of change. This statement is effective January 1, 2006.
Management anticipates that this standard will have no impact on our financial
statements.
In November 2004, the FASB issued Statement No. 151, "Inventory Costs-an
amendment of ARB No. 43, Chapter 4" (Statement 151), which is effective
beginning January 1, 2006. Statement 151 requires that abnormal amounts of idle
facility expense, freight, handling costs and wasted material be recognized as
current-period charges. Statement 151 also requires that the allocation of fixed
production overhead be based on the normal capacity of the production
facilities. Management does not expect that Statement 151 will have a material
impact on our financial position or results of operations.
The American Jobs Creation Act of 2004 was signed into law in October 2004 and
has several provisions that may affect the Company's income taxes in the future,
including the repeal of the extraterritorial income exclusion and a new
deduction related to qualified production activities income. The qualified
production activities income deduction is a special deduction and will have no
F-15
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
impact on deferred taxes existing at the enactment date. Rather, the impact of
this deduction will be reported in the period in which the deduction is claimed
on the Company's tax return. Pursuant to United States Department of Treasury
Regulations issued in October 2005, management believes that the Company will
realize a tax benefit on qualified production activities income once the Company
has completely utilized its unrestricted net operating losses, which is expected
to occur in 2006.
3. ACQUISITIONS
BUSINESS COMBINATIONS
In January 2005, the Company acquired all of the outstanding capital stock of
Newdeal Technologies SAS ("Newdeal Technologies") for $51.9 million (38.3
million euros) in cash paid at closing, a $0.7 million working capital
adjustment paid in January 2006, and $0.8 million of acquisition related
expenses. Additionally, the Company agreed to pay the sellers up to an
additional 1.3 million euros if the sellers continue their employment with the
Company through January 3, 2006. This additional payment was accrued to selling,
general and administrative expense on a straight-line basis in 2005 over the
one-year employment requirement period.
Based in Lyon, France, Newdeal is a leading developer and marketer of specialty
implants and instruments specifically designed for foot and ankle surgery.
Newdeal's products include a wide range of products for the forefoot, the
mid-foot and the hind foot, including the Bold(R) Screw, Hallu-Fix(R) plate
system and the HINTEGRA(R) total ankle prosthesis. At the time of the
acquisition, Newdeal sold its products through a direct sales force in France,
Belgium and the Netherlands, and through distributors in more than 30 countries,
including the United States and Canada. During 2005, Integra began to market the
Newdeal products directly in the United States through its Integra
Reconstructive Surgery sales force. Newdeal's target physicians include
orthopedic surgeons specializing in injuries of the foot, ankle and extremities,
as well as podiatric surgeons.
In connection with this acquisition, the Company recorded $35.7 million of
goodwill and $13.1 million of intangible assets, consisting primarily of trade
name, customer relationships, and technology, which are being amortized on a
straight-line basis over lives ranging from 5 to 40 years. The goodwill recorded
in connection with this acquisition is based on the benefits the Company expects
to generate from the synergy between Newdeal's reconstructive foot and ankle
fixation products and the Company's regenerative products that are used in the
treatment of chronic and traumatic wounds of the foot and ankle. The fair value
of assets acquired was determined with the assistance of a third-party valuation
firm.
In May 2004, the Company acquired the MAYFIELD(R) Cranial Stabilization and
Positioning Systems and the BUDDE(R) Halo Retractor System business from
Schaerer Mayfield USA, Inc. (formerly Ohio Medical Instrument Company) for $20.0
million in cash paid at closing, a $0.3 million working capital adjustment, and
$0.3 million of acquisition related expenses. The MAYFIELD and BUDDE lines
include skull clamps, headrests, reusable and disposable skull pins, blades,
retractor systems, and spinal implants. MAYFIELD systems are the market leader
in the United States and have been used by neurosurgeons for over thirty years.
F-16
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The products are sold in the United States through the Integra NeuroSciences
direct sales organization and in international markets through distributors. In
connection with this acquisition, the Company recorded $8.4 million of goodwill
and $8.1 million of intangible assets, consisting of a non-compete agreement,
trade name, and technology, which are being amortized on a straight-line basis
over lives ranging from 5 to 30 years. The fair value of assets acquired was
determined with the assistance of a third-party valuation firm.
In May 2004, the Company acquired all of the capital stock of Berchtold
Medizin-Elektronik GmbH, now named Integra ME GmbH, from Berchtold Holding GmbH
for $5.0 million in cash. Integra ME manufactures and markets the ELEKTROTOM(R)
line of electrosurgery generators and the SONOTOM(R) ultrasonic surgical
aspirator, as well as a broad line of related handpieces, instruments and
disposables used in many surgical procedures, including neurosurgery. Integra ME
markets and sells its products to hospitals and physicians primarily through a
network of distributors. This acquisition provided Integra with additional
devices for the European and international markets and an existing
infrastructure through which it can sell certain of its other products directly
into Germany. In connection with this acquisition, the Company recorded $1.7
million of goodwill and $1.3 million of intangible assets, consisting primarily
of trade name, technology, and customer relationships, which are being amortized
on a straight-line basis over lives ranging from 3 to 10 years.
The acquired business included a facility located in Tuttlingen, Germany that
manufactured, packaged and distributed the ELEKTROTOM and SONOTOM products. The
Company closed the Tuttlingen facility in December 2005 and transferred all of
the Tuttlingen operations to its facility located in Andover, England.
In January 2004, the Company acquired the R&B instrument business from R&B
Surgical Solutions, LLC for $2.0 million in cash. The R&B instrument line is a
complete line of high-quality handheld surgical instruments used in neuro- and
spinal surgery. The Company markets these products through its JARIT sales
organization. In connection with this acquisition, the Company recorded $1.5
million of intangible assets and goodwill. The acquired intangible assets are
being amortized on a straight-line basis over lives ranging from 5 to 20 years.
In January 2004, the Company acquired the Sparta disposable critical care
devices and surgical instruments business from Fleetwood Medical, Inc. for $1.6
million in cash. The Sparta product line includes products used in plastic and
reconstructive, ear, nose and throat (ENT), neuro, ophthalmic and general
surgery. The Company sells the Sparta products through a direct marketing
organization and an existing distributor network. In connection with this
acquisition, the Company recorded $1.6 million of intangible assets and
goodwill. The acquired intangible assets are being amortized on a straight-line
basis over 5 years.
The results of operations of the acquired businesses have been included in the
consolidated financial statements since their respective dates of acquisition.
The following table summarizes the fair value of the assets acquired and
liabilities assumed as a result of 2005 and 2004 acquisitions:
(All amounts in thousands)
2005 Acquisitions Newdeal
- ----------------- -------------
Current assets ....................... $10,925
Property, plant and equipment ........ 1,026 Wtd. Avg. Life
Intangible assets: --------------
Tradename ......................... 2,926 37 years
Customer relationships ............ 6,032 10 years
Technology ........................ 3,387 10 years
Non-competition agreement ......... 745 5 years
Goodwill ............................. 35,668
Other assets ......................... 38
-------------
Total assets acquired ............. 60,747
Liabilities assumed, excluding debt .. 7,560
Debt assumed ......................... 530
-------------
Net assets acquired .................. $52,657
F-17
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAYFIELD/
2004 Acquisitions BUDDE Integra ME R&B/Sparta
- ----------------- ------------- ----------- -----------
Current assets ....................... $ 3,489 $ 3,151 $ 817
Property, plant and equipment ........ 1,400 78 10
Intangible assets .................... 8,030 1,320 1,639
Goodwill ............................. 8,397 1,775 1,478
------------- ----------- -----------
Total assets acquired ............. 21,316 6,324 3,944
Current liabilities .................. 768 837 340
Deferred tax liabilities ............. -- 240 --
Other non-current liabilities ........ -- 265 --
------------- ----------- -----------
Total liabilities assumed ......... 768 1,342 340
Net assets acquired .................. $20,548 $ 4,982 $ 3,604
The goodwill acquired in the MAYFIELD/BUDDE, R&B, and Sparta acquisitions is
expected to be deductible for tax purposes.
The following unaudited pro forma financial information summarizes the results
of operations for the year ended December 31, 2004 as if the acquisitions
consummated in 2005 and 2004 had been completed as of the beginning of 2004. The
pro forma results are based upon certain assumptions and estimates and they give
effect to actual operating results prior to the acquisitions and adjustments to
reflect increased depreciation expense, increased intangible asset amortization,
and increased income taxes at a rate consistent with Integra's marginal rate in
each year. No effect has been given to cost reductions or operating synergies.
As a result, these 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.
2004
--------
(in thousands)
Total revenue ......................................... $250,191
Net income ............................................ 17,922
Basic net income per share ............................ $ 0.60
Diluted net income per share .......................... $ 0.58
Pro forma financial information for the year ended December 31, 2005 would not
be materially different from actual reported amounts because the Newdeal
acquisition was consummated on January 3, 2005.
ASSET ACQUISITIONS
In September 2005, the Company acquired the intellectual property estate of
Eunoe, Inc. for $500,000 in cash. Prior to ceasing operations, Eunoe, Inc. was
engaged in the development of its innovative COGNIShunt(R) system for the
treatment of Alzheimer's disease patients. The acquisition of the Eunoe
intellectual property estate and clinical trial data extends the Company's
technology base relevant to the management of conditions that require regulation
of cerebrospinal fluid flow within the brain. The traditional application of
this technology is for the treatment of hydrocephalus, a market in which Integra
currently competes. The acquired intellectual property has not been developed
into a product that has been approved by the FDA and has no future alternative
use other than in clinical applications involving the regulation of
cerebrospinal fluid. Accordingly, the Company recorded the entire acquisition
price as an in-process research and development charge in 2005. This transaction
was accounted for as an asset purchase because the acquired assets did not
constitute a business under FASB Statement No 141 "Business Combinations".
In December 2003, the Company acquired the assets of Reconstructive
Technologies, Inc.("RTI") for $400,000 in cash and agreed to make certain future
F-18
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
performance-based payments for the RTI assets. Any future contingent
consideration paid to the seller is expected to be recorded as a
technology-based intangible asset. RTI is the developer of the Automated Cyclic
Expansion System (ACE System(TM)), a tissue expansion device. Because the ACE
System was not approved by the FDA for sale and the Company did not acquire any
assets other than technology and intellectual property underlying the ACE
System, the Company recorded the entire acquisition price as an in-process
research and development charge in 2003. This transaction was accounted for as
an asset purchase because the acquired assets did not constitute a business
under Statement 141.
4. RESTRUCTURING ACTIVITIES
In June 2005, management announced plans to restructure the Company's European
operations. The restructuring plan included closing the Company's Integra ME
production facility in Tuttlingen, Germany and reducing various positions in the
Company's production facility located in Biot, France, both of which were
completed in December 2005. The Company closed the Integra ME production
facility and transitioned the manufacturing operations of Integra ME to its
production facility in Andover, UK.
In June 2005, the Company also eliminated some duplicative sales and marketing
positions, primarily in Europe.
Approximately 68 individuals were identified for termination under the European
restructuring plan. As of December 31, 2005, the Company terminated 65 of these
individuals.
In 2005, the Company also completed the transfer of the Spinal Specialties
assembly operations from the Company's San Antonio, Texas plant to its San
Diego, California plant.
In connection with these restructuring activities, the Company recorded $4.0
million of charges in 2005 for the estimated costs of employee termination
benefits to be provided to the affected employees and related facility exit
costs.
In connection with these restructuring activities, the Company has recorded the
following charges during 2005:
Research Selling
Cost of and General and
Sales Development Administrative Total
------- ------- ------- -------
(in thousands)
Involuntary employee termination costs ... $ 2,596 $ 183 $ 1,082 $ 3,861
Facility exit costs ...................... -- -- 155 $ 155
Below is a reconciliation of the restructuring accrual activity recorded during
2005:
Employee Facility
Termination Exit
Costs Costs Total
------- ------- -------
(in thousands)
Balance at December 31, 2004 ........................ $ -- $ -- $ --
Additions ........................................... 4,010 155 4,165
Reversal of prior accruals .......................... (149) -- (149)
Payments ............................................ (1,398) (31) (1,429)
Effects of foreign exchange ......................... (43) -- (43)
------- ------- -------
Balance at December 31, 2005 ........................ $ 2,420 $ 124 $ 2,544
We expect to pay the all of the remaining costs in early 2006.
In December 2003, the Company recorded a $1.1 million charge in connection with
closing of its San Diego research center, the termination of certain research
F-19
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
programs conducted there, and the consolidation of the remaining research
activities into its other facilities. The charge consisted of the following (in
thousands):
Facility lease termination fee .................. $ 379
Research program termination costs .............. 216
Property and equipment impairment ............... 183
Inventory write-off ............................. 157
Employee severance .............................. 120
Other ........................................... 52
------
Total $1,107
The inventory write-off was recorded to cost of product revenues. All other
amounts were recorded to research and development expense. All amounts were paid
in 2003, except for the employee severance amounts, which were included in
accrued expenses and other current liabilities at December 31, 2003 and
subsequently paid in 2004.
5. DEBT
In 2003, the Company completed a $120.0 million private placement of contingent
convertible subordinated notes due 2008.
The notes bear interest at 2.5 percent per annum, payable semiannually. The
Company will pay additional interest ("Contingent Interest") if, at thirty days
prior to maturity, Integra's common stock price is greater than $37.56 per
share. The Contingent Interest will be payable for each of the last three years
the notes remain outstanding in an amount equal to the greater of (i) 0.50% of
the face amount of the notes and (ii) the amount of regular cash dividends paid
during each such year on the number of shares of common stock into which each
note is convertible. The Company recorded a $0.4 million liability related to
the estimated fair value of the Contingent Interest obligation at the time the
notes were issued. The fair value of the Contingent Interest obligation is
marked to its fair value at each balance sheet date, with changes in the fair
value recorded to interest expense. At December 31, 2005 and 2004, the estimated
fair value of the Contingent Interest Obligation was $0.7 million and $0.7
million, respectively. In 2005, interest expense associated with changes in the
estimated fair value of the Contingent Interest Obligation was not significant.
In 2004, and 2003, the Company recorded $0.3 million and $0.1 million,
respectively, of interest expense associated with changes in the estimated fair
value of the Contingent Interest Obligation.
Debt issuance costs totaled $4.1 million and are being amortized using the
straight-line method over the five-year term of the notes.
Holders may convert their notes into shares of Integra common stock at an
initial conversion price of $34.15 per share, upon the occurrence of certain
conditions, including when the market price of Integra's common stock on the
previous trading day is more than 110% of the conversion price.
The notes are general, unsecured obligations of the Company and will be
subordinate to any future senior indebtedness of the Company. The Company cannot
redeem the notes prior to their maturity. Holders of the notes may require the
Company to repurchase the notes upon a change in control.
Concurrent with the issuance of the notes, the Company used $35.3 million of the
proceeds to purchase 1.5 million shares of its common stock.
In December 2005, the Company established a $200 million, five-year, senior
secured revolving credit facility. The credit facility currently allows for
revolving credit borrowings in a principal amount of up to $200 million, which
can be increased to $250 million should additional financing be required in the
future. The Company did not draw any amounts against this credit facility in
2005.
The indebtedness under the credit facility is guaranteed by the Company's
domestic subsidiaries. The Company's obligations under the credit facility and
F-20
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the guarantees of the guarantors are secured by a first-priority security
interest in all present and future capital stock of (or other ownership or
profit interest in) each guarantor and substantially all of the Company's and
the guarantors' other assets, other than real estate, intellectual property and
capital stock of foreign subsidiaries.
Borrowings under the credit facility bear interest, at the Company's option, at
a rate equal to (i) the Eurodollar Rate in effect from time to time plus an
applicable rate (ranging from 0.75% to 1.5%) or (ii) the higher of (x) the
weighted average overnight Federal funds rate, as published by the Federal
Reserve Bank of New York, plus 0.5%, and (y) the prime commercial lending rate
of Bank of America, N.A. plus an applicable rate (ranging from 0% to 0.5%). The
applicable rates are based on a financial ratio at the time of the applicable
borrowing.
The Company will also pay an annual commitment fee (ranging from 0.15% to 0.25%)
on the daily amount by which the commitments under the credit facility exceed
the outstanding loans and letters of credit under the credit facility.
In 2005, the Company paid approximately $1.1 million of fees in connection with
establishing the credit facility. The company capitalized these fees and is
amortizing them to interest expense over the five-year term of the credit
facility.
The credit facility requires the Company to maintain various financial
covenants, including leverage ratios, a minimum fixed charge coverage ratio, and
a minimum liquidity ratio. The credit facility also contains customary
affirmative and negative covenants, including those that limit the Company's and
its subsidiaries' ability to incur additional debt, incur liens, make
investments, enter into mergers and acquisitions, liquidate or dissolve, sell or
dispose of assets, repurchase stock and pay dividends, engage in transactions
with affiliates, engage in certain lines of business and enter into sale and
leaseback transactions.
6. DERIVATIVE INSTRUMENTS
In August 2003, the Company entered into an interest rate swap agreement with a
$50 million notional amount to hedge the risk of changes in fair value
attributable to interest rate risk with respect to a portion of its fixed rate
contingent convertible subordinated notes. The Company receives a 2 1/2% fixed
rate from the counterparty, payable on a semi-annual basis, and pays to the
counterparty a floating rate based on 3-month LIBOR minus 35 basis points,
payable on a quarterly basis. The floating rate resets each quarter. The
interest rate swap agreement terminates on March 15, 2008, subject to early
termination upon the occurrence of certain events, including redemption or
conversion of the contingent convertible notes.
The net amount to be paid or received under the interest rate swap agreement is
recorded as a component of interest expense. In 2005, the Company recorded an
additional $0.2 million of interest expense associated with the interest rate
swap. In 2004 and 2003, the Company recorded a reduction in interest expense of
$0.7 million and $0.3 million, respectively. Our effective interest rate on the
hedged portion of the notes was 3.7% as of December 31, 2005.
The interest rate swap agreement qualifies as a fair value hedge under SFAS No.
133, as amended, "Accounting for Derivative Instruments and Hedging Activities".
Accordingly, the interest rate swap is recorded at fair value and changes in
fair value are recorded in other income (expense), net.
The net fair value of the interest rate swap at December 31, 2005 was $2.0
million. The Company recorded the following changes in the net fair values of
the interest rate swap and the hedged portion of the contingent convertible
notes:
2005 2004 2003
-------- -------- --------
(in thousands)
Interest rate swap ............................... $ 690 $ 287 $ 305
Contingent convertible notes ..................... (821) (430) (433)
-------- -------- --------
Net increase (decrease) in liabilities ........... $ (131) $ (143) $ (128)
F-21
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net increase (decrease) in liabilities represents the ineffective portion of
the hedging relationship, and these amounts are recorded in other income
(expense), net.
At December 31, 2005 and 2004, the Company had $3.4 million and $2.9 million of
cash pledged as collateral in connection with the interest rate swap agreement.
In November 2004, the Company entered into a collar contract for euro 38.5
million to reduce its exposure to fluctuations in the exchange rate between the
euro and the US dollar as a result of its commitment to acquire Newdeal
Technologies in January 2005 for euro 38.5 million. The collar contract did not
qualify as a hedge under SFAS No. 133. Accordingly, the collar contract was
recorded at fair value and changes in fair value were recorded in other income
(expense), net. In 2004, the Company recorded a $1.4 million gain related to the
change in the fair value of the collar contract. The foreign currency collar
expired in January 2005, concurrent with the Company's acquisition of Newdeal
Technologies.
7. COMMON AND PREFERRED STOCK
PREFERRED STOCK TRANSACTIONS
The Company is authorized to issue up to 15,000,000 shares of preferred stock in
one or more series, of which 2,000,000 shares have been designated as Series A,
120,000 shares have been designated as Series B, and 54,000 shares have been
designated as Series C. There was no preferred stock outstanding at either
December 31, 2005 or 2004.
COMMON STOCK TRANSACTIONS
The Company repurchased 1.7 million, 0.5 million, and 1.5 million shares of its
common stock in 2005, 2004 and 2003, respectively, for $56.3 million, $14.2
million and $35.4 million, respectively.
8. STOCK PURCHASE AND AWARD PLANS
EMPLOYEE STOCK PURCHASE PLAN
The purpose of the Employee Stock Purchase Plan (the ESPP) is to provide
eligible employees of the Company with the opportunity to acquire shares of
common stock at periodic intervals by means of accumulated payroll deductions.
Under the ESPP, a total of 1.5 million shares of common stock are reserved for
issuance. These shares will be made available either from the Company's
authorized but unissued shares of common stock or from shares of common stock
reacquired by the Company as treasury shares. At December 31, 2005, 1.1 million
shares remain available for purchase under the ESPP.
The ESPP was amended in 2005 to eliminate the lookback option and to reduce the
discount available to participants to five percent. Accordingly, the ESPP will
be a non-compensatory plan under Statement 123(R).
EQUITY AWARD PLANS
As of December 31, 2005 the Company had stock options, restricted stock awards,
and contract stock outstanding under seven plans, the 1993 Incentive Stock
Option and Non-Qualified Stock Option Plan (the 1993 Plan), the 1996 Incentive
Stock Option and Non-Qualified Stock Option Plan (the 1996 Plan), the 1998 Stock
Option Plan (the 1998 Plan), the 1999 Stock Option Plan (the 1999 Plan), the
2000 Equity Incentive Plan (the 2000 Plan), the 2001 Equity Incentive Plan (the
2001 Plan), and the 2003 Equity Incentive Plan (the 2003 Plan, and collectively,
the Plans). No new options may be granted under the 1993 Plan.
F-22
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has reserved 750,000 shares of common stock for issuance under both
the 1993 Plan and 1996 Plan, 1,000,000 shares under the 1998 Plan, 2,000,000
shares under each of the 1999 Plan, the 2000 Plan and the 2001 Plan, and
4,000,000 shares under the 2003 Plan. The 1993 Plan, 1996 Plan, 1998 Plan, and
the 1999 Plan permit the Company to grant both incentive and non-qualified stock
options to designated directors, officers, employees and associates of the
Company. The 2000 Plan, 2001 Plan, and 2003 Plan permit the Company to grant
incentive and non-qualified stock options, stock appreciation rights, restricted
stock, contract stock, performance stock, or dividend equivalent rights to
designated directors, officers, employees and associates of the Company. Stock
options issued under the Plans become exercisable over specified periods,
generally within four years from the date of grant for officers, employees and
consultants, and generally expire six years from the grant date. The transfer
and non-forfeiture provisions of restricted stock issued under the Plans lapse
over specified periods, generally at three years after the date of grant.
Stock Options
- -------------
Stock option activity for all the Plans was as follows:
2005 2004 2003
--------------------- --------------------- ---------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Options Ex. Price Options Ex. Price Options Ex. Price
-----------------------------------------------------------------------
(shares in thousands)
Options outstanding at
January 1, ........... 3,683 $23.42 2,884 $16.19 4,295 $12.15
Granted ................. 1,089 $34.53 1,473 $31.81 430 $24.81
Exercised ............... (576) $13.83 (547) $ 9.80 (1,726) $ 7.70
Cancelled ............... (195) $30.28 (127) $21.97 (115) $17.40
Options outstanding at
December 31, ......... 4,001 $27.50 3,683 $23.42 2,884 $16.19
Options exercisable at
December 31, .......... 2,023 $22.74 1,641 $17.61 1,495 $ 13.65
The following table summarizes information about stock options outstanding as of
December 31, 2005:
Options Outstanding Options Exercisable
---------------------------------------------- -----------------------
As of Wtd. Avg. Wtd. Avg. As of Wtd. Avg.
Range Of Dec. 31, Exercise Remaining Dec. 31 Exercise
Exercise Prices 2005 Price Contractual Life 2005 Price
----------------- ---------- ------------ -------------------- ---------- -----------
(shares in thousands)
$ 6.56 - $17.65 827 $ 13.79 3.0 years 745 $ 13.42
$17.68 - $27.89 800 $ 25.20 2.5 years 700 $ 25.38
$27.94 - $31.38 939 $ 29.94 5.6 years 336 $ 29.76
$31.89 - $35.52 829 $ 34.16 6.0 years 242 $ 34.03
$35.57 - $38.72 606 $ 36.33 6.7 years -- $ 0.00
------- -------- ----------- ------- --------
4,001 $ 27.50 4.7 years 2,023 $ 22.74
The weighted average fair market value of stock options granted in 2005, 2004
and 2003 was $14.88, $13.48, and $13.01 per share, respectively.
Restricted Stock
- ----------------
In 2005, the Company issued 21,246 shares of restricted stock. These awards are
expensed over their vesting period, ranging from six months to three years. The
Company recognized $0.1 million of expense in 2005 related to these awards. The
Company did not issue any shares of restricted stock prior to 2005.
F-23
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contract Stock and Restricted Units Awards
- ------------------------------------------
In July 2004, the Company's President and Chief Executive Officer (Executive)
renewed his employment agreement with the Company through December 31, 2009. In
connection with the renewal of the agreement, the Executive received a grant of
fair market value options to acquire up to 250,000 shares of Integra common
stock and a fully vested contract stock unit award providing for the payment of
750,000 shares of Integra common stock which shall generally be delivered to the
Executive following his termination of employment or retirement but not before
December 31, 2009, or later under certain circumstances, or earlier if he is
terminated without cause, if he leaves his position for good reason or upon a
change of control or certain tax related events. The options and contract stock
award were granted under the 2003 Plan. In connection with the fully vested
contract stock award, the Company recorded a share-based compensation charge of
$23.9 million, including payroll taxes, in 2004 for the compensation expense
related to the fully-vested contract stock unit grant. The Executive has demand
registration rights under the Restricted Units issued.
In December 2000, the Company issued 1,250,000 restricted units (Restricted
Units) under the 2000 Plan as a fully vested equity based bonus to the Executive
in connection with the extension of his employment agreement. Each Restricted
Unit represents the right to receive one share of the Company's common stock.
The Executive has demand registration rights under the Restricted Units issued.
In January 2006, the Company issued 750,000 shares of the Company's common stock
to the Executive pursuant to the obligations with respect to 750,000 of these
Restricted Units.
The Executive received 1,000,000 Restricted Units in December 1997, each of
which entitles him to receive one share of the Company's common stock. The
Restricted Units issued in December 1997 were not issued under any of the Plans.
In November 2003, the Company issued 1,000,000 shares of the Company's common
stock to the Executive pursuant to the obligations under these Restricted Units.
No other share-based awards are outstanding under any of the Plans. At December
31, 2005, there were 1,812,904 shares available for grant under the Plans.
9. RETIREMENT BENEFIT PLANS
DEFINED BENEFIT PLAN
The Company maintains defined benefit pension plans that cover employees in its
manufacturing plants located in Andover, United Kingdom (the "UK Plan") and
Tuttlingen, Germany (the "Germany Plan"). The Company closed the Tuttlingen,
Germany plant in December 2005. However, the Germany Plan was not terminated and
the Company remains obligated for the accrued pension benefits related to this
plan. The plans cover certain current and former employees. Both plans are no
longer open to new participants. The Company uses a December 31 measurement date
for both of its pension plans.
Net periodic benefit costs for these defined benefit pension plans included the
following amounts:
2005 2004 2003
-------- -------- --------
(in thousands)
Service cost ..................................... $ 178 $ 179 $ 88
Interest cost .................................... 567 522 397
Expected return on plan assets ................... (464) (434) (330)
Recognized net actuarial loss .................... 215 203 116
-------- -------- --------
Net periodic benefit cost ..................... $ 496 $ 470 $ 271
F-24
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following weighted average assumptions were used to develop net periodic
benefit cost and the actuarial present value of projected benefit obligations:
2005 2004 2003
-------- -------- --------
Discount rate .................................... 4.7% 5.2% 5.4%
Expected return on plan assets ................... 4.9% 5.8% 6.2%
Rate of compensation increase .................... 3.5% 3.3% 3.3%
The expected return on plan assets represents the average rate of return
expected to be earned on plan assets over the period the benefits included in
the benefit obligation are to be paid. In developing the expected rate of
return, the Company considers long-term compound annualized returns of
historical market data as well as actual returns on the plan assets and applies
adjustments that reflect more recent capital market experience. Using this
reference information, the long-term return expectations for each asset category
is developed, according to the allocation among those investment categories.
The following sets forth the change in benefit obligations and change in plan
assets at December 31, 2005 and 2004 and the accrued benefit cost:
December 31,
2005 2004
-------- --------
(in thousands)
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation, beginning of year ................ $11,367 $ 8,832
Service cost ................................................... 178 179
Interest cost .................................................. 567 522
Participant contributions ...................................... 36 42
Benefits paid .................................................. (317) (183)
Actuarial (gain) loss .......................................... 1,133 656
Acquisitions ................................................... -- 474
Effect of foreign currency exchange rates ...................... (1,315) 845
-------- --------
Projected benefit obligation, end of year ...................... $11,649 $11,367
CHANGE IN PLAN ASSETS
Plan assets at fair value, beginning of year ................... $ 8,379 $ 6,646
Actual return on plan assets ................................... 1,277 816
Employer contributions ......................................... 264 238
Participant contributions ...................................... 36 37
Benefits paid .................................................. (315) (183)
Other .......................................................... -- 46
Acquisitions ................................................... -- 162
Effect of foreign currency exchange rates ...................... (968) 617
-------- --------
Plan assets at fair value, end of year ......................... $ 8,673 $ 8,379
RECONCILIATION OF FUNDED STATUS
Funded status, projected benefit obligation in excess
of plan assets ............................................. $(2,976) $(2,988)
Unrecognized net actuarial loss ................................... 2,504 2,759
Adjustment to recognize minimum liability ......................... (2,390) (2,543)
-------- --------
Accrued benefit cost .............................................. $(2,862) $(2,772)
The accrued benefit liability recorded at December 31, 2005 and 2004 is included
in other liabilities.
The combined accumulated benefit obligation for the defined benefit plans was
$11.5 million and $11.2 million as of December 31, 2005 and 2004, respectively.
The accumulated benefit obligation for each plan exceeded that plan's assets for
all periods presented.
F-25
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted-average allocation of plan assets by asset category is as follows:
December 31,
2005 2004
-------- --------
Equity securities .......................................... 47% 52%
Corporate bonds ............................................ 26% 19%
Government bonds ........................................... 20% 22%
Insurance contracts ........................................ 2% 2%
Cash ....................................................... 5% 5%
-------- --------
100% 100%
The investment strategy for the Company's defined benefit plans is both to meet
the liabilities of the plans as they fall due and to maximize the return on
invested assets within appropriate risk tolerances. The assets of the Germany
Plan consist entirely of insurance contracts.
The Company anticipates contributing approximately $250,000 to its defined
benefit plans in 2006. The Company expects to pay the following estimated future
benefit payments in the years indicated:
2006 ............. 269,000
2007 ............. 286,000
2008 ............. 312,000
2009 ............. 338,000
2010 ............. 400,000
2011-2015 ........ 2,679,000
DEFINED CONTRIBUTION PLAN
The Company also has various defined contribution savings plans that cover
substantially all employees in the United States, the United Kingdom, and Puerto
Rico. The Company matches a certain percentage of each employee's contributions
as per the provisions of the plans. Total contributions by the Company to the
plans were $627,000, $622,000, and $483,000 in 2005, 2004, and 2003,
respectively.
10. LEASES
The Company leases administrative, manufacturing, research and distribution
facilities and various manufacturing, office and transportation equipment
through operating lease agreements.
In November 1992, a corporation whose shareholders are trusts, whose
beneficiaries include family members of the Company's Chairman, acquired from
independent third parties a 50% interest in the general partnership from which
the Company leases its manufacturing facility in Plainsboro, New Jersey. In
October 2005, the Company entered into a lease modification agreement relating
this facility. The lease modification agreement provides for extension of the
term of the lease from October 31, 2012 for an additional five year period
through October 31, 2017 at an annual rate of approximately $272,000 per year.
The lease modification agreement also provides a ten year option for the Company
to extend the lease from November 1, 2017 through October 31, 2027 at an annual
rate of approximately $296,000 per year.
In June 2000, the Company signed a ten-year agreement to lease certain
production equipment from a corporation whose sole stockholder is a general
partnership, for which the Company's Chairman is a partner and the President.
Under the terms of the lease agreement, the Company paid $90,000 to the related
party lessor in 2005, 2004, and 2003.
F-26
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease payments under operating leases at December 31, 2005 were
as follows:
Related Third
Parties Parties Total
--------- --------- ---------
(in thousands)
2006 ............................ $ 321 $ 2,095 $ 2,416
2007 ............................ 324 1,337 1,661
2008 ............................ 341 342 683
2009 ............................ 341 204 545
2010 ............................ 341 176 517
Thereafter ...................... 4,732 1,764 6,496
--------- --------- ---------
Total minimum lease payments..... $ 6,400 $ 5,918 $12,318
========= ========= =========
Total rental expense in 2005, 2004, and 2003 was $3.2 million, $2.3 million, and
$2.9 million, respectively, and included $321,000, $321,000, and $321,000, in
related party expense, respectively.
11. INCOME TAXES
The provision for income taxes consisted of the following:
2005 2004 2003
-------- -------- --------
(in thousands)
Current:
Federal .............................. $ 2,547 $ 1,899 $ 972
State ................................ 2,038 1,670 2,470
Foreign .............................. 3,427 1,141 529
--------- --------- ---------
Total current ......................... 8,012 4,710 3,971
Deferred:
Federal .............................. $13,706 $ 5,802 $ 12,800
State ................................ (409) 53 83
Foreign .............................. (3,402) 246 (526)
--------- --------- ---------
Total deferred ......................... 9,895 6,101 12,357
Provision for income taxes ............. $ 17,907 $ 10,811 $ 16,328
========= ========= =========
Income before income taxes consisted of the following:
2005 2004 2003
-------- -------- --------
(in thousands)
United States operations ............. $ 46,111 $ 17,074 $ 40,883
Foreign operations ................... 8,990 10,934 2,306
--------- --------- ---------
Total .................................. $ 55,101 $ 28,008 $ 43,189
========= ========= =========
F-27
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The temporary differences that give rise to deferred tax assets and liabilities are presented below:
December 31
2005 2004
-------- --------
(in thousands)
Net operating loss and tax credit carryforwards ........... $ 4,622 $ 13,405
Inventory reserves and capitalization ..................... 4,781 2,145
Deferred compensation ..................................... 14,053 14,164
Deferred income ........................................... 3,831 1,821
-------- --------
Total deferred tax assets before valuation allowance .... 27,287 31,535
Valuation allowance ....................................... (5,126) (5,360)
Depreciation and amortization ............................. (9,694) (5,327)
Other ..................................................... (4,148) (1,095)
-------- --------
Net deferred tax assets ................................... $ 8,319 $ 19,753
======== ========
A valuation allowance of $5.1 million is recorded against the remaining $27.3
million of deferred tax assets recorded at December 31, 2005. This valuation
allowance relates to deferred tax assets for certain expenses that will be
deductible for tax purposes in very limited circumstances and for which the
Company believes it is unlikely that it will recognize the associated tax
benefit. The Company does not anticipate additional income tax benefits through
future reductions in the valuation allowance. However, in the event that the
Company determines that it would be able to realize more or less than the
recorded amount of net deferred tax assets, an adjustment to the deferred tax
asset valuation allowance would be recorded in the period such a determination
is made.
The Company's valuation allowance decreased by $0.2 million in 2005 as a result
of a change in the Company's marginal state effective income tax rates.
A reconciliation of the United States Federal statutory rate to the Company's
effective tax rate for the years ended December 31, 2005, 2004, and 2003 is as
follows:
2005 2004 2003
------ ------ ------
Federal statutory rate ..................................... 35.0% 35.0% 35.0%
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal tax benefit ........... 2.0% 4.0% 3.9%
Foreign taxes booked at different rates .................. (3.7%) (4.2%) (1.0%)
Foreign losses for which no benefit was previously taken.. (0.9%) -- --
Tax on asset transfer .................................... -- 4.5% --
Other .................................................... 0.1% (0.7%) (0.1%)
------ ------ ------
Effective tax rate ......................................... 32.5% 38.6% 37.8%
====== ====== ======
At December 31, 2005, the Company had net operating loss carryforwards of $15.8
million for federal income tax purposes and $0.4 million for foreign tax
purposes to offset future taxable income. The federal net operating loss
carryforwards expire through 2024 and the foreign net operating loss
carryforwards have no expiration.
At December 31, 2005, several of the Company's subsidiaries had unused net
operating loss carryforwards and tax credit carryforwards arising from periods
prior to the Company's ownership which expire through 2010. The Internal Revenue
Code limits the timing and manner in which we may use any acquired net operating
losses or tax credits.
Income taxes are not provided on undistributed earnings of non-U.S. subsidiaries
because such earnings are expected to be permanently reinvested. Undistributed
earnings of foreign subsidiaries totaled $8.5 million and $2.6 million at
December 31, 2005 and 2004, respectively.
F-28
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. NET INCOME PER SHARE
Amounts used in the calculation of basic and diluted net income per share were as follows:
2005 2004 2003
-------- -------- --------
(in thousands, except per share amounts)
Basic:
- ------
Net income..................................................... $ 37,194 $ 17,197 $ 26,861
Basic net income per share .................................... $ 1.23 $ 0.57 $ 0.92
======== ======== ========
Weighted average common shares outstanding - Basic ............ 30,195 30,064 29,071
======== ======== ========
Diluted:
- --------
Net income..................................................... $ 37,194 $ 17,197 $ 26,861
Add back: Interest expense and other income/(expense) related
to convertible notes payable, net of tax ......... 2,440 -- 1,608
-------- -------- --------
Net income applicable to common stock ......................... $ 39,634 $ 17,197 $ 28,469
Diluted net income per share .................................. $ 1.15 $ 0.55 $ 0.86
======== ======== ========
Weighted average common shares outstanding - Basic ............ 30,195 30,064 29,071
Effect of dilutive securities:
Restricted stock and stock options ......................... 856 1,038 1,397
Shares issuable upon conversion of notes payable ........... 3,514 -- 2,636
-------- -------- --------
Weighted average common shares outstanding .................... 34,565 31,102 33,104
======== ======== ========
Shares of common stock issuable through exercise or conversion of the following dilutive securities were not included in the
computation of diluted net income per share for each period because their effect would have been antidilutive:
2005 2004 2003
-------- -------- --------
(in thousands)
Stock options and restricted stock ................. 570 155 424
Shares issuable upon conversion of notes payable ... -- 3,514 --
-------- -------- --------
Total .............................................. 570 3,669 424
A contract stock unit award that entitles the holder to 750,000 shares of common
stock and Restricted Units that entitle the holder to 1,250,000 shares of common
stock (see Note 8) are included in the basic and diluted weighted average shares
outstanding calculation from their date of issuance because no further
consideration is due related to the issuance of the underlying common shares.
13. DEVELOPMENT, DISTRIBUTION, AND LICENSE AGREEMENTS
The Company has various development, distribution, and license agreements under
which it receives payments. Significant agreements include the following:
From 1999 through 2003, ETHICON, Inc., a division of Johnson & Johnson, marketed
and distributed the Company's INTEGRA(R) Dermal Regeneration Template under the
terms of a ten year distribution agreement (the "ETHICON Agreement"). Upon
signing the ETHICON Agreement, the Company received a nonrefundable payment from
ETHICON of $5.3 million for the exclusive use of the Company for trademarks and
regulatory filings related to the INTEGRA(R) Dermal Regeneration Template and
certain other rights. This amount was initially recorded as deferred revenue and
was recognized as revenue in accordance with the Company's revenue recognition
policy for nonrefundable, up-front fees received. Additionally, the ETHICON
F-29
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Agreement required ETHICON to make nonrefundable payments to the Company each
year based upon minimum purchases of INTEGRA(R) Dermal Regeneration Template.
Upon early termination of the ETHICON Agreement in December 2003, ETHICON paid
Integra $2.0 million, which the Company recorded as other income. The Company
also recorded $11.0 million of other revenue in the fourth quarter of 2003
related to the acceleration of the recognition of unused minimum purchase
payments and unamortized license fee revenue.
In 2003, the Company received $2.8 million of event-related payments from
ETHICON and $2.0 million of research funding. Both the event-related payments
and the research funding were recorded in other operating revenue in accordance
with the Company's revenue recognition policy.
The Company has an agreement with Wyeth for the development of collagen and
other absorbable matrices to be used in conjunction with Wyeth's recombinant
human bone morphogenetic protein-2 (rhBMP-2) in a variety of bone regeneration
applications. The agreement with Wyeth requires Integra to supply Absorbable
Collagen Sponges to Wyeth (including those that Wyeth sells to Medtronic Sofamor
Danek with rhBMP-2 for use in Medtronic Sofamor Danek's InFUSE(TM) product) at
specified prices. In addition, the Company receives a royalty equal to a
percentage of Wyeth's sales of surgical kits combining rhBMP-2 and the
Absorbable Collagen Sponges. The agreement terminates in 2007, but may be
extended at the option of the parties. The agreement does not provide for
milestones or other contingent payments, but Wyeth pays the Company to assist
with regulatory affairs and research. The Company received $2.2 million of
research and development revenues under the agreement in 2003.
14. COMMITMENTS AND CONTINGENCIES
As consideration for certain technology, manufacturing, distribution and selling
rights and licenses granted to the Company, the Company has agreed to pay
royalties on the sales of products that are commercialized relative to the
granted rights and licenses. Royalty payments under these agreements by the
Company were not significant for any of the periods presented.
Various lawsuits, claims and proceedings are pending or have been settled by the
Company. The most significant of those are described below.
In July 1996, the Company filed a patent infringement lawsuit in the United
States District Court for the Southern District of California (the "Trial
Court") 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 willfully and deliberately to induce,
defendants Scripps Research Institute and Dr. 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 Integra that are based on the interaction
between a family of cell surface proteins called integrins and the
arginine-glycine-aspartic acid ("RGD") peptide sequence found in many
extracellular matrix proteins. The defendants filed a countersuit asking for an
award of defendants' reasonable attorney fees.
In March 2000, a jury returned a unanimous verdict in the Company's favor and
awarded Integra $15.0 million in damages, finding that Merck KGaA had willfully
infringed and induced the infringement of our patents. The Trial Court dismissed
Scripps and Dr. Cheresh from the case.
In October 2000, the Trial Court entered judgment in Integra's favor and against
Merck KGaA in the case. In entering the judgment, the Trial Court also granted
to the Company pre-judgment interest of $1.4 million, bringing the total award
to $16.4 million, plus post-judgment interest. Merck KGaA filed various
post-trial motions requesting a judgment as a matter of law notwithstanding the
verdict or a new trial, in each case regarding infringement, invalidity and
damages. In September 2001, the Trial Court entered orders in favor of Integra
and against Merck KGaA on the final post-judgment motions in the case, and
denied Merck KGaA's motions for judgment as a matter of law and for a new trial.
F-30
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Merck KGaA and Integra each appealed various decisions of the Trial Court to the
United States Court of Appeals for the Federal Circuit (the "Circuit Court"). In
June 2003, the Circuit Court affirmed the Trial Court's finding that Merck KGaA
had infringed our patents. The Circuit Court also held that the basis of the
jury's calculation of damages was not clear from the trial record, and remanded
the case to the Trial Court for further factual development and a new
calculation of damages consistent with the Circuit Court's decision. In
September 2004, the Trial Court ordered Merck KgaA to pay Integra $6.4 million
in damages following the Circuit Court's order. Merck KGaA filed a petition for
a writ of certiorari with the United States Supreme Court (the "Supreme Court")
seeking review of the Circuit Court's decision, and the Supreme Court granted
the writ in January 2005. Oral arguments before the United States Supreme Court
were held in April 2005.
On June 13, 2005, the Supreme Court vacated the June 2003 judgment of the
Circuit Court. The Supreme Court held that the Circuit Court applied an
erroneous interpretation of 35 U.S.C. ss.271(e)(1) when it rejected the
challenge of Merck KGaA to the jury's finding that Merck KGaA failed to show
that its activities were exempt from claims of patent infringement under that
statute. On remand, the Circuit Court will review the evidence under a
reasonableness test that does not provide categorical exclusions of certain
types of activities.
The Company has not recorded any gain in connection with this matter, pending
final resolution and completion of the appeals process.
Three of the Company's French subsidiaries that were acquired from the
neurosciences division of NMT Medical, Inc. received a tax reassessment notice
from the French tax authorities seeking in excess of 1.7 million euros in back
taxes, interest and penalties. NMT Medical, the former owner of these entities,
has agreed to indemnify Integra against direct damages and liability arising
from misrepresentations in connection with these tax claims. In April 2005, NMT
Medical, Inc. negotiated a settlement agreement with the French authorities that
satisfied the outstanding tax assessments. In connection with this settlement,
the Company recognized net operating loss carryforwards in France and recorded
this benefit as a $0.5 million tax benefit in 2005.
In addition to these matters, the Company is subject to various claims, lawsuits
and proceedings in the ordinary course of its business, including claims by
current or former employees, distributors and competitors and with respect to
our products. In the opinion of management, such claims are either adequately
covered by insurance or otherwise indemnified, or are not expected, individually
or in the aggregate, to result in a material adverse effect on the Company's
financial condition. However, it is possible that the Company's results of
operations, financial position and cash flows in a particular period could be
materially affected by these contingencies.
F-31
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SEGMENT AND GEOGRAPHIC INFORMATION
Integra management reviews financial results and manages the business on an
aggregate basis. Therefore, financial results are reported in a single operating
segment, the development, manufacture and marketing of medical devices for use
in cranial and spinal procedures, peripheral nerve repair, small bone and joint
injuries, and the repair and reconstruction of soft tissue.
Product revenues consisted of the following:
2005 2004 2003
-------- -------- --------
(in thousands)
Monitoring products ................................... $ 48,940 $ 48,217 $ 44,229
Implant products ...................................... 108,156 78,418 53,301
Instruments ........................................... 91,918 77,667 47,168
Private label products ................................ 28,757 24,188 21,997
-------- -------- --------
Consolidated product revenues ......................... $277,771 $228,490 $166,695
======== ======== ========
Certain of the Company's products, including the DuraGen(R) and NeuraGen(TM)
product families and the INTEGRA(R) Dermal Regeneration Template and wound
dressing products, contain material derived from bovine tissue. Products that
contain materials derived from animal sources, including food as well as
pharmaceuticals and medical devices, are increasingly subject to scrutiny from
the press and regulatory authorities. These products comprised 31%, 31%, and 27%
of product revenues in 2005, 2004, and 2003, respectively. Accordingly,
widespread public controversy concerning collagen products, new regulation, or a
ban of the Company's products containing material derived from bovine tissue,
could have a material adverse effect on the Company's current business or its
ability to expand its business.
Product revenue and long-lived assets (excluding intangible assets, financial
instruments and deferred tax assets) by major geographic area are summarized
below:
United Asia Other
States Europe Pacific Foreign Consolidated
---------- ---------- ---------- ---------- ------------
(in thousands)
Product revenue:
2005 ................... $207,245 $ 48,645 $ 11,403 $ 10,478 $277,771
2004 ................... 180,887 30,941 8,535 8,127 228,490
2003 ................... 132,805 21,433 5,828 6,629 166,695
Long-lived assets:
December 31, 2005 ...... $ 23,938 $ 9,441 $ -- $ -- $ 33,379
December 31, 2004 ...... 21,287 9,175 -- -- 30,462
F-32
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. SELECTED QUARTERLY INFORMATION -- UNAUDITED
Fourth Third Second First
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share data)
2005:
- -----
Total revenue:
2005 ........................... $ 72,985 $ 69,333 $ 69,778 $ 65,839
2004 ........................... 61,811 59,130 56,441 52,443
Gross margin (exclusive of
amortization related to acquired
intangible assets):
2005 ........................... 44,733 43,320 42,639 41,707
2004 ........................... 38,590 36,718 34,776 32,442
Net income (loss):
2005 ........................... 10,615 10,481 7,655 8,443
2004 ........................... 9,839 (7,597) 7,518 7,437
Basic net income (loss) per share:
2005 ........................... $ 0.36 $ 0.35 $ 0.25 $ 0.28
2004 ........................... $ 0.32 $ (0.25) $ 0.25 $ 0.25
Diluted net income (loss) per share:
2005 ........................... $ 0.33 $ 0.33 $ 0.23 $ 0.26
2004 ........................... $ 0.30 $ (0.25) $ 0.23 $ 0.23
In 2005, the Company recorded the following charges in connection with its restructuring activities:
Fourth Third Second First
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands)
Involuntary employee termination
costs .......................... $ 1,120 $ 667 $ 2,074 $ --
Facility exit costs .............. 155 -- -- --
In the third quarter of 2004, the Company recorded the following:
- - a $1.4 million charge in connection with a milestone payment related to the
completion of certain development activities related to an advanced
neuro-monitoring system;
- - a $23.9 million share-based compensation charge associated with the renewal
of the Company's President and Chief Executive Officer's employment
agreement; and
- - a $1.3 million tax charge incurred in connection with the reorganization of
certain European operations.
In the fourth quarter of 2004, the Company recognized $1.4 million of other
income related to an unrealized gain on a foreign currency collar, which was
used to reduce the exposure to fluctuations in the exchange rate between the
euro and the US dollar as a result of the Company's commitment to acquire
Newdeal Technologies for 38.5 million euros. The foreign currency collar expired
in January 2005, concurrent with the Company's acquisition of Newdeal
Technologies.
17. SUBSEQUENT EVENT
In September 2005, the Company announced the signing of a definitive agreement
to acquire the assets of the Radionics Division of Tyco Healthcare Group, L.P.
for approximately $76 million in cash, subject to certain adjustments.
Radionics, based in Burlington, Massachusetts, is a leader in the design,
manufacture and sale of advanced minimally-invasive medical instruments and
systems for radiation therapy. Radionics' products include the CRW(R)
stereotactic system, the XKnife(TM) stereotactic radiosurgery system, the
OmniSight(R)EXcel image guided surgery system, and the CUSA EXcel(TM)
ultrasonic surgical aspiration system. The acquisition closed on March 3, 2006.
F-33
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The determination of the fair value of the assets acquired and liabilities
assumed as a result of this acquisition is in progress. Based on a preliminary
valuation, the following summarizes the fair value of the assets acquired and
liabilities assumed:
(All amounts in thousands)
Current assets ....................... $ 8,440
Property, plant and equipment ........ 1,350
Intangible assets and goodwill ....... 67,090
-------
Total assets acquired ............. 76,880
Liabilities assumed .................. 2,380
-------
Net assets acquired .................. $74,500
The acquired intangible assets consist primarily of developed technology, trade
name, and customer relationships. The final fair value of assets acquired will
be determined with the assistance of a third-party valuation firm.
In March 2006, the Company borrowed $16.0 million under its credit facility in
connection with the acquisition of Radionics.
F-34
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
Balance at Charged to Charged Balance at
Beginning Costs and to Other End of
Description Of Period Expenses Accounts(1) Deductions Period
- --------------------------------------------------------------------------------------------------------------------
(in thousands)
Year ended December 31, 2005
- ----------------------------
Allowance for doubtful accounts and
sales returns and allowances ........ $ 2,749 $ 1,279 $ 34 $ (554) $ 3,508
Inventory reserves ...................... 7,600 2,191 247 (270) 9,768
Deferred tax asset valuation allowance .. 5,360 -- -- (234) 5,126
Year ended December 31, 2004
- ----------------------------
Allowance for doubtful accounts and
sales returns and allowances ........ $ 2,025 $ 802 $ 297 $ (327) $ 2,749
Inventory reserves ...................... 6,204 1,210 1,056 (870) 7,600
Deferred tax asset valuation allowance .. 5,360 -- -- -- 5,360
Year ended December 31, 2003
- ----------------------------
Allowance for doubtful accounts and
sales returns and allowances ........ $ 1,387 541 497 (400) $ 2,025
Inventory reserves ...................... 9,573 3,193 894 (7,456) 6,204
Deferred tax asset valuation allowance .. 7,692 -- (2,332) -- 5,360
(1) All amounts shown were recorded to goodwill in connection with acquisitions
except for the $2.3 million reduction in the deferred tax asset valuation
allowance in 2003, which was written off against the gross deferred tax
asset.
F-35
AMENDED AND RESTATED
CERTIFICATION OF INCORPORATION
OF
INTEGRA LIFESCIENCES CORPORATION
INTEGRA LIFESCIENCES CORPORATION, a corporation organized and
existing under the laws of the state of Delaware, hereby certifies as follows:
1. The name of the corporation is "Integra LifeSciences Corporation."
The date of filing of the Corporation's original Certificate of Incorporation
with the Secretary of State of Delaware was June 19, 1969 under the name "LFC
No. 64 Corp.".
2. The text of the Certificate of Incorporation as amended or
supplemented heretofore is amended hereby to read as herein set forth in full:
FIRST: The name of the Corporation is Integra LifeSciences
Corporation.
SECOND: The address of the Corporation's registered office in
the State of Delaware is 103 Springer Building, 3411 Silverside Road,
Wilmington, Delaware 19810. The name of the Corporation's registered
agent at such address is Organization Services, Inc., in the County of
New Castle.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under
the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 75,000,000 shares, par
value $.01 per share, of which 60,000,000 shares are designed as Common
Stock and 15,000,000 shares are designated as Preferred Stock.
FIFTH: The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of Article FOURTH, to
provide for the issuance of the shares of Preferred Stock in series,
and by filing a certificate pursuant to the Delaware General
Corporation Law, to establish from time to time the number of shares to
be included in each series, and to fix the designation, powers,
preferences, and relative rights of each such series and the
qualifications, limitations, and restrictions thereof. Each class or
series shall be appropriately designated by a distinguishing
designation prior to the issuance of any shares thereof. The Preferred
Stock of all series shall have preferences, limitations and relative
rights identical with those of other shares of the same series and,
except to the extent otherwise provided in the description of the
series, with those of shares of other series of the same class.
SIXTH: In furtherance and not in limitation of the general
powers conferred by the law of the State of Delaware, the Board of
Directors is expressly authorized to make, alter or repeal the By-Laws
of the Corporation, except as specifically otherwise provided therein.
SEVENTH: A director of the Corporation shall have no personal
liability to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director except to the extent that
Section 102(b)(7) (or any successor provision) of the Delaware General
Corporation Law, as amended from time to time, expressly provides that
the liability of a director may not be eliminated or limited.
EIGHTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or
between this Corporation and its stockholders or any class of them, any
court of equitable jurisdiction within the State of Delaware may, on
the application in a summary way of this Corporation or of any creditor
or stockholder thereof or on the application of any receiver or
receivers appointed for this Corporation under the provisions of
Section 291 of Title 6 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for
this Corporation under the provisions of Section 279 Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the
said court directs. If a majority in number representing three-fourths
in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case
may be, agree to any compromise or arrangement and to any
reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders of
this Corporation, as the case may be, and also on this Corporation.
3. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 & 245 of the Delaware
General Corporation Law.
-2-
IN WITNESS WHEREOF, Integra LifeSciences Corporation has caused this
Certificate to be signed by its Chairman and attested by its Secretary, as of
the 18th day of February, 1992.
INTEGRA LIFESCIENCES CORPORATION
By: /s/ Richard E. Caruso
-------------------------------
Richard E. Caruso, Chairman
ATTEST:
By: /s/ William M. Goldstein
-----------------------------------
William M. Goldstein, Secretary
-3-
CERTIFICATE OF CORRECTION FILED TO CORRECT
A CERTAIN ERROR IN THE AMENDED AND RESTATED
CERTIFICATION OF INCORPORATION OF
INTEGRA LIFESCIENCES CORPORATION
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON FEBRUARY 16, 1993.
INTEGRA LIFESCIENCES CORPORATION, a corporation organized and existing
under the laws of the State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is INTEGRA LIFESCIENCES CORPORATION.
2. That an Amended and Restated Certificate of Incorporation was filed
by the Secretary of State of Delaware on February 16, 1993 and that said
Certificate requires correction as permitted by Section 103 General Corporation
Law of the State of Delaware.
3. The inaccuracy or defect of said Certificate to be corrected is as
follows:
The execution date is incorrect.
4. The execution sealing or acknowledgment of the Certificate is
corrected as follows:
The execution date should be February 16, 1993 in lieu of
February 18, 1992 as dated in the Certificate.
IN WITNESS WHEREOF, said INTEGRA LIFESCIENCES CORPORATION has caused
this Certificate to be signed by Richard E. Caruso, its Chairman and attested to
by George S. Domino, its Assistant Secretary, as of the 5th day of May, 1993.
INTEGRA LIFESCIENCES CORPORATION
By: /s/ Richard E. Caruso
-------------------------------
Richard E. Caruso, Chairman
ATTEST:
By: /s/ George S. Domino
-----------------------------------------
George S. Domino, Assistant Secretary
EXECUTION COPY
FIRST AMENDMENT
FIRST AMENDMENT dated as of February 15, 2006 (this "Amendment"), among
INTEGRA LIFESCIENCES HOLDINGS CORPORATION, a Delaware corporation (the
"Borrower"), the lenders party to the Credit Agreement (as defined below)
(collectively, the "Lenders"), BANK OF AMERICA, N.A., as Administrative Agent,
Swing Line Lender and L/C Issuer (the "Administrative Agent"), CITIBANK, FSB and
SUNTRUST BANK, as Co-Syndication Agents (the "Co-Syndication Agents") and ROYAL
BANK OF CANADA and WACHOVIA BANK, NATIONAL ASSOCIATION, as Co-Documentation
Agents (the "Co-Documentation Agents").
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders, the Administrative Agent, the
Co-Syndication Agents and the Co-Documentation Agents have
entered into a Credit Agreement, dated as of December 22, 2005
(as the same may be amended, supplemented or otherwise
modified from time to time, the "Credit Agreement" and the
Credit Agreement, as amended by, and together with this
Amendment, the "Amended Agreement"). Capitalized terms used
but not defined in this Amendment shall have the meanings
assigned to them in the Credit Agreement.
(2) The Borrower has requested the Lenders to amend certain
provisions of the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
SECTION 1.01. Amendment to Section 1.01. The definition of "Permitted
Acquisition" set forth in Section 1.01 of the Credit Agreement is hereby amended
by deleting the words "by any Loan Party" from the first line thereof.
SECTION 1.02. Amendment to Section 7.03. Section 7.03(e) of the Credit
Agreement is hereby deleted in its entirety and replaced with the following:
"(e) intercompany Indebtedness constituting an Investment that
is permitted under Sections 7.02(d), (e), (f) or (g)."
SECTION 1.03. Representations and Warranties. The Borrower
hereby represents and warrants to the Administrative Agent and the Lenders,
as follows:
(a) After giving effect to the updated Schedules to the Credit
Agreement attached hereto, the representations and warranties set forth
in Article V of the Credit Agreement and in each other Loan Document
are true and correct in all material respects on and as of the date
hereof and on and as of the Amendment Effective Date (as defined below)
with the same effect as though made on and as of the date hereof or the
Amendment Effective Date, as the case may be, except to the extent such
representations and warranties expressly relate to an earlier date (in
which case such representations and warranties shall be true and
correct in all material respects on and as of such earlier date).
(b) On the date hereof and on the Amendment Effective Date, no
Default or Event of Default has occurred and is continuing.
(c) The execution, delivery and performance of this Amendment
by the Borrower and each of its Subsidiaries have been duly authorized
by all requisite corporate or other organizational action.
(d) This Amendment constitutes the legal, valid and binding
obligation of the Borrower and each of its Subsidiaries, enforceable
against each such party in accordance with its terms.
(e) The execution, delivery and performance of this Amendment
by the Borrower and each of its Subsidiaries do not and will not (i)
contravene the terms of any of such Person's Organization Documents;
(ii) conflict with or result in any breach or contravention of, or
(except for the Liens created under the Loan Documents) the creation of
any Lien under, or require any payment to be made under (A) any
Contractual Obligation to which such Person or such Person's Affiliate
is a party or affecting such Person or the properties of such Person or
any of its subsidiaries or (B) any order, injunction, writ or decree of
any Governmental Authority or any arbitral award to which such Person
or its property is subject; or (iii) violate any Law.
SECTION 1.04. Effectiveness. This Amendment shall become effective only
upon satisfaction of the following conditions precedent (the first date upon
which each such condition has been satisfied being herein called the "Amendment
Effective Date"):
(a) The Administrative Agent shall have received duly executed
counterparts of this Amendment which, when taken together, bear the
authorized signatures of the Borrower, each Subsidiary Guarantor and
the Required Lenders.
(b) The representations and warranties set forth in Section
1.03 shall be true and correct on and as of the Amendment Effective
Date.
(c) The Lenders shall have received such other documents,
legal opinions, instruments and certificates as they shall reasonably
request and such other documents, legal opinions, instruments and
certificates shall be satisfactory in form and substance to the Lenders
and their counsel. All corporate and other proceedings taken or to be
taken in connection with this Amendment and all documents incidental
thereto, whether or not referred to herein, shall be satisfactory in
form and substance to the Lenders and their counsel.
SECTION 1.05. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REFERENCE
TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
SECTION 1.06. Fees and Expenses. The Borrower shall pay all reasonable
out-of-pocket expenses incurred by the Administrative Agent in connection with
the preparation, negotiation, execution, delivery and enforcement of this
Amendment, including, but not limited to, the reasonable fees and disbursements
of counsel.
SECTION 1.07. Counterparts. This Amendment may be executed in any
number of counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one agreement. Delivery by
facsimile by any of the parities hereto of an executed counterpart of this
Amendment shall be as effective as an original executed counterpart hereof and
shall be deemed a representation that an original executed counterpart hereof
will be delivered, but the failure to deliver a manually executed counterpart
shall not affect the validity, enforceability or binding effect of this
Amendment.
SECTION 1.08. Guarantor Confirmation. By its execution and delivery
hereof, each Subsidiary Guarantor acknowledges and agrees that, as provided in
Article II of the Subsidiary Guaranty, such Subsidiary Guarantor's obligations
under the Subsidiary Guaranty shall not be released, diminished, impaired,
reduced or adversely affected by the execution, delivery or performance of this
Amendment, and waives any rights which such Subsidiary Guarantor might otherwise
have to make any claim to the contrary. Each Subsidiary Guarantor hereby
confirms that the Subsidiary Guaranty is, and after the effectiveness of this
Amendment shall remain, in full force and effect, and enforceable against such
Subsidiary Guarantor in accordance with its terms. Each Subsidiary Guarantor
hereby acknowledges that the Administrative Agent and the Lenders are relying
upon the foregoing agreements of such Subsidiary Guarantor in entering into this
Amendment.
SECTION 1.09. Credit Agreement. Except as expressly set forth herein,
the amendments provided herein shall not by implication or otherwise limit,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders or the Administrative Agent under the Credit Agreement or any other Loan
Document, nor shall they constitute a waiver of any Default or Event of Default,
nor shall they alter, modify, amend or in any way affect any of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document. Each of the amendments provided herein
shall apply and be effective only with respect to the provisions of the Credit
Agreement specifically referred to by such amendment. Except as expressly
amended herein, the Credit Agreement shall continue in full force and effect in
accordance with the provisions thereof. As used in the Credit Agreement, the
terms "Agreement", "herein", "hereinafter", "hereunder", "hereto" and words of
similar import shall include, from and after the Amendment Effective Date, the
Amended Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their duly authorized officers, all as of the date first above
written.
Borrower:
INTEGRA LIFESCIENCES HOLDINGS
CORPORATION, a Delaware corporation
By:/s/ David B. Holtz
--------------------------------
Name: David B. Holtz
Title: Senior Vice President, Finance
Subsidiary Guarantors:
INTEGRA LIFESCIENCES CORPORATION,
a Delaware corporation
By:/s/ David B. Holtz
--------------------------------
Name: David B. Holtz
Title: Senior Vice President, Finance
INTEGRA LIFESCIENCES INVESTMENT
CORPORATION, a Delaware corporation
By: /s/ David B. Holtz
--------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA OHIO, INC., a Delaware
corporation
By: /s/ David B. Holtz
--------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA RADIONICS, INC., a
Delaware corporation
By: /s/ David B. Holtz
-------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA CLINICAL EDUCATION
INSTITUTE, INC., a Delaware
corporation
By: /s/ David B. Holtz
-------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA HEALTHCARE PRODUCTS LLC,
a Delaware limited liability
company
By: Integra LifeSciences
Corporation, its sole member
By: /s/ David B. Holtz
-----------------------------
Name: David B. Holtz
Title: Senior Vice President, Finance
J. JAMNER SURGICAL INSTRUMENTS,
INC., a Delaware corporation
By: /s/ David B. Holtz
-----------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
JARIT INSTRUMENTS, INC., a
Delaware corporation
By: /s/ David B. Holtz
------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA SELECTOR CORPORATION, a
Delaware corporation
By: /s/ David B. Holtz
-----------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
SPINAL SPECIALTIES, INC., a
Delaware corporation
By: /s/ David B. Holtz
-----------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA NEUROSCIENCES (IP), INC.,
a Delaware corporation
By: /s/ David B. Holtz
-----------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA NEUROSCIENCES
(INTERNATIONAL), INC., a Delaware
corporation
By: /s/ David B. Holtz
-----------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA LIFESCIENCES (FRANCE) LLC,
a Delaware limited liability company
By: Integra NeuroSciences
(International), Inc., its
sole member
By: /s/ David B. Holtz
-----------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
BANK OF AMERICA, N.A., as Administrative
Agent, Swing Line Lender, L/C Issuer and
as a Lender
By: /s/ Amie L. Edwards
----------------------------------
Name: Amie L. Edwards
Title: Vice President
CITIBANK, FSB, as Co-Syndication Agent
and as a Lender
By:
-----------------------------------
Name:
Title:
SUNTRUST BANK, as Co-Syndication Agent
and as a Lender
By: /s/ Gregory M. Ratliff
----------------------------------
Name: Gregory M. Ratliff
Title: Vice President
ROYAL BANK OF CANADA, as Co-Documentation
Agent and as a Lender
By: /s/ Gordon MacArthur
----------------------------------
Name: Gordon MacArthur
Title: Authorized Signatory
WACHOVIA BANK, NATIONAL ASSOCIATION, as
Co-Documentation Agent and as a Lender
By: /s/ Jeanette A. Griffin
----------------------------------
Name: Jeanette A. Griffin
Title: Director
CITIZENS BANK PA, as a Lender
By: /s/ Mark W. Torie
----------------------------------
Name: Mark W. Torie
Title:SVP
PNC BANK NATIONAL ASSOCIATION, as a
Lender
By: /s/ Phillip J. Clark
----------------------------------
Name: Phillip J. Clark
Title: Vice President
SOVEREIGN BANK, as a Lender
By: /s/ John T. Harrison
-----------------------------------
Name: John T. Harrison
Title: Senior Vice President
THE BANK OF NEW YORK, as a Lender
By: /s/ Stephen G. Necel
-----------------------------------
Name: Stephen G. Necel
Title: Vice President
DRESDNER BANK AG, NEW YORK AND GRAND
CAYMAN BRANCHES, as a Lender
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
HSBC BANK USA, NA, as a Lender
By:
------------------------------------
Name:
Title:
COMMERCE BANK, N.A., as a Lender
By: /s/ Daniel R. Vereb
------------------------------------
Name: Daniel R. Vereb
Title: Vice President
PEOPLE'S BANK, as a Lender
By: /s/ George F. Paik
------------------------------------
Name: George F. Paik
Title: Vice President
BROWN BROTHERS HARRIMAN & CO, as
a Lender
By: /s/ John D. Rogers
--------------------------------
Name: John D. Rogers
Title: Senior Vice President
COMERICA BANK, as a Lender
By: /s/ Neran Shaya
---------------------------------
Name: Neran Shaya
Title:Vice President
EXECUTION COPY
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of December 22, 2005 (as amended,
restated, amended and restated, supplemented or otherwise modified from time to
time, this "Agreement"), is made by INTEGRA LIFESCIENCES HOLDINGS CORPORATION, a
Delaware corporation (the "Borrower"), and each of the other Persons (such
capitalized term and all other capitalized terms not otherwise defined herein to
have the meanings provided for in Article I) listed on the signature pages
hereof (such other Persons, together with the Additional Grantors (as defined in
Section 7.2(b)) and the Borrower are collectively referred to as the "Grantors"
and individually as a "Grantor"), in favor of BANK OF AMERICA, N.A., as
administrative and collateral agent (in such capacity, the "Administrative
Agent") for each of the Secured Parties (as defined in the Credit Agreement
referred to below).
W I T N E S S E T H:
WHEREAS, pursuant to a Credit Agreement, dated as of the date hereof
(as amended, restated, amended and restated, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among the Borrower, the various
financial institutions as are, or may from time to time become, parties thereto,
the Administrative Agent, Citibank FSB and SunTrust Bank, as Co-Syndication
Agents, Royal Bank of Canada and Wachovia Bank, National Association, as
Co-Documentation Agents and the other Loan Documents referred to therein, the
Secured Parties have agreed to make Credit Extensions and other financial
accommodations available to or for the benefit of the Grantors;
WHEREAS, as a condition precedent to the making of the initial Credit
Extension under the Credit Agreement, each Grantor is required to execute and
deliver this Agreement; and
WHEREAS, each Grantor has duly authorized the execution, delivery and
performance of this Agreement;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the Lenders
to make Credit Extensions (including the initial Credit Extension) to the
Borrower pursuant to the Credit Agreement, each Grantor agrees, for the benefit
of each Secured Party, as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms (whether or not underscored) when
used in this Agreement, including its preamble and recitals, shall have the
following meanings (such definitions to be equally applicable to the singular
and plural forms thereof):
"Account" means a right to payment of a monetary obligation, whether or
not earned by performance (and shall include invoices, contracts, rights,
accounts receivable, notes, refunds, indemnities, interest, late charges, fees,
undertakings, and all other obligations and amounts owing to any Grantor from
any Person):
(a) for property that has been or is to be sold, leased,
licensed, assigned or otherwise disposed of;
(b) for services rendered or to be rendered;
(c) for a policy of insurance issued or to be issued;
(d) for a secondary obligation incurred or to be incurred;
(e) for energy provided or to be provided;
(f) for the use or hire of a vessel under a charter or other
contract;
(g) arising out of the use of a credit or charge card or
information contained on or for use with the card; or
(h) as winnings in a lottery or other game of chance operated
or sponsored by a state, governmental unit of a State, or Person licensed or
authorized to operate the game by a State or governmental unit of a State.
"Account Control Agreement" means an account control agreement in
substantially the form of Exhibit A-1 or A-2 hereto, as applicable, or otherwise
in form and substance reasonably satisfactory to the Administrative Agent,
entered into among a Grantor, the Administrative Agent and the bank or
Securities Intermediary where a Deposit Account or Securities Account,
respectively, of such Grantor is maintained, as such agreement may be amended,
restated, amended and restated, supplemented or otherwise modified from time to
time.
"Additional Grantors" is defined in Section 7.2(b).
"Administrative Agent" is defined in the preamble.
"Agreement" is defined in the preamble.
"Authenticate" means:
(a) to sign; or
(b) to execute or otherwise adopt a symbol, or encrypt or
similarly process a record in whole or in part, with the present intent of the
authenticating Person to identify the Person and adopt or accept a record.
-2-
"Borrower" is defined in the preamble.
"Chattel Paper" means a record or records that evidence both a monetary
obligation and a security interest in specific goods, a security interest in
specific goods and software used in the goods, a security interest in specific
goods and license of software used in the goods, a lease of specific goods, or a
lease of specific goods and license of software used in the goods.
"Collateral" is defined in Section 2.1.
"Collateral Account" means, for each Grantor, a deposit account in the
name of the Administrative Agent and subject to the sole dominion and control of
the Administrative Agent.
"Commercial Tort Claim" means a claim arising in tort with respect to
which:
(a) the claimant is an organization; or
(b) the claimant is an individual and the claim:
(i) arose in the course of the claimant's business or
profession; and
(ii) does not include damages arising out of personal
injury to or the death of an individual.
"Commodity Account" means an account maintained by a Commodity
Intermediary in which a Commodity Contract is carried out for a Commodity
Customer.
"Commodity Contract" means a commodity futures contract, an option on a
commodity futures contract, a commodity option or any other contract that, in
each case, is
(a) traded on or subject to the rules of a board of trade that
has been designated as a contract market for such a contract pursuant to the
federal commodities laws; or
(b) traded on a foreign commodity board of trade, exchange or
market, and is carried on the books of a Commodity Intermediary for a Commodity
Customer.
"Commodity Customer" means a Person for whom a Commodity Intermediary
carries a Commodity Contract on its books.
"Commodity Intermediary" means:
(a) a Person who is registered as a futures commission
merchant under the federal commodities laws; or
(b) a Person who in the ordinary course of its business
provides clearance or settlement services for a board of trade that has been
designated as a contract market pursuant to federal commodities laws.
-3-
"Computer Hardware and Software Collateral" means, to the extent
assignable:
(a) all computer and other electronic data processing
hardware, integrated computer systems, central processing units, memory units,
display terminals, printers, features, computer elements, card readers, tape
drives, hard and soft disk drives, cables, electrical supply hardware,
generators, power equalizers, accessories and all peripheral devices and other
related computer hardware;
(b) all software programs (including both source code, object
code and all related applications and data files), whether now owned or
hereafter acquired by each Grantor, designed for use on the computers and
electronic data processing hardware described in clause (a) above;
(c) all licenses and leases of software programs;
(d) all firmware associated therewith;
(e) all documentation (including flow charts, logic diagrams,
manuals, guides and specifications) with respect to such hardware, software and
firmware described in the preceding clauses (a) through (d); and
(f) all rights with respect to all of the foregoing, including
any and all copyrights, licenses, options, warranties, service contracts,
program services, test rights, maintenance rights, support rights, improvement
rights, renewal rights and indemnifications and any substitutions, replacements,
additions, modifications or model conversions of any of the foregoing.
"Control" means the act or condition of gaining or maintaining control
of collateral by any appropriate method under the UCC.
"Credit Agreement" is defined in the first recital.
"Deposit Account" means a demand, time, savings, passbook, or similar
account (including all bank accounts, collection accounts and concentration
accounts, together with all funds held therein and all certificates and
instruments, if any, from time to time representing or evidencing such accounts)
maintained with a bank.
"Documents" means a document of title or a receipt of the type
described in Section 7-201(2) of the UCC.
"Electronic Chattel Paper" means Chattel Paper evidenced by a record or
records consisting of information stored in an electronic medium.
"Entitlement Holder" means a Person identified in the records of a
Securities Intermediary as the Person having a Security Entitlement against the
-4-
Securities Intermediary. If a person acquires a Security Entitlement by virtue
of Section 8-501(b)(2) or (3) of the UCC, such person is the Entitlement Holder.
"Equipment" means all machinery, equipment in all its forms, wherever
located, including all computers, furniture and furnishings, all other property
similar to the foregoing (including tools, parts, rolling stock and supplies of
every kind and description), components, parts and accessories installed thereon
or affixed thereto and all parts thereof, and all fixtures (other than those
which Borrower has no right to remove from the applicable property) and all
accessories, additions, attachments, improvements, substitutions and
replacements thereto and therefor.
"Financial Asset" means:
(a) a Security;
(b) an obligation of a Person or a share, participation or
other interest in a Person or in property or an enterprise of a Person, which
is, or is of a type, dealt with in or traded on financial markets, or which is
recognized in any area in which it is issued or dealt in as a medium for
investment; or
(c) any property that is held by a Securities Intermediary for
another person in a Securities Account if the Securities Intermediary has
expressly agreed with the other Person that the property is to be treated as a
Financial Asset under Article 8 of the UCC As the context requires, the term
Financial Asset shall mean either the interest itself or the means by which a
Person's claim to it is evidenced, including a certificated or uncertificated
Security, a certificate representing a Security or a Security Entitlement.
"General Intangible" means any personal property, including things in
action, Payment Intangibles and software, other than Accounts, Chattel Paper,
Commercial Tort Claims, Deposit Accounts, Documents, Goods,
Health-Care-Insurance Receivables, Instruments, Investment Property,
Letter-of-Credit Rights, letters of credit, money, and oil, gas, or other
minerals before extraction.
"Goods" means all things that are movable when a security interest
attaches, including computer programs embedded in goods and any supporting
information provided in connection with a transaction relating to the program if
(i) the program is associated with the goods in such a manner that is
customarily considered part of the goods, or (ii) by becoming the owner of the
goods, a person acquires a right to use the program in connection with the
goods.
"Grantor" and "Grantors" are defined in the preamble.
"Health-Care-Insurance Receivable" means an interest in or claim under
a policy of insurance which is a right to payment of a monetary obligation for
health-care goods or services provided.
"Indemnitee" is defined in Section 6.2.
-5-
"Instrument" means a negotiable instrument or any other writing that
evidences a right to the payment of a monetary obligation, is not itself a
security agreement or lease, and is of a type that in ordinary course of
business is transferred by delivery with any necessary endorsement or
assignment.
"Inventory" means Goods, other than farm products, which:
(a) are leased by a Person as lessor;
(b) are held by a Person for sale or lease or to be furnished
under a contract of service;
(c) are furnished by a Person under a contract of service; or
(d) consist of raw materials, work in process, or materials
used or consumed in a business,
and includes, without limitation, (i) finished goods, returned goods and
materials and supplies of any kind, nature or description which are or might be
used in connection with the manufacture, packing, shipping, advertising, selling
or finishing of any of the foregoing; (ii) all goods in which a Grantor has an
interest in mass or a joint or other interest or right of any kind (including
goods in which Grantor has an interest or right as consignee); (iii) all goods
which are returned to or repossessed by any Grantor; and (iv) all accessions
thereto, products thereof and documents therefor.
"Investment Property" means all Securities (whether certificated or
uncertificated), Security Entitlements, Securities Accounts, Financial Assets,
Commodity Contracts and Commodity Accounts of each Grantor; provided, however,
that Investment Property shall not include any certificated Securities
constituting Collateral (as defined in the Pledge Agreement) or any Securities
issued by a Foreign Subsidiary.
"Letter-of-Credit Right" means a right to payment or performance under
a letter of credit, whether or not the beneficiary has demanded or is at the
time entitled to demand payment or performance, but excludes the right of a
beneficiary to demand payment or performance under a letter of credit.
"Loan Documents" is defined in the Credit Agreement.
"Material Contract" is defined in the Credit Agreement.
"Material Contract Collateral" means, with respect to each Grantor, all
Material Contracts to which such Grantor is now or may hereafter become a party
and all Accounts thereunder, including (i) all rights of such Grantor to receive
moneys due and to become due under or pursuant to the Material Contracts, (ii)
all rights of such Grantor to receive proceeds of any insurance, indemnity,
warranty or guaranty with respect to the Material Contracts, (iii) claims of
-6-
such Grantor for damages arising out of or for breach of or default under the
Material Contracts and (iv) the right of such Grantor to terminate the Material
Contracts, to perform thereunder and to compel performance and otherwise
exercise all remedies thereunder.
"OFAC" means the U.S. Department of the Treasury's Office of Foreign
Assets Control.
"Payment Intangible" means a general intangible under which the account
debtor's principal obligation is a monetary obligation.
"Pledge Agreement" is defined in the Credit Agreement.
"Proceeds" means the following property:
(a) whatever is acquired upon the sale, lease, license,
exchange, or other disposition of the Collateral;
(b) whatever is collected on, or distributed on account of,
the Collateral;
(c) rights arising out of the Collateral; and
(d) to the extent of the value of the Collateral and to the
extent payable to the debtor or the secured party, insurance payable by reason
of the loss or nonconformity of, defects or infringement of rights in, or damage
to, the Collateral.
"Receivables Collateral" means, collectively, Accounts,
Health-Care-Insurance Receivables, Documents, Instruments and Chattel Paper.
"Sanctioned Entity" means (i) an agency of the government of, (ii) an
organization directly or indirectly controlled by, or (iii) a person resident in
a country that is subject to a sanctions program identified on the list
maintained by OFAC and available at
http://www.treas.gov/offices/eotffc/ofac/sanctions/index.html, or as otherwise
published from time to time as such program may be applicable to such agency,
organization or person.
"Sanctioned Person" means a person named on the list of Specially
Designated Nationals or Blocked Persons maintained by OFAC available at
http://www.treas.gov/offices/eotffc/ofac/sdn/index.html, or as otherwise
published from time to time.
"Secured Cash Management Services Agreement" is defined in the Credit
Agreement.
"Secured Obligations" is defined in Section 2.2.
"Secured Party" is defined in the Credit Agreement.
"Secured Swap Contract" is defined in the Credit Agreement.
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"Securities" means any obligations of an issuer or any shares,
participations or other interests in an issuer or in property or an enterprise
of an issuer which
(a) are represented by a certificate representing a security
in bearer or registered form, or the transfer of which may be registered upon
books maintained for that purpose by or on behalf of the issuer;
(b) are one of a class or series or by its terms is divisible
into a class or series of shares, participations, interests or obligations; and
(c) (i) are, or are of a type, dealt with or traded on
securities exchanges or securities markets or (ii) are a medium for investment
and by their terms expressly provide that they are a security governed by
Article 8 of the UCC.
"Securities Account" shall mean an account to which a Financial Asset
is or may be credited in accordance with an agreement under which the Person
maintaining the account undertakes to treat the Person for whom the account is
maintained as entitled to exercise rights that comprise the Financial Asset.
"Security Entitlements" means the rights and property interests of an
Entitlement Holder with respect to a Financial Asset.
"Security Intermediary" means:
(a) a clearing corporation; or
(b) a Person, including a bank or broker, that in the ordinary
course of its business maintains securities accounts for others and is acting in
that capacity.
"Supporting Obligation" means a Letter-of-Credit Right or secondary
obligation that supports the payment or performance of an Account, Chattel
Paper, Document, General Intangible, Instrument or Investment Property,
including, without limitation, all security agreements, guaranties, leases and
other contracts securing or otherwise relating to any such Accounts, Chattel
Paper, Documents, General Intangible, Instruments or Investment Property,
including Goods represented by the sale or lease of delivery which gave rise to
any of the foregoing, returned or repossessed merchandise and rights of stoppage
in transit, replevin, reclamation and other rights and remedies of an unpaid
vendor, lienor or secured party.
"Swap Bank" is defined in the Credit Agreement.
"Swap Contract" is defined in the Credit Agreement.
"Tangible Chattel Paper" means Chattel Paper evidenced by a record or
records consisting of information that is inscribed on a tangible medium.
"Termination Date" means the date on which the latest of the following
events occurs:
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(a) the payment in full in cash of the Secured Obligations,
other than contingent indemnification obligations;
(b) the termination or expiration of the Availability Period;
and
(c) the termination or expiration of all Letters of Credit and
all Secured Swap Contracts to which a Swap Bank is a party.
"UCC" is defined in the Credit Agreement.
1.2 Credit Agreement Definitions. Unless otherwise defined herein or
the context otherwise requires, terms used in this Agreement, including its
preamble and recitals, have the meanings provided in the Credit Agreement.
1.3 UCC Definitions. Unless otherwise defined herein or the context
otherwise requires, terms for which meanings are provided in the UCC are used in
this Agreement, including its preamble and recitals, with such meanings.
1.4 Other Interpretive Provisions. The rules of construction in
Sections 1.02 to 1.06 of the Credit Agreement shall be equally applicable to
this Agreement.
ARTICLE II
SECURITY INTEREST
2.1 Grant of Security. Each Grantor hereby assigns and pledges to the
Administrative Agent for its benefit and the ratable benefit of each of the
Secured Parties, and hereby grants to the Administrative Agent for its benefit
and the ratable benefit of each of the Secured Parties a security interest in,
all of its right, title and interest in and to the following, whether now or
hereafter existing or acquired (collectively, the "Collateral"):
(a) all Equipment of such Grantor;
(b) all Inventory of such Grantor;
(c) all Receivables Collateral forms, including all
Accounts, Documents, Instruments, Health-Care-Insurance Receivables and Chattel
Paper, of such Grantor;
(d) to the extent not included under clause (c) above, all
Material Contract Collateral of such Grantor;
(e) all General Intangibles, including all Payment
Intangibles, of such Grantor;
(f) all Supporting Obligations of such Grantor;
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(g) all Investment Property, including all Securities
Accounts, of such Grantor;
(h) all Deposit Accounts of such Grantor;
(i) all Commercial Tort Claims of such Grantor described in
Part E of Schedule I hereto (as such Schedule may be supplemented from time to
time pursuant to Section 4.14 or otherwise);
(j) all other Goods of such Grantor;
(k) all of such Grantor's books, records, writings, data
bases, information and other property relating to, used or useful in connection
with, evidencing, embodying, incorporating or referring to, any of the foregoing
in this Section 2.1;
(l) all of such Grantor's other property and rights of every
kind and description and interests therein, including all moneys, securities and
other property, now or hereafter held or received by, or in transit to, the
Administrative Agent or any Secured Party from or for such Grantor, whether for
safekeeping, pledge, custody, transmission, collection or otherwise; and
(m) all Proceeds of any and all of the foregoing Collateral.
Notwithstanding the foregoing, (i) no account, instrument, chattel paper or
other obligation or property of any kind due from, owed by, or belonging to, a
Sanctioned Person or Sanctioned Entity, (ii) any lease in which the lessee is a
Sanctioned Person or Sanctioned Entity or (iii) any key man life insurance
policy of which the Borrower or any Guarantor is a beneficiary shall be
Collateral.
2.2 Security for Secured Obligations. The Collateral of each Grantor
under this Agreement secures the prompt and complete payment, performance and
observance of all Obligations of such Grantor and the other Loan Parties under
the Loan Documents (including such Grantor's Obligations in respect of any
Secured Swap Contract and any Secured Cash Management Services Agreement),
whether for principal, interest, costs, fees, expenses, indemnities or otherwise
and whether now or hereafter existing (all of such obligations being the
"Secured Obligations").
2.3 Continuing Security Interest; Transfer of Credit Extensions. This
Agreement shall create a continuing security interest in the Collateral and
shall remain in full force and effect until the Termination Date, be binding
upon each Grantor, its successors, transferees and assigns, and inure, together
with the rights and remedies of the Administrative Agent hereunder, to the
benefit of the Administrative Agent and each other Secured Party. Without
limiting the generality of the foregoing, any Secured Party may assign or
otherwise transfer (in whole or in part) any Commitment or Loan held by it to
any other Person, and such other Person shall thereupon become vested with all
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the rights and benefits in respect thereof granted to such Lender under any Loan
Document (including this Agreement) or otherwise, subject, however, to any
contrary provisions in such assignment or transfer, and to the provisions of
Section 10.07 and Article IX of the Credit Agreement.
2.4 Grantors Remain Liable. Anything herein to the contrary
notwithstanding
(a) each Grantor shall remain liable under the contracts and
agreements included in the Collateral (including the Material Contracts) to the
extent set forth therein, and shall perform all of its duties and obligations
under such contracts and agreements to the same extent as if this Agreement had
not been executed,
(b) each Grantor will comply in all material respects with all
Laws relating to the ownership and operation of the Collateral, including all
registration requirements under applicable Laws, and shall pay when due all
taxes, fees and assessments imposed on or with respect to the Collateral, except
to the extent the same are being contested in good faith by appropriate actions
or proceedings for which adequate reserves in accordance with GAAP have been set
aside by such Grantor,
(c) the exercise by the Administrative Agent of any of its
rights hereunder shall not release any Grantor from any of its duties or
obligations under any such contracts or agreements included in the Collateral,
and
(d) neither the Administrative Agent nor any other Secured
Party shall have any obligation or liability under any such contracts or
agreements included in the Collateral by reason of this Agreement, nor shall the
Administrative Agent or any other Secured Party be obligated to perform any of
the obligations or duties of any Grantor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
2.5 Security Interest Absolute. All rights of the Administrative Agent
and the security interests granted to the Administrative Agent hereunder, and
all obligations of each Grantor hereunder, shall be absolute and unconditional,
irrespective of any of the following conditions, occurrences or events:
(a) any lack of validity or enforceability of any Loan
Document;
(b) the failure of any Secured Party to assert any claim or
demand or to enforce any right or remedy against the Borrower, any other Grantor
or any other Person under the provisions of any Loan Document or otherwise or to
exercise any right or remedy against any other guarantor of, or collateral
securing, any Secured Obligation;
(c) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Secured Obligations or any other
extension, compromise or renewal of any Secured Obligation, including any
increase in the Secured Obligations resulting from the extension of additional
credit to any Grantor or any other obligor or otherwise;
(d) any reduction, limitation, impairment or termination of
any Secured Obligation for any reason, including any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to (and each
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Grantor hereby waives any right to or claim of) any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality, nongenuineness, irregularity, compromise, unenforceability of, or
any other event or occurrence affecting, any Secured Obligation or otherwise;
(e) any amendment to, rescission, waiver, or other
modification of, or any consent to departure from, any of the terms of any Loan
Document;
(f) any addition, exchange, release, surrender or
non-perfection of any collateral (including the Collateral), or any amendment to
or waiver or release of or addition to or consent to departure from any
guaranty, for any of the Secured Obligations; or
(g) any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of, Borrower, any other
Grantor or otherwise.
2.6 Waiver of Subrogation. Until the Termination Date, no Grantor shall
exercise any claim or other rights which it may now or hereafter acquire against
any other Grantor that arises from the existence, payment, performance or
enforcement of such Grantor's Obligations under this Agreement, including any
right of subrogation, reimbursement, exoneration or indemnification, any right
to participate in any claim or remedy against any other Grantor or any
Collateral which the Administrative Agent now has or hereafter acquires, whether
or not such claim, remedy or right arises in equity or under contract, statute
or common law, including the right to take or receive from any other Grantor,
directly or indirectly, in cash or other property or by setoff or in any manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to any Grantor in violation of the preceding sentence, such amount
shall be deemed to have been paid for the benefit of the Secured Parties, and
shall forthwith be paid to the Administrative Agent to be credited and applied
upon the Secured Obligations, whether matured or unmatured. Each Grantor
acknowledges that it will receive direct and indirect benefits for the financing
arrangements contemplated by the Loan Documents and that the agreement set forth
in this Section is knowingly made in contemplation of such benefits.
2.7 Release; Termination.
(a) Upon any sale, transfer or other disposition of any item
of Collateral, whether direct or indirect, of any Grantor in accordance with
Section 7.05 of the Credit Agreement, the Administrative Agent will, at such
Grantor's expense and without any representations, warranties or recourse of any
kind whatsoever, execute and deliver to such Grantor such documents as such
Grantor shall reasonably request to evidence the release of such item of
Collateral from the assignment and security interest granted hereby; provided,
however, that (i) at the time of such request and such release no Event of
Default shall have occurred and be continuing and (ii) such Grantor shall have
delivered to the Administrative Agent, at least ten Business Days prior to the
date of the proposed release, a written request for release describing the item
of Collateral and the terms of the sale, lease, transfer or other disposition in
reasonable detail, including the price thereof and any expenses in connection
therewith, together with a form of release for execution by the Administrative
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Agent (which release shall be in form and substance satisfactory to the
Administrative Agent) and a certificate of such Grantor to the effect that the
transaction is in compliance with the Loan Documents and as to such other
matters as the Administrative Agent (or the Required Lenders through the
Administrative Agent) may reasonably request. The provisions of this Section
2.7(a) shall apply to Dispositions of the capital stock of a Grantor (whether
direct or indirect) in compliance with Section 7.05 of the Credit Agreement.
(b) Upon the Termination Date, the pledge, assignment and
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the applicable Grantor. Upon any such termination,
the Administrative Agent will, at the applicable Grantor's expense and without
any representations, warranties or recourse of any kind whatsoever, execute and
deliver to such Grantor such documents as such Grantor shall reasonably request
to evidence such termination and deliver to such Grantor all Instruments,
Tangible Chattel Paper and negotiable documents representing or evidencing the
Collateral then held by the Administrative Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Grantor represents and warrants unto each Secured Party as set
forth in this Article.
3.1 Scheduled Information. Set forth in the Schedules to this Agreement
is the following information for each Grantor, all of which is accurate and
complete as of the Closing Date and as of each date on which such Schedules are
supplemented pursuant to Section 4.15 hereof:
(a) Location of Grantors. Item A of Schedule I hereto
identifies for such Grantor (i) the state in which it is organized, (ii) the
relevant organizational identification number (or states that one does not
exist), and (iii) the principal place of business and chief executive office of
such Grantor and the office where such Grantor keeps its records concerning the
Collateral, and where the original copies of each Material Contract and all
originals of all Tangible Chattel Paper are located.
(b) Owned Properties. Except as disclosed in Item C of
Schedule I hereto (as such Schedule may be supplemented from time to time
pursuant to Section 4.15 hereof), all of the Equipment and Inventory of such
Grantor are located at the places specified in Item B of Schedule I hereto (as
such Schedule may be supplemented from time to time pursuant to Section 4.15
hereof), each of which locations is owned by a Grantor.
(c) Leased Properties; Warehouses; etc. Except as disclosed in
Item C of Schedule I hereto (as such Schedule may be supplemented from time to
time pursuant to Section 4.15 hereof), none of the Collateral is in the
possession of any consignee, bailee, warehouseman, agent or processor, located
on any leased property or subject to the Control of any Person, other than the
Administrative Agent, such Grantor or another Grantor.
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(d) Trade Names. Except as set forth in Item D of Schedule I
hereto, such Grantor has no trade names and has not been known by any legal name
different from the one set forth on the signature page hereto.
(e) Commercial Torts Claims. Item E of Schedule I hereto (as
such Schedule may be supplemented from time to time pursuant to Section 4.15
hereof), describes all Commercial Tort Claims owned by each Grantor as of the
date hereof and as of the date of each supplement to such Schedule delivered
pursuant to Section 4.15 hereof.
(f) Government Contracts. Except as notified by such Grantor
to the Administrative Agent in writing, such Grantor is not a party to any one
or more Federal, state or local government contracts.
3.2 Negotiable Documents, Instruments, Chattel Paper and Material
Contracts. Such Grantor has delivered to the Administrative Agent possession of
all originals of all negotiable Documents, Instruments and Tangible Chattel
Paper currently owned or held by such Grantor (duly endorsed in blank, if
requested by the Administrative Agent), and true and correct copies of each
Material Contract.
3.3 Loan Documents Representations. Each Grantor makes each
representation and warranty made in the Credit Agreement and the other Loan
Documents by the Borrower or any other Loan Party with respect to such Grantor
as if such representation and warranty were expressly set forth herein.
ARTICLE IV
COVENANTS
Each Grantor covenants and agrees that, until the Termination Date,
such Grantor will, unless the Administrative Agent with the consent of the
Required Lenders shall otherwise agree in writing, perform the obligations set
forth in this Section.
4.1 As to Collateral Generally.
(a) Until such time as the Administrative Agent shall notify
the Grantors of the revocation of such power and authority after the occurrence
and continuation of any Event of Default, each Grantor (i) may in the ordinary
course of its business, at its own expense, sell, lease or furnish under its
contracts of service any of the Inventory normally held by such Grantor for such
purpose, and use and consume, in the ordinary course of its business, any raw
materials, work in process or materials normally held by such Grantor for such
purpose, and sell or otherwise dispose of any other Collateral to the extent
permitted by Section 7.05 of the Credit Agreement, (ii) will, at its own
expense, to the extent commercially reasonable or otherwise as Grantor in good
faith deems advisable, endeavor to collect, as and when due, all amounts due
with respect to any of the Collateral, including the taking of such action with
respect to such collection; and (iii) may grant, in the ordinary course of
business, to any party obligated on any of the Collateral, any rebate, refund or
allowance to which such party may be lawfully entitled in such Grantor's
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reasonable determination, and may accept, in connection therewith, the return of
goods, the sale or lease of which shall have given rise to such Collateral. The
Administrative Agent, however, may, at any time following the occurrence and
during the continuance of any Event of Default, whether before or after any
revocation of such power and authority or the maturity of any of the Secured
Obligations, notify any parties obligated on any of the Collateral to make
payment to the Administrative Agent of any amounts due or to become due
thereunder and enforce collection of any of the Collateral by suit or otherwise
and surrender, release, or exchange all or any part thereof, or compromise or
extend or renew for any period (whether or not longer than the original period)
any indebtedness thereunder or evidenced thereby. Upon request of the
Administrative Agent after the occurrence and during the continuance of any
Event of Default, each Grantor will, at its own expense, notify any parties
obligated on any of the Collateral to make payment to the Administrative Agent
of any amounts due or to become due thereunder.
(b) The Administrative Agent is authorized to endorse, in the
name of each Grantor, any item, howsoever received by the Administrative Agent,
representing any payment on or other proceeds of any of the Collateral.
4.2 Insurance. Each Grantor will maintain or cause to be maintained
insurance as provided in Section 6.07 of the Credit Agreement. In the event that
any Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required by Section 6.07 of the Credit Agreement or to pay
any premium in whole or part relating thereto, the Administrative Agent may,
without waiving or releasing any obligation or liability of the Grantors
hereunder or any Event of Default, in its sole discretion, obtain and maintain
such policies of insurance and pay such premium and take any other actions with
respect thereto as the Administrative Agent deems advisable. All sums disbursed
by the Administrative Agent in connection with this Section including reasonable
attorneys' fees, court costs, expenses and other charges relating thereto, shall
be payable, upon demand, by the Grantors to the Administrative Agent and shall
be additional Secured Obligations secured hereby.
4.3 Transfers and Other Liens. No Grantor shall:
(a) sell, assign (by operation of Law or otherwise) or
otherwise dispose of any of the Collateral, except as permitted by Section 7.05
of the Credit Agreement; or
(b) create or suffer to exist any Lien upon or with respect to
any of the Collateral, except for the security interest created by this
Agreement and except for Permitted Liens.
4.4 Inspections and Verification. The Administrative Agent shall have
the inspection rights set forth in Section 6.10 of the Credit Agreement.
4.5 As to Equipment and Inventory. Each Grantor hereby agrees that it
shall
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(a) keep all the Equipment and Inventory (other than Inventory
sold in the ordinary course of business) at the places therefor specified in
Section 3.1(b) or (c) unless such Grantor has given at least 10 days' prior
written notice to the Administrative Agent of another location, whether by
delivery of a supplement to Schedule I hereto delivered pursuant to Section 4.15
hereto or otherwise, and all action, if any, necessary to maintain in accordance
with the terms hereof the Administrative Agent's perfected first priority
security interest therein (including any action requested pursuant to Section
4.6) shall have been taken with respect to the Equipment and Inventory;
(b) cause the Equipment to be maintained, preserved and
protected in accordance with Section 6.06 of the Credit Agreement; and
(c) pay promptly when due all property and other taxes,
assessments and governmental charges or levies imposed upon, and all claims
(including claims for labor, materials and supplies) against, the Equipment and
Inventory, except to the extent the same are being contested in good faith by
appropriate actions or proceedings and for which adequate reserves in accordance
with GAAP have been set aside.
4.6 [Intentionally deleted.]
4.7 As to Accounts, Chattel Paper, Documents and Instruments.
(a) Each Grantor shall: (i) keep its principal place of
business and chief executive office and the office where it keeps its records
concerning the Receivables Collateral and all originals of all Tangible Chattel
Paper (until any such Tangible Chattel Paper is delivered to the Administrative
Agent pursuant to Section 4.10), located at the places therefor specified in
Section 3.1 unless the Borrower or such Grantor has given at least 30 days'
prior written notice to the Administrative Agent, and all actions, if any,
necessary to maintain the Administrative Agent's perfected first priority
security interest shall have been taken with respect to such Collateral; (ii)
not change its name or jurisdiction of organization (whether pursuant to a
transaction permitted pursuant to Section 7.04 of the Credit Agreement or
otherwise) unless the Borrower or such Grantor has given at least 30 days' prior
written notice to the Administrative Agent, and all actions necessary to
maintain the Administrative Agent's perfected first priority security interest
shall have taken with respect to the Collateral of such Grantor; and (iii) hold
and preserve such records and Chattel Paper (or copies of any such Chattel Paper
so delivered to the Administrative Agent).
(b) Upon written notice by the Administrative Agent to any
Grantor, all Proceeds of Collateral received by such Grantor shall be delivered
in kind to the Administrative Agent for deposit to the Collateral Account for
such Grantor, and such Grantor shall not commingle any such proceeds, and shall
hold separate and apart from all other property, all such Proceeds in express
trust for the benefit of the Administrative Agent until delivery thereof is made
to the Administrative Agent. The Administrative Agent will not give the notice
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referred to in the preceding sentence unless there shall have occurred and be
continuing any Event of Default. No funds, other than Proceeds of Collateral of
a Grantor, will be deposited in the Collateral Account for such Grantor.
(c) The Administrative Agent shall have the right to apply any
amount in the Collateral Account to the payment of any Secured Obligations which
are due and payable or payable upon demand, or to the payment of any Secured
Obligations at any time that any Event of Default shall exist. Subject to the
rights of the Administrative Agent, the Borrower on behalf of each Grantor shall
have the right on each Business Day, with respect to and to the extent of
collected funds in the Collateral Account, to require the Administrative Agent
to purchase any cash equivalent Investment permitted under Section 7.02 of the
Credit Agreement, provided that, in the case of certificated securities, the
Administrative Agent will retain possession thereof as Collateral and, in the
case of other Investment Property, the Administrative Agent will take such
actions, including registration of such Investment Property in its name, as it
shall determine is necessary to perfect its security interest therein. The
Administrative Agent may at any time and shall promptly following any Grantor's
request therefor, so long as no Event of Default has occurred and is continuing,
transfer to such Grantor's general demand deposit account at the Administrative
Agent or its bank (if not the Administrative Agent) any or all of the collected
funds in the Collateral Account; provided, however, that any such transfer shall
not be deemed to be a waiver or modification of any of the Administrative
Agent's rights under this Section. None of the Grantors will, without the
Administrative Agent's prior written consent, grant any extension of the time of
payment of any Receivables Collateral, compromise, compound or settle the same
for less than the full amount thereof, release, wholly or partly, any Person
liable for the payment thereof or allow any credit or discount whatsoever
thereon, other than extensions, credits, discounts, compromises or settlements
granted or made in the ordinary course of business and consistent with its
current practices and in accordance with such prudent and standard practices
used in industries that are the same as or similar to those in which such
Grantor is engaged.
4.8 As to the Material Contracts. Each Grantor shall at its expense
furnish to the Administrative Agent promptly upon receipt thereof copies of all
material notices, requests and other documents received by such Grantor under or
pursuant to the Material Contracts, and from time to time furnish to the
Administrative Agent such information and reports regarding the Material
Contracts as the Administrative Agent may reasonably request and otherwise
comply with the provisions regarding Material Contracts set forth in Section
6.13 of the Credit Agreement.
4.9 Chattel Paper. Each Grantor will deliver to the Administrative
Agent all Tangible Chattel Paper duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
the Administrative Agent. Each Grantor will provide the Administrative Agent
with Control of all Electronic Chattel Paper, by having the Administrative Agent
identified as the assignee of the records(s) pertaining to the single
authoritative copy thereof and otherwise complying with the applicable elements
of Control set forth in the UCC. Each Grantor will also deliver to the
Administrative Agent all security agreements securing any Chattel Paper and
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execute UCC financing statement amendments assigning to the Administrative Agent
any UCC financing statements filed by such Grantor in connection with such
security agreements. Each Grantor will mark conspicuously all Chattel Paper with
a legend, in form and substance satisfactory to the Administrative Agent,
indicating that such Chattel Paper is subject to the Liens created hereunder.
4.10 Letters of Credit. Each Grantor will deliver to the Administrative
Agent all Letters of Credit in which it is the beneficiary thereof, duly
endorsed and accompanied by duly executed instruments of transfer or assignment,
all in form and substance satisfactory to the Administrative Agent. Each Grantor
will take any and all actions necessary (or requested by the Administrative
Agent), from time to time, to cause the Administrative Agent to obtain exclusive
Control of any Letter-of-Credit Rights owned by such Grantor in a manner
acceptable to the Administrative Agent.
4.11 Commercial Tort Claims. Each Grantor shall advise the
Administrative Agent promptly upon such Grantor becoming aware, after the date
hereof, that it owns any additional Commercial Tort Claims in excess of
$1,000,000. With respect to any such Commercial Tort Claims, such Grantor will
execute and deliver such documents as the Administrative Agent deems necessary
to describe, create, perfect and protect the Administrative Agent's first
priority security interest in such Commercial Tort Claim.
4.12 Bank Accounts; Securities Accounts. Upon the occurrence and during
the continuance of an Event of Default and upon request by the Administrative
Agent, each Grantor shall enter into an Account Control Agreement with each
financial institution with which such Grantor maintains from time to time any
Deposit Account or any Securities Account. Each Grantor hereby grants to the
Administrative Agent, for the benefit of the Administrative Agent and the
Secured Parties, a continuing security interest in all such Deposit Accounts and
Securities Accounts and all funds and Investment Property at any time paid,
deposited, credited or held in such Deposit Accounts and Securities Accounts
(whether for collection, provisionally or otherwise) or otherwise in the
possession of such financial institutions, and each such financial institution
shall act as the Administrative Agent's agent in connection therewith.
4.13 Further Assurances, etc.
(a) Each Grantor agrees that, from time to time at its own
expense, such Grantor will promptly execute and deliver all further documents,
financing statements, agreements and instruments, and take all such further
action, which may be required under applicable Law, or which the Administrative
Agent or Required Lenders may reasonably request, in order to perfect, preserve
and protect any security interest granted or purported to be granted hereby or
to enable the Administrative Agent to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, each Grantor will take each of the following
actions:
(i) [intentionally deleted.]
(ii) if any Account shall be evidenced by a promissory
note or other instrument or negotiable document, deliver and pledge to the
Administrative Agent hereunder such promissory note, instrument or negotiable
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document duly endorsed and accompanied by duly executed instruments of transfer
or assignment, all in form and substance reasonably satisfactory to the
Administrative Agent;
(iii) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices
(including any assignment of claim form under or pursuant to the federal
assignment of claims statute, 31 U.S.C. ss. 3726, any successor or amended
version thereof or any regulation promulgated under or pursuant to any version
thereof), as may be necessary, or as the Administrative Agent may reasonably
request, in order to perfect and preserve the security interests and other
rights granted or purported to be granted to the Administrative Agent hereby;
(iv) furnish to the Administrative Agent, from time to
time at the Administrative Agent's request, statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Administrative Agent may reasonably request, all in
reasonable detail;
(v) take all actions that the Administrative Agent deems
necessary or advisable to enforce collection of the Receivables Collateral;
(vi) if requested by the Administrative Agent, cause the
landlord, bailee, warehouseman or processor with Control over any Equipment or
Inventory of such Grantor to enter into a waiver agreement or to transfer any
such Equipment or Inventory to warehouses designated by the Administrative
Agent;
(vii) if requested by the Administrative Agent, each
Grantor which owns or leases Equipment which is subject to a certificate of
title statute that requires notation of a lien thereon to perfect a security
interest therein shall deliver to the Administrative Agent all original
certificates of title for such Equipment, shall take all necessary steps to
cause the Administrative Agent's security interest be perfected in accordance
with such statute and deliver to the Administrative Agent a schedule in
reasonable detail describing such Equipment, registration number, license number
and all other information required to comply with such statute; provided,
however, that until the Administrative Agent makes such a request under this
clause, the parties hereto acknowledge that the security interest of the
Administrative Agent in such Collateral has not been perfected and all the
representations and warranties, covenants and Events of Default contained herein
and in the other Loan Documents which would otherwise be violated shall be
deemed modified to reflect the foregoing and not be violated;
(viii) if requested by the Administrative Agent upon the
occurrence and during the continuance of an Event of Default, cause each bank or
Securities Intermediary with which any Grantor maintains a Deposit Account or
Securities Account to enter into an Account Control Agreement with respect
thereto;
(ix) from time to time, promptly following the
Administrative Agent's request, execute and deliver confirmatory written
instruments pledging to the Administrative Agent the Collateral, but any such
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Grantor's failure to do so shall not affect or limit the security interest
granted hereby or the Administrative Agent's other rights in and to the
Collateral; and
(x) notify the Agent promptly of any Collateral which
constitutes a claim against the United States government or any instrumentality
or agent thereof in excess of $1,000,000, the assignment of which is restricted
by federal law. Upon the request of the Agent, Grantor shall take such steps as
may be necessary to comply with any applicable federal assignment of claims laws
or other comparable laws.
(b) With respect to the foregoing and the grant of the
security interest hereunder, each Grantor hereby authorizes the Administrative
Agent to Authenticate and to file one or more financing or continuation
statements, and amendments thereto, for the purpose of perfecting, continuing,
enforcing or protecting the security interest granted by each Grantor, without
the signature of any Grantor, and naming any Grantor or the Grantors as debtors
and the Administrative Agent as secured party. A carbon, photographic,
telecopied or other reproduction of this Agreement or any financing statement
covering the Collateral or any part thereof shall be sufficient as a financing
statement where permitted by Law.
4.14 Supplements to Scheduled Information. Without limiting the
generality of Section 4.14, concurrently with the delivery by the Borrower of
each Compliance Certificate pursuant to Section 6.02(b) of the Credit Agreement,
the Borrower, on behalf of each Grantor, shall deliver to the Administrative
Agent the following applicable supplements to the Schedules hereto in such form
as shall be reasonably satisfactory to the Administrative Agent, together with a
certificate of Responsible Officers certifying that, as of the date thereof and
after giving effect to the supplements to such Schedules delivered therewith,
the representations and warranties in Article III hereof are true and correct in
all material respects:
(a) a supplement to Item B of Schedule I hereto identifying
any new location owned by a Grantor where any Equipment or Inventory of such
Grantor may be located which is not already identified on such Schedule;
(b) a supplement to Item C of Schedule I hereto identifying
any new consignee, warehouseman, agent, bailee, processor, leased property or
other similar location where any Equipment or Inventory of such Grantor is
located which is not already identified on such Schedule; and
(c) a supplement to Item E of Schedule I hereto describing any
new Commercial Tort Claim owned by such Grantor which is not described on such
Schedule in excess of $1,000,000.
4.15 Amendments or Terminations Not Authorized. Grantor acknowledges
that it is not authorized to file any financing statement or amendment or
termination statement with respect to a financing statement filed in favor of
the Agent without the prior written consent of the Agent and agrees that it will
not do so without the prior written consent of the Agent, subject to Grantor's
rights under Section 9-5.13(c) of the UCC.
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4.16 Certain Property. No Grantor owns (a) standing timber that is to
be cut and removed under a conveyance or contract for sale, (b) animals, (c)
crops grown, growing, or to be grown, even if the crops are produced on trees,
vines or bushes, or (d) manufactured homes.
ARTICLE V
THE ADMINISTRATIVE AGENT
5.1 Appointment as Attorney-in-Fact. Each Grantor hereby irrevocably
appoints the Administrative Agent and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of such Grantor and in
the name of such Grantor or in its own name, for the purpose of carrying out the
terms of this Agreement, to take, upon the occurrence and during the continuance
of any Event of Default, any and all appropriate action and to execute any and
all documents and instruments that may be necessary or desirable to accomplish
the purposes of this Agreement. Without limiting the generality of the
foregoing, each Grantor hereby gives the Administrative Agent the power and
right, on behalf of such Grantor, without notice to or assent by such Grantor,
to do any or all of the following:
(a) (i) demand payment of its Receivables Collateral; (ii)
enforce payments of its Receivables Collateral by legal proceedings or
otherwise; (iii) exercise all of its rights and remedies with respect to
proceedings brought to collect its Receivables Collateral; (iv) sell or assign
its Receivables Collateral upon such terms, for such amount and at such times as
the Administrative Agent deems advisable; (v) settle, adjust, compromise, extend
or renew any of its Receivables Collateral; (vi) discharge and release any of
its Receivables Collateral; (vii) prepare, file and sign such Grantor's name on
any proof of claim in bankruptcy or other similar document against any obligor
of any of its Receivables Collateral; (viii) notify the post office authorities
to change the address for delivery of such Grantor's mail to an address
designated by the Administrative Agent, and open and dispose of all mail
addressed to such Grantor; (ix) endorse such Grantor's name upon any Chattel
Paper, document, instrument, invoice, or similar document or agreement relating
to any Receivables Collateral or any goods pertaining thereto; and (x) endorse
such Grantor's name upon any Chattel Paper, document, instrument, invoice, or
similar document or agreement relating to any Receivables Collateral or any
goods pertaining thereto;
(b) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any insurance called
for by the terms of this Agreement and pay all or any part of the premiums
therefor and the costs thereof;
(c) execute, in connection with any sale or other disposition
provided for in Section 6.1, any endorsements, assignments or other instruments
of conveyance or transfer with respect to the Collateral; and
(d) (i) direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Administrative Agent or as the Administrative Agent
shall direct; (ii) ask or demand for, collect, and receive payment of and give
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receipt for, any and all moneys, claims and other amounts due or to become due
at any time in respect of or arising out of any Collateral; (iii) sign and
indorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications, notices
and other documents in connection with any of the Collateral; (iv) commence and
prosecute any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any portion thereof and to
enforce any other right in respect of any Collateral; (v) defend any suit,
action or proceeding brought against such Grantor with respect to any
Collateral; (vi) settle, compromise or adjust any such suit, action or
proceeding and, in connection therewith, give such discharges or releases as the
Administrative Agent may deem appropriate; (vii) notify, or require any Grantor
to notify, Account Debtors to make payment directly to the Administrative Agent
and change the post office box number or other address to which the Account
Debtors make payments; and (viii) generally, sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Administrative Agent were the absolute owner
thereof for all purposes, and do, at the Administrative Agent's option and such
Grantor's expense, at any time, or from time to time, all acts and things that
the Administrative Agent deems necessary to protect, preserve or realize upon
the Collateral and the Secured Parties' security interests therein and to effect
the intent of this Agreement, all as fully and effectively as such Grantor might
do.
Each Grantor hereby acknowledges, consents and agrees that the power of
attorney granted pursuant to this Section is irrevocable and coupled with an
interest.
5.2 Administrative Agent May Perform. If any Grantor fails to perform
any agreement contained herein after any applicable cure period, the
Administrative Agent may itself perform, or cause performance of, such
agreement, and the reasonable expenses of the Administrative Agent incurred in
connection therewith shall be payable by such Grantor pursuant to Section 6.2.
5.3 Administrative Agent Has No Duty.
(a) In addition to, and not in limitation of, Section 2.4, the
powers conferred on the Administrative Agent hereunder are solely to protect its
interest (on behalf of the Secured Parties) in the Collateral and shall not
impose any duty or obligation on it to exercise any such powers. Neither the
Administrative Agent nor any of its officers, directors, employees or agents
shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of any Grantor or any
other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof (including the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral). Neither the Administrative Agent nor any of its officers,
directors, employees or agents shall be responsible to any Grantor for any act
or failure to act hereunder, except for their own gross negligence or willful
misconduct.
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(b) Each Grantor assumes all responsibility and liability
arising from or relating to the use, sale or other disposition of the
Collateral. The Secured Obligations shall not be affected by any failure of the
Administrative Agent to take any steps to perfect the security interest granted
hereunder or to collect or realize upon the Collateral, nor shall loss of or
damage to the Collateral release any Grantor from any of its Secured
Obligations.
ARTICLE VI
REMEDIES
6.1 Certain Remedies. If any Event of Default shall have
occurred and be continuing:
(a) The Administrative Agent may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the UCC and also may take the following actions:
(i) require each Grantor to, and each Grantor hereby
agrees that it will, at its expense and upon the request of the Administrative
Agent forthwith, assemble all or part of the Collateral as directed by the
Administrative Agent and make it available to the Administrative Agent at its
premises or another place designated by the Administrative Agent (whether or not
the UCC applies to the affected Collateral);
(ii) without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by referred to below) to or upon any Grantor or any other Person (all
and each of which demands, defenses, advertisements and notices are hereby
waived), sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do any
of the foregoing), in one or more parcels at public or private sale, at any of
the Administrative Agent's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as the Administrative Agent may deem
commercially reasonable. Each Grantor agrees that, to the extent notice of sale
shall be required by Law, at least ten days' prior notice to such Grantor of the
time and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Administrative Agent shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given. The Administrative Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned;
(iii) with or without legal process and with or without
prior notice or demand for performance, to take possession of the Collateral and
without liability for trespass to enter any premises where the Collateral may be
located for the purpose of taking possession of or removing the Collateral.
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(b) All cash proceeds received by the Administrative Agent in
respect of any sale of, collection from, or other realization upon all or any
part of the Collateral may, in the discretion of the Administrative Agent, be
held, to the extent permitted under applicable Law, by the Administrative Agent
as additional collateral security for all or any part of the Secured
Obligations, and/or then or at any time thereafter shall be applied (after
payment of any amounts payable to the Administrative Agent pursuant to Section
10.04 of the Credit Agreement and Section 6.2 below) in whole or in part by the
Administrative Agent for the ratable benefit of the Secured Parties against all
or any part of the Secured Obligations in accordance with Section 8.03 of the
Credit Agreement. Any surplus of such cash or cash proceeds held by the
Administrative Agent and remaining after payment in full of all the Secured
Obligations, and the termination of all Commitments, shall be paid over to the
Grantors or to whomsoever may be lawfully entitled to receive such surplus.
(c) The Administrative Agent may exercise any and all rights
and remedies of each Grantor under or in connection with the Collateral,
including the right to sue upon or otherwise collect, extend the time for
payment of, modify or amend the terms of, compromise or settle for cash, credit,
or otherwise upon any terms, grant other indulgences, extensions, renewals,
compositions, or releases, and take or omit to take any other action with
respect to the Collateral, any security therefor, any agreement relating
thereto, any insurance applicable thereto, or any Person liable directly or
indirectly in connection with any of the foregoing, without discharging or
otherwise affecting the liability of any Grantor for the Obligations or under
this Agreement or any other Loan Document and the Material Contracts or
otherwise in respect of the Collateral, including any and all rights of such
Grantor to demand or otherwise require payment of any amount under, or
performance of any provision of, any Collateral.
The Administrative Agent shall give the Grantors 10 days' written notice (which
each Grantor agrees is reasonable notice within the meaning of Section 9-612 of
the UCC) of the Administrative Agent's intention to make any sale of Collateral.
Such notice, in the case of a public sale, shall state the time and place for
such sale and, in the case of a sale at a broker's board or on a securities
exchange, shall state the board or exchange at which such sale is to be made and
the day on which the Collateral, or portion thereof, will first be offered for
sale at such board or exchange. Any such public sale shall be held at such time
or times within ordinary business hours and at such place or places as the
Administrative Agent may fix and state in the notice (if any) of such sale. At
any such sale, the Collateral, or portion thereof, to be sold may be sold in one
lot as an entirety or in separate parcels, as the Administrative Agent may (in
its sole and absolute discretion) determine. The Administrative Agent shall not
be obligated to make any sale of any Collateral if it shall determine not to do
so, regardless of the fact that notice of sale of such Collateral shall have
been given. The Administrative Agent may, without notice or publication adjourn
any public or private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Administrative Agent until the sale price is paid by the purchaser or purchasers
thereof, but the Administrative Agent shall not incur any liability in case any
such purchaser or purchasers shall fail to take up and pay for the Collateral so
sold and, in case of any such failure, such Collateral may be sold again upon
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like notice. At any public (or, to the extent permitted by Law, private) sale
made pursuant to this Section, any Secured Party may bid for or purchase, free
(to the extent permitted by Law) from any right of redemption, stay, valuation
or appraisal on the part of any Grantor (all said rights being also hereby
waived and released to the extent permitted by Law), the Collateral or any part
thereof offered for sale and may make payment on account thereof by using any
claim then due and payable to such Secured Party from any Grantor as a credit
against the purchase price, and such Secured Party may upon compliance with the
terms of sale, hold, retain and dispose of such property without further
accountability to any Grantor therefor. The Secured Obligations shall not be
affected by any failure of the Administrative Agent to take any steps to perfect
the security interest granted hereunder or to collect or realize upon the
Collateral, nor shall loss or damage to the Collateral release any Grantor from
any of its Secured Obligations.
6.2 Indemnity and Expenses. Each Grantor agrees to jointly and
severally indemnify and hold harmless the Administrative Agent (and any
sub-agent thereof), each other Secured Party, and each Related Party of any of
the foregoing Persons (each, such Person being called an "Indemnitee") against,
and hold each harmless from, any and all losses, claims, damages, liabilities,
and related expenses (including the fees, charges and disbursements of any
counsel for any Indemnitee) incurred by any Indemnitee or asserted against any
Indemnitee by a third party or by the Borrower or any other Loan Party arising
out of, in connection with, or as a result of, this Agreement and the other Loan
Documents (including enforcement of this Agreement and other Loan Documents;
provided that such indemnity shall not, as to any Indemnitee, be available to
the extent that such losses, claims, damages, liabilities and related expenses
(x) are determined by a court of competent jurisdiction by final and
nonappealable judgment to have resulted from the gross negligence or willful
misconduct of such Indemnitee or (y) result from a claim brought by a Loan Party
against an Indemnitee for breach in bad faith of such Indemnitee's obligations
hereunder or under any other Loan Document, if such Loan Party has obtained a
final and nonappealable judgment in its favor of such claim as determined by a
court of competent jurisdiction. Each Grantor will upon demand pay to the
Administrative Agent the amount of any and all reasonable expenses, including
the reasonable fees and disbursements of any experts and agents, which the
Administrative Agent may incur in connection with the following:
(a) the administration of this Agreement and the other Loan
Documents;
(b) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any of the Collateral;
(c) the exercise or enforcement of any of the rights of the
Administrative Agent or the Secured Parties hereunder; or
(d) the failure by any Grantor to perform or observe any of
the provisions hereof.
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The agreements in this Section 6.2 shall survive the termination of the
Commitments and the repayment, satisfaction or discharge of the other
Obligations.
6.3 Waivers. Each Grantor hereby waives any right, to the extent
permitted by applicable Law, to receive prior notice of or a judicial or other
hearing with respect to any action or prejudgment remedy or proceeding by the
Administrative Agent to take possession, exercise control over or dispose of any
item of Collateral where such action is permitted under the terms of this
Agreement or any other Loan Document or by applicable Laws or the time, place or
terms of sale in connection with the exercise of the Administrative Agent's
rights hereunder. Each Grantor waives, to the extent permitted by applicable
Laws, any bonds, security or sureties required by the Administrative Agent with
respect to any of the Collateral. Each Grantor also waives any damages (direct,
consequential or otherwise) occasioned by the enforcement of the Administrative
Agent's rights under this Agreement or any other Loan Document, including, the
taking of possession of any Collateral or the giving of notice to any Account
Debtor or the collection of any Receivables Collateral, all to the extent that
such waiver is permitted by applicable Laws. Each Grantor also consents that the
Administrative Agent, in connection with the enforcement of the Administrative
Agent's rights and remedies under this Agreement, may enter upon any premises
owned by or leased to it without obligations to pay rent or for use and
occupancy, through self-help, without judicial process and without having first
obtained an order of any court. These waivers and all other waivers provided for
in this Agreement and the other Loan Documents have been negotiated by the
parties and each Grantor acknowledges that it has been represented by counsel of
its own choice and has consulted such counsel with respect to its rights
hereunder.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Loan Document.
(a) This Agreement is a Loan Document executed pursuant to the
Credit Agreement and shall (unless otherwise expressly indicated herein) be
construed, administered and applied in accordance with the terms and provisions
thereof.
(b) Concurrently herewith certain of the Grantors are
executing and delivering the Pledge Agreement pursuant to which such Grantor is
pledging all the certificated Investment Property and Instruments of such
Grantor. Such pledges shall be governed by the terms of the Pledge Agreement and
not by this Agreement.
7.2 Amendments, etc.; Additional Grantors; Successors and Assigns.
(a) No amendment to or waiver of any provision of this
Agreement nor consent to any departure by any Grantor herefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Administrative Agent and, with respect to any such amendment, by the Grantors,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
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(b) Upon the execution and delivery by any Person of a Joinder
Agreement, (i) such Person shall be referred to as an "Additional Grantor" and
shall be and become a Grantor, and each reference in this Agreement to "Grantor"
shall also mean and be a reference to such Additional Grantor and (ii) the
schedule supplements attached to each Security Agreement shall be incorporated
into and become a part of and supplement Schedules I and II hereto, as
appropriate, and the Administrative Agent may attach such schedule supplements
to such Schedules, and each reference to such Schedules shall mean and be a
reference to such Schedules, as supplemented pursuant hereto.
(c) Upon the delivery by the Borrower of each certificate of
Responsible Officers certifying supplements to the Schedules to this Agreement
pursuant to Section 4.15, the schedule supplements attached to each such
certificate shall be incorporated into and become a part of and supplement
Schedules I and II hereto, as appropriate, and the Administrative Agent may
attach such schedule supplements to such Schedules, and each reference to such
Schedules shall mean and be a reference to such Schedules, as supplemented
pursuant hereto.
(d) This Agreement shall be binding upon each Grantor and its
successors, transferees and assigns and shall inure to the benefit of the
Administrative Agent and each other Secured Party and their respective
successors, transferees and assigns; provided, however, that no Grantor may
assign its obligations hereunder without the prior written consent of the
Administrative Agent.
7.3 Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing and mailed, delivered or transmitted
by telecopier to each party hereto at the address set forth in Section 10.02 of
the Credit Agreement (with any notice to a Grantor other than the Borrower being
delivered to such Grantor in care of the Borrower). All such notices and other
communications shall be deemed to be given or made at the times provided in
Section 10.02 of the Credit Agreement.
7.4 Section Captions. Section captions used in this Agreement are for
convenience of reference only, and shall not affect the construction of this
Agreement.
7.5 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable, (a) the legality, validity and enforceability
of the remaining provisions of this Agreement shall not be affected or impaired
thereby and (b) the parties shall endeavor in good faith negotiations to replace
the illegal, invalid or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the illegal,
invalid or unenforceable provisions. The invalidity of a provision in a
particular jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
7.6 Counterparts. This Agreement may be executed in counterparts (and
by different parties hereto in different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract.
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7.7 Governing Law, Etc.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND PERFORMED ENTIRELY WITHIN SUCH STATE, EXCEPT TO THE EXTENT THAT THE VALIDITY
OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF NEW YORK; PROVIDED THAT THE ADMINISTRATIVE AGENT SHALL
RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) EACH GRANTOR IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR
ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT
COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY
THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY SHALL BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. EACH OF THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE
PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN
ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR
ANY OTHER SECURED PARTY HERETO MAY OTHERWISE HAVE TO BRING ANY ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY
GRANTOR OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(c) EACH GRANTOR IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED
TO IN PARAGRAPH (b) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY
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IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT.
(d) EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF
PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 7.3. NOTHING IN THIS
AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY APPLICABLE LAW.
7.8 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
7.9 Entire Agreement. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
OR BY PRIOR OR CONTEMPORANEOUS WRITTEN AGREEMENTS. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
[Signature Page Follows]
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IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION,
a Delaware corporation
By: David B. Holtz
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Name: David B. Holtz
Title: Senior Vice President, Finance
INTEGRA LIFESCIENCES CORPORATION, a
Delaware corporation
By: David B. Holtz
-------------------------------------------
Name: David B. Holtz
Title: Senior Vice President, Finance
INTEGRA LIFESCIENCES INVESTMENT
CORPORATION, a Delaware corporation
By: David B. Holtz
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Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA OHIO, INC., a Delaware corporation
By: David B. Holtz
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Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA MASSACHUSETTS, INC., a Delaware
corporation
By: David B. Holtz
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Name: David B. Holtz
Title: Vice Preisdent and Treasurer
INTEGRA CLINICAL EDUCATION INSTITUTE, INC.,
a Delaware corporation
By: David B. Holtz
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Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA HEALTHCARE PRODUCTS LLC , a
Delaware limited liability company
By: Integra LifeSciences Corporation, its
sole member
By: David B. Holtz
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Name: David B. Holtz
Title: Vice President and Treasurer
J. JAMNER SURGICAL INSTRUMENTS, INC., a
Delaware corporation
By: David B. Holtz
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Name: David B. Holtz
Title: Vice President and Treasurer
JARIT INSTRUMENTS, INC., a Delaware
corporation
By: David B. Holtz
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Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA SELECTOR CORPORATION, a Delaware
corporation
By: David B. Holtz
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Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA NEUROSCIENCES PR, INC., a Delaware
corporation
By: David B. Holtz
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Name: David B. Holtz
Title: Vice President and Treasurer
SPINAL SPECIALTIES, INC., a Delaware
corporation
By: David B. Holtz
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Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA NEUROSCIENCES (IP), INC., a
Delaware corporation
By: David B. Holtz
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Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA NEUROSCIENCES (INTERNATIONAL),
INC., a Delaware corporation
By: David B. Holtz
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Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA LIFESCIENCES (FRANCE) LLC, a
Delaware limited liability company
By: Integra NeuroSciences
(International), Inc., its sole member
By: David B. Holtz
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Name: David B. Holtz
Title: Vice President and Treasurer
ACKNOWLEDGED AND ACCEPTED:
BANK OF AMERICA, N.A.,
as Administrative Agent
By: /s/ Amie L. Edwards
-----------------------
Name: Amie L. Edwards
Title: Vice President
EXECUTION COPY
PLEDGE AGREEMENT
This PLEDGE AGREEMENT, dated as of December 22, 2005 (as amended,
restated, amended and restated, supplemented or otherwise modified from time to
time, this "Agreement"), is made by INTEGRA LIFESCIENCES HOLDINGS CORPORATION, a
Delaware corporation (the "Borrower"), and each of the other Persons (such
capitalized term and all other capitalized terms not otherwise defined herein to
have the meanings provided for in Article I) listed on the signature pages
hereof (such other Persons, together with the Additional Pledgors (as defined in
Section 7.2(b)), and the Borrower, are collectively referred to as the
"Pledgors" and individually as a "Pledgor"), in favor of BANK OF AMERICA, N.A.,
as administrative and collateral agent (in such capacity, the "Administrative
Agent") for each of the Secured Parties.
W I T N E S S E T H:
WHEREAS, pursuant to a Credit Agreement, dated as of the date hereof
(as amended, restated, amended and restated, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among the Parent, the Borrower, the
various financial institutions as are, or may from time to time become, parties
thereto, the Administrative Agent, L/C Issuer and Swing Line Lender, Citibank
FSB and SunTrust Bank, as Co-Syndication Agents, and Royal Bank of Canada and
Wachovia Bank, National Association, as Co-Documentation Agents and the other
Loan Documents referred to therein, the Secured Parties have agreed to make
Credit Extensions and other financial accommodations available to or for the
benefit of the Pledgors;
WHEREAS, as a condition precedent to the making of the initial Credit
Extension under the Credit Agreement, each Pledgor is required to execute and
deliver this Agreement; and
WHEREAS, each Pledgor has duly authorized the execution, delivery and
performance of this Agreement;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the Lenders
to make Credit Extensions (including the initial Credit Extension) to the
Borrower pursuant to the Credit Agreement, each Pledgor agrees, for the benefit
of each Secured Party, as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms (whether or not underscored) when
used in this Agreement, including its preamble and recitals, shall have the
following meanings (such definitions to be equally applicable to the singular
and plural forms thereof):
"Additional Pledgors" is defined in Section 7.2(b).
"Administrative Agent" is defined in the preamble.
"Agreement" is defined in the preamble.
"Borrower" is defined in the preamble.
"Credit Agreement" is defined in the first recital.
"Collateral" is defined in Section 2.1.
"Distributions" means all Equity Interest dividends, other dividends,
including liquidating dividends, Equity Interests resulting from (or in
connection with the exercise of) splits, reclassifications, warrants, options,
non-cash dividends and all other distributions (whether similar or dissimilar to
the foregoing) on or with respect to any Pledged Equity Interests or other
Equity Interests constituting Collateral, but shall not include Dividends.
"Dividends" means cash dividends and cash distributions with respect to
any Pledged Equity Interests made in the ordinary course of business and not as
a liquidating dividend.
"Domestic Subsidiary" means a Subsidiary that is organized under the
laws of a political subdivision of the United States.
"Equity Interests" is defined in the Credit Agreement.
"Foreign Subsidiary" means a Subsidiary that is not organized under the
laws of a political subdivision of the United States.
"Indemnitee" is defined in Section 6.5.
"Lender" is defined in the Credit Agreement.
"LLC Agreement" means the limited liability company agreement,
operating agreement and other organizational document of a Securities Issuer
which is a limited liability company, as the same may be amended, restated,
amended and restated, supplemented or otherwise modified from time to time.
"Parent" is defined in the preamble.
"Partnership Agreement" means the partnership agreement and other
organizational document of a Securities Issuer which is a partnership, as the
same way be amended, restated, amended and restated, supplemented or otherwise
modified from time to time.
"Person" is defined in the Credit Agreement.
"Pledged Equity Interests" means all Pledged Shares, Pledged
Partnership Interests and Pledged Membership Interests.
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"Pledged Membership Interests" is defined in Section 2.1(c).
"Pledged Notes" is defined in Section 2.1(a). The form of the original
Pledged Notes hereunder is attached as Exhibit A hereto.
"Pledged Partnership Interests" is defined in Section 2.1(c).
"Pledged Shares" is defined in Section 2.1(b).
"Pledgor" and "Pledgors" is defined in the preamble.
"Proceeds" is defined in the Security Agreement.
"Security Agreement" is defined in the Credit Agreement.
"Secured Obligations" is defined in the Security Agreement.
"Secured Party" is defined in the Credit Agreement.
"Securities Act" is defined in Section 6.2.
"Securities Issuer" means any Person listed on Schedule I hereto (as
such Schedule may be supplemented from time to time pursuant to Section 4.1(b)
hereto) that has issued or may issue a Pledged Equity Interest or a Pledged
Note.
"Termination Date" is defined in the Security Agreement.
"UCC" is defined in the Credit Agreement.
1.2 Credit Agreement Definitions. Unless otherwise defined herein or
the context otherwise requires, terms used in this Agreement, including its
preamble and recitals, have the meanings provided in the Credit Agreement.
1.3 UCC Definitions. Unless otherwise defined herein or the context
otherwise requires, terms for which meanings are provided in the UCC are used in
this Agreement, including its preamble and recitals, with such meanings.
1.4 Other Interpretive Provisions. The rules of construction in
Sections 1.02 to 1.06 of the Credit Agreement shall be equally applicable to
this Agreement.
ARTICLE II
PLEDGE
2.1 Grant of Security Interest. Each Pledgor hereby pledges, assigns,
charges, mortgages, delivers, and transfers to the Administrative Agent the
ratable benefit of each of the Secured Parties, and hereby grants to the
Administrative Agent, for the ratable benefit of the Secured Parties, a
continuing security interest in all of its right, title and interest in and to
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the following property of such Pledgor, whether now or hereafter existing or
acquired (collectively, the "Collateral"):
(a) all promissory notes of each Securities Issuer identified in
Item A of Schedule I hereto (as such Schedule may be supplemented from time to
time pursuant to Section 4.1(b)) opposite the name of such Pledgor and all other
promissory notes of any such Securities Issuer issued from time to time to such
Pledgor, as such promissory notes are amended, modified, supplemented, restated
or otherwise modified from time to time and together with any promissory note of
any Securities Issuer taken in extension or renewal thereof or substitution
therefor (such promissory notes being referred to herein as the "Pledged
Notes");
(b) all issued and outstanding shares of capital stock of each
Securities Issuer which is a corporation (or similar type of issuer) identified
in Item B of Schedule I hereto (as such Schedule may be supplemented from time
to time pursuant to Section 4.1(b)) opposite the name of such Pledgor and all
additional shares of capital stock of any such Securities Issuer from time to
time acquired by such Pledgor in any manner, and the certificates representing
such shares of capital stock (such shares of capital stock being referred to
herein as the "Pledged Shares");
(c) all Equity Interests of each Securities Issuer which is a
limited liability company or partnership identified in Item C or Item D,
respectively, of Schedule I hereto (as such Schedule may be supplemented from
time to time pursuant to Section 4.1(b)) opposite the name of such Pledgor and
all additional Equity Interests of any such Securities Issuer from time to time
acquired by such Pledgor in any manner, including, in each case, (i) the LLC
Agreement or Partnership Agreement, as the case may be, of such Securities
Issuer, (ii) all rights (but not obligations) of such Pledgor as a member or
partner thereof, as the case may be, and all rights to receive Dividends and
Distributions from time to time received, receivable, or otherwise distributed
thereunder, (iii) all claims of such Pledgor for damages arising out of or for
breach of or default under such LLC Agreement or Partnership Agreement, (iv) the
right of such Pledgor to terminate such LLC Agreement or Partnership Agreement,
to perform and exercise consensual or voting rights thereunder, and to compel
performance and otherwise exercise all remedies thereunder, (v) all rights of
such Pledgor, whether as a member or partner thereof, as the case may be, or
otherwise, to all property and assets of such Securities Issuer (whether real
property, inventory, equipment, accounts, general intangibles, securities,
instruments, chattel paper, documents, choses in action, financial assets, or
otherwise) and (vi) all certificates or instruments, if any, evidencing such
Equity Interests (such Equity Interests being referred to herein, in the case of
membership interests, as the "Pledged Membership Interests" and, in the case of
partnership interests, as the "Pledged Partnership Interests");
(d) all Dividends, Distributions, principal, interest, and other
payments and rights with respect to any of the items listed in clauses (a), (b),
and (c) above; and
(e) all Proceeds of any and all of the foregoing Collateral.
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2.2 Security for Secured Obligations. The Collateral of each Pledgor
under this Agreement secures the prompt payment in full of all Secured
Obligations of such Pledgor under the Loan Documents.
2.3 Delivery of Collateral. All certificates or instruments, if any,
representing or evidencing any Collateral, including all Pledged Equity
Interests and all Pledged Notes, shall be delivered to and held by or on behalf
of the Administrative Agent pursuant hereto, shall be in suitable form for
transfer by delivery, and shall be accompanied by all necessary instruments of
transfer or assignment, duly executed in blank.
2.4 Dividends on Pledged Equity Interests and Payments on Pledged
Notes. So long as no Event of Default has occurred and is continuing, any
Dividend or payment in respect of any Pledged Note may be paid directly to the
applicable Pledgor. If any Event of Default has occurred and is continuing, then
any such Dividend or payment shall be paid directly to the Administrative Agent.
2.5 Continuing Security Interest; Transfer of Credit Extensions. This
Agreement shall create a continuing security interest in the Collateral and
shall remain in full force and effect until the Termination Date, be binding
upon each Pledgor and its successors, transferees and assigns, and inure,
together with the rights and remedies of the Administrative Agent hereunder, to
the benefit of the Administrative Agent and each other Secured Party. Without
limiting the generality of the foregoing, any Secured Party may assign or
otherwise transfer (in whole or in part) any Credit Extension held by it to any
other Person, and such other Person shall thereupon become vested with all the
rights and benefits in respect thereof granted to such Secured Party under any
Loan Document (including this Agreement) or otherwise, subject, however, to any
contrary provisions in such assignment or transfer.
2.6 Security Interest Absolute. All rights of the Administrative Agent
and the security interests granted to the Administrative Agent hereunder, and
all obligations of each Pledgor hereunder, shall be, absolute and unconditional,
irrespective of any of the following conditions, occurrences or events:
(a) any lack of validity or enforceability of any Loan Document;
(b) the failure of any Secured Party to assert any claim or demand
or to enforce any right or remedy against any Loan Party, the Borrower, any
other Pledgor or any other Person under the provisions of any Loan Document, or
otherwise or to exercise any right or remedy against any other guarantor of, or
collateral securing, any Secured Obligation;
(c) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations or any other extension,
compromise or renewal of any Secured Obligation, including any increase in the
Secured Obligations resulting from the extension of additional credit to any
Pledgor or otherwise;
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(d) any reduction, limitation, impairment or termination of any
Secured Obligation for any reason, including any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to (and each
Pledgor hereby waives any right to or claim of) any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality, non-genuineness, irregularity, compromise, unenforceability of, or
any other event or occurrence affecting, any Secured Obligation or otherwise;
(e) any amendment to, rescission, waiver, or other modification
of, or any consent to departure from, any of the terms of any Loan Document;
(f) any addition, exchange, release, surrender or non-perfection
of any collateral (including the Collateral), or any amendment to or waiver or
release of or addition to or consent to departure from any guaranty, for any of
the Secured Obligations; or
(g) any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of, any Loan Party, the
Borrower, any other Pledgor or otherwise.
2.7 Pledgors Remain Liable. Anything herein to the contrary
notwithstanding (a) the exercise by the Administrative Agent of any of its
rights hereunder shall not release any Pledgor from any of its duties or
obligations under any contracts or agreements included in the Collateral and (b)
neither the Administrative Agent nor any other Secured Party shall have any
obligation or liability under any such contracts or agreements included in the
Collateral by reason of this Agreement, nor shall the Administrative Agent or
any other Secured Party be obligated to perform any of the obligations or duties
of any Pledgor thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.
2.8 Subrogation. Until the Termination Date, no Pledgor shall exercise
any claim or other rights which it may now or hereafter acquire against any
other Pledgor that arises from the existence, payment, performance or
enforcement of such Pledgor's obligations under this Agreement, including any
right of subrogation, reimbursement, exoneration or indemnification, any right
to participate in any claim or remedy against any other Pledgor or any
collateral which the Administrative Agent now has or hereafter acquires, whether
or not such claim, remedy or right arises in equity or under contract, statute
or common law, including the right to take or receive from any other Pledgor,
directly or indirectly, in cash or other property or by setoff or in any manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to any Pledgor in violation of the preceding sentence, such amount
shall be deemed to have been paid for the benefit of the Secured Parties, and
shall forthwith be paid to the Administrative Agent to be credited and applied
upon the Secured Obligations, whether matured or unmatured. Each Pledgor
acknowledges that it will receive direct and indirect benefits for the financing
arrangements contemplated by the Loan Documents and that the agreement set forth
in this Section is knowingly made in contemplation of such benefits.
2.9 Release; Termination. (a) Upon any sale, transfer or other
disposition (direct or indirect) of any item of Collateral of any Pledgor in
accordance with Section 7.05 of the Credit Agreement, the Administrative Agent
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will, at such Pledgor's expense and without any representations, warranties or
recourse of any kind whatsoever, execute and deliver to such Pledgor such
documents as such Pledgor shall reasonably request to evidence the release of
such item of Collateral from the pledge, assignment and security interest
granted hereby; provided, however, that (i) at the time of such request and such
release no Default shall have occurred and be continuing, and (ii) such Pledgor
shall have delivered to the Administrative Agent, at least five Business Days
prior to the date of the proposed release, a written request for release
describing the item of Collateral and the terms of the sale, lease, transfer or
other disposition in reasonable detail, including, without limitation, the price
thereof and any expenses in connection therewith, together with a form of
release for execution by the Administrative Agent (which release shall be in
form and substance satisfactory to the Administrative Agent) and a certificate
of such Pledgor to the effect that the transaction is in compliance with the
Loan Documents and as to such other matters as the Administrative Agent (or the
Required Lenders through the Administrative Agent) may reasonably request.
(b) Upon the Termination Date, the pledge, assignment and security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to the applicable Pledgor. Upon any such termination, the Administrative
Agent will, at the applicable Pledgor's expense and without any representations,
warranties or recourse of any kind whatsoever, execute and deliver to such
Pledgor such documents as such Pledgor shall reasonably request to evidence such
termination and deliver to such Pledgor all certificates and instruments
representing or evidencing the Collateral then held by the Administrative Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Pledgor represents and warrants unto each Secured Party, as at the
date of each pledge and delivery hereunder (including each pledge and delivery
of a Pledged Equity Interest and each pledge and delivery of a Pledged Note) by
such Pledgor to the Administrative Agent of any Collateral, as set forth in this
Article.
3.1 Ownership; No Liens, etc. (a) Schedule I hereto accurately
identifies as of the date hereof and as of each date such Schedule is
supplemented pursuant to Section 4.1(b) hereof each of the following:
(i) all shares of capital stock, membership interests,
general and limited partnership interests and other Equity Interests in any
Person (other than a Foreign Subsidiary) owned by such Pledgor; and
(ii) all promissory notes (including Intercompany Notes) and
debt securities of any other Person owned by such Pledgor and all outstanding
loans and advances for borrowed money made by such Pledgor to any other Person.
(b) Such Pledgor is the legal and beneficial owner of, and has
good and marketable title to (and has full right and authority to pledge and
assign) such Collateral, free and clear of all Liens, except for this security
interest granted pursuant hereto in favor of the Administrative Agent.
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3.2 Valid Security Interest. The delivery of such Collateral to the
Administrative Agent is effective to create a valid, perfected, first priority
security interest in such Collateral and all Proceeds thereof, subject to no
other Liens, securing the payment of the Secured Obligations. No filing or other
action will be necessary to perfect or protect such security interest.
3.3 As to Pledged Notes. Each Pledged Note has been duly authorized,
executed, endorsed, issued and delivered, and is the legal, valid and binding
obligation of the relevant Securities Issuer thereof, and is not in default.
3.4 As to Pledged Shares. In the case of any Pledged Share constituting
such Collateral, all of such Pledged Shares are duly authorized and validly
issued, fully paid, and non-assessable, and constitute 100% of the issued and
outstanding voting capital stock and 100% of the non-voting shares of capital
stock of each Securities Issuer thereof (or 100% of such lesser percentage as is
permitted to be hereafter acquired pursuant to the terms of the Credit
Agreement). The Pledgors have no Subsidiaries other than those set forth on
Schedule 5.08 of the Credit Agreement.
3.5 As to Pledged Membership Interests and Pledged Partnership
Interests, etc. (a) In the case of any Pledged Membership Interests and Pledged
Partnership Interests constituting a part of the Collateral, all of such Pledged
Equity Interests are duly authorized and validly issued, fully paid, and
non-assessable, and constitute all of the issued and outstanding Equity
Interests held by such Pledgor in the applicable Securities Issuer.
(b) Each LLC Agreement and Partnership Agreement to which such
Pledgor is a party, true and complete copies of which have been furnished to the
Administrative Agent, has been duly authorized, executed, and delivered by such
Pledgor, has not been amended or otherwise modified except as permitted by the
Credit Agreement, is in full force and effect, and is binding upon and
enforceable against such Pledgor in accordance with its terms. There exists no
default under any such LLC Agreement or Partnership Agreement by such Pledgor.
(c) Each such LLC Agreement and Partnership Agreement, as the case
may be, expressly provides that the Pledged Membership Interests or Pledged
Partnership Interests, as the case may be, are not "securities" governed by
Article 8 of applicable Uniform Commercial Code (or, if they are, Pledgors have
delivered certificates representing such interest).
(d) Such Pledgor's Equity Interest in the applicable Securities
Issuer is set forth in Schedule I hereto, as supplemented from time pursuant to
Section 4.1(b), and Schedule I, as so supplemented, accurately reflects whether
such Equity Interest is in certificated form.
(e) Such Pledgor had and has the power and legal capacity to
execute and carry out the provisions of all such LLC Agreements and Partnership
Agreements, as the case may be, to which it is a party. Such Pledgor has
substantially performed all of its obligations to date under all such LLC
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Agreements and Partnership Agreements, as the case may be, and has not received
notice of the failure of any other party thereto to perform its obligations
thereunder.
(f) The state of organization of each Securities Issuer is as set
forth in Schedule I hereto.
3.6 Authorization, Approval, etc. No authorization, approval, or other
action by, and no notice to or filing with, any Governmental Authority or any
other Person is required (except those which have been obtained) either:
(a) for the pledge by such Pledgor of any Collateral pursuant to
this Agreement or for the execution, delivery, and performance of this Agreement
by such Pledgor; or
(b) for the exercise by the Administrative Agent of the voting or
other rights provided for in this Agreement or the remedies in respect of the
Collateral pursuant to this Agreement, except, with respect to the Pledged
Equity Interests, as may be required in connection with a disposition of such
Pledged Equity Interests by Laws affecting the offering and sale of securities
generally.
3.7 Loan Documents. Each Pledgor makes each representation and warranty
made in each of the Loan Documents by the Parent or the Borrower or any other
Loan Party with respect to such Pledgor as if such representation and warranty
were expressly set forth herein.
ARTICLE IV
COVENANTS
Each Pledgor covenants and agrees that, until the Termination Date,
such Pledgor will, unless the Administrative Agent with the consent of the
Required Lenders shall otherwise agree in writing, perform the obligations set
forth in this Section.
4.1 Protect Collateral; Further Assurances, etc. (a) (a) No Pledgor
will create or suffer to exist any Lien on the Collateral (except a Lien in
favor of the Administrative Agent). Each Pledgor will warrant and defend the
right and title herein granted unto the Administrative Agent in and to the
Collateral (and all right, title, and interest represented by the Collateral)
against the claims and demands of all Persons whomsoever.
(b) Promptly following any Investment made by any Pledgor in any
other Person (other than an Excluded Subsidiary) after the date hereof which is
not described in Schedule I hereto and, in any case, not later than the next
date thereafter on which the Borrower is required to deliver a Compliance
Certificate pursuant to Section 6.02(b) of the Credit Agreement, the Borrower,
on behalf of such Pledgor, shall deliver a supplement to Schedule I hereto which
supplement shall accurately describe such Investment, together with a
certificate of a Responsible Officer certifying that, as of the date thereof and
after giving effect to the supplement to such schedule delivered therewith, the
representations and warranties in Article III hereof are true and correct.
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Following receipt by any Pledgor of any promissory note or certificate
evidencing any such Investment made by any Pledgor in any such Person which has
not been delivered by such Pledgor to the Administrative Agent in pledge
hereunder, such Pledgor shall deliver such promissory note or other certificate
to the Administrative Agent, indorsed and accompanied by instruments of transfer
or assignment as contemplated by Section 2.3 hereof.
(c) Each Pledgor agrees that at any time, and from time to time,
at the expense of such Pledgor, such Pledgor will promptly execute and deliver
all further instruments, and take all further action, that may be necessary, or
that the Administrative Agent may reasonably request, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable the Administrative Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral.
(d) Each Pledgor will not permit any Securities Issuer of any
Pledged Equity Interests pledged by such Pledgor hereunder to issue any
certificated Equity Interest unless the same.
4.2 Powers, Control, etc. (a) Each Pledgor agrees that all certificated
Pledged Equity Interests (and all other certificated Equity Interests
constituting Collateral) delivered by such Pledgor pursuant to this Agreement
will be accompanied by duly executed undated blank powers, or other equivalent
instruments of transfer reasonably acceptable to the Administrative Agent.
(b) With respect to any Pledged Equity Interests in which any
Pledgor has any right, title or interest and that constitutes an uncertificated
security, such Pledgor will cause the applicable Securities Issuer either (i) to
register the Administrative Agent as the registered owner of such Pledged Equity
Interest or (ii) to deliver a written acknowledgement and agreement to the
Administrative Agent (A) to acknowledge the security interest of the
Administrative Agent in such Pledged Equity Interest granted hereunder, (B) to
confirm that such Securities Issuer has marked the company register for such
Pledged Equity Interest or other applicable records to reflect such security
interest of the Administrative Agent, (C) to confirm to the Administrative Agent
that it has not received notice of any other Lien in such Pledged Equity
Interest (and has not agreed to accept instructions from any other Person in
respect of such Pledged Equity Interest and will not accept or execute any
instructions to transfer ownership of such Pledged Equity Interest unless
consented to in writing by the Administrative Agent) and (D) to agree with such
Pledgor and the Administrative Agent that, after the occurrence and during the
continuation of an Event of Default, such Securities Issuer will comply with
instructions with respect to such Pledged Equity Interest originated by the
Administrative Agent without further consent of such Pledgor, such
acknowledgement and agreement to be in form and substance reasonably
satisfactory to the Administrative Agent.
(c) Each Pledgor which is the Securities Issuer of any Pledged
Equity Interests in which any other Pledgor has any right, title, or interest,
hereby (i) acknowledges the security interest of the Administrative Agent in
such Pledged Equity Interests granted by such other Pledgor hereunder, (ii)
confirms that it has marked its register for such Pledged Equity Interests or
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other applicable company records to reflect such security interest of the
Administrative Agent, (iii) confirms that it has not received notice of any
other Lien in such Pledged Equity Interests (and has not agreed to accept
instructions from any other person in respect of such Pledged Equity Interests
and will not accept or execute any instructions to transfer ownership of such
Pledged Equity Interest unless consented to in writing by the Administrative
Agent), (iv) agrees that it will comply with the instructions with respect to
such Pledged Equity Interests originated by the Administrative Agent without
further consent of such other Pledgor and (v) unless the Partnership Agreement
or LLC Agreement, as the case may be, of any such Pledgor already so provides on
the date such Pledgor becomes a party to this Agreement, agrees to promptly
prepare, execute and deliver to each of its partners or members, as the case may
be, any amendment or supplement to such Partnership Agreement or LLC Agreement,
as the case may be, as may be necessary to expressly provide that the Equity
Interests of such Pledgor are not "securities" governed by Article 8 of the
applicable Uniform Commercial Code (or if such Equity Interests are such
securities, Pledgor shall deliver certificates therefore) (and each Pledgor
which is a partner or member of such Pledgor shall promptly execute and deliver
such amendment).
(d) Each Pledgor will, from time to time upon the request of the
Administrative Agent, promptly deliver to the Administrative Agent such powers,
instruments, and similar documents, satisfactory in form and substance to the
Administrative Agent, with respect to the Collateral as the Administrative Agent
may reasonably request and will, from time to time upon the request of the
Administrative Agent after the occurrence of any Event of Default, promptly
transfer any Pledged Equity Interests or other Equity Interests constituting
Collateral into the name of any nominee designated by the Administrative Agent.
4.3 Continuous Pledge. Subject to Section 2.4 and 2.9, each Pledgor
will, at all times, keep pledged to the Administrative Agent pursuant hereto all
Pledged Equity Interests and all other Equity Interests constituting Collateral,
all Dividends and Distributions with respect thereto, all Pledged Notes, all
interest, principal and other proceeds received by the Administrative Agent with
respect to the Pledged Notes, and all other Collateral and other securities,
instruments, proceeds, and rights from time to time received by or distributable
to such Pledgor in respect of any Collateral.
4.4 Voting Rights; Dividends, etc. Each Pledgor agrees:
(a) after any Event of Default shall have occurred and be
continuing, promptly upon receipt thereof by such Pledgor and without any
request therefor by the Administrative Agent, to deliver (properly indorsed
where required hereby or requested by the Administrative Agent) to the
Administrative Agent all Dividends, Distributions, interest, principal, other
cash payments, and proceeds of the Collateral, all of which shall be held by the
Administrative Agent as additional Collateral for use in accordance with Section
6.4; and
(b) after any Event of Default shall have occurred and be
continuing and the Administrative Agent has notified such Pledgor of the
Administrative Agent's intention to exercise its voting power under this clause:
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(i) the Administrative Agent may exercise (to the exclusion
of such Pledgor) the voting power and all other incidental rights of ownership
with respect to any Pledged Equity Interests or other Equity Interests
constituting Collateral and such Pledgor hereby grants the Administrative Agent
an irrevocable proxy, exercisable under such circumstances, to vote the Pledged
Equity Interests and such other Collateral; and
(ii) such Pledgor shall promptly deliver to the
Administrative Agent such additional proxies and other documents as may be
necessary to allow the Administrative Agent to exercise such voting power.
All Dividends, Distributions, interest, principal, cash payments, and proceeds
which may at any time and from time to time be held by any Pledgor but which
such Pledgor is then obligated to deliver to the Administrative Agent, shall,
until delivery to the Administrative Agent, be held by each Pledgor separate and
apart from its other property in trust for the Administrative Agent. The
Administrative Agent agrees that until an Event of Default shall have occurred
and be continuing and the Administrative Agent shall have given the notice
referred to in clause (b) above, each Pledgor shall have the exclusive voting
power with respect to any Equity Interests constituting Collateral and the
Administrative Agent shall, upon the written request of each Pledgor, promptly
deliver such proxies and other documents, if any, as shall be reasonably
requested by each Pledgor which are necessary to allow such Pledgor to exercise
voting power with respect to any such Equity Interests constituting Collateral;
provided, however, that no vote shall be cast, or consent, waiver, or
ratification given, or action taken or any action not taken by the Pledgor that
would impair any Collateral or violate any provision of the Credit Agreement or
any other Loan Document (including this Agreement).
4.5 As to LLC Agreements and Partnership Agreements. (a) Each Pledgor
of a Pledged Membership Interest and/or Pledged Partnership Interests shall at
its own expense:
(i) perform and observe all the terms and provisions of each
LLC Agreement and/or Partnership Agreement, as the case may be, to which it is a
party and each other contract and agreement included in all the Collateral to be
performed or observed by it, maintain such LLC Agreement and/or Partnership
Agreement, as the case may be, and each such other contract and agreement in
full force and effect, enforce such LLC Agreement and/or Partnership Agreement,
as the case may be, and each such other contract and agreement in accordance
with its terms, and take all such action to such end as may from time to time be
reasonably be requested by the Administrative Agent; and
(ii) furnish to the Administrative Agent promptly upon
receipt thereof copies of all material notices, requests and other documents
received by such Pledgor under or pursuant to such LLC Agreement and/or
Partnership Agreement, as the case may be, and any other contract or agreement
included in the Collateral to which it is a party, and from time to time (A)
furnish to the Administrative Agent such information and reports regarding the
Collateral as the Administrative Agent may reasonably request, and (B) upon the
reasonable request of the Administrative Agent, make to any other party to such
LLC Agreement and/or Partnership Agreement, as the case may be, or any such
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other contract or agreement such demands and requests for information and
reports or for action as such Pledgor is entitled to make thereunder.
(b) No Pledgor of a Pledged Membership Interest and/or Pledged
Partnership Interest, as the case may be, shall, except as otherwise permitted
by the Credit Agreement:
(i) cancel or terminate any LLC Agreement, Partnership
Agreement or any other contract or agreement included in the Collateral to which
it is a party or consent to or accept any cancellation or termination thereof;
(ii) amend or otherwise modify any such LLC Agreement,
Partnership Agreement or any such contract or agreement or give any consent,
waiver, or approval thereunder;
(iii) waive any default under or breach of any such LLC
Agreement, Partnership Agreement or any such other contract or agreement; or
(iv) take any other action in connection with any such LLC
Agreement or any such other contract or agreement that would impair the value of
the interest or rights of such Pledgor thereunder or that would impair the
interest or rights of the Administrative Agent.
4.6 As to Pledged Notes. Each Pledgor will not, without the prior
written consent of the Administrative Agent:
(a) enter into any agreement amending, supplementing, or waiving
any provision of any Pledged Note (including any underlying instrument pursuant
to which such Pledged Note is issued) or compromising or releasing or extending
the time for payment of any obligation of the maker thereof; or
(b) take or omit to take any action the taking or the omission of
which could result in any impairment or alteration of any obligation of the
maker of any Pledged Note or other instrument constituting Collateral.
ARTICLE V
THE ADMINISTRATIVE AGENT
5.1 Appointment as Attorney-in-Fact. Each Pledgor hereby irrevocably
constitutes and appoints the Administrative Agent and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of such Pledgor and in the name of such Pledgor or in its own name, for
the purpose of carrying out the terms of this Agreement, to take, upon the
occurrence and during the continuation of any Event of Default, any and all
appropriate action and to execute any and all documents and instruments that may
be necessary or desirable to accomplish the purposes of this Agreement. Without
limiting the generality of the foregoing (and in addition to the powers and
rights granted to the Administrative Agent pursuant to Article V of the Security
Agreement), each Pledgor hereby gives the Administrative Agent the power and
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right, on behalf of such Pledgor, without notice to or assent by such Pledgor,
to do any or all of the following upon the occurrence and during the
continuation of an Event of Default:
(a) in the name of such Pledgor or its own name, or otherwise,
take possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under or in
respect of any Collateral and file any claim or take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by the
Administrative Agent for the purpose of collecting any and all such moneys due
under or in respect of any Collateral whenever payable; and
(b) (i) direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due thereunder
directly to the Administrative Agent or as the Administrative Agent shall
direct; (ii) ask or demand for, collect, and receive payment of and give receipt
for, any and all moneys, claims and other amounts due or to become due at any
time in respect of or arising out of any Collateral; (iii) receive, collect,
sign and indorse any drafts or other instruments, documents and chattel paper in
connection with any of the Collateral; (iv) commence and prosecute any suits,
actions or proceedings at Law or in equity in any court of competent
jurisdiction to collect the Collateral or any portion thereof and to enforce any
other right in respect of any Collateral; (v) defend any suit, action or
proceeding brought against such Pledgor with respect to any Collateral; (vi)
settle, compromise or adjust any such suit, action or proceeding and, in
connection therewith, give such discharges or releases as the Administrative
Agent may deem appropriate; and (vii) generally, sell, transfer, pledge and make
any agreement with respect to or otherwise deal with any of the Collateral as
fully and completely as though the Administrative Agent were the absolute owner
thereof for all purposes, and do, at the Administrative Agent's option and such
Pledgor's expense, at any time, or from time to time, all acts and things that
the Administrative Agent deems necessary to protect, preserve or realize upon
the Collateral and the Secured Parties' security interests therein and to effect
the intent of this Agreement, all as fully and effectively as such Pledgor might
do.
Each Pledgor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
5.2 Administrative Agent May Perform. If any Pledgor fails to perform
any agreement contained herein, the Administrative Agent may itself perform, or
cause performance of, such agreement upon notice and expiration of the
applicable cure period, and the reasonable expenses of the Administrative Agent
incurred in connection therewith shall be payable by such Pledgor pursuant to
Section 6.5.
5.3 Administrative Agent Has No Duty. (a) In addition to, and not in
limitation of, Section 2.7, the powers conferred on the Administrative Agent
hereunder are solely to protect its interest (on behalf of the Secured Parties)
in the Collateral and shall not impose any duty on it to exercise any such
powers. Neither the Administrative Agent nor any of its officers, directors,
employees or agents shall be liable for failure to demand, collect or realize
upon any of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
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any Pledgor or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof (including the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral). Neither the Administrative Agent nor any of its
officers, directors, employees or agents shall be responsible to any Pledgor for
any act or failure to act hereunder, except for their own gross negligence or
willful misconduct.
(b) Each Pledgor assumes all responsibility and liability arising
from or relating to the use, sale or other disposition of the Collateral. The
Secured Obligations shall not be affected by any failure of the Administrative
Agent to take any steps to perfect the pledge and security interest granted
hereunder or to collect or realize upon the Collateral, nor shall loss or damage
to the Collateral release any Pledgor from any of its Secured Obligations.
ARTICLE VI
REMEDIES
6.1 Certain Remedies. If any Event of Default shall have occurred and
be continuing:
(a) The Administrative Agent may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the UCC and also may, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by applicable Law referred to below) to or upon any Pledgor or
any other Person (all and each of which demands, defenses, advertisements and
notices are hereby waived), sell, lease, assign, give option or options to
purchase, or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing) in one or more parcels at public or
private sale, at any of the Administrative Agent's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as the
Administrative Agent may deem commercially reasonable. Each Pledgor agrees that,
to the extent notice of sale shall be required by applicable Law, at least ten
(10) days' prior notice to such Pledgor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. The Administrative Agent shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. The
Administrative Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
(b) The Administrative Agent may:
(i) transfer all or any part of the Collateral into the name
of the Administrative Agent or its nominee, with or without disclosing that such
Collateral is subject to the lien and security interest hereunder;
(ii) notify the parties obligated on any of the Collateral
to make payment to the Administrative Agent of any amount due or to become due
thereunder;
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(iii) enforce collection of any of the Collateral by suit or
otherwise, and surrender, release or exchange all or any part thereof, or
compromise or extend or renew for any period (whether or not longer than the
original period) any obligations of any nature of any party with respect
thereto;
(iv) indorse any checks, drafts, or other writings in each
Pledgor's name to allow collection of the Collateral;
(v) take control of any proceeds of the Collateral;
(vi) execute (in the name, place and stead of each Pledgor)
indorsements, assignments, stock powers and other instruments of conveyance or
transfer with respect to all or any of the Collateral; and
(vii) enforce compliance with, and take any and all actions
with respect to, a LLC Agreement or Partnership Agreement, as the case may be,
to the full extent as though the Administrative Agent were the absolute owner of
the Pledged Membership Interests, Pledged Partnership Interests and other
Collateral, including the right to receive all distributions and other payments
that are made pursuant to such LLC Agreement or Partnership Agreement, as the
case may be.
The Administrative Agent shall give the Pledgors ten (10) days' written
notice (which each Pledgor agrees is reasonable notice within the meaning of
Section 9-612 of the UCC) of the Administrative Agent's intention to make any
sale of Collateral. Such notice, in the case of a public sale, shall state the
time and place for such sale and, in the case of a sale at a broker's board or
on a securities exchange, shall state the board or exchange at which such sale
is to be made and the day on which the Collateral, or portion thereof, will
first be offered for sale at such board or exchange. Any such public sale shall
be held at such time or time within ordinary business hours and at such place or
places as the Administrative Agent may fix and state in the notice (if any) of
such sale. At any such sale, the Collateral, or portion thereof, to be sold may
be sold in one lot as an entirety or in separate parcels, as the Administrative
Agent may (in its sole and absolute discretion) determine. The Administrative
Agent shall not be obligated to make any sale of any Collateral if it shall
determine not to do so, regardless of the fact that notice of sale of such
Collateral shall have been given. The Administrative Agent may, without notice
or publication adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case any sale of all or any part of the
Collateral is made on credit or for future delivery, the Collateral so sold may
be retained by the Administrative Agent until the sale price is paid by the
purchase or purchasers thereof, but the Administrative Agent shall not incur any
liability in case any such purchaser or purchasers shall fail to take up and pay
for the Collateral so sold and, in case of any such failure, such Collateral may
be sold again upon like notice. At any public (or, to the extent permitted by
Law, private) sale made pursuant to this Section, the Administrative Agent (for
the Secured Parties) may bid for or purchase, free (to the extent permitted by
Law) from any right of redemption, stay, valuation or appraisal on the part of
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any Pledgor (all said rights being also hereby waived and released to the extent
permitted by Law), the Collateral or any part thereof offered for sale and may
make payment on account thereof by using any claim then due and payable to such
Secured Party from any Pledgor as a credit against the purchase price, and the
Administrative Agent (for such Secured Party) may upon compliance with the terms
of sale, hold, retain and dispose of such property without further
accountability to any Pledgor therefor.
6.2 Securities Laws. If the Administrative Agent shall determine to
exercise its right to sell all or any of the Collateral pursuant to Section 6.1,
each Pledgor agrees that, upon request of the Administrative Agent, such Pledgor
will, at its own expense:
(a) execute and deliver, and cause each issuer of the Collateral
contemplated to be sold and the directors and officers thereof to execute and
deliver, all such instruments and documents, and do or cause to be done all such
other acts and things, as may be necessary or, in the opinion of the
Administrative Agent, advisable to register such Collateral under the provisions
of the Securities Act of 1933, as from time to time amended (the "Securities
Act"), and to cause the registration statement relating thereto to become
effective and to remain effective for such period as prospectuses are required
by Law to be furnished, and to make all amendments and supplements thereto and
to the related prospectus which, in the opinion of the Administrative Agent, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto;
(b) use its best efforts to qualify the Collateral under the state
securities or "Blue Sky" Laws and to obtain all necessary governmental approvals
for the sale of the Collateral, as requested by the Administrative Agent;
(c) cause each such issuer to make available to its security
holders, as soon as practicable, an earnings statement that will satisfy the
provisions of Section 11(a) of the Securities Act; and
(d) do or cause to be done all such other acts and things as may
be necessary to make such sale of the Collateral or any part thereof valid and
binding and in compliance with applicable Law.
Each Pledgor further acknowledges the impossibility of ascertaining the amount
of damages that would be suffered by the Administrative Agent or the Secured
Parties by reason of the failure by such Pledgor to perform any of the covenants
contained in this Section 6.2 and, consequently, to the extent permitted under
applicable Law, agrees that, if such Pledgor shall fail to perform any of such
covenants, it shall pay, as liquidated damages and not as a penalty, an amount
equal to the value (as determined by the Administrative Agent) of the Collateral
on the date the Administrative Agent shall demand compliance with this Section
6.2.
6.3 Compliance with Restrictions. Each Pledgor agrees that in any sale
of any of the Collateral whenever an Event of Default shall have occurred and be
continuing, the Administrative Agent is hereby authorized to comply with any
limitation or restriction in connection with such sale as it may be advised by
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counsel is necessary in order to avoid any violation of applicable Law
(including compliance with such procedures as may restrict the number of
prospective bidders and purchasers, require that such prospective bidders and
purchasers have certain qualifications, and restrict such prospective bidders
and purchasers to persons who will represent and agree that they are purchasing
for their own account for investment and not with a view to the distribution or
resale of such Collateral), or in order to obtain any required approval of the
sale or of the purchaser by any Governmental Authority or official, and each
Pledgor further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall the Administrative Agent be liable nor accountable to any Pledgor for
any discount allowed by reason of the fact that such Collateral is sold in
compliance with any such limitation or restriction.
6.4 Application of Proceeds. All cash proceeds received by the
Administrative Agent in respect of any sale of, collection from, or other
realization upon, all or any part of the Collateral shall be applied (after
payment of any amounts payable to the Administrative Agent pursuant to Section
6.2 of the Security Agreement and Section 6.5 below) in whole or in part by the
Administrative Agent for the ratable benefit of the Secured Parties against all
or any part of the Secured Obligations in accordance with Section 8.03 of the
Credit Agreement. Any surplus of such cash or cash proceeds held by the
Administrative Agent and remaining after payment in full in cash of all the
Secured Obligations and the termination of this Agreement as provided in Section
2.9(b) hereof, shall be paid over to the applicable Pledgor or to whomsoever may
be lawfully entitled to receive such surplus.
6.5 Indemnity and Expenses. Each Pledgor agrees to jointly and
severally indemnify the Administrative Agent (and any sub-agent thereof), each
other Secured Party, and each Related Party of any of the foregoing Person (each
such Person being called an "Indemnitee") against, and hold each such Indemnitee
harmless from, any and all losses, claims, damages, liabilities or related
expenses (including the fees, charges and disbursements of any counsel for any
Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by
any third party or by any Borrower or other Loan Party arising out of, in
connection with, this Agreement and the other Loan Documents (including
enforcement of this Agreement and the other Loan Documents); provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities and related expenses (x) are determined by
a court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such Indemnitee or
(y) result from a claim brought by the Loan Party against an Indemnitee for
intentional breach of such Indemnitee's obligations hereunder or under any other
Loan Document, if such other Loan Party has obtained a final and nonappealable
judgment in its favor on such claim as determined by a court of competent
jurisdiction. Each Pledgor will, upon demand, pay to the Administrative Agent
the amount of any and all reasonable expenses, including its reasonable counsel
fees, charges and disbursements, and the reasonable fees and disbursements of
any experts and agents, which the Administrative Agent may incur, subject to the
foregoing limitations, in connection with the following:
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(a) the administration of this Agreement and the other Loan
Documents;
(b) the custody, preservation, use or operation of, or the sale
of, collection from, or other realization upon, any of the Collateral;
(c) the exercise or enforcement of any of the rights of the
Administrative Agent hereunder or of any Secured Party; or
(d) the failure by any Pledgor to perform or observe any of the
provisions hereof.
6.6 Waivers. Each Pledgor hereby waives any right, to the extent
permitted by applicable Law, to receive prior notice of or a judicial or other
hearing with respect to any action or prejudgment remedy or proceeding by the
Administrative Agent to take possession, exercise control over or dispose of any
item of Collateral where such action is permitted under the terms of this
Agreement or any other Loan Document or by applicable Laws or the time, place or
terms of sale in connection with the exercise of the Administrative Agent's
rights hereunder. Each Pledgor waives, to the extent permitted by applicable
Laws, any bonds, security or sureties required by the Administrative Agent with
respect to any of the Collateral. Each Pledgor also waives any damages (direct,
consequential or otherwise) occasioned by the enforcement of the Administrative
Agent's rights under this Agreement or any other Loan Document, including, the
taking of possession of any Collateral, all to the extent that such waiver is
permitted by applicable Laws. These waivers and all other waivers provided for
in this Agreement and the other Loan Documents have been negotiated by the
parties and each Pledgor acknowledges that it has been represented by counsel of
its own choice and has consulted such counsel with respect to its rights
hereunder.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Loan Document. (a) This Agreement is a Loan Document executed
pursuant to the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions thereof.
(b) Concurrently herewith each Pledgor is executing and delivering
the Security Agreement pursuant to which such Pledgor is granting a security
interest to the Administrative Agent in certain properties and assets of such
Pledgor (other than the Collateral hereunder). Such security interests shall be
governed by the terms of the Security Agreement and not by this Agreement.
7.2 Amendments, etc.; Additional Pledgors; Successors and Assigns.
(a) No amendment to or waiver of any provision of this Agreement
nor consent to any departure by any Pledgor herefrom, shall in any event be
effective unless the same shall be in writing and signed by the Administrative
Agent and, with respect to any such amendment, by the Pledgors, and then such
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waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
(b) Upon the execution and delivery by any Person of a Joinder
Agreement, (i) such Person shall be referred to as an "Additional Pledgor" and
shall be and become a Pledgor, and each reference in this Agreement to "Pledgor"
shall also mean and be a reference to such Additional Pledgor and (ii) the
attachment supplement attached to each Joinder Agreement shall be incorporated
into and become a part of and supplement Schedule I hereto, and the
Administrative Agent may attach such attachment supplements to Schedule I, and
each reference to Schedule I shall mean and be a reference to Schedule I, as
supplemented pursuant hereto.
(c) Upon delivery by the Borrower of each certificate of
Responsible Officers certifying a supplement to Schedule I pursuant to Section
4.1(b), the schedule supplement attached to each such certificate shall be
incorporated into and become part of and supplement Schedule I hereto, and the
Administrative Agent may attach such schedule supplement to such Schedule and
each reference to such Schedule shall mean and be a reference to such Schedule,
as supplemented pursuant hereto.
(d) This Agreement shall be binding upon each Pledgor and its
successors, transferees and assigns and shall inure to the benefit of the
Administrative Agent and each other Secured Party and their respective
successors, transferees and assigns; provided, however, that no Pledgor may
assign its obligations hereunder without the prior written consent of the
Administrative Agent.
7.3 Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing and mailed, delivered or transmitted
by telecopier to either party hereto at the address set forth in Section 10.02
of the Credit Agreement (with any notice to a Pledgor other than the Borrower
being delivered to such Pledgor in care of the Borrower). All such notices and
other communications shall be deemed to be given or made at the times provided
in Section 10.02 of the Credit Agreement.
7.4 Section Captions. Section captions used in this Agreement are for
convenience of reference only, and shall not affect the construction of this
Agreement.
7.5 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable, (a) the legality, validity and enforceability
of the remaining provisions of this Agreement shall not be affected or impaired
thereby and (b) the parties shall endeavor in good faith negotiations to replace
the illegal, invalid or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the illegal,
invalid or unenforceable provisions. The invalidity of a provision in a
particular jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
7.6 Counterparts. This Agreement may be executed in counterparts (and
by different parties hereto in different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract.
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7.7 Governing Law, etc. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE, EXCEPT TO THE EXTENT
THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK; PROVIDED, THAT THE ADMINISTRATIVE
AGENT SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) EACH PLEDGOR IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR
ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT
COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY
THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY SHALL BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. EACH OF THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE
PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN
ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR
ANY OTHER SECURED PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY PLEDGOR OR ITS
PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(c) EACH PLEDGOR IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED
TO IN PARAGRAPH (b) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT.
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(d) EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS
IN THE MANNER PROVIDED FOR NOTICES IN SECTION 7.3. NOTHING IN THIS AGREEMENT
WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY APPLICABLE LAW.
7.8 Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT
IT MAY HAVE TO TRIAL BY JURY OF ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR
ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT
OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
7.9 Entire Agreement. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
OR BY PRIOR OR CONTEMPORANEOUS WRITTEN AGREEMENTS. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
[Signature Page Follows]
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IN WITNESS WHEREOF, each Pledgor has caused this Agreement to be duly
executed and delivered by its respective officer thereunto duly authorized as of
the date first above written.
INTEGRA LIFESCIENCES HOLDINGS
CORPORATION, a Delaware corporation
By: David B. Holtz
--------------------------------------
Name: David B. Holtz
Title:Senior Vice President, Finance
INTEGRA LIFESCIENCES CORPORATION, a
Delaware corporation
By: David B. Holtz
--------------------------------------
Name: David B. Holtz
Title: Senior Vice President, Finance
INTEGRA LIFESCIENCES INVESTMENT
CORPORATION, a Delaware corporation
By: David B. Holtz
--------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA OHIO, INC., a Delaware
corporation
By: David B. Holtz
--------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA MASSACHUSETTS, INC., a
Delaware corporation
By: David B. Holtz
--------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA CLINICAL EDUCATION INSTITUTE,
INC., a Delaware corporation
By: David B. Holtz
-------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA HEALTHCARE PRODUCTS LLC , a
Delaware limited liability company
By: Integra LifeSciences
Corporation, its sole member
By: David B. Holtz
--------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
J. JAMNER SURGICAL INSTRUMENTS, INC.,
a Delaware corporation
By: David B. Holtz
--------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
JARIT INSTRUMENTS, INC., a Delaware
corporation
By: David B. Holtz
--------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA SELECTOR CORPORATION, a
Delaware corporation
By: David B. Holtz
--------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA NEUROSCIENCES PR, INC., a
Delaware corporation
By: David B. Holtz
--------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
SPINAL SPECIALTIES, INC., a Delaware
corporation
By: David B. Holtz
--------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA NEUROSCIENCES (IP), INC., a
Delaware corporation
By: David B. Holtz
--------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA NEUROSCIENCES (INTERNATIONAL),
INC., a Delaware corporation
By: David B. Holtz
--------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA LIFESCIENCES (FRANCE) LLC, a
Delaware limited liability company
By: Integra NeuroSciences
(International), Inc., its sole
member
By: David B. Holtz
--------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
ACKNOWLEDGED AND ACCEPTED:
BANK OF AMERICA, N.A.,
as Administrative Agent
By: /s/ Amie L. Edwards
- -----------------------
Name: Amie L. Edwards
Title: Vice President
EXECUTION COPY
SUBSIDIARY GUARANTY AGREEMENT
This SUBSIDIARY GUARANTY AGREEMENT, dated as of December 22, 2005 as
amended, restated, amended and restated, supplemented or otherwise modified from
time to time, this "Agreement"), is made by each of the Persons (such
capitalized term and all other capitalized terms not otherwise defined herein to
have the meanings provided for in Article I) listed on the signature pages
hereof (such Persons, together with the Additional Guarantors (as defined in
Section 5.6) are collectively referred to as the "Guarantors" and individually
as a "Guarantor"), in favor of BANK OF AMERICA, N.A., as administrative and
collateral agent (in such capacity, the "Administrative Agent") for each of the
Secured Parties.
W I T N E S S E T H:
WHEREAS, Integra LifeSciences Holdings Corporation, a Delaware
corporation (the "Borrower") is party to a Credit Agreement, dated as of the
date hereof (as amended, restated, amended and restated, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among the
Borrower, the various financial institutions as are, or may from time to time
become, parties thereto, Bank of America, N.A., as Administrative Agent, L/C
Issuer and Swing Line Lender, Citibank FSB and SunTrust Bank, as Co-Syndication
Agents, and Royal Bank of Canada and Wachovia Bank, National Association, as
Co-Documentation Agents and the other Loan Documents referred to therein; and
WHEREAS, each of the Guarantors is a Subsidiary of the Borrower and
will receive substantial direct and indirect benefits from the Credit Agreement
and the Credit Extensions and other financial accommodations to be made or
issued thereunder;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the Lenders
to make Credit Extensions (including the initial Credit Extension) to the
Borrower pursuant to the Credit Agreement, each Guarantor agrees, for the
benefit of each Secured Party, as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms (whether or not underscored) when
used in this Agreement, including its preamble and recitals, shall have the
following meanings (such definitions to be equally applicable to the singular
and plural forms thereof):
"Additional Guarantors" is defined in Section 5.6(b).
"Administrative Agent" is defined in the preamble.
"Agreement" is defined in the preamble.
"Borrower" is defined in the first recital.
"Credit Agreement" is defined in the first recital.
"Guaranteed Obligations" is defined in Section 2.1.
"Guarantor" and "Guarantors" are defined in the preamble.
"Indemnitee" is defined in Section 5.4(a).
"Loan Documents" is defined in the Credit Agreement.
"Obligations" is defined in the Credit Agreement.
"Other Taxes" is defined in the Credit Agreement.
"Post Petition Interest" is defined in Section 2.4(b)(ii).
"Subordinated Obligations" is defined in Section 2.4(b).
"Taxes" is defined in the Credit Agreement.
"Termination Date" means the date on which the latest of the following
events occurs:
(a) the payment in full in cash of the Guaranteed Obligations
and all other amounts payable under this Agreement (other than contingent
indemnification obligations);
(b) the termination or expiration of the Availability Period;
and
(c) the termination or expiration of all Letters of Credit and
all Secured Swap Contracts.
1.2 Credit Agreement Definitions. Unless otherwise defined herein or
the context otherwise requires, terms used in this Agreement, including its
preamble and recitals, have the meanings provided in the Credit Agreement.
1.3 Other Interpretive Provisions. The rules of construction in
Sections 1.02 to 1.06 of the Credit Agreement shall be equally applicable to
this Agreement.
ARTICLE II
GUARANTY
2.1 Guaranty; Limitation of Liability. (a) Each Guarantor hereby
absolutely, unconditionally and irrevocably guarantees the punctual payment when
due, whether at scheduled maturity or on any date of a required prepayment or by
acceleration, demand or otherwise, of all Obligations of each other Loan Party
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now or hereafter existing under or in respect of the Loan Documents (including,
without limitation, any extensions, modifications, substitutions, amendments or
renewals of any or all of the foregoing Obligations), whether direct or
indirect, absolute or contingent, and whether for principal, interest, premiums,
fees, indemnities, contract causes of action, costs, expenses or otherwise (such
Obligations being the "Guaranteed Obligations"), and agrees to pay any and all
expenses (including, without limitation, all reasonable fees, charges and
disbursements of counsel) incurred by the Administrative Agent or any other
Secured Party in enforcing any rights under this Agreement or any other Loan
Document. Without limiting the generality of the foregoing, each Guarantor's
liability shall extend to all amounts that constitute part of the Guaranteed
Obligations and would be owed by any other Loan Party to any Secured Party under
or in respect of the Loan Documents but for the fact that they are unenforceable
or not allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving such other Loan Party.
(b) Each Guarantor, and by its acceptance of this Agreement,
the Administrative Agent and each other Secured Party, hereby confirms that it
is the intention of all such Persons that this Agreement and the Obligations of
each Guarantor hereunder not constitute a fraudulent transfer or conveyance for
purposes of Debtor Relief Laws, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar Law to the extent applicable to
this Agreement and the Obligations of each Guarantor hereunder. To effectuate
the foregoing intention, the Administrative Agent, the other Secured Parties and
the Guarantors hereby irrevocably agree that the Obligations of each Guarantor
under this Agreement at any time shall be limited to the maximum amount as will
result in the Obligations of such Guarantor under this Agreement not
constituting a fraudulent transfer or conveyance.
(c) Each Guarantor hereby unconditionally and irrevocably
agrees that in the event any payment shall be required to be made to any Secured
Party under this Agreement or any other guaranty, such Guarantor will
contribute, to the maximum extent permitted by Law, such amounts to each other
Guarantor and each other guarantor so as to maximize the aggregate amount paid
to the Secured Parties under or in respect of the Loan Documents.
2.2 Guaranty Absolute. Each Guarantor guarantees that the Guaranteed
Obligations will be paid strictly in accordance with the terms of the Loan
Documents, regardless of any Law now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of any Secured Party with respect
thereto. The Obligations of each Guarantor under or in respect of this Agreement
are independent of the Guaranteed Obligations or any other Obligations of any
other Loan Party under or in respect of the Loan Documents, and a separate
action or actions may be brought and prosecuted against each Guarantor to
enforce this Agreement, irrespective of whether any action is brought against
the Borrower or any other Loan Party or whether the Borrower or any other Loan
Party is joined in any such action or actions. This Agreement is an absolute and
unconditional guaranty of payment when due, and not of collection, by each
Guarantor jointly and severally with any other Guarantor of the Guaranteed
Obligations. The liability of each Guarantor under this Agreement shall be
-3-
irrevocable, absolute and unconditional irrespective of, and each Guarantor
hereby irrevocably waives any defenses it may now have or hereafter acquire in
any way relating to, any or all of the following:
(a) any lack of validity or enforceability of any Loan Document
or any agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Guaranteed Obligations or any other
Obligations of any other Loan Party under or in respect of the Loan Documents,
or any other amendment or waiver of or any consent to departure from any Loan
Document, including, without limitation, any increase in the Guaranteed
Obligations resulting from the extension of additional credit to any Loan Party
or any of its Subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any
Collateral or any other collateral, or any taking, release or amendment or
waiver of, or consent to departure from, any other guaranty, for all or any of
the Guaranteed Obligations;
(d) any manner of application of Collateral or any other
collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or
any manner of sale or other disposition of any Collateral or any other
collateral for all or any of the Guaranteed Obligations or any other Obligations
of any Loan Party under the Loan Documents or any other assets of any Loan Party
or any of its Subsidiaries;
(e) any change, restructuring or termination of the corporate
structure or existence of any Loan Party or any of its Subsidiaries or any
insolvency, bankruptcy, reorganization or other similar proceeding affecting the
Borrower or any other Loan Party or its assets or any resulting release or
discharge of any Guaranteed Obligation;
(f) the existence of any claim, setoff or other right which any
Guarantor may have at any time against any Loan Party, the Administrative Agent,
any Lender or any other Person, whether in connection herewith or any unrelated
transaction;
(g) any invalidity or unenforceability relating to or against
the Borrower or any other Loan Party for any reason of the whole or any
provision of any Loan Document, or any provision of applicable Law purporting to
prohibit the payment or performance by the Borrower of the Guaranteed
Obligations;
(h) any failure of any Secured Party to disclose to any Loan
Party any information relating to the business, condition (financial or
otherwise), operations, performance, properties or prospects of any other Loan
Party now or hereafter known to such Secured Party (each Guarantor waiving any
duty on the part of the Secured Parties to disclose such information);
-4-
(i) the failure of any other Person to execute or deliver this
Agreement or any other guaranty or agreement or the release or reduction of
liability of any Guarantor or other guarantor or surety with respect to the
Guaranteed Obligations; or
(j) any other circumstance (including, without limitation, any
statute of limitations) or any existence of or reliance on any representation by
any Secured Party that might otherwise constitute a defense available to, or a
discharge of, any Loan Party or any other guarantor or surety.
This Agreement shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Guaranteed Obligations is
rescinded or must otherwise be returned by any Secured Party or any other Person
upon the insolvency, bankruptcy or reorganization of the Borrower or any other
Loan Party or otherwise, all as though such payment had not been made.
2.3 Waivers and Acknowledgments.
(a) Each Guarantor hereby unconditionally and irrevocably
waives promptness, diligence, notice of acceptance, presentment, demand for
performance, notice of nonperformance, default, acceleration, protest or
dishonor and any other notice with respect to any of the Guaranteed Obligations
and this Agreement and any requirement that any Secured Party protect, secure,
perfect or insure any Lien or any property subject thereto or exhaust any right
or take any action against any Loan Party or any other Person or any Collateral.
(b) Each Guarantor hereby unconditionally and irrevocably
waives any right to revoke this Agreement and acknowledges that this Agreement
is continuing in nature and applies to all Guaranteed Obligations, whether
existing now or in the future.
(c) Each Guarantor hereby unconditionally and irrevocably
waives (i) any defense arising by reason of any claim or defense based upon an
election of remedies by any Secured Party that in any manner impairs, reduces,
releases or otherwise adversely affects the subrogation, reimbursement,
exoneration, contribution or indemnification rights of such Guarantor or other
rights of such Guarantor to proceed against any of the other Loan Parties, any
other guarantor or any other Person or any Collateral and (ii) any defense based
on any right of setoff or counterclaim against or in respect of the Obligations
of such Guarantor hereunder.
(d) Each Guarantor acknowledges that the Administrative Agent
may, without notice to or demand upon such Guarantor and without affecting the
liability of such Guarantor under this Agreement, foreclose under any mortgage
by nonjudicial sale, and each Guarantor hereby waives any defense to the
recovery by the Administrative Agent and the other Secured Parties against such
Guarantor of any deficiency after such nonjudicial sale and any defense or
benefits that may be afforded by applicable Law.
(e) Each Guarantor hereby unconditionally and irrevocably
waives any duty on the part of any Secured Party to disclose to such Guarantor
any matter, fact or thing relating to the business, condition (financial or
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otherwise), operations, performance, properties or prospects of any other Loan
Party or any of its Subsidiaries now or hereafter known by such Secured Party.
(f) Each Guarantor acknowledges that it will receive
substantial direct and indirect benefits from the financing arrangements
contemplated by the Loan Documents and that the waivers set forth in Section 2.2
and this Section 2.3 are knowingly made in contemplation of such benefits.
2.4 Subordination. (a) Each Guarantor hereby unconditionally and
irrevocably agrees not to exercise any rights that it may now have or hereafter
acquire against the Borrower, any other Guarantor or any other insider guarantor
that arise from the existence, payment, performance or enforcement of such
Guarantor's Obligations under or in respect of this Agreement or any other Loan
Document, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution (pursuant to Section 2.1(c) or
otherwise) or indemnification and any right to participate in any claim or
remedy of any Secured Party against the Borrower, any other Guarantor or any
other insider guarantor or any Collateral, whether or not such claim, remedy or
right arises in equity or under contract, statute or common law, including,
without limitation, the right to take or receive from the Borrower, any other
Guarantor or any other insider guarantor, directly or indirectly, in cash or
other property or by setoff or in any other manner, payment or security on
account of such claim, remedy or right, unless and until the Termination Date
has occurred.
(b) Each Guarantor hereby agrees that any and all debts,
liabilities and other obligations owed to such Guarantor by each other Loan
Party, including pursuant to Section 2.1(c) (collectively, the "Subordinated
Obligations"), are hereby subordinated to the prior payment in full in cash of
the Obligations of such other Loan Party under the Loan Documents to the extent
and in the manner hereinafter set forth in this Section 2.4(b):
(i) Except during the continuance of an Event of
Default (including the commencement and continuation of any proceeding
under any Debtor Relief Law relating to any other Loan Party), each
Guarantor may receive regularly scheduled payments from any other Loan
Party on account of the Subordinated Obligations. After the occurrence
and during the continuance of any Event of Default (including the
commencement and continuation of any proceeding under any Debtor
Relief Law relating to any other Loan Party), however, unless the
Administrative Agent otherwise agrees, no Guarantor shall demand,
accept or take any action to collect any payment on account of the
Subordinated Obligations.
(ii) In any proceeding under any Debtor Relief Law
relating to any other Loan Party, each Guarantor agrees that the
Secured Parties shall be entitled to receive payment in full in cash
of all Obligations (including all interest and expenses accruing after
the commencement of a proceeding under any Debtor Relief Law, whether
or not constituting an allowed claim in such proceeding ("Post
Petition Interest")) of each other Loan Party before such Guarantor
receives payment of any Subordinated Obligations of such other Loan
Party.
(iii) After the occurrence and during the continuance
of any Event of Default (including the commencement and continuation
of any proceeding under any Debtor Relief Law relating to any other
Loan Party), each Guarantor shall, if the Administrative Agent so
requests, collect, enforce and receive payments on account of any
Subordinated Obligations due to such Guarantor from any other Loan
Party as trustee for the Secured Parties and deliver such payments to
the Administrative Agent for application to the Guaranteed Obligations
(including all Post Petition Interest), together with any necessary
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endorsements or other instruments of transfer, but without reducing or
affecting in any manner the liability of such Guarantor under the
other provisions of this Agreement.
(iv) After the occurrence and during the continuance of
any Event of Default (including the commencement and continuation of
any proceeding under any Debtor Relief Law relating to any other Loan
Party), the Administrative Agent is authorized and empowered (but
without any obligation to so do), in its discretion, (A) in the name
of any Guarantor, to collect and enforce, and to submit claims in
respect of, Subordinated Obligations due to such Guarantor and to
apply any amounts received thereon to the Guaranteed Obligations
(including any and all Post Petition Interest), and (B) to require any
Guarantor (1) to collect and enforce, and to submit claims in respect
of, Subordinated Obligations due to such Guarantor and (2) to pay any
amounts received on such obligations to the Administrative Agent for
application to the Guaranteed Obligations (including any and all Post
Petition Interest).
(v) In the event of any conflict between the provisions
of this Section 2.4(b) and the provisions of Annex A of any Pledged
Note (as defined in the Pledge Agreement), the provisions of such
Annex A shall govern.
(c) If any amount shall be paid to any Guarantor in violation
of this Section 2.4 at any time prior to the Termination Date, such amount shall
be received and held in trust for the benefit of the Secured Parties, shall be
segregated from other property and funds of such Guarantor and shall forthwith
be paid or delivered to the Administrative Agent in the same form as so received
(with any necessary endorsement or assignment) to be credited and applied to the
Guaranteed Obligations and all other amounts payable under this Agreement,
whether matured or unmatured, in accordance with the terms of the Loan
Documents, or to be held as Collateral for any Guaranteed Obligations or other
amounts payable under this Agreement thereafter arising.
(d) If the Termination Date shall have occurred, the
Administrative Agent will, at any Guarantor's request and expense, execute and
deliver to such Guarantor appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer by subrogation to
such Guarantor of an interest in the Guaranteed Obligations resulting from such
payment made by such Guarantor pursuant to this Agreement.
-7-
2.5 Payments Free and Clear of Taxes, Etc. (a) Any and all payments
made by any Guarantor under or in respect of this Agreement or any other Loan
Document shall be made, in accordance with Section 3.01 of the Credit Agreement,
free and clear of and without reduction or withholding for any Indemnified Taxes
or Other Taxes; provided that if any Guarantor shall be required by any Laws to
deduct any Taxes (including Other Taxes) from such payments, then (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.5), each of the Administrative Agent, Lender or the L/C Issuer,
as the case may be, receives an amount equal to the sum it would have received
had no such deductions been made, (ii) such Guarantor shall make such
deductions, and (iii) such Guarantor shall timely pay the full amount deducted
to the relevant Governmental Authority in accordance with Law.
(b) Without limiting the provisions of subsection (a) above,
each Guarantor shall timely pay any Other Taxes that arise from any payment made
by or on behalf of such Guarantor under or in respect of this Agreement or any
other Loan Document or from the execution, delivery, performance, enforcement or
registration of, or otherwise with respect to, this Agreement and the other Loan
Documents to the relevant Governmental Authority in accordance with Law.
(c) Each Guarantor shall indemnify the Administrative Agent,
each Lender and the L/C Issuer, within (ten) 10 days after demand therefor, for
the full amount of Taxes or Other Taxes (including any Indemnified Taxes or
Other Taxes imposed or asserted or attributable to amounts payable under this
Section 2.5) paid by the Administrative Agent, such Lender or L/C Issuer, as the
case may be, and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified Taxes or
Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate certifying the amount of such payment or
liability delivered to a Guarantor by a Lender or the L/C Issuer (with a copy to
the Administrative Agent), or by the Administrative Agent on its own behalf or
on behalf of a Lender or the L/C Issuer, shall be conclusive absent manifest
error.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by any Guarantor to a Governmental Authority, such
Guarantor shall deliver to the Administrative Agent the original or a certified
copy of a receipt issued by such Governmental Authority evidencing such payment,
a copy of the return reporting such payment or other evidence of such payment
reasonably satisfactory to the Administrative Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Guarantor hereby makes each representation and warranty made in
the Loan Documents by the Borrower with respect to such Guarantor and each
Guarantor hereby further represents and warrants as follows:
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3.1 No Conditions Precedent. There are no conditions precedent to the
effectiveness of this Agreement that have not been satisfied or waived.
3.2 Independent Credit Analysis. Such Guarantor has, independently and
without reliance upon any Secured Party and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and each other Loan Document to which it
is or is to be a party, and such Guarantor has established adequate means of
obtaining from each other Loan Party on a continuing basis information
pertaining to, and is now and on a continuing basis will be completely familiar
with, the business, condition (financial or otherwise), operations, performance,
properties and prospects of such other Loan Party.
ARTICLE IV
COVENANTS
4.1 Performance of Loan Documents. Each Guarantor covenants and agrees
that until the Termination Date, such Guarantor will perform and observe, and
cause each of its Subsidiaries to perform and observe, all of the terms,
covenants and agreements set forth in the Loan Documents on its or their part to
be performed or observed or that the Borrower has agreed to cause such Guarantor
or such Subsidiaries to perform or observe.
ARTICLE V
MISCELLANEOUS PROVISIONS
5.1 Loan Document. This Agreement is a Loan Document executed pursuant
to the Credit Agreement and shall (unless otherwise expressly indicated herein)
be construed, administered and applied in accordance with the terms and
provisions thereof.
5.2 No Waiver; Remedies. No failure on the part of any Secured Party
to exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by the Law.
5.3 Right of Setoff. If an Event of Default shall have occurred and be
continuing, each Secured Party and each of their respective Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
applicable Law, to setoff and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other obligations (in
whatever currency) at any time owing by, such Secured Party or any such
Affiliate to or for the credit or the account of any Guarantor against any and
all of the Obligations of such Guarantor now or hereafter existing under this
Agreement or any other Loan Documents to such Secured Party, irrespective of
whether or not such Secured Party shall have made any demand under this
Agreement or any other Loan Document and although such Obligations of such
Guarantor may be contingent or unmatured or are owed to a branch or office of
such Secured Party different from the branch or office holding such deposit or
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obligated on such indebtedness. The rights of each Secured Party and their
respective Affiliates under this Section are in addition to other rights and
remedies (including other rights of setoff) that such Secured Party or their
respective Affiliates may have. Each Secured Party agrees to notify such
Guarantor and the Administrative Agent promptly after any such setoff and
application; provided, that the failure to give such notice shall not affect the
validity of such setoff and application.
5.4 Indemnification. (a) Without limitation on any other Obligations
of any Guarantor or remedies of the Secured Parties under this Agreement, each
Guarantor shall indemnify the Administrative Agent (and any sub-agent thereof),
each other Secured Party, and each Related Party of any of the foregoing Persons
(each such Person being called an "Indemnitee") against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses (including the reasonable fees, charges and disbursements of
any counsel for any Indemnitee; provided, that, as long as no Default exists,
the Guarantors shall engage and pay for defense counsel that is reasonably
acceptable to the Administrative Agent in connection with claims brought by
third parties and the other Secured Parties may engage separate counsel under
such circumstances at their own expense (it being understood that upon the
occurrence of an Event of Default, all counsel shall be at the cost and expense
of Guarantors), incurred by any Indemnitee or asserted against any Indemnitee by
any third party or by the Borrower or any other Loan Party arising out of, in
connection with, or as a result of any failure of any Guaranteed Obligations to
be the legal, valid and binding obligations of any Loan Party enforceable
against such Loan Party in accordance with their terms; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses (x) are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such Indemnitee or
(y) result from a claim brought by the Loan Party against an Indemnitee for
breach in bad faith of such Indemnitee's obligations hereunder or under any
other Loan Document, if such other Loan Party has obtained a final and
nonappealable judgment in its favor on such claim as determined by a court of
competent jurisdiction.
(b) Each Guarantor hereby also agrees that none of the
Indemnitees shall have any liability (whether direct or indirect, in contract,
tort or otherwise) to any of the Guarantors or any of their respective
Affiliates, directors, officers, employees, counsel, agents and
attorneys-in-fact, and each Guarantor hereby agrees not to assert any claim
against any Indemnitee on any theory of liability, for special, indirect,
consequential or punitive damages (as opposed to direct or actual damages)
arising out of or otherwise relating to the Loans, the actual or proposed use of
the proceeds of the Credit Extensions, the Loan Documents or any of the
transactions contemplated by the Loan Documents.
(c) All amounts due under this Section 5.4 shall be payable not
later than ten Business Days after demand therefor.
(d) Without prejudice to the survival of any of the other
agreements of any Guarantor under this Agreement or any of the other Loan
Documents, the agreements and obligations of each Guarantor contained in Section
-10-
2.1(a) (with respect to enforcement expenses), the last sentence of Section 2.2,
Section 2.5 and this Section 5.4 shall survive the payment in full of the
Guaranteed Obligations and all of the other amounts payable under this
Agreement.
5.5 Continuing Guaranty. This Agreement is a continuing agreement and
shall: (a) remain in full force and effect until the Termination Date, (b) be
binding upon each Guarantor, its successors and assigns and (c) inure to the
benefit of and be enforceable by the Secured Parties and their successors,
transferees and assigns.
5.6 Amendments, etc.; Additional Guarantors; Successors and Assigns.
(a) No amendment to or waiver of any provision of this Agreement nor consent to
any departure by any Guarantor herefrom, shall in any event be effective unless
the same shall be in writing and signed by the Administrative Agent and, with
respect to any such amendment, by the Guarantors, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
(b) Upon the execution and delivery by any Person of a Joinder
Agreement in substantially the form of Exhibit G to the Credit Agreement, such
Person shall be referred to as an "Additional Guarantor" and shall be and become
a Guarantor, and each reference in this Agreement to "Guarantor" shall also mean
and be a reference to such Additional Guarantor.
(c) This Agreement shall be binding upon each Guarantor and its
successors, transferees and assigns and shall inure to the benefit of the
Administrative Agent and each other Secured Party and their respective
successors, transferees and assigns; provided, however, that no Guarantor may
assign its obligations hereunder without the prior written consent of the
Administrative Agent.
5.7 Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing and mailed, delivered or transmitted
by telecopier to each party hereto at the address set forth in Section 10.02 of
the Credit Agreement (with any notice to a Guarantor being delivered to such
Guarantor in care of the Borrower). All such notices and other communications
shall be deemed to be given or made at the times provided in Section 10.02 of
the Credit Agreement.
5.8 Section Captions. Section captions used in this Agreement are for
convenience of reference only, and shall not affect the construction of this
Agreement.
5.9 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable, (a) the legality, validity and enforceability
of the remaining provisions of this Agreement shall not be affected or impaired
thereby and (b) the parties shall endeavor in good faith negotiations to replace
the illegal, invalid or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the illegal,
invalid or unenforceable provisions. The invalidity of a provision in a
particular jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
-11-
5.10 Counterparts. This Agreement may be executed in counterparts (and
by different parties hereto in different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract.
5.11 Governing Law, Etc. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) EACH GUARANTOR IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR
ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT
COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY
THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES
THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL
AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY OTHER SECURED PARTY MAY
OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT AGAINST ANY GUARANTOR OR ITS PROPERTIES IN THE COURTS OF
ANY JURISDICTION.
(c) EACH GUARANTOR IRREVOCABLY AND UNCONDITI-ONALLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED
TO IN PARAGRAPH (b) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT.
(d) EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF
PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 5.7. NOTHING IN THIS
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AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY APPLICABLE LAW.
5.12 Right to Trial by Jury. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
5.13 Entire Agreement. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
OR BY PRIOR OR CONTEMPORANEONS WRITTEN AGREEMENTS. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
5.14 Release of Guarantor. Upon any Disposition of all of the
outstanding Equity Interests of any Guarantor (whether direct or indirect)
permitted by Section 7.05 of the Credit Agreement, the Administrative Agent
will, pursuant to Section 9.10 of the Credit Agreement, at the Borrower's
expense and without any representations, warranties or recourse of any kind
whatsoever, execute and deliver to the Borrower such documents as the Borrower
shall reasonably request to evidence the release of such Guarantor from its
obligations hereunder.
[Signature Page Follows]
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IN WITNESS WHEREOF, each Guarantor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
INTEGRA LIFESCIENCES CORPORATION, a
Delaware corporation
By: /s/ David B. Holtz
-------------------------------------
Name: David B. Holtz
Title: Senior Vice President, Finance
INTEGRA LIFESCIENCES
INVESTMENT CORPORATION, a
a Delaware corporation
By: /s/ David B. Holtz
-------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA OHIO, INC., a Delaware
corporation
By: /s/ David B. Holtz
-------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA MASSACHUSETTS, INC., a
Delaware corporation
By: /s/ David B. Holz
-------------------------------------
Name: David B. Holz
Title: Vice President and Treasurer
INTEGRA CLINICAL EDUCATION
INSTITUTE, INC., a Delaware
corporation
By: /s/ David B. Holtz
-------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA HEALTHCARE PRODUCTS LLC,
a Delaware limited liability company
By: Integra LifeSciences
Corporation, its sole member
By: /s/ David B. Holtz
-------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
J. JAMNER SURGICAL INSTRUMENTS, INC.,
a Delaware corporation
By: /s/ David B. Holtz
-------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
JARIT INSTRUMENTS, INC., a Delaware
corporation
By: /s/ David B. Holtz
-------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA SELECTOR CORPORATION, a
Delaware corporation
By: /s/ David B. Holtz
-------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA NEUROSCIENCES PR, INC., a
Delaware corporation
By: /s/ David B. Holtz
------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
SPINAL SPECIALTIES, INC., a Delaware
corporation
By: /s/ David B. Holtz
------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA NEUROSCIENCES (IP), INC., a
Delaware corporation
By: /s/ David B. Holtz
------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA NEUROSCIENCES
(INTERNATIONAL), INC., a Delaware
corporation
By: /s/ David B. Holtz
------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
INTEGRA LIFESCIENCES (FRANCE) LLC,
a Delaware limited liability company
By: Integra NeuroSciences
(International), Inc., its sole
member
By: /s/ David B. Holtz
-------------------------------------
Name: David B. Holtz
Title: Vice President and Treasurer
ACKNOWLEDGED AND ACCEPTED:
BANK OF AMERICA, N.A.,
as Administrative Agent
By: /s/ Amie L. Edwards
---------------------------------------
Name: Amie L. Edwards
Title: Vice President
AMENDED AND RESTATED 2005 EMPLOYMENT AGREEMENT
This amended and restated 2005 employment agreement (this "Agreement")
is made as of the 19th day of December, 2005 by and between Integra LifeSciences
Holdings Corporation, a Delaware Corporation (the "Company") and John B.
Henneman, III ("Executive").
Background
Executive is currently the Chief Administrative Officer of the Company.
The Company desires to continue to employ Executive, and Executive desires to
remain in the employ of the Company, on the terms and conditions contained in
this Agreement. Executive will be substantially involved with the Company's
operations and management and will learn trade secrets and other confidential
information relating to the Company and its customers; accordingly, the
noncompetition covenant and other restrictive covenants contained in Section 16
of this Agreement constitute essential elements hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and intended 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 the 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 in all material
respects, which failure continues for 15 days after his
receipt of written notice of the failure;
(2) intentionally and materially 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 the Company;
(4) engaged in a breach of fiduciary duty in connection with his
employment with the Company;
(5) engaged in willful misconduct that is materially and
demonstrably injurious to the Company or any of its
subsidiaries; or
(6) conviction or plea of guilty or nolo contendere to a felony
or to any other crime involving moral turpitude which
conviction or plea is materially and demonstrably injurious
to the Company or any of its subsidiaries.
(d) A "Change in Control" of the 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"), other than the Company, any trustee or other
fiduciary holding securities under any employee benefit plan
of the Company or an affiliate thereof, or any corporation
owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their
ownership of stock of the Company (for purposes of this
Agreement, "Company Voting Securities" shall mean the then
outstanding voting securities of the Company entitled to
vote generally in the election of directors); provided,
however, that any acquisition from the 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 during
any period of at least 24 months 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 the 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 the Company of a reorganization, merger
or consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the
acquisition of assets or stock of any entity (a "Business
Combination"), in each case, unless immediately following
such Business Combination: (i) Company Voting Securities
outstanding immediately prior to such Business Combination
(or if such Company Voting Securities were converted
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pursuant to such Business Combination, the shares into which
such Company Voting Securities were converted) (x)
represent, directly or indirectly, more than 50% of the
combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors of the corporation resulting from such Business
Combination (the "Surviving Corporation"), or, if
applicable, a corporation which as a result of such
transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more
subsidiaries (the "Parent Corporation") and (y) are held in
substantially the same proportions after such Business
Combination as they were immediately prior to such Business
Combination; (ii) no Person (excluding any employee benefit
plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially 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 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 the Company of a
complete liquidation or dissolution of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Company" shall mean Integra LifeSciences Holdings Corporation
and any corporation, partnership or other entity owned directly
or indirectly, in whole or in part, by Integra LifeSciences
Holdings 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 the Company which is
not cured by the Company within 15 days of its receipt of
written notice of the breach;
-3-
(2) the relocation by the Company of the Executive's office
location to a location more than forty (40) miles from
Princeton, New Jersey;
(3) without Executive's express written consent, the Company
reduces Executive's Base Salary or bonus opportunity, or
materially reduces the aggregate fringe benefits provided to
Executive (except to the extent permitted by Sections 5, 6
or 7, respectively) or substantially alters the Executive's
authority and/or title as set forth in Section 2 hereof in a
manner reasonably construed to constitute a demotion,
provided, Executive resigns within 90 days after the change
objected to; or
(4) without Executive's express written consent, Executive fails
at any point during the one-year period following a Change
in Control to hold the title and authority (as set forth in
Section 2 hereof) with the Parent Corporation (or if there
is no Parent Corporation, the Surviving Corporation) that
Executive held with the Company immediately prior to the
Change of Control, provided Executive resigns within one
year of the Change in Control;
(5) the Company fails to obtain the assumption of this Agreement
by any successor to the Company.
(i) "Principal Executive Office" shall mean the Company's principal
office for executives, presently located at 311 Enterprise
Drive, Plainsboro, New Jersey 08536.
(j) "Termination Date" shall mean the date specified in the
Termination Notice.
(k) "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 17(i).
2. Employment. The Company hereby employs Executive as Chief
Administrative Officer, responsible for the business development department, the
law department, the regulatory affairs and quality assurance department, and the
human resources department of the Company, and Executive hereby agrees to accept
such employment and agrees to render services to the Company in such capacity
(or in such other capacity in the future as the Board may reasonably deem
equivalent to such position) on the terms and conditions set forth in this
Agreement. Executive's primary place of employment shall be at the Principal
Executive Office and Executive shall report to the Chief Executive Officer.
3. Term and Renewal of Agreement. Unless earlier terminated by
Executive or the Company as provided in Section 12 hereof, the term of
Executive's employment under this Agreement shall commence on the date of this
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Agreement and terminate on January 3, 2009. This Agreement shall be deemed
automatically, without further action, to extend for an additional year on
January 3, 2009 and each anniversary thereof, unless either the Board provides
written notice to Executive of its election not to extend the term, or Executive
gives written notice to the Company of Executive's election not to extend the
term. In either case, the written notice shall be given not fewer than 90 days
prior to any such renewal 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 acts, duties and services as the Board 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 the 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
the Company without the prior consent of the Chief Executive
Officer or the Board, which consent may be granted or withheld
in his or its sole discretion; provided, however, that
notwithstanding the foregoing, Executive may serve on civic or
charitable boards or committees so long as such service does not
materially interfere with Executive's obligations pursuant to
this Agreement.
5. Compensation. Currently, the Company compensates Executive at a
minimum base salary of $400,000 per year (the "Base Salary"). Effective January
1, 2006, the Company shall compensate Executive for his services at a Base
Salary of $420,000 per year, payable in periodic installments in accordance with
the 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.
6. Bonus Opportunity. Executive shall have the opportunity to receive a
performance bonus targeted at 40% of Executive's Base Salary, based upon the
satisfaction of certain performance objectives as determined by the Compensation
Committee of the Board of Directors of the Company (the "Compensation
Committee"), 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 the
Company in accordance with their terms, and shall be eligible for any other
plans and benefits covering executives of the Company, to the extent
commensurate with his then duties and responsibilities fixed by the Board. The
Company shall not make any change in such plans or benefits that would adversely
affect Executive's rights thereunder, unless such change affects all, or
substantially all, executive officers of the Company.
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8. Equity Compensation.
(a) Stock Options and Other Equity Compensation. Executive shall be
entitled to receive annual equity compensation grants
commensurate with the equity compensation grants received by
other executive officers of the Company, as determined by the
Compensation Committee from time to time; provided, however,
nothing contained herein shall guarantee a grant or the level of
grant. All such grants are in the discretion of the Compensation
Committee based on performance. All grants made by the
Compensation Committee shall vest in full upon a Change in
Control, Executive's termination of employment without Cause,
for Good Reason, Disability or death. In addition, upon the
Company's nonrenewal of this Agreement, if any shares of
restricted stock have been granted to Executive and remain
restricted, a certain number of outstanding shares of such
restricted stock shall be deemed to have vested as of the last
day of Executive's employment with the Company, the exact number
of restricted shares which shall be deemed vested to be
determined by multiplying the number of restricted shares
granted to Executive by a fraction, the numerator of which shall
be the number of days that have elapsed since the date of grant
and the denominator of which shall be the total number of days
in the restricted period as stated in the original grant.
(b) Performance Stock. On January 3, 2006, and provided that
Executive is an employee of the Company at that time, the
Company shall grant to Executive an Award of 100,000 shares of
the Company's common stock subject to certain restrictions and
forfeiture (the "Performance Stock"), which shall be contingent
upon attainment of certain performance goals (the "Performance
Goals") pursuant to the Company's 2003 Equity Incentive Plan and
the terms and conditions set forth in the award agreement
attached as Exhibit A hereto (the "Performance Stock Award
Agreement"), which shall include the specific Performance Goals.
In the event of any inconsistency between the terms of this
Agreement and the Performance Stock Award Agreement, the
Performance Stock Award Agreement shall govern. Subject to
attainment of the Performance Goals, 100,000 shares of
Performance Stock shall be issued on January 3, 2009; provided,
however, that notwithstanding the foregoing, all of the
Performance Stock shall be issued on a Change in Control,
Executive's termination without Cause, for Good Reason,
Disability, or death. Until issued, the Performance Stock shall
not be transferable and shall be subject to forfeiture.
(c) S-8. The Company agrees that for so long as it is required to
file reports under Sections 13 or 15(d) of the Securities
Exchange Act of 1934, it will maintain in effect a Form S-8
registration statement covering the issuance of Performance
Stock to Executive.
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9. 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 four weeks per annum.
10. Business Expenses. The Company shall reimburse Executive or
otherwise pay for all reasonable expenses incurred by Executive in furtherance
of or in connection with the business of the 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 Company.
11. 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.
12. 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 the
Company 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. Additionally, all
unissued Performance Stock shall be forfeited on Executive's
last day of active employment.
(b) Termination with Salary Continuation (No Change in Control).
Except as provided in subsection 12(c) in the event of a Change
in Control, and subject to Executive and the Company executing a
mutual release that is mutually agreeable (provided, however,
that Executive shall not be required to execute such mutual
release as a condition to the receipt of the payments and
benefits described below unless the Company also executes such
mutual release), in the event (i) Executive's employment is
terminated by the Company for a reason other than death,
Disability or Cause, or (ii) Executive terminates his employment
for Good Reason, or (iii) the Company shall fail to extend this
Agreement pursuant to the provisions of Section 3, then the
Company shall:
(1) pay Executive a severance amount equal to Executive's Base
Salary (determined without regard to any reduction in
violation of Section 5) as of his last day of active
employment, plus the target bonus under Section 6; the
severance amount shall be paid in a single sum on the first
business day of the month following the Termination Date;
(2) maintain and provide to Executive, at no cost to Executive,
for a period ending at the earliest of (i) the first
anniversary of the Termination Date; (ii) the date of
Executive's full-time employment by another employer; or
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(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 the Company continued throughout such
period, provided that such participation is not prohibited
by the terms of the plan or by the Company for legal
reasons; and
(c) Termination with Salary Continuation (Change in Control).
Notwithstanding anything to the contrary set forth in subsection
12(b), and subject to Executive and the Company executing a
mutual release that is mutually agreeable (provided, however,
that Executive shall not be required to execute such mutual
release as a condition to the receipt of the payments and
benefits described below unless the Company also executes such
mutual release), in the event within twelve months of a Change
in Control: (i) Executive terminates his employment for Good
Reason, or (ii) Executive's employment is terminated by the
Company for a reason other than death, Disability or Cause, or
(iii) the Company shall fail to extend this Agreement pursuant
to Section 3, then the Company shall:
(1) pay Executive a severance amount equal to 2.99 times the
amount that results from adding Executive's Base Salary
(determined without regard to any reduction in violation of
Section 5) as of his last day of active employment plus the
target bonus under Section 6; the severance amount shall be
paid in a single sum on the first business day of the month
following the Termination Date;
(2) maintain and provide to Executive, at no cost to Executive,
for a period ending at the earliest of (i) the fifth
anniversary of the date of this Agreement; or (ii)
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
the Company continued throughout such period, provided that
such participation is not prohibited by the terms of the
plan or by the Company for legal reasons;
(3) in the event that either the independent public accountants
which serve as the auditors of the Company immediately prior
to the Change in Control or the Internal Revenue Service
determines that any payment, coverage or benefit provided to
the Executive is subject to the excise tax imposed by
Section 4999 (or any successor provisions) of the Internal
Revenue Code of 1986, as amended (the "Code"), the Company
shall promptly pay to the Executive, in addition to other
payments, coverage or benefit due and owing hereunder or
under any other plan, or agreement, an amount determined by
multiplying the rate of the excise tax then imposed by Code
Section 4999 by the amount of the "excess parachute payment"
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received by the Executive (determined without regard to any
payments made to the Executive pursuant to this section) and
dividing the product so obtained by the amount obtained by
subtracting the aggregate local, state and Federal income
tax rate applicable to the receipt by the Executive of such
"excess parachute payment" (taking into account the
deductibility for Federal income tax purposes of the payment
of state and local income taxes thereon) from the amount
obtained by subtracting from 1.00 the rate of the excise tax
then imposed by Code Section 4999 (the "Gross-Up Payment"),
it being the intention of the parties hereto that the
Executive's net after tax position shall be identical to
that which would have obtained had Code Sections 280G and
4999 not been part of the Code. The Gross-Up Payment
attributable to payments other than severance compensation
described in subsections c(i) and (ii) shall be paid in a
lump sum payment on the Termination Date following the
Change in Control. The Gross-Up Payment attributable to the
severance compensation described in subsections c(i) and
(ii) shall be paid in a lump sum payment on the first day on
which severance compensation is paid pursuant to subsection
c(i) or subsection c(ii). All Gross-Up Payments shall be
paid in accordance with section 409A of the Code. For
purposes of the calculations required by this subsection (3)
reasonable assumptions and approximations may be made with
respect to applicable taxes and reasonable good faith
interpretations of the Code may be relied upon; and
(4) pay to Executive all reasonable legal fees and expenses
incurred by Executive as a result of such termination of
employment (including all fees and expenses, if any,
incurred by Executive in contesting or disputing any such
termination or in seeking to obtain to enforce any right or
benefit provided to Executive by this Agreement whether by
arbitration or otherwise).
(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.
(e) Section 409A. Notwithstanding any other provision in this
Agreement to the contrary, any payments that would constitute
deferred compensation for purposes of (and subject to) Code
Section 409A shall be deferred for a period of six months
following Executive's separation from service with the Company.
13. Withholding. The 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.
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14. Assignability. The Company may assign this Agreement and its rights
and obligations hereunder in whole, but not in part, to any entity to which the
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 the Company
hereunder as fully as if it had been originally made a party hereto. The 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 the Company.
15. Death of Executive. If Executive dies during the term of this
Agreement, the Company shall pay Executive's spouse death benefits equal to (a)
a lump sum payment equal to Executive's Base Salary at the time of death plus
(b) continued participation by the spouse and any dependents in the Company's
health benefit plan in which Executive would have been entitled to participate,
for a period of one year from the date of Executive's death, at no cost to
spouse and dependents of active employees; provided that such participation is
not prohibited by the terms of the plan or by the Company for legal reasons.
Such continued participation to be in addition to and not concurrent with any
continuation coverage required by law (e.g. COBRA). 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.
16. Restrictive Covenants.
(a) Covenant Not to Compete. During the term of this Agreement and
for a period of one year following the Termination Date of
Executive's employment, Executive shall not, without the express
written consent of the Company, directly or indirectly: (I)
engage, anywhere within the geographical areas in which the
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"), neurosurgery business (the
use of surgical instruments, implants, monitoring products or
disposable products to treat the brain or central nervous
system) ("Neurosurgery Business"), instrument business (general
surgical handheld instruments used for general purposes in
surgical procedures) ("Instrument Business"), reconstruction
business (bone fixation devices for foot and ankle
reconstruction procedures) ("Reconstruction Business") or in any
other line of business the revenues of which constituted at
least 50% of the Company's revenues during the six (6) month
period prior to the Termination Date (together with the Tissue
Engineering Business, Neurosurgery Business, Instrument Business
and Reconstruction 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 to procure orders
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from or do business with any customer of the 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 the
Company; (V) seek to contract with or engage (in such a way as
to adversely affect or interfere with the business of the
Company) any person or entity who has been contracted with or
engaged to manufacture, assemble, supply or deliver products,
goods, materials or services to the Company; or (VI) engage in
or participate in any effort or act to induce any of the
customers, associates, consultants, or employees of the Company
to take any action which might be disadvantageous to the
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 and provided,
further, however, that nothing set forth in this Section 16(a)
shall prohibit Executive from becoming an employee or agent of,
or consultant to, any entity that is engaged in the Business so
long as Executive does not engage in any activities in the
Business in any capacity for said entity.
(b) Confidentiality. Executive acknowledges a duty of
confidentiality owed to the Company and shall not, at any time
during or after his employment by the 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 the
Company obtained or acquired by him while so employed. All
computer software, business cards, telephone lists, customer
lists, price lists, contract forms, catalogs, the Company books,
records, files and know-how acquired while an employee of the
Company are acknowledged to be the property of the Company and
shall not be duplicated, removed from the Company's possession
or premises or made use of other than in pursuit of the
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 the Company and, upon termination
of employment for any reason, Executive shall deliver to the
Company 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 the Company all ideas, discoveries and inventions
which are or may be useful to the 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 the Company heretofore or
hereafter gained by him at any time during his employment with
the Company are the property of the Company, and Executive
hereby irrevocably assigns all such ideas, discoveries,
inventions and improvements to the Company for its sole use
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and benefit, without additional compensation. The provisions of
this Section 16(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 the
Company's business interests (including potential business
interests), and whether or not within the specific realm of his
duties. Executive shall, upon request of the Company, but at no
expense to Executive, at any time during or after his employment
with the Company, sign all instruments and documents reasonably
requested by the Company and otherwise cooperate with the
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 the Company shall determine.
(d) Breach of Covenant. Executive expressly acknowledges that
damages alone will be an inadequate remedy for any breach or
violation of any of the provisions of this Section 16 and that
the 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 16 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.
17. 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 the Company's
behalf.
(b) Interpretation. This Agreement is intended to comply with the
requirements of Section 409A of the Code and all interpretations
of this Agreement shall be in accordance with that intent. In
that regard, notwithstanding the provisions of Section 17(a),
the Company may amend this Agreement without the consent of the
Executive if the Company determines that it is necessary in
order for the benefits or payments to be made under this
Agreement to comply with the requirements of Section 409A of the
Code.
(c) Nature of Obligations. Nothing contained herein shall create or
require the 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 the Company
hereunder, such right shall be no greater than the right of any
unsecured general creditor of the Company.
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(d) Prior Employment. Executive represents and warrants that his
acceptance of employment with the 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.
(e) Headings. The Section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the
meaning or interpretation or this Agreement. In the event of a
conflict between a heading and the content of a Section, the
content of the Section shall control.
(f) 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 the feminine, unless
the context clearly indicates otherwise. The singular form,
whenever used herein, shall mean or include the plural form
where applicable.
(g) 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.
(h) 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.
(i) 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 Holdings Corporation
311 Enterprise Drive
Plainsboro, New Jersey 08536
Attn: President
With a copy to:
The Company's General Counsel
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To the Executive:
John B. Henneman, III
78 Shady Brook Lane
Princeton, New Jersey 08540
(j) 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.
(k) 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.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
INTEGRA LIFESCIENCES HOLDINGS EXECUTIVE
CORPORATION
By: /s/ Stuart M. Essig /s/ John B. Henneman, III
-------------------------------------- --------------------------
Its: President and Chief Executive Officer John B. Henneman, III
AMENDED AND RESTATED 2005 EMPLOYMENT AGREEMENT
This amended and restated 2005 employment agreement (this "Agreement")
is made as of the 19th day of December, 2005 by and between Integra LifeSciences
Holdings Corporation, a Delaware Corporation (the "Company") and Gerard S.
Carlozzi ("Executive").
Background
Executive is currently the Chief Operating Officer of the Company. The
Company desires to continue to employ Executive, and Executive desires to remain
in the employ of the Company, on the terms and conditions contained in this
Agreement. Executive will be substantially involved with the Company's
operations and management and will learn trade secrets and other confidential
information relating to the Company and its customers; accordingly, the
noncompetition covenant and other restrictive covenants contained in Section 16
of this Agreement constitute essential elements hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and intended 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 the 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 in all material
respects, which failure continues for 15 days after his
receipt of written notice of the failure;
(2) intentionally and materially 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 the Company;
(4) engaged in a breach of fiduciary duty in connection with his
employment with the Company; or
(5) engaged in willful misconduct that is materially and
demonstrably injurious to the Company or any of its
subsidiaries; or
(6) conviction or plea of guilty or nolo contendere to a felony
or to any other crime involving moral turpitude which
conviction or plea is materially and demonstrably injurious
to the Company or any of its subsidiaries.
(d) A "Change in Control" of the 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"), other than the Company, any trustee or other
fiduciary holding securities under any employee benefit plan
of the Company or an affiliate thereof, or any corporation
owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their
ownership of stock of the Company (for purposes of this
Agreement, "Company Voting Securities" shall mean the then
outstanding voting securities of the Company entitled to
vote generally in the election of directors); provided,
however, that any acquisition from the 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 during
any period of at least 24 months 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 the 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 the Company of a reorganization, merger
or consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the
acquisition of assets or stock of any entity (a "Business
Combination"), in each case, unless immediately following
such Business Combination: (i) Company Voting Securities
outstanding immediately prior to such Business Combination
(or if such Company Voting Securities were converted
pursuant to such Business Combination, the shares into which
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such Company Voting Securities were converted) (x)
represent, directly or indirectly, more than 50% of the
combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors of the corporation resulting from such Business
Combination (the "Surviving Corporation"), or, if
applicable, a corporation which as a result of such
transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more
subsidiaries (the "Parent Corporation") and (y) are held in
substantially the same proportions after such Business
Combination as they were immediately prior to such Business
Combination; (ii) no Person (excluding any employee benefit
plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially 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 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 the Company of a
complete liquidation or dissolution of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Company" shall mean Integra LifeSciences Holdings Corporation
and any corporation, partnership or other entity owned directly
or indirectly, in whole or in part, by Integra LifeSciences
Holdings 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 the Company which is
not cured by the Company within 15 days of its receipt of
written notice of the breach;
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(2) the relocation by the Company of the Executive's office
location to a location more than forty (40) miles from
Princeton, New Jersey;
(3) without Executive's express written consent, the Company
reduces Executive's Base Salary or bonus opportunity, or
materially reduces the aggregate fringe benefits provided to
Executive (except to the extent permitted by Sections 5, 6
or 7, respectively) or substantially alters the Executive's
authority and/or title as set forth in Section 2 hereof in a
manner reasonably construed to constitute a demotion,
provided, Executive resigns within 90 days after the
change objected to; or
(4) without Executive's express written consent, Executive fails
at any point during the one-year period following a Change
in Control to hold the title and authority (as set forth in
Section 2 hereof) with the Parent Corporation (or if there
is no Parent Corporation, the Surviving Corporation) that
Executive held with the Company immediately prior to the
Change of Control, provided Executive resigns within one
year of the Change in Control;
(5) the Company fails to obtain the assumption of this Agreement
by any successor to the Company.
(i) "Principal Executive Office" shall mean the Company's principal
office for executives, presently located at 311 Enterprise
Drive, Plainsboro, New Jersey 08536.
(j) "Termination Date" shall mean the date specified in the
Termination Notice.
(k) "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 17(i).
2. Employment. The Company hereby employs Executive as Chief Operating
Officer, responsible for the sales department, the marketing department, the
research and development department, the clinical education department and the
manufacturing operations department of the Company, and Executive hereby agrees
to accept such employment and agrees to render services to the Company in such
capacity (or in such other capacity in the future as the Board may reasonably
deem equivalent to such position) on the terms and conditions set forth in this
Agreement. Executive's primary place of employment shall be at the Principal
Executive Office and Executive shall report to the Chief Executive Officer.
3. Term and Renewal of Agreement. Unless earlier terminated by
Executive or the Company as provided in Section 12 hereof, the term of
Executive's employment under this Agreement shall commence on the date of this
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Agreement and terminate on January 3, 2009. This Agreement shall be deemed
automatically, without further action, to extend for an additional year on
January 3, 2009 and each anniversary thereof, unless either the Board provides
written notice to Executive of its election not to extend the term, or Executive
gives written notice to the Company of Executive's election not to extend the
term. In either case, the written notice shall be given not fewer than 90 days
prior to any such renewal 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 acts, duties and services as the Board 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 the 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
the Company without the prior consent of the Chief Executive
Officer or the Board, which consent may be granted or withheld
in his or its sole discretion; provided, however, that
notwithstanding the foregoing, Executive may serve on civic or
charitable boards or committees so long as such service does not
materially interfere with Executive's obligations pursuant to
this Agreement; and provided, further, Executive may serve on
the board of directors of Cascade Medical and Scandius
Biomedical unless and until a conflict of interest arises or the
business of the Company competes with the business of Cascade
Medical or Scandius Biomedical.
5. Compensation. Currently, the Company compensates Executive at a
minimum base salary of $350,000 per year (the "Base Salary"). Effective January
1, 2006, the Company shall compensate Executive for his services at a Base
Salary of $400,000 per year, payable in periodic installments in accordance with
the 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.
6. Bonus Opportunity. Executive shall have the opportunity to receive a
performance bonus targeted at 40% of Executive's Base Salary, based upon the
satisfaction of certain performance objectives as determined by the Compensation
Committee of the Board of Directors of the Company (the "Compensation
Committee"), 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 the
Company in accordance with their terms, and shall be eligible for any other
plans and benefits covering executives of the Company, to the extent
commensurate with his then duties and responsibilities fixed by the Board. The
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Company shall not make any change in such plans or benefits that would adversely
affect Executive's rights thereunder, unless such change affects all, or
substantially all, executive officers of the Company.
8. Equity Compensation.
(a) Stock Options and Other Equity Compensation. Executive shall be
entitled to receive annual equity compensation grants
commensurate with the equity compensation grants received by
other executive officers of the Company, as determined by the
Compensation Committee from time to time; provided, however,
nothing contained herein shall guarantee a grant or the level of
grant. All such grants are in the discretion of the Compensation
Committee based on performance. All grants made by the
Compensation Committee shall vest in full upon a Change in
Control, Executive's termination of employment without Cause,
for Good Reason, Disability or death. In addition, upon the
Company's nonrenewal of this Agreement, if any shares of
restricted stock have been granted to Executive and remain
restricted, a certain number of outstanding shares of such
restricted stock shall be deemed to have vested as of the last
day of Executive's employment with the Company, the exact number
of restricted shares which shall be deemed vested to be
determined by multiplying the number of restricted shares
granted to Executive by a fraction, the numerator of which shall
be the number of days that have elapsed since the date of grant
and the denominator of which shall be the total number of days
in the restricted period as stated in the original grant.
(b) Performance Stock. On January 3, 2006, and provided that
Executive is an employee of the Company at that time, the
Company shall grant to Executive an Award of 100,000 shares of
the Company's common stock subject to certain restrictions and
forfeiture (the "Performance Stock"), which shall be contingent
upon attainment of certain performance goals (the "Performance
Goals") pursuant to the Company's 2003 Equity Incentive Plan and
the terms and conditions set forth in the award agreement
attached as Exhibit A hereto (the "Performance Stock Award
Agreement"), which shall include the specific Performance Goals.
In the event of any inconsistency between the terms of this
Agreement and the Performance Stock Award Agreement, the
Performance Stock Award Agreement shall govern. Subject to
attainment of the Performance Goals, 100,000 shares of
Performance Stock shall be issued on January 3, 2009; provided,
however, that notwithstanding the foregoing, all of the
Performance Stock shall be issued on a Change in Control,
Executive's termination without Cause, for Good Reason,
Disability, or death. Until issued, the Performance Stock shall
not be transferable and shall be subject to forfeiture.
(c) S-8. The Company agrees that for so long as it is required to
file reports under Sections 13 or 15(d) of the Securities
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Exchange Act of 1934, it will maintain in effect a Form S-8
registration statement covering the issuance of Performance
Stock to Executive.
9. 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 four weeks per annum.
10. Business Expenses. The Company shall reimburse Executive or
otherwise pay for all reasonable expenses incurred by Executive in furtherance
of or in connection with the business of the 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 Company.
11. 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.
12. 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 the
Company 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. Additionally, all
unissued Performance Stock shall be forfeited on Executive's
last day of active employment.
(b) Termination with Salary Continuation (No Change in Control).
Except as provided in subsection 12(c) in the event of a Change
in Control and subject to Executive and the Company executing a
mutual release that is mutually agreeable (provided, however,
that Executive shall not be required to execute such mutual
release as a condition to the receipt of the payments and
benefits described below unless the Company also executes such
mutual release), in the event (i) Executive's employment is
terminated by the Company for a reason other than death,
Disability or Cause, or (ii) Executive terminates his employment
for Good Reason, or (iii) the Company shall fail to extend this
Agreement pursuant to the provisions of Section 3, then the
Company shall:
(1) pay Executive a severance amount equal to Executive's Base
Salary (determined without regard to any reduction in
violation of Section 5) as of his last day of active
employment, plus the target bonus under Section 6; the
severance amount shall be paid in a single sum 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 first
anniversary of the Termination Date; (ii) the date of
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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 the Company continued throughout such
period, provided that such participation is not prohibited
by the terms of the plan or by the Company for legal
reasons.
(c) Termination with Salary Continuation (Change in Control).
Notwithstanding anything to the contrary set forth in subsection
12(b), and subject to Executive and the Company executing a
mutual release that is mutually agreeable (provided, however,
that Executive shall not be required to execute such mutual
release as a condition to the receipt of the payments and
benefits described below unless the Company also executes such
mutual release), in the event within twelve months of a Change
in Control: (i) Executive terminates his employment for Good
Reason, or (ii) Executive's employment is terminated by the
Company for a reason other than death, Disability or Cause, or
(iii) the Company shall fail to extend this Agreement pursuant
to Section 3, then the Company shall:
(1) pay Executive a severance amount equal to 2.99 times the
amount that results from adding Executive's Base Salary
(determined without regard to any reduction in violation of
Section 5) as of his last day of active employment plus the
target bonus under Section 6; the severance amount shall be
paid in a single sum on the first business day of the month
following the Termination Date;
(2) maintain and provide to Executive, at no cost to Executive,
for a period ending at the earliest of (i) the fifth
anniversary of the date of this Agreement; or (ii)
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
the Company continued throughout such period, provided that
such participation is not prohibited by the terms of the
plan or by the Company for legal reasons;
(3) in the event that either the independent public accountants
which serve as the auditors of the Company immediately prior
to the Change in Control or the Internal Revenue Service
determines that any payment, coverage or benefit provided to
the Executive is subject to the excise tax imposed by
Section 4999 (or any successor provisions) of the Internal
Revenue Code of 1986, as amended (the "Code"), the Company
shall promptly pay to the Executive, in addition to other
payments, coverage or benefit due and owing hereunder or
under any other plan, or agreement, an amount determined by
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multiplying the rate of the excise tax then imposed by Code
Section 4999 by the amount of the "excess parachute payment"
received by the Executive (determined without regard to any
payments made to the Executive pursuant to this section) and
dividing the product so obtained by the amount obtained by
subtracting the aggregate local, state and Federal income
tax rate applicable to the receipt by the Executive of such
"excess parachute payment" (taking into account the
deductibility for Federal income tax purposes of the payment
of state and local income taxes thereon) from the amount
obtained by subtracting from 1.00 the rate of the excise tax
then imposed by Code Section 4999 (the "Gross-Up Payment"),
it being the intention of the parties hereto that the
Executive's net after tax position shall be identical to
that which would have obtained had Code Sections 280G and
4999 not been part of the Code. The Gross-Up Payment
attributable to payments other than severance compensation
described in subsections c(i) and (ii) shall be paid in a
lump sum payment on the Termination Date following the
Change in Control. The Gross-Up Payment attributable to the
severance compensation described in subsections c(i) and
(ii) shall be paid in a lump sum payment on the first day on
which severance compensation is paid pursuant to subsection
c(i) or subsection c(ii). All Gross-Up Payments shall be
paid in accordance with section 409A of the Code. For
purposes of the calculations required by this subsection (3)
reasonable assumptions and approximations may be made with
respect to applicable taxes and reasonable good faith
interpretations of the Code may be relied upon; and
(4) pay to Executive all reasonable legal fees and expenses
incurred by Executive as a result of such termination of
employment (including all fees and expenses, if any,
incurred by Executive in contesting or disputing any such
termination or in seeking to obtain to enforce any right or
benefit provided to Executive by this Agreement whether by
arbitration or otherwise).
(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.
(e) Section 409A. Notwithstanding any other provision in this
Agreement to the contrary, any payments that would constitute
deferred compensation for purposes of (and subject to) Code
Section 409A shall be deferred for a period of six months
following Executive's separation from service with the Company.
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13. Withholding. The 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.
14. Assignability. The Company may assign this Agreement and its rights
and obligations hereunder in whole, but not in part, to any entity to which the
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 the Company
hereunder as fully as if it had been originally made a party hereto. The 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 the Company.
15. Death of Executive. If Executive dies during the term of this
Agreement, the Company shall pay Executive's spouse death benefits equal to (a)
a lump sum payment equal to Executive's Base Salary at the time of death plus
(b) continued participation by the spouse and any dependents in the Company's
health benefit plan in which Executive would have been entitled to participate,
for a period of one year from the date of Executive's death, at no cost to
spouse and dependents of active employees; provided that such participation is
not prohibited by the terms of the plan or by the Company for legal reasons.
Such continued participation to be in addition to and not concurrent with any
continuation coverage required by law (e.g. COBRA). 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.
16. Restrictive Covenants.
(a) Covenant Not to Compete. During the term of this Agreement and
for a period of one year following the Termination Date of
Executive's employment, Executive shall not, without the express
written consent of the Company, directly or indirectly: (I)
engage, anywhere within the geographical areas in which the
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"), neurosurgery business (the
use of surgical instruments, implants, monitoring products or
disposable products to treat the brain or central nervous
system) ("Neurosurgery Business"), instrument business (general
surgical handheld instruments used for general purposes in
surgical procedures) ("Instrument Business"), reconstruction
business (bone fixation devices for foot and ankle
reconstruction procedures) ("Reconstruction Business") or in any
other line of business the revenues of which constituted at
least 50% of the Company's revenues during the six (6) month
period prior to the Termination Date (together with the Tissue
Engineering Business, Neurosurgery Business, Instrument Business
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and Reconstruction 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 to procure orders
from or do business with any customer of the 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 the
Company; (V) seek to contract with or engage (in such a way as
to adversely affect or interfere with the business of the
Company) any person or entity who has been contracted with or
engaged to manufacture, assemble, supply or deliver products,
goods, materials or services to the Company; or (VI) engage in
or participate in any effort or act to induce any of the
customers, associates, consultants, or employees of the Company
to take any action which might be disadvantageous to the
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 and provided,
further, however, that nothing set forth in this Section 16(a)
shall prohibit Executive from becoming an employee or agent of,
or consultant to, any entity that is engaged in the Business so
long as Executive does not engage in any activities in the
Business in any capacity for said entity.
(b) Confidentiality. Executive acknowledges a duty of
confidentiality owed to the Company and shall not, at any time
during or after his employment by the 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 the
Company obtained or acquired by him while so employed. All
computer software, business cards, telephone lists, customer
lists, price lists, contract forms, catalogs, the Company books,
records, files and know-how acquired while an employee of the
Company are acknowledged to be the property of the Company and
shall not be duplicated, removed from the Company's possession
or premises or made use of other than in pursuit of the
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 the Company and, upon termination
of employment for any reason, Executive shall deliver to the
Company 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 the Company all ideas, discoveries and inventions
which are or may be useful to the 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
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(d) at any time during his employment with the Company heretofore or
hereafter gained by him at any time during his employment with
the Company are the property of the Company, and Executive
hereby irrevocably assigns all such ideas, discoveries,
inventions and improvements to the Company for its sole use and
benefit, without additional compensation. The provisions of this
Section 16(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 the
Company's business interests (including potential business
interests), and whether or not within the specific realm of his
duties. Executive shall, upon request of the Company, but at no
expense to Executive, at any time during or after his employment
with the Company, sign all instruments and documents reasonably
requested by the Company and otherwise cooperate with the
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 the Company shall determine.
(e) Breach of Covenant. Executive expressly acknowledges that
damages alone will be an inadequate remedy for any breach or
violation of any of the provisions of this Section 16 and that
the 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 16 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.
17. 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 the Company's
behalf.
(b) Interpretation. This Agreement is intended to comply with the
requirements of Section 409A of the Code and all interpretations
of this Agreement shall be in accordance with that intent. In
that regard, notwithstanding the provisions of Section 17(a),
the Company may amend this Agreement without the consent of the
Executive if the Company determines that it is necessary in
order for the benefits or payments to be made under this
Agreement to comply with the requirements of Section 409A of the
Code.
(c) Nature of Obligations. Nothing contained herein shall create or
require the Company to create a trust of any kind to fund any
benefits which may be payable hereunder, and to the extent that
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Executive acquires a right to receive benefits from the Company
hereunder, such right shall be no greater than the right of any
unsecured general creditor of the Company.
(d) Prior Employment. Executive represents and warrants that his
acceptance of employment with the 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.
(e) Headings. The Section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the
meaning or interpretation or this Agreement. In the event of a
conflict between a heading and the content of a Section, the
content of the Section shall control.
(f) 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 the feminine, unless
the context clearly indicates otherwise. The singular form,
whenever used herein, shall mean or include the plural form
where applicable.
(g) 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.
(h) 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.
(i) 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 Holdings Corporation
311 Enterprise Drive
Plainsboro, New Jersey 08536
Attn: President
With a copy to:
The Company's General Counsel
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To the Executive:
Gerard S. Carlozzi
5 Baker Way
Pennington, NJ 08534
(j) 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.
(k) 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.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
INTEGRA LIFESCIENCES HOLDINGS EXECUTIVE
CORPORATION
By: /s/ Stuart M. Essig /s/ Gerard S. Carlozzi
--------------------------------------- ---------------------------
Its: President and Chief Executive Officer Gerard S. Carlozzi
AMENDED AND RESTATED 2005 EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this "Agreement") is
made as of the 19th day of December, 2005 by and between Integra LifeSciences
Holdings Corporation, a Delaware Corporation (the "Company") and David B. Holtz
("Executive").
Background
Executive is currently the Senior Vice President, Finance, of the
Company. The Company desires to continue to employ Executive, and Executive
desires to remain in the employ of the Company, on the terms and conditions
contained in this Agreement. Executive will be substantially involved with the
Company's operations and management and will learn trade secrets and other
confidential information relating to the 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 intended 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 the 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 in all material
respects, which failure continues for 15 days after his
receipt of written notice of the failure;
(2) intentionally and materially 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 the Company;
(4) engaged in willful misconduct in connection with his
employment with the Company;
(5) engaged in a breach of fiduciary duty in connection with his
employment with the Company; or
(6) willfully violated any law, rule or regulation, or final
cease-and-desist order (other than traffic violations or
similar offenses) or engaged in other serious misconduct of
such a nature that his continued employment may reasonably
be expected to cause the Company substantial economic or
reputational injury.
(d) A "Change in Control" of the 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 the Company Voting Securities (as herein
defined) is acquired by any individual, entity or group (a
"Person"), other than the Company, any trustee or other
fiduciary holding securities under any employee benefit plan
of the Company or an affiliate thereof, or any corporation
owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their
ownership of stock of the Company (for purposes of this
Agreement, "Company Voting Securities" shall mean the then
outstanding voting securities of the Company entitled to
vote generally in the election of directors); provided,
however, that any acquisition from the 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 during
any period of at least 24 months 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 the 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 the Company of a reorganization, merger
or consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the
acquisition of assets or stock of any entity (a "Business
Combination"), in each case, unless immediately following
such Business Combination: (i) Company Voting Securities
outstanding immediately prior to such Business Combination
(or if such Company Voting Securities were converted
pursuant to such Business Combination, the shares into which
such Company Voting Securities were converted) (x)
represent, directly or indirectly, more than 50% of the
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combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors of the corporation resulting from such Business
Combination (the "Surviving Corporation"), or, if
applicable, a corporation which as a result of such
transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more
subsidiaries (the "Parent Corporation") and (y) are held in
substantially the same proportions after such Business
Combination as they were immediately prior to such Business
Combination; (ii) no Person (excluding any employee benefit
plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially 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 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 the Company of a
complete liquidation or dissolution of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Company" shall mean Integra LifeSciences Holdings Corporation
and any corporation, partnership or other entity owned directly
or indirectly, in whole or in part, by Integra LifeSciences
Holdings 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 the Company which is
not cured by the Company within 15 days of its receipt of
written notice of the breach;
(2) without Executive's express written consent, the Company
reduces Executive's Base Salary or materially reduces the
aggregate fringe benefits provided to Executive (except to
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the extent permitted by Section 5 or Section 6,
respectively) or substantially alters the Executive's
authority as set forth in Section 2 hereof in a manner
reasonably construed to constitute a demotion; provided,
Executive resigns within 90 days after the change objected
to and provided, however, that the appointment of a Chief
Financial Officer shall not constitute a demotion hereunder;
or
(3) without Executive's express written consent, Executive fails
at any point during the one-year period following a Change
in Control to hold the title and authority held by Executive
immediately prior to the Change in Control with the Parent
Corporation (or if there is no Parent Corporation, the
Surviving Corporation) that Executive held with the Company
immediately prior to the Change of Control, provided
Executive resigns within one year of the Change in Control;
(4) the Company fails to obtain the assumption of this Agreement
by any successor to the Company;
(5) If the Company appoints a Chief Financial Officer and
Executive is no longer responsible for the Finance
department of the Company and the Company and Executive do
not mutually agree to an amended job title and/or
responsibilities for Executive by the 30th day before the
expiration of this Agreement (without regard to any
extensions); it being understood that Executive's
performance of different duties on an interim basis after a
Chief Financial Officer is appointed shall not be deemed
Executive's agreement to "an amended job title and/or
responsibilities" within the meaning of this paragraph (5)
unless Executive expressly so states.
(i) "Principal Executive Office" shall mean the Company's principal
office for executives, presently located at 311 Enterprise
Drive, Plainsboro, New Jersey 08536.
(j) "Retirement" shall mean the termination of Executive's
employment with the Company in accordance with the retirement
policies, including early retirement policies, generally
applicable to the 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
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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. The Company hereby employs Executive as Senior Vice
President, Finance or such other title and position as Executive and the Chief
Executive Officer of the Company may mutually agree upon from time to time.
Until the Company appoints a Chief Financial Officer, Executive shall be
responsible for the Finance Department of the Company. Executive hereby agrees
to continue his employment and agrees to render services to the Company in such
capacity (or in such other capacity in the future as the Chief Executive Officer
may reasonably deem equivalent to such position) on the terms and conditions set
forth in this Agreement. Executive's primary place of employment shall be at the
Principal Executive Office and Executive shall report to the Chief Executive
Officer until such time as a Chief Financial Officer is appointed, at which time
Executive shall report to the Chief Financial Officer.
3. Term.
(a) Term and Renewal of Agreement. Unless earlier terminated by
Executive or the Company as provided in Section 10 hereof, the
term of Executive's employment under this Agreement shall
commence on the date of this Agreement and terminate on December
31, 2006. Subject to subsection 3(b), this Agreement shall be
deemed automatically, without further action, to extend for an
additional year on December 31, 2006 and each anniversary
thereof.
(b) Annual Review. Prior to December 31, 2006 and each anniversary
thereof, 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 the 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 renewal 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 acts, duties and services as the Chief
Executive Officer or the Board 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 the Company, and shall not be employed by or
participate or engage in or in any manner be a part of the
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management or operations of any business enterprise other than
the Company without the prior consent of the Chief Executive
Officer or the Board, which consent may be granted or withheld
in his or its sole discretion; provided, however, that
notwithstanding the foregoing, Executive may serve on civic or
charitable boards or committees so long as such service does not
materially interfere with Executive's obligations pursuant to
this Agreement.
5. Compensation.
(a) Base Salary. The Company shall compensate Executive for his
services at a minimum base salary of $250,000 per year ("Base
Salary"), payable in periodic installments in accordance with
the 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 the Company).
(b) Bonus Opportunity. Executive shall have the opportunity to
receive a performance bonus targeted at 30% of his Base Salary
as determined by the Compensation Committee of the Board (the
"Compensation Committee") in its sole discretion.
(c) Restricted Stock. Upon approval of the Compensation Committee,
the Company shall grant Executive 6,750 shares of the Company's
common stock subject to forfeiture and certain other
restrictions (the "Restricted Stock") pursuant to the Company's
2003 Equity Incentive Plan and the terms and conditions set
forth in the Restricted Stock Agreement set forth on Exhibit A
hereto, (the "Restricted Stock Agreement"). In the event of any
inconsistency between the term of this Agreement and the
Restricted Stock Agreement, the Restricted Stock Agreement shall
govern. The Restricted Stock shall vest and become
non-forfeitable on the earlier of (i) Change in Control, (ii)
Termination of Executive's employment without Cause, death, for
Good Reason or Disability prior to December 31, 2006, or (iii)
December 31, 2006. Until vested the Restricted Stock shall not
be transferable and shall be subject to forfeiture if Executive
terminates his employment without Good Reason or the Company
terminates Executive's employment for Cause.
6. Benefit Plans. Executive shall be entitled to participate in and
receive benefits under any employee benefit plan or stock-based plan of the
Company, and shall be eligible for any other plans and benefits covering
executives of the Company, to the extent commensurate with his then duties and
responsibilities fixed by the Board. The Company shall not make any change in
such plans or benefits that would adversely affect Executive's rights
thereunder, unless such change affects all, or substantially all, executive
officers of the Company.
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7. 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.
8. Business Expenses. The Company shall reimburse Executive or
otherwise pay for all reasonable expenses incurred by Executive in furtherance
of or in connection with the business of the 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 Company.
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 the
Company due to his Retirement, 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. Additionally, subject to the exceptions set forth in
subsection 5(c), all nonvested Restricted Stock granted pursuant
to this Agreement shall be forfeited as of Executive's last day
of active employment.
(b) Termination with Salary Continuation (No Change in Control).
Except as provided in subsection 10(c) in the event of a Change
in Control, in the event (i) Executive's employment is
terminated by the Company for a reason other than Retirement,
death, Disability or Cause, or (ii) Executive terminates his
employment for Good Reason, or (iii) the Company shall fail to
extend this Agreement pursuant to the provisions of Section 3,
then the Company shall:
(1) pay Executive a severance amount equal to Executive's Base
Salary (determined without regard to any reduction in
violation of Section 5) as of his last day of active
employment , plus the target bonus under Section 5(b). The
severance amount shall be paid in a single sum 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 first
anniversary of the Termination Date; (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
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employment with the Company continued throughout such
period, provided that such participation is not prohibited
by the terms of the plan or by the 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 twelve months of a Change in Control:
(i) Executive terminates his employment for Good Reason, or (ii)
Executive's employment is terminated by the Company for a reason
other than Retirement, death, Disability or Cause, or (iii) the
Company shall fail to extend this Agreement pursuant to Section
3, then the Company shall:
(1) pay Executive a severance amount equal to 2.99 times
Executive's Base Salary (determined without regard to any
reduction in violation of Section 5) as of his last day of
active employment plus the target bonus under Section 5(b);
the severance amount shall be paid in a single sum on the
first business day of the month following the Termination
Date;
(2) maintain and provide to Executive, at no cost to Executive,
for a period ending at the earliest of (i) the fifth
anniversary of the date of this Agreement; or (ii)
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
the Company continued throughout such period, provided that
such participation is not prohibited by the terms of the
plan or by the Company for legal reasons; and
(3) pay to Executive all reasonable legal fees and expenses
incurred by Executive as a result of such termination of
employment (including all fees and expenses, if any,
incurred by Executive in contesting or disputing any such
termination or in seeking to obtain to enforce any right or
benefit provided to Executive by this Agreement whether by
arbitration or otherwise).
(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.
(e) Parachute Payment Limitation. If any payment or benefit to
Executive under this Agreement would be considered a "parachute
payment" within the meaning of Section 280G(b)(2) of the Code
and, if, after reduction for any applicable federal excise tax
imposed by Section 4999 of the Code (the "Excise Tax") and
federal income tax imposed by the Code, Executive's net proceeds
of the amounts payable and the benefits provided under this
Agreement would be less than the amount of Executive's net
proceeds resulting from the payment of the Reduced Amount
-8-
described below, after reduction for federal income taxes, then
the amount payable and the benefits provided under this
Agreement shall be limited to the Reduced Amount. The "Reduced
Amount" shall be the largest amount that could be received by
Executive under this Agreement such that no amount paid to
Executive under this Agreement and any other agreement,
contract, or understanding heretofore or hereafter entered into
between Executive and the Company (the "Other Agreements") and
any formal or informal plan or other arrangement heretofore or
hereafter adopted by the Company for the direct or indirect
provision of compensation to Executive (including groups or
classes of participants or beneficiaries of which Executive is a
member), whether or not such compensation is deferred, is in
cash, or is in the form of a benefit to or for Executive (a
"Benefit Plan") would be subject to the Excise Tax. In the event
that the amount payable to Executive shall be limited to the
Reduced Amount, then Executive shall have the right, in
Executive's sole discretion, to designate those payments or
benefits under this Agreement, any Other Agreements, and/or any
Benefit Plans, that should be reduced or eliminated so as to
avoid having the payment to Executive under this Agreement be
subject to the Excise Tax.
(f) Section 409A. Notwithstanding any other provision in this
Agreement to the contrary, any payments that would constitute
deferred compensation for purposes of (and subject to) Code
Section 409A shall be deferred for a period of six months
following Executive's separation from service with the Company.
11. Withholding. The 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. The Company may assign this Agreement and its rights
and obligations hereunder in whole, but not in part, to any entity to which the
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 the Company
hereunder as fully as if it had been originally made a party hereto. The 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 the 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, without the express written consent of the
Company, directly or indirectly: (i) engage, anywhere within the
geographical areas in which the Company is conducting business
operations or providing services as of the date of Executive's
termination of employment, in the tissue engineering business
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(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"), neurosurgery business (the use of surgical
instruments, implants, monitoring products or disposable
products to treat the brain or central nervous system)
("Neurosurgery Business"), instrument business (general surgical
handheld instruments used for general purposes in surgical
procedures) ("Instrument Business"), reconstruction business
(bone fixation devices for foot and ankle reconstruction
procedures) ("Reconstruction Business") or in any other line of
business the revenues of which constituted at least 50% of the
Company's revenues during the six (6) month period prior to the
Termination Date (together with the Tissue Engineering Business,
Neurosurgery Business, Instrument Business and Reconstruction
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 the Company to procure orders
from or do business with any customer of the 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 the
Company; (v) seek to contract with or engage (in such a way as
to adversely affect or interfere with the business of the
Company) any person or entity who has been contracted with or
engaged to manufacture, assemble, supply or deliver products,
goods, materials or services to the Company; or (vi) engage in
or participate in any effort or act to induce any of the
customers, associates, consultants, or employees of the Company
to take any action which might be disadvantageous to the
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 the Company and shall not, at any time
during or after his employment by the 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 the
Company obtained or acquired by him while so employed. All
computer software, business cards, telephone lists, customer
lists, price lists, contract forms, catalogs, the Company books,
records, files and know-how acquired while an employee of the
Company are acknowledged to be the property of the Company and
shall not be duplicated, removed from the Company's possession
or premises or made use of other than in pursuit of the
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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 the Company and, upon termination
of employment for any reason, Executive shall deliver to the
Company 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 the Company all ideas, discoveries and inventions
which are or may be useful to the 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 the Company heretofore or
hereafter gained by him at any time during his employment with
the Company are the property of the Company, and Executive
hereby irrevocably assigns all such ideas, discoveries,
inventions and improvements to the 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 the
Company's business interests (including potential business
interests), and whether or not within the specific realm of his
duties. Executive shall, upon request of the Company, but at no
expense to Executive, at any time during or after his employment
with the Company, sign all instruments and documents reasonably
requested by the Company and otherwise cooperate with the
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 the Company shall determine.
(d) Breach of Covenant. 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
the 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.
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 the Company's
behalf.
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(b) Nature of Obligations. Nothing contained herein shall create or
require the 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 the Company
hereunder, such right shall be no greater than the right of any
unsecured general creditor of the Company.
(c) Prior Employment. Executive represents and warrants that his
acceptance of employment with the 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 or 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 the 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 Holdings Corporation
311 Enterprise Drive
Plainsboro, New Jersey 08536
Attn: President
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With a copy to:
The Company's General Counsel
To the Executive:
David B. Holtz
52 Heritage Drive
Allentown, NJ 05801
(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.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
INTEGRA LIFESCIENCES HOLDINGS EXECUTIVE
CORPORATION
By: /s/ Stuart M. Essig /s/ David B. Holtz
--------------------------------------- -----------------------
Its: President and Chief Executive Officer David B. Holtz
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT (the "Award Agreement"), dated as of
December 19, 2005 (the "Award Date"), is made by and between Integra
LifeSciences Holdings Corporation, a Delaware corporation (the "Company"), and
David B. Holtz, an employee of the Company (or one or more of its Related
Corporations or Affiliates), hereinafter referred to as the "Participant":
WHEREAS, the Company maintains the Integra LifeSciences Holdings
Corporation 2003 Equity Incentive Plan, as amended (the "Plan") and wishes to
carry out the Plan, the terms of which are hereby incorporated by reference and
made part of this Award Agreement; and
NOW, THEREFORE, in consideration of the various covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
Capitalized terms not otherwise defined below shall have the meaning
set forth in the Plan. The masculine pronoun shall include the feminine and
neuter, and the singular the plural, where the context so indicates.
Section 1.1 Employment Agreement. "Employment Agreement" shall mean the
Participant's employment agreement with the Company, dated December 19, 2005.
Section 1.2 Restricted Stock. "Restricted Stock" shall mean 6,750
shares of Common Stock of the Company issued under this Award Agreement and
subject to the Restrictions imposed hereunder.
Section 1.3 Restrictions. "Restrictions" shall mean the forfeiture and
transferability restrictions imposed upon Restricted Stock under the Plan and
this Award Agreement.
Section 1.4 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
under the Exchange Act, as such Rule may be amended from time to time.
Section 1.5 Secretary. "Secretary" shall mean the Secretary of the
Company.
Section 1.6 Termination of Service. "Termination of Service" shall mean
the time when the Participant ceases to provide services to the Company and its
Related Corporations and Affiliates as an employee or Associate for any reason
with or without cause, including, but not by way of limitation, a termination by
resignation, discharge, death, or Disability, but excluding a termination where
the Participant is simultaneously reemployed by, or remains employed by, or
continues to provide services to, the Company and/or one or more of its Related
Corporations and Affiliates or a successor entity thereto.
Section 1.7 Vested Shares. "Vested Shares" shall mean the shares of
Restricted Stock which are no longer subject to the Restrictions by reason of
Section 3.2.
Section 1.8 Vesting Date. "Vesting Date" shall mean December 31, 2006.
ARTICLE II.
ISSUANCE OF RESTRICTED STOCK
Section 2.1 Issuance of Restricted Stock. On the date hereof the
Company issues to the Participant the Restricted Stock subject to the
Restrictions and other conditions set forth in this Award Agreement. The Company
shall cause the Restricted Stock to be issued in the name of the Participant or
held in book entry form, but if a stock certificate is issued it shall be
delivered to and held in custody by the Company until the Restrictions lapse or
such Restricted Stock is forfeited. As a further condition to the Company's
obligations under this Award Agreement, the Participant's spouse, if any, shall
execute and deliver to the Company the Consent of Spouse attached hereto as
Exhibit A.
Section 2.2 Restrictions. Until vested pursuant to Section 3.2, the
Restricted Stock shall be subject to forfeiture as provided in Section 3.1 and
may not be sold, assigned, transferred, pledged, or otherwise encumbered or
disposed of.
Section 2.3 Vesting and Dividend Rights. The Participant, shall have
all the rights of a stockholder with respect to his Restricted Stock, including
the right to vote the Restricted Stock and the right to receive all dividends or
other distributions paid or made with respect to the Restricted Stock.
ARTICLE III.
RESTRICTIONS
Section 3.1 Forfeiture. Upon the Participant's Termination of Service
for any reason other than termination on account of a termination by the Company
without Cause (as determined under the Employment Agreement), Good Reason, death
or Disability, the Participant's rights in Restricted Stock that has not yet
vested pursuant to Section 3.2 shall lapse, and such Restricted Stock shall be
surrendered to the Company without consideration (and, in the event of
certificates representing such Restricted Stock are held by the Company, such
Restricted Stock shall be so transferred without any further action by the
Participant).
Section 3.2 Termination of Restrictions. The Restrictions shall
terminate and lapse, and such shares shall vest in the Participant and become
Vested Shares on the Vesting Date as provided in Section 3.3, provided that the
Participant has continued to serve as an employee or an Associate from the Award
Date to and including the Vesting Date. Notwithstanding the foregoing, upon a
Change in Control, or a Termination of Service on account of a termination by
the Company without Cause, Good Reason, death or Disability, all Restrictions
shall lapse and all Restricted Stock shall become Vested Shares.
Section 3.3 Lapse of Restrictions. Upon the Vesting Date, the Company
shall issue new certificates evidencing the Vested Shares and deliver such
certificates to the Participant or his legal representative, free from the
legend provided for in Section 4.2 and any of the other Restrictions; provided,
however, such certificates shall bear any other legends as the Company may
determine are required to comply with Section 4.6. Such Vested Shares shall
cease to be considered Restricted Stock subject to the terms and conditions of
this Award Agreement. Notwithstanding the foregoing, no such new certificate
-2-
shall be delivered to the Participant or his legal representative unless and
until the Participant or his legal representative shall have satisfied the full
amount of all federal, state and local withholding or other employment taxes
applicable to the taxable income of the Participant resulting from the lapse of
the Restrictions in accordance with Section 4.3.
ARTICLE IV.
MISCELLANEOUS
Section 4.1 No Additional Rights. Nothing in this Award Agreement or in
the Plan shall confer upon any person any right to a position as an Associate or
continued employment by the Company or any of its Related Corporations or
Affiliates or affect in any way the right of any of the foregoing to terminate
the services of an individual at any time.
Section 4.2 Legend. Any certificates representing shares of Restricted
Stock issued pursuant to this Award Agreement shall, until all Restrictions
lapse and new certificates are issued pursuant to Section 3.3, bear the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
VESTING REQUIREMENTS AND MAY BE SUBJECT TO FORFEITURE UNDER THE TERMS
OF THAT CERTAIN RESTRICTED STOCK AGREEMENT BY AND BETWEEN INTEGRA
LIFESCIENCES HOLDINGS CORPORATION AND THE HOLDER OF THE SECURITIES.
PRIOR TO VESTING OF OWNERSHIP IN THE SECURITIES, THEY MAY NOT BE, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, OR OTHERWISE ENCUMBERED OR DISPOSED OF
UNDER ANY CIRCUMSTANCES. COPIES OF THE ABOVE REFERENCED AGREEMENT ARE
ON FILE AT THE OFFICES OF THE CORPORATION AT 311 ENTERPRISE DRIVE,
PLAINSBORO, NEW JERSEY 08536.
Section 4.3 Tax Withholding. On the Vesting Date, the Company shall
notify the Participant of the amount of tax which must be withheld by the
Company under all applicable federal, state and local tax laws. Subject to any
applicable legal conditions or restrictions, the Company shall withhold from the
shares of Restricted Stock a number of whole shares of common stock having a
fair market value, determined as of the Vesting Date, not in excess of the
minimum of tax required to be withheld by law.
Section 4.4 Notices. Any notice to be given under the terms of this
Award Agreement to the Company shall be addressed to the Company in care of its
Secretary, and any notice to be given to the Participant shall be addressed to
him at the address given beneath his signature hereto. By a notice given
pursuant to this Section 4.4, either party may hereafter designate a different
address for notices to be given to it or him. Any notice which is required to be
given to the Participant shall, if the Participant is then deceased, be given to
the Participant's personal representative if such representative has previously
informed the Company of his status and address by written notice under this
Section 4.4. Any notice shall have been deemed duly given when enclosed in a
-3-
properly sealed envelope or wrapper addressed as aforesaid, deposited (with
postage prepaid) in a post office or branch post office regularly maintained by
the United States Postal Service.
Section 4.5 Titles. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this Award
Agreement.
Section 4.6 Conformity to Securities Laws. This Award Agreement is
intended to conform to the extent necessary with all provisions of the
Securities Act and the Exchange Act and any and all regulations and rules
promulgated by the Securities and Exchange Commission thereunder, including
without limitation Rule 16b-3. Notwithstanding anything herein to the contrary,
this Award Agreement shall be administered, and the Restricted Stock shall be
issued, only in such a manner as to conform to such laws, rules and regulations.
To the extent permitted by applicable law, this Award Agreement and the
Restricted Stock issued hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
Section 4.7 Amendment. This Award Agreement may be amended only by a
writing executed by the parties hereto which specifically states that it is
amending this Award Agreement.
Section 4.8 Governing Law. The laws of the State of Delaware shall
govern the interpretation, validity, administration, enforcement and performance
of the terms of this Award Agreement regardless of the law that might be applied
under principles of conflicts of laws.
*****
IN WITNESS HEREOF, this Award Agreement has been executed and delivered
by the parties hereto.
THE PARTICIPANT INTEGRA LIFESCIENCES HOLDINGS CORPORATION
/s/ David B. Holtz By: /s/ Stuart M. Essig
- --------------------- ---------------------------
David B. Holtz Name: Stuart M. Essig
52 Heritage Drive Title: President and CEO
Allentown, NJ 05801
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EXHIBIT A
CONSENT OF SPOUSE
I, ____________________, spouse of _________________, have read and
approve the foregoing Award Agreement. In consideration of granting of the right
to my spouse to purchase shares of Integra LifeSciences Holdings Corporation as
set forth in the Award Agreement, I hereby appoint my spouse as my
attorney-in-fact in respect to the exercise of any rights under the Award
Agreement and agree to be bound by the provisions of the Award Agreement insofar
as I may have any rights in said Award Agreement or any shares issued pursuant
thereto under the community property laws or similar laws relating to marital
property in effect in the state of our residence as of the date of the signing
of the foregoing Award Agreement.
Dated: _______________, ______
----------------------------------
Name:
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PERFORMANCE STOCK AGREEMENT
THIS PERFORMANCE STOCK AGREEMENT (the "Award Agreement"), dated as of
January 3, 2006 (the "Award Date"), is made by and between Integra LifeSciences
Holdings Corporation, a Delaware corporation (the "Company"), and John B.
Henneman, III, an employee of the Company (or one or more of its Related
Corporations or Affiliates), hereinafter referred to as the "Participant":
WHEREAS, the Company maintains the Integra LifeSciences Holdings
Corporation 2003 Equity Incentive Plan, as amended (the "Plan") and wishes to
carry out the Plan, the terms of which are hereby incorporated by reference and
made part of this Award Agreement; and
NOW, THEREFORE, in consideration of the various covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
Capitalized terms not otherwise defined below shall have the meaning
set forth in the Plan. The masculine pronoun shall include the feminine and
neuter, and the singular the plural, where the context so indicates.
Section 1.1 Employment Agreement. "Employment Agreement" shall mean the
Participant's employment agreement with the Company, dated December 19, 2005.
Section 1.2 Performance Goals. "Performance Goals" shall mean the
specific goal or goals determined by the Committee, as specified in Exhibit B.
Section 1.3 Performance Period. "Performance Period" shall mean the
period of time that the Performance Goals must be met, as specified in Exhibit
B.
Section 1.4 Performance Stock. "Performance Stock" shall mean 100,000
Shares that will be issued to the Participant under this Award Agreement if the
Performance Goals or such other criteria described hereunder are met during the
Performance Period.
Section 1.5 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
under the Exchange Act, as such Rule may be amended from time to time.
Section 1.6 Secretary. "Secretary" shall mean the Secretary of the
Company.
Section 1.7 Termination of Service. "Termination of Service" shall mean
the time when the Participant ceases to provide services to the Company and its
Related Corporations and Affiliates as an employee or Associate for any reason
with or without cause, including, but not by way of limitation, a termination by
resignation, discharge, death, or Disability. A Termination of Service shall not
include a termination where the Participant is simultaneously reemployed by, or
remains employed by, or continues to provide services to, the Company and/or one
or more of its Related Corporations and Affiliates or a successor entity
thereto.
ARTICLE II.
AWARD OF PERFORMANCE STOCK
Section 2.1 Award of Performance Stock. As of the Award Date, the
Company issues to the Participant the right to receive after the end of the
Performance Period (or such earlier date as provided in Section 3.2 of this
Award Agreement) the Performance Stock if the Performance Goals and the other
conditions set forth in this Award Agreement are met. If the Performance Goals
are satisfied, the Company shall cause the Performance Stock to be issued in the
name of the Participant as described under Section 3.3 of this Award Agreement.
As a further condition to the Company's obligations under this Award Agreement,
the Participant's spouse, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit A.
Section 2.2 Forfeiture; Anti-Assignment. The right to receive the
Performance Stock shall be subject to forfeiture as provided in Section 3.1 of
this Award Agreement, and the Participant shall have no right to sell, assign,
transfer, pledge, or otherwise encumber or dispose of the Participant's right to
receive the Performance Stock.
Section 2.3 Dividend Equivalents. Prior to the end of the Performance
Period, the Participant shall have the right to receive an amount equal to all
dividends or other distributions paid or made with respect to the Shares
underlying the Performance Stock as though the Performance Stock had been issued
as of the Award Date. Payment shall be made at the same time as the payment of
dividends on its Shares are made to the Company's stockholders.
Section 2.4 Voting Rights. Prior to the issuance of the Performance
Stock, the Participant shall have no voting rights with respect to any Shares
represented by the Performance Stock.
ARTICLE III.
RESTRICTIONS
Section 3.1 Forfeiture. If the Performance Goals are not met by the end
of the Performance Period, the Participant shall forfeit the Performance Stock
and shall have no right to receive any Shares represented by the Performance
Stock. If the Participant has a Termination of Service for any reason other than
termination on account of a termination by the Company without Cause (as
determined under the Employment Agreement), Good Reason, death or Disability
prior to the end of the Performance Period, the Participant's rights to receive
any Shares represented by the Performance Stock shall immediately terminate on
the date of such Termination of Service.
Section 3.2 Acceleration of Issuance of Performance Stock. If the
Participant has a Termination of Service on account of a termination by the
Company without Cause, Good Reason, death or Disability prior to the end of the
Performance Period, the Shares represented by the Performance Stock shall be
-2-
issued to the Participant (or the Participant's beneficiary, in the case of
death) as soon as reasonably practicable following the Participant's Termination
of Service. If a Change in Control occurs prior to the end of the Performance
Period, the Shares represented by the Performance Stock shall be issued to the
Participant upon the Change in Control.
Section 3.3 Issuance of Shares. As soon as practicable after (i) the
end of the Performance Period, and subject to a determination of the Committee
that the applicable Performance Goals have been met, or (ii) an acceleration
event occurs prior to the end of the Performance Period as described in Section
3.2 of this Award Agreement, the Company shall issue certificates evidencing the
Shares represented by the Performance Stock and deliver such certificates to the
Participant or his legal representative, free from any restrictions; provided,
however, such Shares shall be subject to any such restrictions and conditions as
required pursuant to Section 4.5 of the Award Agreement and those that the
Company imposes on its employees in general with respect to selling its Shares.
Notwithstanding the foregoing, no such new certificate shall be delivered to the
Participant or his legal representative unless and until the Participant or his
legal representative shall have satisfied the full amount of all federal, state
and local withholding or other employment taxes applicable to the taxable income
of the Participant resulting from the issuance of the Shares as provided in this
Award Agreement.
ARTICLE IV.
MISCELLANEOUS
Section 4.1 No Additional Rights. Nothing in this Award Agreement or in
the Plan shall confer upon any person any right to a position as an Associate or
continued employment by the Company or any of its Related Corporations or
Affiliates or affect in any way the right of any of the foregoing to terminate
the services of an individual at any time.
Section 4.2 Tax Withholding. On the date that the Shares represented by
the Performance Stock become issuable, the Company shall notify the Participant
of the amount of tax which must be withheld by the Company under all applicable
federal, state and local tax laws. Subject to any applicable legal conditions or
restrictions, the Company shall withhold from the shares of Performance Stock a
number of whole Shares having a fair market value, determined as of the date the
Shares are issued, not in excess of the minimum of tax required to be withheld
by law.
Section 4.3 Notices. Any notice to be given under the terms of this
Award Agreement to the Company shall be addressed to the Company in care of its
Secretary, and any notice to be given to the Participant shall be addressed to
him at the address given beneath his signature hereto. By a notice given
pursuant to this Section 4.3, either party may hereafter designate a different
address for notices to be given to it or him. Any notice which is required to be
given to the Participant shall, if the Participant is then deceased, be given to
the Participant's personal representative if such representative has previously
informed the Company of his status and address by written notice under this
Section 4.3. Any notice shall have been deemed duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, deposited (with
postage prepaid) in a post office or branch post office regularly maintained by
the United States Postal Service.
Section 4.4 Titles. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this Award
Agreement.
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Section 4.5 Conformity to Securities Laws. This Award Agreement is
intended to conform to the extent necessary with all provisions of the
Securities Act and the Exchange Act and any and all regulations and rules
promulgated by the Securities and Exchange Commission thereunder, including
without limitation Rule 16b-3. Notwithstanding anything herein to the contrary,
this Award Agreement shall be administered, and the Performance Stock shall be
issued, only in such a manner as to conform to such laws, rules and regulations.
To the extent permitted by applicable law, this Award Agreement and the
Performance Stock issued hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
Section 4.6 Amendment. This Award Agreement may be amended only by a
writing executed by the parties hereto which specifically states that it is
amending this Award Agreement.
Section 4.7 Governing Law. The laws of the State of Delaware shall
govern the interpretation, validity, administration, enforcement and performance
of the terms of this Award Agreement regardless of the law that might be applied
under principles of conflicts of laws.
* * * * *
IN WITNESS HEREOF, this Award Agreement has been executed and delivered
by the parties hereto.
INTEGRA LIFESCIENCES
THE PARTICIPANT HOLDINGS CORPORATION
/s/ John B. Henneman, III By: /s/Stuart M. Essig
- ------------------------- ---------------------------
John B. Henneman, III Name: Stuart M. Essig
Title: President and Chief
78 Shady Brook Lane Executive Officer
Princeton, NJ 08540
- -------------------
Address
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EXHIBIT A
CONSENT OF SPOUSE
I, ____________________, spouse of John B. Henneman, III, have read and
approve the foregoing Award Agreement. In consideration of granting of the right
to my spouse to receive shares of Integra LifeSciences Holdings Corporation as
set forth in the Award Agreement if the Performance Goals are met, I hereby
appoint my spouse as my attorney-in-fact in respect to the exercise of any
rights under the Award Agreement and agree to be bound by the provisions of the
Award Agreement insofar as I may have any rights in said Award Agreement or any
shares issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Award Agreement.
Dated: _______________, ______
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Name:
A-1
EXHIBIT B
PERFORMANCE GOALS AND PERFORMANCE PERIOD
The Performance Period shall be the three-year period beginning January 1, 2006
and ending December 31, 2008.
The Performance Goal is that consolidated Company sales in any calendar year
during the Performance Period shall be greater than consolidated sales in
calendar year 2005.
B-1
PERFORMANCE STOCK AGREEMENT
THIS PERFORMANCE STOCK AGREEMENT (the "Award Agreement"), dated as of
January 3, 2006 (the "Award Date"), is made by and between Integra LifeSciences
Holdings Corporation, a Delaware corporation (the "Company"), and Gerard S.
Carlozzi, an employee of the Company (or one or more of its Related Corporations
or Affiliates), hereinafter referred to as the "Participant":
WHEREAS, the Company maintains the Integra LifeSciences Holdings
Corporation 2003 Equity Incentive Plan, as amended (the "Plan") and wishes to
carry out the Plan, the terms of which are hereby incorporated by reference and
made part of this Award Agreement; and
NOW, THEREFORE, in consideration of the various covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
Capitalized terms not otherwise defined below shall have the meaning
set forth in the Plan. The masculine pronoun shall include the feminine and
neuter, and the singular the plural, where the context so indicates.
Section 1.1 Employment Agreement. "Employment Agreement" shall mean the
Participant's employment agreement with the Company, dated December 19, 2005.
Section 1.2 Performance Goals. "Performance Goals" shall mean the
specific goal or goals determined by the Committee, as specified in Exhibit B.
Section 1.3 Performance Period. "Performance Period" shall mean the
period of time that the Performance Goals must be met, as specified in Exhibit
B.
Section 1.4 Performance Stock. "Performance Stock" shall mean 100,000
Shares that will be issued to the Participant under this Award Agreement if the
Performance Goals or such other criteria described hereunder are met during the
Performance Period.
Section 1.5 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
under the Exchange Act, as such Rule may be amended from time to time.
Section 1.6 Secretary. "Secretary" shall mean the Secretary of the
Company.
Section 1.7 Termination of Service. "Termination of Service" shall mean
the time when the Participant ceases to provide services to the Company and its
Related Corporations and Affiliates as an employee or Associate for any reason
with or without cause, including, but not by way of limitation, a termination by
resignation, discharge, death, or Disability. A Termination of Service shall not
include a termination where the Participant is simultaneously reemployed by, or
remains employed by, or continues to provide services to, the Company and/or one
or more of its Related Corporations and Affiliates or a successor entity
thereto.
ARTICLE II.
AWARD OF PERFORMANCE STOCK
Section 2.1 Award of Performance Stock. As of the Award Date, the
Company issues to the Participant the right to receive after the end of the
Performance Period (or such earlier date as provided in Section 3.2 of this
Award Agreement) the Performance Stock if the Performance Goals and the other
conditions set forth in this Award Agreement are met. If the Performance Goals
are satisfied, the Company shall cause the Performance Stock to be issued in the
name of the Participant as described under Section 3.3 of this Award Agreement.
As a further condition to the Company's obligations under this Award Agreement,
the Participant's spouse, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit A.
Section 2.2 Forfeiture; Anti-Assignment. The right to receive the
Performance Stock shall be subject to forfeiture as provided in Section 3.1 of
this Award Agreement, and the Participant shall have no right to sell, assign,
transfer, pledge, or otherwise encumber or dispose of the Participant's right to
receive the Performance Stock.
Section 2.3 Dividend Equivalents. Prior to the end of the Performance
Period, the Participant shall have the right to receive an amount equal to all
dividends or other distributions paid or made with respect to the Shares
underlying the Performance Stock as though the Performance Stock had been issued
as of the Award Date. Payment shall be made at the same time as the payment of
dividends on its Shares are made to the Company's stockholders.
Section 2.4 Voting Rights. Prior to the issuance of the Performance
Stock, the Participant shall have no voting rights with respect to any Shares
represented by the Performance Stock.
ARTICLE III.
RESTRICTIONS
Section 3.1 Forfeiture. If the Performance Goals are not met by the end
of the Performance Period, the Participant shall forfeit the Performance Stock
and shall have no right to receive any Shares represented by the Performance
Stock. If the Participant has a Termination of Service for any reason other than
termination on account of a termination by the Company without Cause (as
determined under the Employment Agreement), Good Reason, death or Disability
prior to the end of the Performance Period, the Participant's rights to receive
any Shares represented by the Performance Stock shall immediately terminate on
the date of such Termination of Service.
Section 3.2 Acceleration of Issuance of Performance Stock. If the
Participant has a Termination of Service on account of a termination by the
Company without Cause, Good Reason, death or Disability prior to the end of the
Performance Period, the Shares represented by the Performance Stock shall be
issued to the Participant (or the Participant's beneficiary, in the case of
death) as soon as reasonably practicable following the Participant's Termination
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of Service. If a Change in Control occurs prior to the end of the Performance
Period, the Shares represented by the Performance Stock shall be issued to the
Participant upon the Change in Control.
Section 3.3 Issuance of Shares. As soon as practicable after (i) the
end of the Performance Period, and subject to a determination of the Committee
that the applicable Performance Goals have been met, or (ii) an acceleration
event occurs prior to the end of the Performance Period as described in Section
3.2 of this Award Agreement, the Company shall issue certificates evidencing the
Shares represented by the Performance Stock and deliver such certificates to the
Participant or his legal representative, free from any restrictions; provided,
however, such Shares shall be subject to any such restrictions and conditions as
required pursuant to Section 4.5 of the Award Agreement and those that the
Company imposes on its employees in general with respect to selling its Shares.
Notwithstanding the foregoing, no such new certificate shall be delivered to the
Participant or his legal representative unless and until the Participant or his
legal representative shall have satisfied the full amount of all federal, state
and local withholding or other employment taxes applicable to the taxable income
of the Participant resulting from the issuance of the Shares as provided in this
Award Agreement.
ARTICLE IV.
MISCELLANEOUS
Section 4.1 No Additional Rights. Nothing in this Award Agreement or in
the Plan shall confer upon any person any right to a position as an Associate or
continued employment by the Company or any of its Related Corporations or
Affiliates or affect in any way the right of any of the foregoing to terminate
the services of an individual at any time.
Section 4.2 Tax Withholding. On the date that the Shares represented by
the Performance Stock become issuable, the Company shall notify the Participant
of the amount of tax which must be withheld by the Company under all applicable
federal, state and local tax laws. Subject to any applicable legal conditions or
restrictions, the Company shall withhold from the shares of Performance Stock a
number of whole Shares having a fair market value, determined as of the date the
Shares are issued, not in excess of the minimum of tax required to be withheld
by law.
Section 4.3 Notices. Any notice to be given under the terms of this
Award Agreement to the Company shall be addressed to the Company in care of its
Secretary, and any notice to be given to the Participant shall be addressed to
him at the address given beneath his signature hereto. By a notice given
pursuant to this Section 4.3, either party may hereafter designate a different
address for notices to be given to it or him. Any notice which is required to be
given to the Participant shall, if the Participant is then deceased, be given to
the Participant's personal representative if such representative has previously
informed the Company of his status and address by written notice under this
Section 4.3. Any notice shall have been deemed duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, deposited (with
postage prepaid) in a post office or branch post office regularly maintained by
the United States Postal Service.
Section 4.4 Titles. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this Award
Agreement.
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Section 4.5 Conformity to Securities Laws. This Award Agreement is
intended to conform to the extent necessary with all provisions of the
Securities Act and the Exchange Act and any and all regulations and rules
promulgated by the Securities and Exchange Commission thereunder, including
without limitation Rule 16b-3. Notwithstanding anything herein to the contrary,
this Award Agreement shall be administered, and the Performance Stock shall be
issued, only in such a manner as to conform to such laws, rules and regulations.
To the extent permitted by applicable law, this Award Agreement and the
Performance Stock issued hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
Section 4.6 Amendment. This Award Agreement may be amended only by a
writing executed by the parties hereto which specifically states that it is
amending this Award Agreement.
Section 4.7 Governing Law. The laws of the State of Delaware shall
govern the interpretation, validity, administration, enforcement and performance
of the terms of this Award Agreement regardless of the law that might be applied
under principles of conflicts of laws.
* * * * *
IN WITNESS HEREOF, this Award Agreement has been executed and delivered
by the parties hereto.
THE PARTICIPANT INTEGRA LIFESCIENCES HOLDINGS CORPORATION
/s/ Gerard S. Carlozzi By: /s/ Stuart M. Essig
- ---------------------- ---------------------------
Gerard S. Carlozzi Name: Stuart M. Essig
Title: President and Chief
5 Baker Way Executive Officer
Pennington, NJ 08534
- --------------------
Address
-4-
EXHIBIT A
CONSENT OF SPOUSE
I, ____________________, spouse of Gerard S. Carlozzi, have read and
approve the foregoing Award Agreement. In consideration of granting of the right
to my spouse to receive shares of Integra LifeSciences Holdings Corporation as
set forth in the Award Agreement if the Performance Goals are met, I hereby
appoint my spouse as my attorney-in-fact in respect to the exercise of any
rights under the Award Agreement and agree to be bound by the provisions of the
Award Agreement insofar as I may have any rights in said Award Agreement or any
shares issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Award Agreement.
Dated: _______________, ______
----------------------------------
Name:
A-1
EXHIBIT B
PERFORMANCE GOALS AND PERFORMANCE PERIOD
The Performance Period shall be the three-year period beginning January 1, 2006
and ending December 31, 2008.
The Performance Goal is that consolidated Company sales in any calendar year
during the Performance Period shall be greater than consolidated sales in
calendar year 2005.
B-1
2006 EMPLOYMENT AGREEMENT
This employment agreement (this "Agreement") is made as of the 10th day
of January 2006 by and between Integra LifeSciences Holdings Corporation, a
Delaware Corporation (the "Company") and Maureen B. Bellantoni ("Executive").
Background
The Company desires to employ Executive as Executive Vice President and
Chief Financial Officer of the Company, and Executive desires to become the
Executive Vice President and Chief Financial Officer of the Company, on the
terms and conditions contained in this Agreement. Executive will be
substantially involved with the Company's operations and management and will
learn trade secrets and other confidential information relating to the Company
and its customers; accordingly, the noncompetition covenant and other
restrictive covenants contained in Section 15 of this Agreement constitute
essential elements hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and intended 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 the Company, or any
successor thereto.
(c) "Cause," as determined by the Board in good faith, shall mean
Executive has --
(1) failed to perform her stated duties in all material
respects, which failure continues for 15 days after her
receipt of written notice of the failure;
(2) intentionally and materially breached any provision of this
Agreement and not cured such breach (if curable) within 15
days of her receipt of written notice of the breach;
(3) demonstrated her personal dishonesty in connection with her
employment by the Company;
(4) engaged in a breach of fiduciary duty in connection with her
employment with the Company; or
(5) engaged in willful misconduct that is materially and
demonstrably injurious to the Company or any of its
subsidiaries;
(6) been convicted or having pleaded guilty or nolo contendere
to a felony or to any other crime involving moral turpitude
which conviction or plea is materially and demonstrably
injurious to the Company or any of its subsidiaries; or
(7) failed to comply with the requirements of the last sentence
of Section 2.
(d) A "Change in Control" of the 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"), other than the Company, any trustee or other
fiduciary holding securities under any employee benefit plan
of the Company or an affiliate thereof, or any corporation
owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their
ownership of stock of the Company (for purposes of this
Agreement, "Company Voting Securities" shall mean the then
outstanding voting securities of the Company entitled to
vote generally in the election of directors); provided,
however, that any acquisition from the 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 during
any period of at least 24 months 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 the 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 the Company of a reorganization, merger
or consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the
acquisition of assets or stock of any entity (a "Business
Combination"), in each case, unless immediately following
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such Business Combination: (i) Company Voting Securities
outstanding immediately prior to such Business Combination
(or if such Company Voting Securities were converted
pursuant to such Business Combination, the shares into which
such Company Voting Securities were converted) (x)
represent, directly or indirectly, more than 50% of the
combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors of the corporation resulting from such Business
Combination (the "Surviving Corporation"), or, if
applicable, a corporation which as a result of such
transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more
subsidiaries (the "Parent Corporation") and (y) are held in
substantially the same proportions after such Business
Combination as they were immediately prior to such Business
Combination; (ii) no Person (excluding any employee benefit
plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially 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 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 the Company of a
complete liquidation or dissolution of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Company" shall mean Integra LifeSciences Holdings Corporation
and any corporation, partnership or other entity owned directly
or indirectly, in whole or in part, by Integra LifeSciences
Holdings Corporation.
(g) "Disability" shall mean Executive's inability to perform her
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.
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(h) "Good Reason" shall mean:
(1) a material breach of this Agreement by the Company which is
not cured by the Company within 15 days of its receipt of
written notice of the breach;
(2) the relocation by the Company of the Executive's office
location to a location more than forty (40) miles from
Princeton, New Jersey;
(3) without Executive's express written consent, the Company
reduces Executive's Base Salary or bonus opportunity, or
materially reduces the aggregate fringe benefits provided to
Executive (except to the extent permitted by Sections 5, 6
or 7, respectively) or substantially alters the Executive's
authority and/or title as set forth in Section 2 hereof in a
manner reasonably construed to constitute a demotion,
provided, Executive resigns within 90 days after the change
objected to; or
(4) without Executive's express written consent, Executive fails
at any point during the one-year period following a Change
in Control to hold the title and authority (as set forth in
Section 2 hereof) with the Parent Corporation (or if there
is no Parent Corporation, the Surviving Corporation) that
Executive held with the Company immediately prior to the
Change of Control, provided Executive resigns within one
year of the Change in Control;
(5) the Company fails to obtain the assumption of this Agreement
by any successor to the Company.
(i) "Principal Executive Office" shall mean the Company's principal
office for executives, presently located at 311 and 313
Enterprise Drive, Plainsboro, New Jersey 08536.
(j) "Termination Date" shall mean the date specified in the
Termination Notice.
(k) "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 16(i).
2. Employment. The Company hereby employs Executive as Chief Financial
Officer, responsible for the finance department, which shall include the
corporate controller, financial reporting, internal audit, tax, and treasury
functions of the Company and any such other departments or functions as deemed
appropriate by the Chief Executive Officer, and Executive hereby agrees to
-4-
accept such employment and agrees to render services to the Company in such
capacity (or in such other capacity in the future as the Board may reasonably
deem equivalent to such position) on the terms and conditions set forth in this
Agreement. Executive's primary place of employment shall be at the Principal
Executive Office and Executive shall report to the Chief Executive Officer.
Executive's employment is contingent upon Executive's provision to the Company's
Human Resources Department with two original documents verifying her identity
and her authorization to work, as well as satisfactory completion of Federal
Form I-9.
3. Term and Renewal of Agreement. Unless earlier terminated by
Executive or the Company as provided in Section 12 hereof, the term of
Executive's employment under this Agreement shall commence on the date of this
Agreement and terminate on January 10, 2007 . This Agreement shall be deemed
automatically, without further action, to extend for an additional year on
January 10, 2007 and each anniversary thereof, unless either the Board provides
written notice to Executive of its election not to extend the term, or Executive
gives written notice to the 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 renewal 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 acts, duties and services as the Board may
assign in the future; and
(b) devote her full professional time, energy, skill and best
efforts to the performance of her duties hereunder, in a manner
that will faithfully and diligently further the business and
interests of the 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
the Company without the prior consent of the Chief Executive
Officer or the Board, which consent may be granted or withheld
in her or its sole discretion; provided, however, that
notwithstanding the foregoing, Executive may serve on civic or
charitable boards or committees so long as such service does not
materially interfere with Executive's obligations pursuant to
this Agreement.
5. Compensation.
(a) Base Salary. Effective January 10, 2006, the Company shall
compensate Executive for her services at a base salary of $300,000 per
year ("Base Salary"), payable in periodic installments in accordance
with the 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.
(b) Temporary Living Expenses. Subject to Section 5(e), the
Company shall reimburse Executive for reasonable expenses for a
temporary apartment within commuting distance of the Company's
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Principal Executive Office and a rental car for a ninety-day period
beginning on the date of this Agreement and ending on April 8, 2006,
subject to the provision of reasonable supporting documentation and
other limitations established by the Company.
(c) Reimbursement for Moving Expenses. Subject to Section 5(e),
the Company shall reimburse Executive for the expenses that she incurs
in relocating her principal residence within commuting distance of the
Principal Executive Office in an amount not to exceed $25,000, subject
to the provision of reasonable supporting documentation and other
limitations established by the Company.
(d) Payment for Real Estate Brokerage and Related Legal Fees.
Subject to Section 5(e), the Company shall pay the following expenses
that Executive incurs in connection with her purchase of a principal
residence within commuting distance of the Principal Executive Office:
real estate brokerage fees and corresponding legal fees arising from
the purchase of said residence, provided, however, that such fees,
taken together, do not exceed $75,000, and, provided, further, that
Executives signs a contract to purchase such residence on or before
April 8, 2006, in any event subject to the provision of reasonable
supporting documentation and other limitations established by the
Company. From and after April 9, 2006, the Company shall have no
obligation to reimburse Executive for the fees contemplated in this
Section 5(d).
(e) Reimbursement by Executive of Company for Relocation
Assistance. If Executive terminates her employment with the Company
for any reason during the term of this Agreement, Executive shall
reimburse the Company for all of the amounts provided her pursuant to
Sections 5(b), 5(c) and 5(d) within thirty days of the date of
termination of employment. If the term of this Agreement is renewed
pursuant to Section 3 and Executive terminates her employment with the
Company for any reason between January 11, 2007 and January 10, 2008,
Executive shall reimburse the Company for one-half of the amounts
provided her pursuant to Sections 5(b), 5(c) and 5(d) within thirty
days of the date of termination of employment.
6. Bonus Opportunity. Executive shall have the opportunity to receive
a performance bonus targeted at 40% of Executive's Base Salary, based upon the
satisfaction of certain performance objectives as determined by the Compensation
Committee of the Board of Directors of the Company (the "Compensation
Committee"), in its sole discretion. This performance bonus shall be paid part
in cash and part in restricted equity securities pursuant to the plan.
7. Benefit Plans. Executive shall be entitled to participate in and
receive benefits under any employee benefit plan or stock-based plan of the
Company in accordance with their terms, and shall be eligible for any other
plans and benefits covering executives of the Company, to the extent
commensurate with her then duties and responsibilities fixed by the Board. The
Company shall not make any change in such plans or benefits that would adversely
affect Executive's rights thereunder, unless such change affects all, or
substantially all, executive officers of the Company.
-6-
8. Equity Compensation.
(a) Performance Stock. On January 10, 2006, the Company shall grant
to Executive an Award of 10,000 shares of the Company's common
stock subject to certain restrictions and forfeiture (the
"Performance Stock"), which shall be contingent upon attainment
of certain performance goals (the "Performance Goals") pursuant
to the Company's 2003 Equity Incentive Plan and the terms and
conditions set forth in the award agreement attached as Exhibit
A hereto (the "Performance Stock Award Agreement"), which shall
include the specific Performance Goals. In the event of any
inconsistency between the terms of this Agreement and the
Performance Stock Award Agreement, the Performance Stock Award
Agreement shall govern. Subject to attainment of the Performance
Goals, 10,000 shares of Performance Stock shall be issued on
January 10, 2009; provided, however, that notwithstanding the
foregoing, all of the Performance Stock shall be issued on a
Change in Control. Until issued, the Performance Stock shall not
be transferable and shall be subject to forfeiture.
(b) S-8. The Company agrees that for so long as it is required to
file reports under Sections 13 or 15(d) of the Securities
Exchange Act of 1934, it will maintain in effect a Form S-8
registration statement covering the issuance of Performance
Stock to Executive.
9. 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 four weeks per annum.
10. Business Expenses. The Company shall reimburse Executive or
otherwise pay for all reasonable expenses incurred by Executive in furtherance
of or in connection with the business of the 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 Company.
11. 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.
12. Termination.
(a) Termination without Salary Continuation. In the event (i)
Executive terminates her employment hereunder other than for
Good Reason, or (ii) Executive's employment is terminated by the
Company for Cause, Executive shall have no right to compensation
or other benefits pursuant to this Agreement for any period
after her last day of active employment. Additionally, all
unissued Performance Stock shall be forfeited on Executive's
last day of active employment.
-7-
(b) Termination with Salary Continuation (No Change in Control).
Except as provided in subsection 12(c) in the event of a Change
in Control and subject to Executive and the Company executing a
general release of all claims against the Company, in the event
(i) Executive's employment is terminated by the Company for a
reason other than death, Disability or Cause, or (ii) Executive
terminates her employment for Good Reason, then the Company
shall pay Executive a severance amount equal to Executive's Base
Salary (determined without regard to any reduction in violation
of Section 5) as of her 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; and
(1) maintain and provide to Executive, at no cost to Executive,
for a period ending at the earliest of (i) the first
anniversary of the Termination Date; (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 her
employment with the Company continued throughout such
period, provided that such participation is not prohibited
by the terms of the plan or by the Company for legal
reasons; and
(2) reimburse Executive for any expenses that she incurred in
relocating her principal residence to the vicinity of the
Principal Executive Office for which she was not reimbursed
pursuant to Sections, 5(b), 5(c) and 5(d), including
reimbursement for income taxes that Executive incurs, if
any, on the amounts provided her under Sections 5(b), 5(c)
and 5(d).
(c) Termination with Salary Continuation (Change in Control).
Notwithstanding anything to the contrary set forth in subsection
12(b), and subject to Executive and the Company executing a
general release of all claims against the Company, in the event
within twelve months of a Change in Control: (i) Executive
terminates her employment for Good Reason, or (ii) Executive's
employment is terminated by the Company for a reason other than
death, Disability or Cause, then the Company shall:
(1) pay Executive a severance amount equal to 2.99 times the
amount that results from adding Executive's Base Salary
(determined without regard to any reduction in violation of
Section 5) as of her last day of active employment plus the
target bonus under Section 6; the severance amount shall be
paid in a single sum on the first business day of the month
following the Termination Date;
(2) maintain and provide to Executive, at no cost to Executive,
for a period ending at the earliest of (i) the first
anniversary of the Executive's Termination Date ; or (ii)
Executive's death, continued participation in all group
-8-
insurance, life insurance, health and accident, disability,
and other employee benefit plans in which Executive would
have been entitled to participate had her employment with
the Company continued throughout such period, provided that
such participation is not prohibited by the terms of the
plan or by the Company for legal reasons;
(3) in the event that either the independent public accountants
which serve as the auditors of the Company immediately prior
to the Change in Control or the Internal Revenue Service
determines that any payment, coverage or benefit provided to
the Executive is subject to the excise tax imposed by
Section 4999 (or any successor provisions) of the Internal
Revenue Code of 1986, as amended (the "Code"), the Company
shall promptly pay to the Executive, in addition to other
payments, coverage or benefit due and owing hereunder or
under any other plan, or agreement, an amount determined by
multiplying the rate of the excise tax then imposed by Code
Section 4999 by the amount of the "excess parachute payment"
received by the Executive (determined without regard to any
payments made to the Executive pursuant to this section) and
dividing the product so obtained by the amount obtained by
subtracting the aggregate local, state and Federal income
tax rate applicable to the receipt by the Executive of such
"excess parachute payment" (taking into account the
deductibility for Federal income tax purposes of the payment
of state and local income taxes thereon) from the amount
obtained by subtracting from 1.00 the rate of the excise tax
then imposed by Code Section 4999 (the "Gross-Up Payment"),
it being the intention of the parties hereto that the
Executive's net after tax position shall be identical to
that which would have obtained had Code Sections 280G and
4999 not been part of the Code. The Gross-Up Payment
attributable to payments other than severance compensation
described in subsections c(i) and (ii) shall be paid in a
lump sum payment on the Termination Date following the
Change in Control. The Gross-Up Payment attributable to the
severance compensation described in subsections c(i) and
(ii) shall be paid in a lump sum payment on the first day on
which severance compensation is paid pursuant to subsection
c(i) or subsection c(ii). All Gross-Up Payments shall be
paid in accordance with section 409A of the Code. For
purposes of the calculations required by this subsection (3)
reasonable assumptions and approximations may be made with
respect to applicable taxes and reasonable good faith
interpretations of the Code may be relied upon; and
(4) pay to Executive all reasonable legal fees and expenses
incurred by Executive as a result of such termination of
-9-
employment (including all fees and expenses, if any,
incurred by Executive in contesting or disputing any such
termination or in seeking to obtain to enforce any right or
benefit provided to Executive by this Agreement whether by
arbitration or otherwise).
(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.
(e) Section 409A. Notwithstanding any other provision in this
Agreement to the contrary, any payments that would constitute
deferred compensation for purposes of (and subject to) Code
Section 409A shall be deferred for a period of six months
following Executive's separation from service with the Company.
(f) Death After Vesting. In the event of Executive's death after the
vesting of any payment hereunder pursuant to the terms of this
Agreement, all payments shall be made to the Executive's estate.
13. Withholding. The 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.
14. Assignability. The Company may assign this Agreement and its
rights and obligations hereunder in whole, but not in part, to any entity to
which the 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 the
Company hereunder as fully as if it had been originally made a party hereto. The
Company may not otherwise assign this Agreement or its rights and obligations
hereunder. This Agreement is personal to Executive and her rights and duties
hereunder shall not be assigned except as expressly agreed to in writing by the
Company.
15. Restrictive Covenants.
(a) Covenant Not to Compete. During the term of this Agreement and
for a period of one year, in each case following the Termination
Date of Executive's employment, Executive shall not, without the
express written consent of the Company, directly or indirectly:
(I) engage, anywhere within the geographical areas in which the
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"), neurosurgery business (the
use of surgical instruments, implants, monitoring products or
disposable products to treat the brain or central nervous
system) ("Neurosurgery Business"), instrument business (general
surgical handheld instruments used for general purposes in
-10-
surgical procedures) ("Instrument Business"), reconstruction
business (bone fixation devices for foot and ankle
reconstruction procedures) ("Reconstruction Business") or in any
other line of business the revenues of which constituted at
least 50% of the Company's revenues during the six (6) month
period prior to the Termination Date (together with the Tissue
Engineering Business, Neurosurgery Business, Instrument Business
and Reconstruction 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 the Company to
procure orders from or do business with any customer of the
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 the Company; (V) seek to contract with or engage (in
such a way as to adversely affect or interfere with the business
of the Company) any person or entity who has been contracted
with or engaged to manufacture, assemble, supply or deliver
products, goods, materials or services to the Company; or (VI)
engage in or participate in any effort or act to induce any of
the customers, associates, consultants, or employees of the
Company to take any action which might be disadvantageous to the
Company; provided, however, that nothing herein shall prohibit
Executive and her 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 the Company and shall not, at any time
during or after her employment by the 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 the
Company obtained or acquired by her while so employed. All
computer software, business cards, telephone lists, customer
lists, price lists, contract forms, catalogs, the Company books,
records, files and know-how acquired while an employee of the
Company are acknowledged to be the property of the Company and
shall not be duplicated, removed from the Company's possession
or premises or made use of other than in pursuit of the
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 the Company and, upon termination
of employment for any reason, Executive shall deliver to the
Company all copies thereof which are then in her possession or
under her 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 the Company all ideas, discoveries and inventions
which are or may be useful to the Company or its business.
Executive acknowledges that all such ideas, discoveries,
-11-
inventions, and improvements which heretofore have been or are
hereafter made, conceived, or reduced to practice by her at any
time during her employment with the Company heretofore or
hereafter gained by her at any time during her employment with
the Company are the property of the Company, and Executive
hereby irrevocably assigns all such ideas, discoveries,
inventions and improvements to the Company for its sole use and
benefit, without additional compensation. The provisions of this
Section 15(c) shall apply whether such ideas, discoveries,
inventions, or improvements were or are conceived, made or
gained by her 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 the
Company's business interests (including potential business
interests), and whether or not within the specific realm of her
duties. Executive shall, upon request of the Company, but at no
expense to Executive, at any time during or after her employment
with the Company, sign all instruments and documents reasonably
requested by the Company and otherwise cooperate with the
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 the Company shall determine.
(d) Breach of Covenant. Executive expressly acknowledges that
damages alone will be an inadequate remedy for any breach or
violation of any of the provisions of this Section 15 and that
the 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 15 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.
16. 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 the Company's
behalf.
(b) Interpretation. This Agreement is intended to comply with the
requirements of Section 409A of the Code and all interpretations
of this Agreement shall be in accordance with that intent. In
that regard, notwithstanding the provisions of Section 16(a),
the Company may amend this Agreement without the consent of the
Executive if the Company determines that it is necessary in
order for the benefits or payments to be made under this
Agreement to comply with the requirements of Section 409A of the
Code.
-12-
(c) Nature of Obligations. Nothing contained herein shall create or
require the 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 the Company
hereunder, such right shall be no greater than the right of any
unsecured general creditor of the Company.
(d) Prior Employment. Executive represents and warrants that her
acceptance of employment with the Company has not breached, and
the performance of her duties hereunder will not breach, any
duty owed by her to any prior employer or other person.
(e) Headings. The Section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the
meaning or interpretation or this Agreement. In the event of a
conflict between a heading and the content of a Section, the
content of the Section shall control.
(f) 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 the feminine, unless
the context clearly indicates otherwise. The singular form,
whenever used herein, shall mean or include the plural form
where applicable.
(g) 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.
(h) 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.
(i) 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 Holdings Corporation
311 Enterprise Drive
Plainsboro, New Jersey 08536
Attn: President
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With a copy to:
The Company's General Counsel
To the Executive:
Maureen B. Bellantoni
2332 Fawn Lake Circle
Naperville, IL 60564
(j) 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.
(k) 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.
This Space Left Intentionally Blank
-14-
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
INTEGRA LIFESCIENCES HOLDINGS EXECUTIVE
CORPORATION
By: /s/Stuart M. Essig /s/ Maureen B. Bellantoni
---------------------- --------------------------
Name: Stuart M. Essig Maureen B. Bellantoni
Title: President and Chief Executive Officer
PERFORMANCE STOCK AGREEMENT
THIS PERFORMANCE STOCK AGREEMENT (the "Award Agreement"), dated as of
January 10, 2006 (the "Award Date"), is made by and between Integra LifeSciences
Holdings Corporation, a Delaware corporation (the "Company"), and Maureen B.
Bellantoni, an employee of the Company (or one or more of its Related
Corporations or Affiliates), hereinafter referred to as the "Participant":
WHEREAS, the Company maintains the Integra LifeSciences Holdings
Corporation 2003 Equity Incentive Plan, as amended (the "Plan") and wishes to
carry out the Plan, the terms of which are hereby incorporated by reference and
made part of this Award Agreement; and
NOW, THEREFORE, in consideration of the various covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
Capitalized terms not otherwise defined below shall have the meaning
set forth in the Plan. The masculine pronoun shall include the feminine and
neuter, and the singular the plural, where the context so indicates.
Section 1.1 Employment Agreement. "Employment Agreement" shall mean the
Participant's employment agreement with the Company, dated January 10, 2006.
Section 1.2 Performance Goals. "Performance Goals" shall mean the
specific goal or goals determined by the Committee, as specified in Exhibit B.
Section 1.3 Performance Period. "Performance Period" shall mean the
period of time that the Performance Goals must be met, as specified in Exhibit
B.
Section 1.4 Performance Stock. "Performance Stock" shall mean 10,000
Shares that will be issued to the Participant under this Award Agreement if the
Performance Goals or such other criteria described hereunder are met during the
Performance Period.
Section 1.5 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
under the Exchange Act, as such Rule may be amended from time to time.
Section 1.6 Secretary. "Secretary" shall mean the Secretary of the
Company.
Section 1.7 Termination of Service. "Termination of Service" shall mean
the time when the Participant ceases to provide services to the Company and its
Related Corporations and Affiliates as an employee or Associate for any reason
with or without cause, including, but not by way of limitation, a termination by
resignation, discharge, death, or Disability. A Termination of Service shall not
include a termination where the Participant is simultaneously reemployed by, or
remains employed by, or continues to provide services to, the Company and/or one
or more of its Related Corporations and Affiliates or a successor entity
thereto.
ARTICLE II.
AWARD OF PERFORMANCE STOCK
Section 2.1 Award of Performance Stock. As of the Award Date, the
Company issues to the Participant the right to receive after the end of the
Performance Period (or such earlier date as provided in Section 3.2 of this
Award Agreement) the Performance Stock if the Performance Goals and the other
conditions set forth in this Award Agreement are met. If the Performance Goals
are satisfied, the Company shall cause the Performance Stock to be issued in the
name of the Participant as described under Section 3.3 of this Award Agreement.
As a further condition to the Company's obligations under this Award Agreement,
the Participant's spouse, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit A.
Section 2.2 Forfeiture; Anti-Assignment. The right to receive the
Performance Stock shall be subject to forfeiture as provided in Section 3.1 of
this Award Agreement, and the Participant shall have no right to sell, assign,
transfer, pledge, or otherwise encumber or dispose of the Participant's right to
receive the Performance Stock.
Section 2.3 Dividend Equivalents. Prior to the end of the Performance
Period, the Participant shall have the right to receive an amount equal to all
dividends or other distributions paid or made with respect to the Shares
underlying the Performance Stock as though the Performance Stock had been issued
as of the Award Date. Payment shall be made at the same time as the payment of
dividends on its Shares are made to the Company's stockholders.
Section 2.4 Voting Rights. Prior to the issuance of the Performance
Stock, the Participant shall have no voting rights with respect to any Shares
represented by the Performance Stock.
ARTICLE III.
RESTRICTIONS
Section 3.1 Forfeiture. If the Performance Goals are not met by the end
of the Performance Period, the Participant shall forfeit the Performance Stock
and shall have no right to receive any Shares represented by the Performance
Stock. If the Participant has a Termination of Service for any reason prior to
the end of the Performance Period, the Participant's rights to receive any
Shares represented by the Performance Stock shall immediately terminate on the
date of such Termination of Service.
Section 3.2 Acceleration of Issuance of Performance Stock. If a Change
in Control occurs prior to the end of the Performance Period, the Shares
represented by the Performance Stock shall be issued to the Participant upon the
Change in Control.
Section 3.3 Issuance of Shares. As soon as practicable after (i) the
end of the Performance Period, and subject to a determination of the Committee
that the applicable Performance Goals have been met, or (ii) an acceleration
event occurs prior to the end of the Performance Period as described in Section
3.2 of this Award Agreement, the Company shall issue certificates evidencing the
Shares represented by the Performance Stock and deliver such certificates to the
Participant or his legal representative, free from any restrictions; provided,
-2-
however, such Shares shall be subject to any such restrictions and conditions as
required pursuant to Section 4.5 of the Award Agreement and those that the
Company imposes on its employees in general with respect to selling its Shares.
Notwithstanding the foregoing, no such new certificate shall be delivered to the
Participant or his legal representative unless and until the Participant or his
legal representative shall have satisfied the full amount of all federal, state
and local withholding or other employment taxes applicable to the taxable income
of the Participant resulting from the issuance of the Shares as provided in this
Award Agreement.
ARTICLE IV.
MISCELLANEOUS
Section 4.1 No Additional Rights. Nothing in this Award Agreement or in
the Plan shall confer upon any person any right to a position as an Associate or
continued employment by the Company or any of its Related Corporations or
Affiliates or affect in any way the right of any of the foregoing to terminate
the services of an individual at any time.
Section 4.2 Tax Withholding. On the date that the Shares represented by
the Performance Stock become issuable, the Company shall notify the Participant
of the amount of tax which must be withheld by the Company under all applicable
federal, state and local tax laws. Subject to any applicable legal conditions or
restrictions, the Company shall withhold from the shares of Performance Stock a
number of whole Shares having a fair market value, determined as of the date the
Shares are issued, not in excess of the minimum of tax required to be withheld
by law.
Section 4.3 Notices. Any notice to be given under the terms of this
Award Agreement to the Company shall be addressed to the Company in care of its
Secretary, and any notice to be given to the Participant shall be addressed to
him at the address given beneath his signature hereto. By a notice given
pursuant to this Section 4.3, either party may hereafter designate a different
address for notices to be given to it or him. Any notice which is required to be
given to the Participant shall, if the Participant is then deceased, be given to
the Participant's personal representative if such representative has previously
informed the Company of his status and address by written notice under this
Section 4.3. Any notice shall have been deemed duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, deposited (with
postage prepaid) in a post office or branch post office regularly maintained by
the United States Postal Service.
Section 4.4 Titles. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this Award
Agreement.
Section 4.5 Conformity to Securities Laws. This Award Agreement is
intended to conform to the extent necessary with all provisions of the
Securities Act and the Exchange Act and any and all regulations and rules
promulgated by the Securities and Exchange Commission thereunder, including
without limitation Rule 16b-3. Notwithstanding anything herein to the contrary,
this Award Agreement shall be administered, and the Performance Stock shall be
issued, only in such a manner as to conform to such laws, rules and regulations.
To the extent permitted by applicable law, this Award Agreement and the
Performance Stock issued hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
-3-
Section 4.6 Amendment. This Award Agreement may be amended only by a
writing executed by the parties hereto which specifically states that it is
amending this Award Agreement.
Section 4.7 Governing Law. The laws of the State of Delaware shall
govern the interpretation, validity, administration, enforcement and performance
of the terms of this Award Agreement regardless of the law that might be applied
under principles of conflicts of laws.
This Space Left Intentionally Blank
-4-
IN WITNESS HEREOF, this Award Agreement has been executed and delivered
by the parties hereto.
INTEGRA LIFESCIENCES
THE PARTICIPANT HOLDINGS CORPORATION
/s/ Maureen B. Bellantoni By: /s/Stuart M. Essig
- ------------------------- -----------------------
Maureen B. Bellantoni Name: Stuart M. Essig
Title: President and
2332 Fawn Lake Circle Chief Executive Officer
Naperville, IL 60564
- -------------------------
Address
-5-
EXHIBIT A
CONSENT OF SPOUSE
I, ____________________, spouse of _________________, have read and
approve the foregoing Award Agreement. In consideration of granting of the right
to my spouse to receive shares of Integra LifeSciences Holdings Corporation as
set forth in the Award Agreement if the Performance Goals are met, I hereby
appoint my spouse as my attorney-in-fact in respect to the exercise of any
rights under the Award Agreement and agree to be bound by the provisions of the
Award Agreement insofar as I may have any rights in said Award Agreement or any
shares issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Award Agreement.
Dated: _______________, ______
----------------------------------
Name:
A-1
EXHIBIT B
PERFORMANCE GOALS AND PERFORMANCE PERIOD
The Performance Period shall be the three-year period beginning January 1, 2006
and ending December 31, 2008.
The Performance Goal is that consolidated Company sales in any calendar year
during the Performance Period shall be greater than consolidated sales in
calendar year 2005.
B-1
Subsidiaries of Integra LifeSciences Holdings Corporation
State or Country of
Name of Subsidiary Incorporation or Organization
- ------------------ -----------------------------
Caveangle Limited United Kingdom
GMS mbH Germany
Integra CI, Inc. Cayman Islands
Integra Clinical Education Institute, Inc. Delaware
Integra Healthcare Products LLC Delaware
Integra LifeSciences Corporation Delaware
Integra LifeSciences (France) LLC Delaware
Integra LifeSciences Holdings SAS France
Integra LifeSciences Investment Corporation Delaware
Integra LifeSciences (Ireland) Limited Ireland
Integra ME GmbH Germany
Integra NeuroSciences Holdings B.V. Netherlands
Integra NeuroSciences Holdings (France) SA France
Integra NeuroSciences Holdings Limited United Kingdom
Integra NeuroSciences Implants (France) SA France
Integra NeuroSciences (International), Inc. Delaware
Integra NeuroSciences (IP), Inc. Delaware
Integra NeuroSciences Limited United Kingdom
Integra Ohio, Inc. Delaware
Integra Selector Corporation Delaware
Integra Radionics, Inc. Delaware
J. Jamner Surgical Instruments, Inc. Delaware
Jarit Instruments Inc. & Co. KG Germany
Jarit Instruments, Inc. Delaware
ND Service NV Belgium
Newdeal, Inc. Texas
Newdeal SAS France
Newdeal Technologies SAS France
NMT NeuroSciences Gmbh Germany
Spembly Cryosurgery Limited United Kingdom
Spembly Medical Limited United Kingdom
Spinal Specialties, Inc. Delaware
Surfix Technologies SAS France
March 15, 2006
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 333-46024, 333-82233, 333-58235, 333-06577,
333-73512, 333-109042 and 333-127488) of Integra LifeSciences Holdings
Corporation and Subsidiaries of our report dated March 15, 2006 relating to the
consolidated financial statements, financial statement schedule, management's
assessment of the effectiveness of internal control over financial reporting and
the effectiveness of internal control over financial reporting, which appears in
this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 15, 2006
Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Stuart M. Essig, certify that:
1. I have reviewed this annual report on Form 10-K of Integra
LifeSciences Holdings Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and we have:
(a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that
material information relating to the registrant,
including its consolidated subsidiaries, is made
known to us by others within those entities,
particularly during the period in which this report
is being prepared;
(b) designed such internal control over financial
reporting, or caused such internal control over
financial reporting to be designed under our
supervision, to provide reasonable assurance
regarding the reliability of financial reporting and
the preparation of financial statements for external
purposes in accordance with generally accepted
accounting principles;
(c) evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in
this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the
end of the period covered by this report based on
such evaluation; and
(d) disclosed in this report any change in the
registrant's internal control over financial
reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has
materially affected, or is reasonably likely to
materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over
financial reporting.
Date: March 15, 2006
/s/ Stuart M. Essig
------------------------------------
Stuart M. Essig
President and Chief Executive Officer
Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Maureen B. Bellantoni, certify that:
1. I have reviewed this annual report on Form 10-K of Integra
LifeSciences Holdings Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and we have:
(a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that
material information relating to the registrant,
including its consolidated subsidiaries, is made
known to us by others within those entities,
particularly during the period in which this report
is being prepared;
(b) designed such internal control over financial
reporting, or caused such internal control over
financial reporting to be designed under our
supervision, to provide reasonable assurance
regarding the reliability of financial reporting and
the preparation of financial statements for external
purposes in accordance with generally accepted
accounting principles;
(c) evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in
this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the
end of the period covered by this report based on
such evaluation; and
(d) disclosed in this report any change in the
registrant's internal control over financial
reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has
materially affected, or is reasonably likely to
materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over
financial reporting.
Date: March 15, 2006
/s/ Maureen B. Bellantoni
-----------------------------
Maureen B. Bellantoni
Executive Vice President and
Chief Financial Officer
Certification of Principal Executive Officer
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
I, Stuart M. Essig, President and Chief Executive Officer of Integra
LifeSciences Holdings Corporation (the "Company"), hereby certify that, to my
knowledge:
1. The Annual Report on Form 10-K of the Company for the year ended
December 31, 2005 (the "Report") fully complies with the requirements
of Section 13(a) or Section 15(d), as applicable, of the Securities
Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Date: March 15, 2006
/s/ Stuart M. Essig
------------------------------------
Stuart M. Essig
President and Chief Executive Officer
Certification of Principal Financial Officer
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
I, Maureen B. Bellantoni, Executive Vice President and Chief Financial Officer
of Integra LifeSciences Holdings Corporation (the "Company"), hereby certify
that, to my knowledge:
1. The Annual Report on Form 10-K of the Company for the year ended
December 31, 2005 (the "Report") fully complies with the requirements
of Section 13(a) or Section 15(d), as applicable, of the Securities
Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Date: March 15, 2006
/s/ Maureen B. Bellantoni
----------------------------
Maureen B. Bellantoni
Executive Vice President and
Chief Financial Officer
