As filed with the Securities and Exchange Commission on April 4, 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10/A-5
(Post-Effective
Amendment No. 1)
GENERAL FORM FOR REGISTRATION OF
SECURITIES
Pursuant to Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
Edwards Lifesciences Corporation
formerly known as CVG Controlled Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-4316614
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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17221 Red Hill Avenue
Irvine, California 92614
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (949) 250-2500
Securities to be registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which each class is
to be registered to be registered
------------------- ----------------------
Common Stock, par value $1.00 New York Stock Exchange
Series A Junior Participating Preferred New York Stock Exchange
Stock Purchase Rights (currently traded with
Common Stock)
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Securities to be registered pursuant to Section 12(g) of the Act: None.
[BAXTER LOGO]
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
847.948.2000
March 22, 2000
To all Baxter International Inc. Stockholders:
I am pleased to inform you that on March 17, 2000, a special committee of Baxter's board of directors declared a stock dividend to achieve a distribution of all of the outstanding shares of common stock of Edwards Lifesciences Corporation to all Baxter stockholders of record on March 29, 2000.
Edwards Lifesciences is a new company, formed initially as a wholly owned subsidiary of Baxter, and is comprised of Baxter's CardioVascular business. Edwards Lifesciences is a leader in providing a comprehensive line of products and services to treat late-stage cardiovascular disease. The distribution is expected to make both Baxter and Edwards Lifesciences more competitive, giving each company more financial flexibility to invest and grow. We believe the combined value of two separate, but stronger companies will be greater than the value of Baxter as a whole today.
Following the distribution, Baxter will continue to focus on providing critical medical therapies that improve the lives of millions of people worldwide. We intend to invest more resources in our Blood Therapies, I.V. Systems/Medical Products and Renal businesses. These investments will further enhance our ability to bring new products to market and to expand globally. If you are a Baxter stockholder of record at the close of business on March 29, 2000, the record date for the distribution, you will receive one share of Edwards Lifesciences common stock for every five shares of Baxter common stock you own on that date. Edwards Lifesciences stock certificates will be distributed on or about March 31, 2000. No action is required on your part to receive your Edwards Lifesciences stock.
The attached information statement, which is being mailed to all Baxter stockholders, describes the distribution in detail and contains important information about Edwards Lifesciences, including financial statements.
Sincerely,
[SIGNATURE OF HARRY M. JANSEN
KRAEMER, JR.]
Harry M. Jansen Kraemer, Jr.
Chairman and Chief Executive Officer
[LOGO OF EDWARDS LIFESCIENCES]
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, California 92614
949.250.2500
March 22, 2000
Dear Edwards Lifesciences Corporation Stockholder:
It is my pleasure to welcome you as a stockholder of Edwards Lifesciences Corporation. We are a leader in providing a comprehensive line of therapies and services to treat late-stage cardiovascular disease, and a significant portion of our current products and services occupy market-leading positions. Edwards Lifesciences operates in four main product lines: cardiac surgery, critical care, vascular and perfusion products and services.
I invite you to learn more about Edwards Lifesciences in the attached information statement. We expect that operating as an independent company focused on late-stage cardiovascular disease therapy will accelerate the speed of innovation of our business. We also expect that it will allow us to significantly expand our product development pipeline, and pursue attractive opportunities to expand our offerings and operations through acquisitions and strategic alliances. Ultimately, we anticipate that this will lead to innovative, diversified and improved treatment options for patients suffering from late-stage cardiovascular disease. As a more aggressive competitor, we believe that we can accelerate our future growth rate.
In 1999, we achieved pro forma net revenues of $809 million, an amount that will make us the largest company focused exclusively on the late-stage cardiovascular disease market. Edwards Lifesciences' common stock will be listed and traded on the New York Stock Exchange and its stock symbol will be "EW. "
Our management team is eager to distinguish Edwards Lifesciences through continued strong leadership and solid financial performance. We are pleased that you, as a stockholder of Edwards Lifesciences, will participate in our mission.
Sincerely,
Michael A. Mussallem Chairman and Chief Executive Officer
INFORMATION STATEMENT
Edwards Lifesciences Corporation
Common Stock
We are providing this information statement
to you as a stockholder of Baxter
International Inc. in connection with the
distribution by Baxter to its stockholders of
all of the outstanding shares of Edwards
Lifesciences common stock.
Consider carefully the
risk factors beginning
on page 7 of this
information statement.
Stockholder approval It is expected that the distribution will be
of the distribution of made on March 31, 2000, to holders of record
Edwards Lifesciences of Baxter common stock on March 29, 2000. If
common stock is not you are a Baxter stockholder at the close of
required. We are not business on the record date, you will receive
asking you for a proxy one share of Edwards Lifesciences common
and we request that stock for every five shares of Baxter common
you do not send us a stock you hold on that date. Certificates for
proxy. Also, you are the shares will be mailed to you, or your
not required to make brokerage account will be credited for the
any payment for the shares, on or about March 31, 2000.
shares of Edwards Fractional shares will not be issued and you
Lifesciences common will receive a check or a credit to your
stock that you will brokerage account for the cash equivalent of
receive. any fractional shares you otherwise would
have received in the distribution. You will
not be required to pay anything for the
shares of Edwards Lifesciences common stock
to be distributed to you, nor will you be
required to surrender or exchange your shares
of Baxter common stock or take any other
action in order to receive Edwards
Lifesciences common stock.
This information
statement is not an
offer to sell, or a
solicitation of any
offer to buy, any
securities of Edwards
Lifesciences
Corporation or Baxter
International Inc.
Edwards Lifesciences common stock has been
approved for listing on the New York Stock
Exchange, subject to official notice of
issuance, under the symbol "EW."
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Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the Edwards Lifesciences common stock, or determined that this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this information statement is March 22, 2000.
TABLE OF CONTENTS
ITEM PAGE ---- ---- SUMMARY.................................................................... 1 Edwards Lifesciences' Business........................................... 1 Questions and Answers about Edwards Lifesciences and the Distribution.... 2 Summary Historical Financial Data........................................ 5 Summary Unaudited Pro Forma Financial Data............................... 6 RISK FACTORS............................................................... 7 Risks Related to Edwards Lifesciences' Business.......................... 7 Risks Related to the Health Care Industry................................ 12 Risks Related to Edwards Lifesciences' Separation from Baxter............ 13 Risks Related to Ownership of Edwards Lifesciences' Common Stock......... 14 FORWARD-LOOKING STATEMENTS................................................. 16 EDWARDS LIFESCIENCES' BUSINESS............................................. 17 Overview................................................................. 17 Business Strategy........................................................ 17 Edwards Lifesciences' Product and Service Offerings...................... 18 Cardiac Surgery.......................................................... 19 Critical Care............................................................ 20 Vascular................................................................. 21 Perfusion Products and Services.......................................... 21 Competition.............................................................. 22 Sales and Marketing...................................................... 23 Raw Materials and Manufacturing.......................................... 23 Quality Assurance........................................................ 24 Research and Development................................................. 24 Proprietary Technology................................................... 25 Government Regulation and Other Matters.................................. 26 Properties............................................................... 28 Employees................................................................ 28 EDWARDS LIFESCIENCES' RELATIONSHIP WITH BAXTER AFTER THE DISTRIBUTION...... 28 General.................................................................. 28 Reorganization Agreement................................................. 29 Tax Sharing Agreement.................................................... 31 Distribution Agreements.................................................. 31 Contractual Joint Venture in Japan....................................... 32 Services Agreements...................................................... 32 THE DISTRIBUTION........................................................... 33 Background and Reasons for the Distribution.............................. 33 Manner of Effecting the Distribution..................................... 33 Accounting Treatment of Plan of Reorganization........................... 34 Important Federal Income Tax Consequences................................ 34 Market for Edwards Lifesciences Common Stock............................. 35 Dividend Policy.......................................................... 36 Distribution Conditions and Termination.................................. 36 Opinions of Financial Advisors........................................... 37 SELECTED HISTORICAL FINANCIAL DATA......................................... 38 EDWARDS LIFESCIENCES' UNAUDITED PRO FORMA FINANCIAL DATA................... 39 |
ITEM PAGE ---- ---- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................................... 42 Overview................................................................ 42 Results of Operations................................................... 43 Liquidity and Capital Resources......................................... 47 Euro Conversion......................................................... 47 New Accounting and Disclosure Standard.................................. 48 Currency Risk........................................................... 48 FINANCING................................................................. 48 EDWARDS LIFESCIENCES MANAGEMENT........................................... 49 Board of Directors...................................................... 49 Committees of the Board of Directors.................................... 50 Compensation of Directors............................................... 51 Executive Officers...................................................... 51 EDWARDS LIFESCIENCES EXECUTIVE COMPENSATION............................... 54 1999 Compensation of Executive Officers................................. 54 Stock Option Grants..................................................... 55 Stock Option Exercises.................................................. 56 Pension Plan and Excess Pension Plan.................................... 56 Baxter Common Stock Held By Edwards Lifesciences Employees.............. 57 Future Compensation of Executive Officers............................... 57 Long-Term Stock Program................................................. 58 Edwards Lifesciences Change of Control Plan and Employment Agreement.... 60 Edwards Lifesciences Retirement Plan for United States Employees........ 61 Employee Stock Purchase Plan for United States Employees................ 63 Transition Options for Salaried Exempt Employees........................ 63 Initial Stock Option Grant for Salaried Employees Worldwide............. 64 Employee Stock Purchase Plan for Employees Outside the United States.... 64 Initial Stock Grant for Hourly Employees Outside the United States...... 64 Other Retirement Plans for Employees Outside the United States.......... 64 SECURITY OWNERSHIP OF EDWARDS LIFESCIENCES................................ 65 DESCRIPTION OF EDWARDS LIFESCIENCES CAPITAL STOCK......................... 66 Authorized Capital Stock................................................ 66 Edwards Lifesciences Common Stock....................................... 66 Edwards Lifesciences Preferred Stock.................................... 66 Edwards Lifesciences Rights Agreement................................... 66 CERTAIN ANTI-TAKEOVER EFFECTS OF PROVISIONS OF EDWARDS LIFESCIENCES' CERTIFICATE OF INCORPORATION AND BYLAWS AND OF DELAWARE LAW.............. 68 Certificate of Incorporation and Bylaws................................. 68 Delaware Law............................................................ 71 LIMITATION OF LIABILITY AND INDEMNIFICATION OF EDWARDS LIFESCIENCES DIRECTORS AND OFFICERS................................................... 71 Limitation of Liability of Directors.................................... 71 Indemnification of Directors and Officers............................... 72 EDWARDS LIFESCIENCES' 2001 ANNUAL MEETING OF STOCKHOLDERS................. 72 ADDITIONAL INFORMATION.................................................... 72 INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE....................... F-1 |
SUMMARY
This summary highlights selected information from this information statement, but does not contain all details concerning the distribution of the Edwards Lifesciences common stock to Baxter stockholders, including information that may be important to you. To better understand the distribution, and the business and financial position of Edwards Lifesciences, you should carefully review this entire document. References in this information statement to "Edwards Lifesciences" mean Edwards Lifesciences Corporation, a Delaware corporation, and its subsidiaries and affiliates following the distribution. References in this information statement to the CardioVascular business mean the CardioVascular business as conducted by Baxter for periods prior to the distribution date. References in this information statement to "Baxter" mean Baxter International Inc., a Delaware corporation, and its subsidiaries and affiliates.
Edwards Lifesciences' Business
Edwards Lifesciences designs, develops, manufactures and markets a comprehensive line of products and services to treat late-stage cardiovascular disease. Edwards Lifesciences is the worldwide leader in the development, marketing and sale of both tissue replacement heart valves and heart valve repair products. Edwards Lifesciences' product lines are grouped into four general areas: cardiac surgery, critical care, vascular and perfusion products and services. Edwards Lifesciences also offers a diverse grouping of other product lines comprised mostly of pharmaceuticals and select distributed products. Edwards Lifesciences supplies its products and services to customers in more than 80 countries, both through direct sales and distribution relationships, and reported pro forma annual sales in 1999 of $809 million.
Edwards Lifesciences' cardiac surgery product lines include products relating to heart valve therapy, a left ventricular assist device, as well as cannulae and cardioplegia products used during open heart surgery. Edwards Lifesciences' critical care product offerings include hemodynamic monitoring devices for measuring heart pressure and output during surgical procedures and in post-surgical intensive care settings. Edwards Lifesciences has been a world leader in this area since the development of its Swan-Ganz catheter more than 30 years ago. Edwards Lifesciences' vascular products include a line of balloon-tipped, catheter-based products, surgical clips and inserts, angioscopy equipment and artificial implantable grafts. The perfusion products offered by Edwards Lifesciences include a diverse line of disposable and hardware products used during cardiopulmonary bypass procedures, including oxygenators, blood containers, filters and related devices and heart-lung machines. Edwards Lifesciences also is the world's leading provider of contract perfusion services with a staff of more than 400 clinical perfusionists who perform an aggregate of more than 50,000 perfusion cases for open heart surgery per year.
Edwards Lifesciences employs over 5,000 people and its products are manufactured throughout the world, including Brazil, the Dominican Republic, Japan (through a contractual joint venture with Baxter), The Netherlands, Puerto Rico, Switzerland and the United States. Edwards Lifesciences' headquarters are located at 17221 Red Hill Avenue, Irvine, California 92614 and its telephone number is 949.250.2500. Edwards Lifesciences was incorporated in Delaware in 1999.
As of the distribution date, Baxter will have transferred its CardioVascular business to Edwards Lifesciences, a newly formed Delaware corporation.
The distribution of the shares of Edwards Lifesciences common stock will be effective on the distribution date. No vote of Baxter's stockholders is required to approve the distribution of the Edwards Lifesciences common stock.
Questions and Answers about Edwards Lifesciences and the Distribution
Why is Baxter separating Baxter is creating an independent, publicly traded
Edwards Lifesciences? company for its CardioVascular business because its
management believes that the combined value of two
separate companies will be greater than the value
of Baxter as a whole today. Edwards Lifesciences
expects that the distribution will allow it to
compete more effectively in the intensely
competitive and rapidly consolidating
cardiovascular device industry. Edwards
Lifesciences believes that as an independent
company, it will increase the level of funding of,
and commitment to, intense research and development
with a focus on enhancing its number and diversity
of new products. Edwards Lifesciences also expects
that it will be more aggressive in pursuing
acquisition and strategic alliance opportunities as
an independent company with the ability to use its
stock as currency. Having a publicly traded equity
security will also enable Edwards Lifesciences to
better attract and retain key employees by more
directly linking its employees' compensation with
Edwards Lifesciences' performance.
Following the distribution, Baxter intends to
invest more resources in its remaining core
businesses, which it expects will further enhance
its ability to successfully commercialize new
products and to expand its global markets.
What will the After the distribution, Baxter and Edwards
relationship be between Lifesciences will be separate, publicly owned
Edwards Lifesciences and companies. Baxter and Edwards Lifesciences will
Baxter after the enter into certain agreements to define their
distribution? ongoing relationship after the distribution. These
agreements also will allocate responsibility for
obligations both before and after the distribution
date. See "Edwards Lifesciences' Relationship With
Baxter After The Distribution" beginning on page
28.
How will Edwards Edwards Lifesciences' operating management team
Lifesciences be managed? will be essentially the same as Baxter's
CardioVascular business had during the period prior
to the distribution. Michael A. Mussallem will be
the Chairman of the Board and Chief Executive
Officer of Edwards Lifesciences. Mr. Mussallem has
extensive experience in the medical products and
services industry, having been with Baxter for over
twenty years. Mr. Mussallem will be supported by an
experienced management team that will include
Stuart L. Foster and Anita B. Bessler, who together
have spent in excess of 45 collective years in the
industry. In addition, Edwards Lifesciences has
added Bruce Bentcover as Chief Financial Officer
and Bruce Garren as General Counsel, both of whom
have previous public-company experience. See
"Edwards Lifesciences Management--Executive
Officers" beginning on page 51.
The Edwards Lifesciences board of directors will
initially consist of six persons, including Mr.
Mussallem and five independent directors. See
"Edwards Lifesciences Management--Board of
Directors" beginning on page 49.
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When will the March 31, 2000. Baxter will distribute the shares
distribution happen? of Edwards Lifesciences common stock on the
distribution date, which will be on March 31, 2000,
to holders of Baxter common stock on the record
date.
What is the record date March 29, 2000
for the distribution?
What do I have to do to Nothing. You are not required to take any action to
participate in the receive Edwards Lifesciences common stock in the
distribution? distribution. No proxy or vote is necessary for the
distribution. If you own Baxter common stock as of
the close of business on the record date, shares of
Edwards Lifesciences common stock will be mailed to
you or credited to your brokerage account on or
about March 31, 2000. You do not need to mail in
Baxter common stock certificates to receive Edwards
Lifesciences common stock certificates. The number
of shares of Baxter common stock you own will not
change as a result of the distribution.
How many shares of Baxter will distribute one share of Edwards
Edwards Lifesciences Lifesciences common stock, along with associated
common stock will I preferred stock purchase rights, for every five
receive? shares of Baxter common stock you own as of the
close of business on the record date. For example,
if you own 100 shares of Baxter common stock on the
record date, you will receive 20 shares of Edwards
Lifesciences common stock in the distribution.
Based on approximately 290,199,514 shares of Baxter
common stock that we expect to be outstanding on
the record date for the distribution, Baxter will
distribute a total of approximately 58,039,903
shares of Edwards Lifesciences common stock.
Will Baxter distribute No. Baxter will not distribute any fractional
fractional shares? shares of Edwards Lifesciences common stock. You
will receive a check or a credit to your brokerage
account for the cash equivalent of any fractional
shares you otherwise would have received in the
distribution, less applicable taxes. The amount of
the cash payment will depend upon the prices at
which the fractional shares are sold in the open
market on or about the distribution date.
Is the distribution Generally, no. Baxter has received a ruling from
taxable for United States the United States Internal Revenue Service
federal income tax substantially to the effect that the distribution
purposes? will be tax-free to Baxter and to Baxter's United
States stockholders, except with respect to cash
paid in lieu of fractional shares of Edwards
Lifesciences common stock. See "The Distribution--
Important Federal Income Tax Consequences"
beginning on page 34, for a more complete
discussion of the United States federal income tax
consequences of the distribution to holders of
Baxter common stock.
Will I be paid any Edwards Lifesciences has no current plans to pay
dividends on the Edwards dividends following the distribution. Edwards
Lifesciences common Lifesciences will pay dividends on Edwards
stock? Lifesciences common stock only if declared by the
Edwards
3
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Lifesciences board of directors in its sole
discretion following the distribution. The payment
and level of cash dividends, if any, will be based
upon a number of factors, including the operating
results, cash flow and financial requirements of
Edwards Lifesciences. See "The Distribution--
Dividend Policy" beginning on page 36.
Where will my shares of Edwards Lifesciences will be listed on the New York
Edwards Lifesciences Stock Exchange under the symbol "EW." See "The
common stock trade? Distribution--Market for Edwards Lifesciences
Common Stock" beginning on page 35.
What will happen to the Nothing. Baxter common stock will continue to be
listing of Baxter's listed on the NYSE under the symbol "BAX."
shares on the New York
Stock Exchange?
Will the distribution Yes. After the distribution, the trading price of
affect the trading price Baxter common stock is likely to be lower than the
of my Baxter common trading price immediately prior to the
stock? distribution. Moreover, the trading price of Baxter
common stock may fluctuate after the distribution
as the market evaluates the operations of Baxter
without the business of Edwards Lifesciences. Until
the market has fully analyzed Edwards Lifesciences'
business, the prices at which the Edwards
Lifesciences common stock trade may fluctuate
significantly. The combined market value of Baxter
common stock and Edwards Lifesciences common stock
may be less than, equal to or greater than the
market value of Baxter common stock prior to the
distribution. See "The Distribution--Market for
Edwards Lifesciences Common Stock" beginning on
page 35.
Who do I contact for Before the distribution, you should direct
information regarding the inquiries relating to the distribution to:
distribution and Edwards Baxter International Inc.
Lifesciences? One Baxter Parkway
Deerfield, IL 60015
Attention: Investor Relations
847.948.2000
After the distribution, you should direct inquiries
relating to an investment in Edwards Lifesciences
common stock to:
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, CA 92614
Attention: Investor Relations
949.250.2500
After the distribution, the transfer agent and
registrar for the Edwards Lifesciences common stock
will be:
First Chicago Trust Company,
a division of EquiServe
Shareholder Relations
P.O. Box 2500
Jersey City, NJ 07303-2500
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Summary Historical Financial Data
The following table sets forth summary historical combined financial data for the CardioVascular business. These results present the CardioVascular business as it has historically been operated as a division of Baxter. Subsequent to the distribution, the Japan operations will be presented on an equity basis as opposed to the consolidation method reflected in the historical results. As such, the results reflected here will not be comparable to the presentation subsequent to the distribution. See "Unaudited Pro Forma Financial Data." The historical combined financial data of the CardioVascular business are derived from the "Combined Financial Statements," which are included elsewhere in this information statement. See Note 3 to "Combined Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for discussions of the effect of certain acquisitions on revenues, expenses and financial position.
For the years ended
December 31,
----------------------
1999 1998 1997
------ ------ ------
(in millions)
Income Statement Data
Net sales........................................ $ 905 $ 865 $ 879
Gross profit..................................... $ 439 $ 399 $ 416
Net income (loss) (a)............................ $ 82 $ 62 $ (52)
Balance Sheet and Cash Flow Data
Cash flow provided from operations............... $ 176 $ 176 $ 163
Cash flow from investment transactions, net...... $ (49) $ (52) $ (58)
Cash flow from financing transactions, net....... $ (127) $ (124) $ (105)
Total assets..................................... $1,437 $1,483 $1,526
Other Data
EBITDA (a)(b).................................... $ 197 $ 175 $ 197
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(b) EBITDA, or earnings before interest, income taxes, depreciation, amortization and other significant non-cash charges, is presented because it is a widely accepted indicator used by certain investors and analysts to compare and analyze companies on the basis of operating performance. We believe a presentation of earnings before certain noncash charges may enhance an investor's comparisons of competitor companies that have historically used different methods of accounting for business combinations. EBITDA in 1997 excludes the $132 million in-process research and development charge relating to the acquisition of Research Medical, Inc.
EBITDA is not intended to represent cash flows for the period, nor is it presented as an alternative to operating income or as an indicator of operating performance. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with accounting principles generally accepted in the United States (GAAP). Disclosure regarding cash flows from operating, investing and financing transactions is presented in "Management's Discussion and Analysis of Financial Condition and Results of Operations." Further, EBITDA is not indicative of operating income or cash flow from operations as determined under GAAP. Items excluded from EBITDA are significant components in understanding and assessing financial performance. Our method of computation may or may not be comparable to other similarly titled measures of other companies.
Summary Unaudited Pro Forma Financial Data
The following table sets forth summary unaudited pro forma financial data. This data presents the combined results of Edwards Lifesciences assuming that the transactions contemplated by the distribution had been completed as of January 1, 1999. See page 39 for computation of pro forma amounts, including descriptions of the pro forma adjustments.
We have prepared the summary unaudited pro forma information utilizing the historical combined financial statements of the CardioVascular business. You should read this information in conjunction with the historical combined financial statements and notes to those statements, included elsewhere in this information statement. The summary unaudited pro forma financial data does not purport to be indicative of the results of Edwards Lifesciences in the future or what the financial position and results of operations would have been had Edwards Lifesciences been a separate, stand-alone entity during the periods shown. Pro forma cash flows are not presented as such amounts would not be factually supportable.
For the year
ended
December 31,
1999
------------
(in millions)
Net sales............................................ $809
Gross profit......................................... $377
Net income........................................... $ 41
EBITDA (a)........................................... $163
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RISK FACTORS
Consider carefully all of the information contained in this information statement and, in particular, the following factors:
Risks Related to Edwards Lifesciences' Business
If Edwards Lifesciences does not introduce new products in a timely manner, its products may become obsolete, and its operating results may suffer.
The cardiovascular products industry is characterized by rapid technological changes, frequent new product introductions and evolving industry standards. Without the timely introduction of new products and enhancements, Edwards Lifesciences' products will likely become technologically obsolete over time, in which case Edwards Lifesciences' revenue and operating results would suffer. The success of Edwards Lifesciences' new product offerings will depend on several factors, including its ability to:
. properly identify and anticipate customer needs;
. innovate and develop new technologies and applications;
. successfully commercialize new technologies in a timely manner;
. manufacture and deliver products in sufficient volumes on time;
. differentiate Edwards Lifesciences' offerings from competitors offerings; and
. price products competitively.
In addition, new technologies that Edwards Lifesciences develops may not be accepted quickly because of industry-specific factors, such as the need for regulatory clearance, unanticipated restrictions imposed on approved indications, entrenched patterns of clinical practice, uncertainty over third- party reimbursement and clinicians' fears of malpractice suits.
Moreover, significant technical innovations generally will require a substantial investment before Edwards Lifesciences can determine the commercial viability of these innovations. Edwards Lifesciences may not have the financial resources necessary to fund these technical innovations. In addition, even if Edwards Lifesciences is able to successfully develop enhancements or new generations of its products, these enhancements or new generations of products may not produce revenue in excess of the costs of development, and they may be quickly rendered obsolete by changing customer preferences or the introduction by Edwards Lifesciences' competitors of products embodying new technologies or features.
Edwards Lifesciences may incur product liability and professional liability losses and insurance coverage may be inadequate or unavailable to cover these losses.
Edwards Lifesciences' business exposes it to potential product liability risks that are inherent in the design, manufacture and marketing of medical devices. Edwards Lifesciences' products are often used in surgical and intensive care settings with seriously ill patients. In addition, some of the medical devices manufactured and sold by Edwards Lifesciences are designed to be implanted in the human body for long periods of time. Edwards Lifesciences could be the subject of product liability suits alleging that component failures, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information could result in an unsafe condition or injury to patients. Product liability lawsuits and claims, safety alerts or product recalls in the future, regardless of their ultimate outcome, could have a material adverse effect on Edwards Lifesciences' business and reputation and on its ability to attract and retain customers. In addition, Edwards Lifesciences' perfusion services subsidiaries expose it to medical malpractice risks. In recent years, physicians, hospitals and other medical- service providers have become subject to an increasing number of lawsuits alleging medical malpractice. Medical malpractice suits often involve large claims and substantial defense costs.
Upon the distribution, Edwards Lifesciences will assume the defense of litigation involving claims related to the CardioVascular business and will indemnify Baxter for all related losses, costs and expenses. As part of its
risk management policies, Edwards Lifesciences intends to seek third-party product liability and professional liability insurance coverage. However, Edwards Lifesciences is not certain that it will be able to obtain product liability and professional liability insurance on commercially reasonable terms, if at all. Furthermore, product liability claims against Edwards Lifesciences may exceed the coverage limits of any insurance policies or cause Edwards Lifesciences to record a self-insured loss. Edwards Lifesciences maintains professional liability insurance coverage for individuals employed by the subsidiary who perform perfusion services, although the amount of that coverage may not be sufficient. Further, even if any product liability or professional liability losses are covered by an Edwards Lifesciences insurance policy, these policies may have substantial retentions or deductibles that provide that Edwards Lifesciences will not receive insurance proceeds until the losses incurred by Edwards Lifesciences exceed the amount of those retentions or deductibles. To the extent that any losses are below these retentions or deductibles, Edwards Lifesciences will be responsible for paying these losses. A product liability or professional liability claim in an amount in excess of applicable insurance could have a material adverse effect on Edwards Lifesciences.
Edwards Lifesciences may experience supply interruptions that could harm its ability to manufacture products.
Edwards Lifesciences uses a diverse and broad range of raw and organic materials and other items in the design and manufacture of its products. Edwards Lifesciences' non-implantable products are manufactured from man-made raw materials including resins, chemicals, electronics and metals. Edwards Lifesciences' heart valve therapy products are manufactured from natural animal tissue and man-made materials. Edwards Lifesciences purchases certain of the materials and components used in the manufacture of its products from external suppliers. In addition, Edwards Lifesciences purchases certain supplies from single sources for reasons of quality assurance, cost- effectiveness or constraints resulting from regulatory requirements. Edwards Lifesciences works closely with its suppliers to assure continuity of supply while maintaining high quality and reliability. Alternative supplier options are generally considered and identified, although Edwards Lifesciences does not typically pursue regulatory qualification of alternative sources due to the strength of its existing supplier relationships and the time and expense associated with the regulatory process. Although a change in suppliers could require significant effort or investment by Edwards Lifesciences in circumstances where the items supplied are integral to the performance of Edwards Lifesciences' products or incorporate unique technology, management does not believe that the loss of any existing supply contract would have a material adverse effect on the company.
In an effort to reduce potential product liability exposure, certain suppliers have announced that they intend to limit or terminate sales of certain materials and parts to companies that manufacture implantable medical devices. In the past, Baxter has been required in specific instances to indemnify certain suppliers for its CardioVascular business for product liability expenses. There can be no assurance that an indemnity from Edwards Lifesciences will be satisfactory to these suppliers. If Edwards Lifesciences is unable to obtain these raw materials or there is a significant increase in the price of materials or components, its business could be harmed.
Edwards Lifesciences may not successfully identify and complete acquisitions or strategic alliances on favorable terms or achieve anticipated synergies relating to any acquisitions or alliances; Edwards Lifesciences may be required to incur additional indebtedness to fund any acquisitions.
As part of Edwards Lifesciences' growth strategy, Edwards Lifesciences intends to aggressively seek to acquire complementary businesses, technologies, services or products and to enter into strategic alliances. Edwards Lifesciences may be unable to find suitable acquisition candidates. Even if Edwards Lifesciences identifies appropriate acquisition or alliance candidates, Edwards Lifesciences may be unable to complete such acquisitions on favorable terms, if at all. In addition, the process of integrating an acquired business, technology, service or product into Edwards Lifesciences' existing business and operations may result in unforeseen
operating difficulties and expenditures. Integration of an acquired company also may require significant management resources that otherwise would be available for ongoing development of Edwards Lifesciences' business. Moreover, Edwards Lifesciences may not realize the anticipated benefits of any acquisition. Future acquisitions could also require issuances of equity securities, the incurrence of debt, contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could harm Edwards Lifesciences' business. Edwards Lifesciences currently does not have any understandings, commitments or agreements with respect to any material acquisition.
Edwards Lifesciences also intends to pursue strategic alliances with third parties. Edwards Lifesciences may not identify appropriate partners with which to form partnerships or strategic alliances. Any alliances may not generate anticipated financial results.
Edwards Lifesciences' business is subject to economic, political and other risks associated with international sales and operations.
Because Edwards Lifesciences sells its products in a number of foreign countries, its business is subject to risks associated with doing business internationally. The CardioVascular business' net revenue originating outside of the United States, as a percentage of the CardioVascular business' total net revenue, was 41% in 1998 and 44% in 1999 (on a pro forma basis for Edwards Lifesciences, it was 36% in 1998 and 38% in 1999). Edwards Lifesciences anticipates that revenue from international operations will continue to represent a substantial portion of its total revenue. In addition, many of Edwards Lifesciences' manufacturing facilities and suppliers are located outside of the United States. Edwards Lifesciences management expects to increase its sales efforts internationally, which could expose it to greater risks associated with international sales and operations. Accordingly, Edwards Lifesciences' future results could be harmed by a variety of factors, including:
. changes in foreign medical reimbursement policies and programs;
. unexpected changes in foreign regulatory requirements;
. changes in foreign currency exchange rates;
. changes in a specific country's or region's political or economic conditions, particularly in emerging regions;
. trade protection measures and import or export licensing requirements;
. potentially negative consequences from changes in tax laws;
. difficulty in staffing and managing foreign operations;
. differing labor regulations; and
. differing protection of intellectual property.
Edwards Lifesciences will be subject to risks arising from currency exchange rate fluctuations.
Approximately 44% of the CardioVascular business' revenues in 1999 were generated from outside of the United States. Measured in local currency, a substantial portion of the CardioVascular business' foreign-generated revenues were generated in Europe (and primarily denominated in the Euro) and in Japan. The United States dollar value of Edwards Lifesciences' foreign-generated revenues varies with currency exchange rate fluctuations. Significant increases in the value of the United States dollar relative to the Euro or the Japanese Yen, as well as other currencies, could have a material adverse effect on Edwards Lifesciences' results of operations. The CardioVascular business has historically been considered in Baxter's overall risk management strategy. As part of this strategy, Baxter has used financial instruments to reduce its exposure to adverse movements in currency exchange rates. As an independent company, Edwards Lifesciences plans to implement a hedging policy which will attempt to manage currency exchange rate risks to an acceptable level based on
management's judgment of the appropriate trade-off between risk, opportunity and cost; however this hedging policy may not successfully eliminate the effects of currency exchange rate fluctuations.
The conversion to the Euro has required Edwards Lifesciences to modify its business operations and if these modifications are not successful or if there are any negative economic developments in the European Union, Edwards Lifesciences' business may be negatively affected.
On January 1, 1999, eleven member countries of the European Union established fixed conversion rates between their existing currencies and one common currency, the Euro. Uncertainties exist as to the effects the Euro may have on Edwards Lifesciences' European customers, as well as the impact of the Euro conversion on the economies of the participating countries. Approximately 44% of the CardioVascular business' revenues in 1999 were derived from outside the United States, a significant portion of which were generated in Europe and primarily denominated in currencies linked to the Euro since January 1, 1999. Any negative economic developments that occur in the combined European Union economy and the possible devaluation of the Euro could have a material negative impact on Edwards Lifesciences' business.
Potential effects on Edwards Lifesciences' operations include:
. the need to modify business systems to recognize the Euro as a functional currency; and
. the competitive impact of cross-border price transparency, which may make it more difficult for a business to charge different prices for the same products on a country-by-country basis, particularly once the Euro currency begins circulation in 2002.
Edwards Lifesciences will continue to evaluate the impact of the introduction of the Euro as Edwards Lifesciences continues to expand its operations throughout Europe.
Fluctuations in Edwards Lifesciences' quarterly operating results may cause Edwards Lifesciences' stock price to decline.
Edwards Lifesciences' revenue and operating results may vary significantly from quarter to quarter. A high proportion of Edwards Lifesciences' costs are fixed, due in part to significant sales, research and development and manufacturing costs. Thus, small declines in revenue could disproportionately affect operating results in a quarter, and the price of Edwards Lifesciences common stock may fall. Other factors that could affect quarterly operating results include:
. demand for and clinical acceptance of products;
. the timing and execution of customer contracts, particularly large contracts that would materially affect Edwards Lifesciences' operating results in a given quarter;
. the timing of sales of products;
. changes in foreign currency exchange rates;
. unanticipated delays or problems in introducing new products;
. competitors' announcements of new products, services or technological innovations;
. changes in Edwards Lifesciences' pricing policies or the pricing policies of its competitors;
. increased expenses, whether related to sales and marketing, raw materials or supplies, product development or administration;
. adverse changes in the level of economic activity in the United States and other major regions in which Edwards Lifesciences does business;
. costs related to possible acquisitions of technologies or businesses;
. Edwards Lifesciences' ability to expand its operations; and
. the amount and timing of expenditures related to expansion of Edwards Lifesciences' operations.
Edwards Lifesciences' inability to protect its intellectual property could have a material adverse effect on its business.
Edwards Lifesciences' success and competitive position are dependent, in part, upon its proprietary intellectual property. Edwards Lifesciences relies on a combination of patents, trade secrets and nondisclosure agreements to protect its proprietary intellectual property, and will continue to do so. Although Edwards Lifesciences seeks to protect its proprietary rights through a variety of means, Edwards Lifesciences cannot guarantee that the protective steps it has taken are adequate to protect these rights. Patents issued to or licensed by Edwards Lifesciences in the past or in the future may be challenged and held invalid or not infringed by third parties. Competitors may also challenge Edwards Lifesciences' patents.
Edwards Lifesciences will also rely on confidentiality agreements with certain employees, consultants and other parties to protect, in part, trade secrets and other proprietary information. These agreements could be breached and Edwards Lifesciences may not have adequate remedies for any breach. In addition, others may independently develop substantially equivalent proprietary information or gain access to Edwards Lifesciences' trade secrets or proprietary information.
Edwards Lifesciences will be required to spend significant resources to monitor and enforce its intellectual property rights. Edwards Lifesciences may not be able to detect infringement and may lose its competitive position in the industry. In addition, competitors may design around Edwards Lifesciences' technology or develop competing technologies. Intellectual property rights may also be unavailable or limited in some foreign countries, which could make it easier for competitors to capture increased market position.
Third parties may claim Edwards Lifesciences is infringing their intellectual property, and Edwards Lifesciences could suffer significant litigation or licensing expenses or be prevented from selling products.
During recent years, Baxter's competitors have been involved in substantial litigation regarding patent and other intellectual property rights in the medical device industry generally. In the future, Edwards Lifesciences may be forced to defend itself against claims and legal actions alleging infringement of the intellectual property rights of others. Because intellectual property litigation can be costly and time consuming, Edwards Lifesciences' intellectual property litigation expenses could be significant in the future. Adverse determinations in any such litigation could subject Edwards Lifesciences to significant liabilities to third parties, could require Edwards Lifesciences to seek licenses from third parties and could, if such licenses are not available, prevent Edwards Lifesciences from manufacturing, selling or using certain of its products, any one of which could have a material adverse effect on Edwards Lifesciences.
Third parties could also obtain patents that may require Edwards Lifesciences to either re-design its products or, if possible, negotiate licenses to conduct its business. If Edwards Lifesciences is unable to re- design its products or obtain a license, Edwards Lifesciences may have to exit a particular product offering.
Edwards Lifesciences has not previously operated as an independent company.
Edwards Lifesciences does not have an operating history as an independent public company and Edwards Lifesciences' management has no experience, as a group, in operating Edwards Lifesciences as a stand-alone business. While the CardioVascular business has been profitable as a part of Baxter, there is no assurance that as a stand-alone company Edwards Lifesciences' revenues and profits will continue at the same level. For more information, see "Combined Financial Statements."
The agreements governing Edwards Lifesciences' indebtedness will contain restrictive covenants that may limit Edwards Lifesciences' future financial flexibility.
In connection with the distribution, Edwards Lifesciences will borrow approximately $520 million. This indebtedness is reflected in the pro forma financial information presented elsewhere in this information statement.
The debt agreements relating to this indebtedness will contain restrictive covenants which may limit or prohibit certain actions by Edwards Lifesciences. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources," "Edwards Lifesciences' Unaudited Pro Forma Financial Data" and "Financing."
Risks Related to the Health Care Industry
Edwards Lifesciences faces intense competition and consolidation within its industry, and if Edwards Lifesciences does not compete effectively, its business will be harmed.
The cardiovascular medical products industry is highly competitive. Edwards Lifesciences competes with many companies, some of which have longer operating histories, better brand or name recognition and greater access to financial and other resources than Edwards Lifesciences. Furthermore, the industry is characterized by intensive development efforts and rapidly advancing technology. Edwards Lifesciences' present and future products could be rendered obsolete or uneconomical by technological advances by one or more of Edwards Lifesciences' current or future competitors or by alternative therapies, including drug therapies. The future success of Edwards Lifesciences will depend, in large part, on its ability to anticipate technology advances and keep pace with other developers of cardiovascular therapies and services. In addition, the medical devices industry has been consolidating and as a result, transactions with customers are larger, more complex and tend to involve more long-term contracts. The enhanced purchasing power of these larger Edwards Lifesciences customers may also increase downward pressure on product pricing. Competitive market forces may also adversely affect the prices at which Edwards Lifesciences sells its products.
Many existing and potential customers for Edwards Lifesciences' products have combined to form group purchasing organizations (GPOs). GPOs negotiate pricing arrangements with medical supply manufacturers and distributors and these negotiated prices are made available to a GPO's affiliated hospitals. If Edwards Lifesciences is not one of the providers selected by a GPO, Edwards Lifesciences may be precluded from making sales to members of a GPO for several years. Even if Edwards Lifesciences is one of the selected providers, Edwards Lifesciences may be at a disadvantage relative to other selected providers that are able to offer volume discounts based on purchases of a broader range of medical equipment and supplies. Further, Edwards Lifesciences may be required to commit to pricing that has a material adverse effect on sales and profit margins, the business, financial condition, and results of operations of Edwards Lifesciences.
Edwards Lifesciences and its customers are subject to various governmental regulations, and Edwards Lifesciences may incur significant expenses to comply with these regulations and develop its products to be compatible with these regulations.
The medical devices manufactured and marketed by Edwards Lifesciences are subject to rigorous regulation by the FDA and numerous other federal, state and foreign governmental authorities. The process of obtaining regulatory approvals to market a medical device, particularly from the FDA and certain foreign governmental authorities, can be costly and time consuming, and approvals might not be granted for future products on a timely basis, if at all. Delays in receipt of, or failure to obtain, approvals for future products could result in delayed realization of product revenues or in substantial additional costs which could have material adverse effects on Edwards Lifesciences' business or results of operations. In addition, there can be no assurance that Edwards Lifesciences will be or will continue to be in compliance with applicable FDA and other material regulatory requirements. If the FDA were to conclude that Edwards Lifesciences was not in compliance with applicable laws or regulations, it could institute proceedings to detain or seize Edwards Lifesciences' products, issue a recall, impose operating restrictions, enjoin future violations and assess civil penalties against Edwards Lifesciences, its officers or its employees and could recommend criminal prosecution to the Department of Justice. Moreover, the FDA could proceed to ban, or request recall, repair, replacement or refund of the cost of, any device or product manufactured or distributed by Edwards Lifesciences. Furthermore, both the FDA and foreign government regulators have become increasingly stringent, and Edwards Lifesciences may be subject to more rigorous regulation by governmental authorities in the future.
If third-party payors decline to reimburse Edwards Lifesciences customers for Edwards Lifesciences products or reduce reimbursement levels, Edwards Lifesciences' ability to profitably sell its products will be harmed.
Edwards Lifesciences sells its products and services to hospitals, doctors and other health care providers, all of which receive reimbursement for the health care services provided to their patients from third-party payors, such as government programs (both domestic and international), private insurance plans and managed care programs. These third-party payors may deny reimbursement if they determine that a device used in a procedure was not used in accordance with cost-effective treatment methods, as determined by such third-party payor, or was used for an unapproved indication. Third-party payors may also decline to reimburse for experimental procedures and devices. Many of Edwards Lifesciences' existing and future products are cost-effective because they are intended to reduce overall health care costs over a long period of time. Edwards Lifesciences cannot be certain whether these third- party payors will recognize these cost savings or will merely focus on the lower initial costs associated with competing therapies. If Edwards Lifesciences' products are not considered cost-effective by third-party payors, Edwards Lifesciences' customers may not be reimbursed for Edwards Lifesciences' products.
In addition, third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement for medical products and services. There can be no assurance that levels of reimbursement, if any, will not be decreased in the future, or that future legislation, regulation or reimbursement policies of third-party payors will not otherwise adversely affect the demand for and price levels of Edwards Lifesciences' products. In Japan, where Edwards Lifesciences' products are distributed through a contractual joint venture with Baxter, customers are reimbursed for Edwards Lifesciences products under a government-operated insurance system. Under this system, the Japanese government annually reviews the reimbursement levels for products. If the Japanese government decides to reduce reimbursement levels for Edwards Lifesciences' products, Edwards Lifesciences' product pricing may be adversely affected.
Risks Related to Edwards Lifesciences' Separation from Baxter
The distribution may become a taxable event as a result of subsequent actions or events undertaken by Edwards Lifesciences.
Although the distribution is expected to be free from United States federal income tax as of the distribution date, it could be rendered taxable as a result of subsequent actions or events. Edwards Lifesciences has agreed not to undertake specified actions and has agreed that under particular circumstances it will indemnify Baxter for taxes, liabilities and associated expenses incurred as a result of any such actions or events. For more information, see "Edwards Lifesciences' Relationship With Baxter After The Distribution-- Reorganization Agreement."
After Edwards Lifesciences' separation from Baxter, Edwards Lifesciences may experience increased costs resulting from decreased purchasing power, which could decrease its profitability overall.
Prior to Edwards Lifesciences' separation from Baxter, the CardioVascular business was able to take advantage of Baxter's size and purchasing power in procuring goods, services and technology, such as computer software licenses. As a separate, stand-alone entity, Edwards Lifesciences may be unable to obtain goods, services and technology at prices and on terms as favorable as those it obtained prior to the distribution.
Edwards Lifesciences' new name is not yet recognized as a brand in the marketplace, and as a result its product sales could suffer.
The loss of the "Baxter" brand name may hinder Edwards Lifesciences' ability to establish new relationships. In addition, Edwards Lifesciences' current customers, suppliers and partners may react negatively to the separation from Baxter. In connection with Edwards Lifesciences' separation from Baxter, Edwards Lifesciences will change the brand name and some associated trademarks and trade names under which Edwards Lifesciences conducts its business. This transition to a new name will occur rapidly in certain geographic regions and over specified periods of time in other regions. Edwards Lifesciences believes that sales of its products have
benefited from the use of the "Baxter" brand name. In addition, although Edwards Lifesciences believes that it will have all necessary rights to use its new brand name, Edwards Lifesciences' rights to use the name may be challenged by others.
Edwards Lifesciences will need to fund its future capital requirements internally or obtain third-party financing.
Edwards Lifesciences believes that its capital requirements will vary greatly from quarter to quarter, depending on, among other things, capital expenditures, fluctuations in Edwards Lifesciences' operating results, financing activities and build-up of inventories. In the past, the CardioVascular business' working capital requirements have been met from internally-generated cash flow. Edwards Lifesciences believes that the planned initial debt financing, along with its future cash flow from operations, will be sufficient to satisfy its working capital, capital expenditure and research and development requirements for the foreseeable future. However, Edwards Lifesciences may be required or choose to obtain additional debt or equity financing in the future, especially for significant acquisitions. Future equity financings could be dilutive to the existing holders of Edwards Lifesciences' common stock. Future debt financings could involve restrictive covenants that limit Edwards Lifesciences' ability to take certain actions. To the extent Edwards Lifesciences must obtain financing, Edwards Lifesciences cannot guarantee that financing will be available on favorable terms and any financing may not be at interest rates as favorable as those historically enjoyed by Baxter. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
The transitional services being provided to Edwards Lifesciences by Baxter may be difficult to replace without operational problems.
Baxter has agreed to provide certain administrative services to Edwards Lifesciences in various countries around the world. These services include information systems and telecommunications, human resources, finance and accounting and other administrative services. In most cases, either party will have the right after 21 months to terminate these arrangements either in whole or in part. If these arrangements are terminated, Edwards Lifesciences will need to seek alternative providers of these services. Edwards Lifesciences may experience operational problems if it is not able to immediately replace these services or as Edwards Lifesciences transitions to another provider's systems. In addition, since the prices charged to Edwards Lifesciences under these arrangements are intended to approximate the costs of providing the services, the costs of obtaining services from third parties upon any termination could be in excess of the costs payable by Edwards Lifesciences to Baxter.
Risks Related to Ownership of Edwards Lifesciences' Common Stock
Edwards Lifesciences' common stock has no prior market, and Edwards Lifesciences cannot guarantee that Edwards Lifesciences' stock price will not decline after the distribution.
There has been no prior trading market for Edwards Lifesciences' stock and there can be no assurance as to the prices at which Edwards Lifesciences' stock will trade before or after the date of the distribution. Until the Edwards Lifesciences common stock is fully distributed and an orderly market develops, the prices at which the Edwards Lifesciences common stock trades may fluctuate significantly. Prices for the Edwards Lifesciences common stock will be determined in the trading markets and may be influenced by many factors, including:
. the depth and liquidity of the market for Edwards Lifesciences' stock;
. developments generally affecting the cardiovascular products market;
. investor perceptions of Edwards Lifesciences and its business;
. the financial results of Edwards Lifesciences;
. Edwards Lifesciences' dividend policy; and
. general economic and industry conditions.
For more information, see "The Distribution--Market for Edwards Lifesciences Common Stock."
In addition, the stock market, in general, frequently experiences extreme volatility that is often seemingly unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of Edwards Lifesciences common stock. In the past, securities class action litigation often has been instituted against companies following periods of volatility in the market price of their securities. Such litigation could result in substantial costs and a diversion of management's attention and resources.
Edwards Lifesciences' charter documents and Delaware law contain provisions that may discourage takeover attempts which could preclude Edwards Lifesciences' stockholders from receiving a change of control premium.
Edwards Lifesciences' certificate of incorporation and bylaws and Delaware law contain anti-takeover provisions that could have the effect of delaying or preventing changes in control that a stockholder may consider favorable. The provisions in Edwards Lifesciences' charter documents include the following:
. a classified board of directors with three-year staggered terms;
. the ability of Edwards Lifesciences' board of directors to issue shares of preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval;
. stockholder action to be taken only at a special or regular meeting;
. advance notice procedures for nominating candidates to Edwards Lifesciences' board of directors or presenting matters at stockholder meetings;
. removal of directors only for cause; and
. super-majority voting requirements to amend the charter.
The foregoing could have the effect of delaying, deferring or preventing a change in control of Edwards Lifesciences, discouraging bids for Edwards Lifesciences' common stock at a premium over the market price or harming the market price of, and the voting and other rights of the holders of, Edwards Lifesciences' common stock. Edwards Lifesciences also is subject to Delaware laws that could have similar effects. One of these laws prohibits Edwards Lifesciences from engaging in a business combination with any significant stockholder for a period of three years from the date the person became a significant stockholder unless specific conditions are met. In addition, Edwards Lifesciences has adopted a stockholder rights plan. The preferred stock purchase rights under this plan, if triggered, would cause substantial dilution to any person or group who attempts to acquire a significant interest in Edwards Lifesciences without advance approval of Edwards Lifesciences' board of directors. For more information, see "Description of Edwards Lifesciences Capital Stock" and "Certain Anti-Takeover Effects of Provisions of Edwards Lifesciences' Certificate of Incorporation and Bylaws and of Delaware Law."
FORWARD-LOOKING STATEMENTS
This information statement and other materials filed or to be filed by Edwards Lifesciences with the SEC (as well as information included in oral statements or other written statements made, or to be made, by Edwards Lifesciences) contain, or will contain, disclosures which are "forward-looking statements." Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as "may," "believe," "will," "expect," "project," "estimate," "anticipate," "plan" or "continue." These forward-looking statements address, among other things, strategic objectives and the anticipated effects of the distribution. These forward-looking statements are based on the current plans and expectations of the management of Edwards Lifesciences and are subject to a number of uncertainties and risks that could significantly affect current plans and expectations and the future financial condition and results of Edwards Lifesciences. These factors include, but are not limited to:
. the highly competitive nature of the health care industry;
. the efforts of insurers, health care providers and others to contain health care costs;
. possible changes in United States or foreign programs that may further limit reimbursements to health care providers and insurers;
. changes in federal, state or local regulation affecting the health care industry;
. the possible enactment of federal or state health care reform;
. the departure of key executive officers from Edwards Lifesciences;
. claims and legal actions relating to product liability;
. fluctuations in the market value of Edwards Lifesciences common stock;
. changes in accounting practices;
. changes in general economic conditions and foreign currency fluctuations;
. product demand and risks associated with industry acceptance;
. new product development and commercialization; and
. other risk factors described above.
As a consequence, current plans, anticipated actions and future financial conditions and results may materially differ from those expressed in any forward-looking statements made by or on behalf of Edwards Lifesciences. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this information statement.
EDWARDS LIFESCIENCES' BUSINESS
Overview
Edwards Lifesciences provides a comprehensive line of products and services to treat late-stage cardiovascular disease. Edwards Lifesciences is the worldwide leader in the design, development, manufacture and marketing of tissue heart valves and heart valve repair products. Many products manufactured by Edwards Lifesciences occupy leading positions around the world. Edwards Lifesciences' engineers and scientists work closely with many leading clinicians, which has allowed Edwards Lifesciences to develop and commercialize new products and to pioneer new treatment techniques. Edwards Lifesciences' sales are categorized in four main product areas: cardiac surgery, critical care, vascular and perfusion products and services. Edwards Lifesciences is headquartered in Irvine, California, and supplies its products and services to customers in more than 80 countries, both through direct sales and distributor relationships. In 1999, Edwards Lifesciences reported pro forma sales of $809 million. Edwards Lifesciences' products are manufactured in locations throughout the world, including Brazil, the Dominican Republic, Japan (through a contractual joint venture with Baxter), The Netherlands, Puerto Rico, Switzerland and the United States.
Cardiovascular disease is the number one cause of death in the world, and is among the top three diseases in terms of health care spending in nearly every country in the world. We believe that around the world, more than $200 billion is spent each year for the treatment of cardiovascular disease. Cardiovascular disease is both progressive and pervasive; progressive, in that it tends to worsen over time, and pervasive because it often affects an individual's entire circulatory system. In its later stages, surgery frequently becomes the preferred treatment option. In 1999, approximately one million open heart surgeries were performed worldwide; of these, approximately 64% were coronary artery bypass graft (CABG) procedures, approximately 24% were heart valve replacement or repair procedures, and approximately 12% were related to the repair of congenital heart defects.
Edwards Lifesciences expects the following factors to contribute to the growth in the number of patients being treated for advanced late-stage cardiovascular disease:
. an increasing and aging population;
. the progressive nature of the disease; and
. continued economic development around the world, which permits more resources to be dedicated to treating chronic health conditions.
Patients undergoing surgical treatment for cardiovascular disease are likely to encounter a variety of Edwards Lifesciences' products and services. For example, an individual with a heart valve disorder may have a faulty valve re-shaped and repaired with an Edwards Lifesciences annuloplasty ring, or the surgeon may elect to remove the valve altogether and replace it with one of Edwards Lifesciences' handcrafted bioprosthetic heart valves, which can be made of bovine or porcine tissue. If a patient undergoes other types of open heart surgery, such as a CABG procedure, the functions of their heart and lungs may be managed through the use of disposable products and equipment offered in Edwards Lifesciences' perfusion products line. The perfusion process may be performed by a clinical perfusionist employed by Edwards Lifesciences' perfusion services, the largest organization of contract perfusionists in the world. A patient with end-stage cardiovascular disease who is awaiting a heart transplant may receive treatment from Edwards Lifesciences' mechanical cardiac assist system. If the circulatory problems are in the limbs rather than in the heart, the patients' procedure may involve some of Edwards Lifesciences' vascular products, which include various types of balloon-tipped catheters that are used to remove blood clots. Finally, virtually all high-risk patients in the operating room or cardiac-care unit are candidates for having their cardiac function monitored by Edwards Lifesciences' critical care products.
Business Strategy
Treatment of cardiovascular disease represents a significant, growing opportunity. Edwards Lifesciences' strategy is to develop, manufacture and market products that result in improved therapeutic outcomes for patients with late-stage cardiovascular disease. Edwards Lifesciences plans to aggressively expand its leading product
offerings and develop new products and therapies that improve the quality of patient care and reduce overall treatment costs. The key aspects of Edwards Lifesciences' strategy include:
Focus on Late-Stage Cardiovascular Disease Therapy. Cardiovascular disease is the leading cause of death in the world. Edwards Lifesciences has differentiated itself from other competitors by focusing primarily on late-stage treatments, which tend to rely more heavily on the use of devices and implantables and less on behavior-modification or drug therapy. Edwards Lifesciences believes there will be significant opportunity for growth as the aging global population increases and new technologies are developed.
Invest in Technological Innovation. Clinical performance historically has been the primary driver of commercial success for products used to treat cardiovascular disease. Edwards Lifesciences' product portfolio includes many leading technologies, and Edwards Lifesciences has been credited with pioneering a variety of new treatment techniques. Edwards Lifesciences plans to increase investment in research and development to enhance existing technologies and to develop and commercialize new products and therapies.
Expand Global Sales. Continuing economic development around the world and expanded global adoption of established medical procedures will provide attractive growth opportunities for Edwards Lifesciences. Edwards Lifesciences expects to broaden its sales, service and distribution channels globally to take advantage of these opportunities. Currently, an estimated 38% of Edwards Lifesciences' pro forma sales are derived from outside of the United States.
Evaluate Attractive Investment Opportunities. Edwards Lifesciences' operations generate significant operating cash flow, some of which Edwards Lifesciences plans to reinvest to accelerate growth and maximize long-term return to its stockholders. Edwards Lifesciences plans to evaluate investment opportunities based on the incremental return on invested capital in excess of Edwards Lifesciences' weighted average cost of capital. Edwards Lifesciences believes that its stockholders will recognize the greatest appreciation in value through investments which generate the highest incremental return.
Improve Existing Cost Structure. As an independent company, Edwards Lifesciences will be required to anticipate and react to market changes and eliminate inefficient processes and unnecessary costs. Edwards Lifesciences is already pursuing a number of opportunities to improve its existing cost structure and plans to continue identifying and implementing additional cost-savings initiatives.
Pursue Strategic Opportunities. The cardiovascular medical products industry is undergoing significant consolidation. Edwards Lifesciences plans to continue pursuing attractive opportunities to expand its product offerings and operations through acquisition. Possible acquisition candidates will have innovative technology positions or well-established product franchises. In addition, Edwards Lifesciences will continue to critically assess all of its product lines and offerings to ensure that each is contributing a return on invested capital that meets Edwards Lifesciences' short-term and long-term objectives.
Edwards Lifesciences' Product and Service Offerings
Edwards Lifesciences' comprehensive line of cardiovascular products and services are categorized into four main areas:
. Cardiac Surgery, encompassing heart valve therapy products, mechanical cardiac assist systems, and cannulae and cardioplegia;
. Critical Care, featuring cardiac monitoring systems and disposables used to evaluate cardiac output and measure blood pressure;
. Vascular, which includes products used in peripheral vascular surgery, surgical accessories, implantable grafts, and endovascular graft systems for treating aortic aneurysms; and
. Perfusion Products and Services, comprised of oxygenators and related disposables used during cardiopulmonary bypass, cardiopulmonary bypass hardware and perfusion services.
Cardiac Surgery
Heart Valve Therapy
Edwards Lifesciences is the world's leading manufacturer of tissue heart valves and valve repair products, which are used to replace or repair a patient's diseased or defective heart valve. Edwards Lifesciences operates two world-class manufacturing facilities in Irvine, California, and Horw, Switzerland, producing pericardial and porcine valves from biologically inert animal tissue sewn onto proprietary wireforms or stents.
An estimated 270,000 patients worldwide will have heart valve surgery in 2000. The procedure can extend lives and provide a higher quality of life than many patients have experienced in years. Depending on a patient's valve condition as well as other factors such as overall health, age and physical activity level, a surgeon may elect to replace a malfunctioning valve with a prosthetic heart valve made either of metal or tissue, or may perform a surgical repair of the heart valve, a procedure known as an annuloplasty.
Edwards Lifesciences expects the number of valve procedures to continue to grow due, in part, to an aging population; the high incidence in developing nations of rheumatic fever, which often leads to valvular problems; and the global growth of cardiovascular disease. Increased health care spending around the world, and improved diagnostic techniques that allow physicians to detect valve problems sooner, also are expected to contribute to an increasing number of heart valve procedures. Edwards Lifesciences has been a pioneer in the development and commercialization of tissue valves and repair products and is the world's leader in these areas.
Although patients of any age may require valve surgery, younger patients are more likely to receive a human-donated hemograft, mechanical valve or repair product, while older patients are more frequently candidates for tissue valves. Tissue valves can offer considerable lifestyle advantages over mechanical valves, in that mechanical valve patients must maintain a life-long regimen of blood-thinning medications. These medications increase the likelihood of bleeding and related complications, potentially impairing their physical activity levels or impacting other health conditions. Implantation rates for tissue valves are exceeding overall valve procedure growth, as surgeons continue to demonstrate their preference for tissue valves for certain types of patients.
The core of Edwards Lifesciences' tissue product line is the Carpentier- Edwards pericardial valve, made from the tissue that surrounds a cow's heart. The most widely prescribed tissue heart valve due to its proven durability and performance is the Carpentier-Edwards pericardial valve and is the only pericardial valve available in the United States.
While stented tissue valves represent the vast majority of tissue implants and the greatest opportunity for growth, some physicians may choose an unstented porcine tissue valve for select patients. Edwards Lifesciences introduced the Prima Plus, the first stentless valve, nearly a decade ago and continues to offer this product outside of the United States. Edwards Lifesciences also offers mechanical valves, including the Edwards MIRA bi- leaflet mechanical valve, and the Starr-Edwards silastic ball valve which Edwards Lifesciences launched in the 1960s as the first commercially available artificial heart valve. The Prima Plus valve is currently in clinical trials in the United States as part of the FDA approval process and Edwards Lifesciences is awaiting approval to commence clinical trials of the Edwards MIRA valve in the United States.
In addition to its replacement valves, Edwards Lifesciences is the worldwide leader in heart valve repair products. Through extended product development, training and promotion, Edwards Lifesciences has been a major force in the rapid acceptance of heart valve repair procedures, also known as annuloplasty, as an alternative to heart valve replacement. Through its Carpentier-Edwards and Cosgrove-Edwards annuloplasty systems, Edwards Lifesciences offers the broadest offering of heart valve repair products in the industry.
Mechanical Cardiac Assist
While tens of thousands of patients worldwide need heart transplants each year, only a fraction--about 4,000 individuals--actually receive a donor organ. The others must rely on continuous medication therapy or mechanical assist while they wait for an organ.
Edwards Lifesciences' Novacor Left Ventricular Assist System (LVAS) is a small, electromechanical pump that takes over the heart's pumping function for end-stage heart disease patients requiring a heart transplant. The device, which is implanted in the abdomen and surgically attached to the heart's left ventricle, is regulated by an external controller and battery pack that automatically responds to a patient's changing heartbeat and circulatory demands. The LVAS has been shown to add months, and in some cases years, to patients' lives while they await their donor hearts.
To date, more than 1,000 patients worldwide have received the Novacor LVAS. Approved in Europe since 1994 as both a "bridge" for patients awaiting transplant, as well as a permanent "alternative" to transplant, the Novacor LVAS was approved in 1998 by the FDA for the "bridge" application only. Although Edwards Lifesciences considers the achievement of the "bridge" approval in the United States to be a critical milestone toward gaining broader clinical acceptance of mechanical assist systems, it recognizes the significantly greater patient need in the "alternative" indication and continues to focus its resources on pursuing this opportunity.
Cannulae and Cardioplegia
Edwards Lifesciences, through the 1997 acquisition of Research Medical, Inc., is a leading manufacturer of cannulae and cardioplegia products used during cardiac surgery. Cannulae are various types of specialized tubing that are used in the surgical field to transport blood from the heart to the cardiopulmonary pump and oxygenator and to return the blood to the circulatory system. While there are standard configurations of cannulae, many are custom- designed to suit individual surgeons' requirements. Edwards Lifesciences offers more than 1,200 types of cannulae and accessories to facilitate the perfusion process.
Edwards Lifesciences also offers cardioplegia products that are used to preserve the heart muscle tissue during open heart surgery. Preservation is necessary because during traditional open heart surgery, the heart is disconnected from the body's circulatory system and unless some form of preservation or heart cooling is employed, the heart tissue will be damaged. Through its close work with clinicians, Edwards Lifesciences helped pioneer a new methodology for administering cardioplegia through a retrograde approach that delivers cardioplegia solutions to the coronary sinus and venous side of the heart, thereby bypassing the blocked coronary arteries.
Edwards Lifesciences' more recent developments include a line of cannulae to facilitate vacuum-assisted venous drainage during perfusion, and dispersion aortic cannulae, which are used to reduce the pressure of blood flow returning to the body in the wall of the aorta. Edwards Lifesciences also has introduced a number of products to facilitate coronary artery bypass surgery when it is performed on a beating heart. Included among these products is the AnastaFlo coronary shunt, which is used to redirect blood away from the suturing site, and the VisuFlo humidifying blower, which keeps the surgical site dry and optimizes the surgeon's visual field during a procedure.
Critical Care
Edwards Lifesciences is also a world leader in hemodynamic monitoring systems that are used to measure a patient's heart function in surgical and intensive care settings. Hemodynamic monitoring enables a clinician to balance the oxygen supply and demand of a critically ill patient. Failure to appropriately manage a patient's hemodynamic needs can cause organ injury, organ failure, or death. Edwards Lifesciences' systems provide important added clinical value by serving as a diagnostic tool that prompts clinicians to act when a patient's hemodynamic balance becomes disrupted.
In addition, hemodynamic monitoring plays an important role in assuring that the heart function of millions of patients who have pre-existing cardiovascular conditions or other critical illnesses is optimized before they undergo a surgical procedure. The vast majority of high-risk patients undergoing open heart, major vascular, major abdominal, neurological, and orthopedic procedures are candidates for Edwards Lifesciences' bedside monitoring technologies, which are often deployed before, during, and after surgery.
Edwards Lifesciences is credited with pioneering the practice of hemodynamic monitoring with the launch of the original Swan-Ganz catheter in the 1970s. Today, we believe that Edwards Lifesciences' extensive line of monitoring catheters and bedside patient monitoring equipment continue to be considered the standard in critical
care medicine. Edwards Lifesciences has played a major role in evolving critical care monitoring technologies, selling more than 20 million catheters and monitors worldwide, with new generations of products performing increasingly sophisticated functions.
Edwards Lifesciences also is a global leader in the broader field of disposable pressure monitoring devices and has introduced a line of innovative products enabling closed-loop arterial blood sampling to protect both patients and clinicians from the risk of infection.
Recently Edwards Lifesciences initiated the European launch of Vantex, the first anti-microbial central venous catheter, manufactured from a patented, antimicrobial material. Central venous catheters are the primary route for fluid and medication delivery to patients undergoing major surgical procedures and/or intensive care. Bloodstream infections related to central venous catheters have increased significantly over the past 10 years, and addressing this life-threatening and costly problem is another example of Edwards Lifesciences' leadership in critical care.
Edwards Lifesciences recognizes that assessing a patient's physiological balance and minimizing the risk of infection will remain fundamental requirements for successful treatment of critically ill patients. Edwards Lifesciences will continue to leverage its strength in this area and explore further opportunities in the diagnostics and therapeutic delivery areas.
Vascular
The pervasive nature of cardiovascular disease means that the conditions that occur inside of the heart are often duplicated elsewhere in a patient's body. Outside of the heart, the network of veins and arteries are collectively referred to as the body's vascular system. Atherosclerotic disease is one common circulatory condition which involves the thickening of blood-carrying vessels and the formation of circulation-restricting plaque, clots, and other substances, and often occurs concurrently in the vascular system as well as in the heart. When the abdomen, arms or legs are impacted, the diagnosis is usually peripheral vascular disease (PVD), which occurs in millions of patients worldwide, and in very advanced cases, may lead to amputation of patients' limbs.
Edwards Lifesciences manufactures and sells a variety of products used to treat PVD, including a line of balloon-tipped, catheter-based products, as well as surgical clips and inserts, angioscopy equipment, and artificial implantable grafts. Edwards Lifesciences' Fogarty line of embolectomy catheters has been an industry standard for removing blood clots from peripheral blood vessels for more than 30 years.
Edwards Lifesciences is also working on a number of new innovative technologies to treat PVD. For example, Edwards Lifesciences' Side Branch Occlusion system was launched in 1998 to help surgeons restore circulation in the legs. By working within the saphenous veins, the system eliminates the traditional incision along the entire length of the leg and the extensive complications usually associated with this procedure.
Another significant area of interest and investment has been the development of endovascular grafts. Edwards Lifesciences has developed the Lifepath AAA System to treat potentially life-threatening abdominal aortic aneurysms (AAA) with an endovascular approach. An abdominal aortic aneurysm can form in the aorta, the body's main circulatory channel, when a portion of the aortic wall becomes weakened and begins bulging outward. Often, the aneurysm grows until it poses a life-threatening risk of rupturing. The Lifepath AAA System treats abdominal aortic aneurysm by inserting an endovascular graft which replaces the wall of the aorta in the damaged area. By accessing and repairing the aneurysm from within the aorta, rather than making a major incision that exposes most of the body's internal organs, the endovascular procedure is less traumatic and invasive than standard aortic repair surgery. The Lifepath AAA is approved for commercial sale in Europe and Australia. It remains in clinical trials in the United States, with an anticipated commercial approval within the next two years.
Perfusion Products and Services
During the majority of open heart surgical procedures, a patient's heart is stopped, and the body's blood flow and oxygenation needs are managed through a series of pumps, tubing and filters attached to a
cardiopulmonary bypass machine. After the surgery is completed, the heart is revived after the normal blood flow through the heart and lung is restored. The practice of bypassing the heart and lungs externally during surgery is known as extracorporeal circulation.
Edwards Lifesciences develops, manufactures and markets a diverse line of disposable products used during extracorporeal circulation, including oxygenators, blood containers, filters and related devices. Many of the disposable products in Edwards Lifesciences' perfusion product line are coated with Edwards Lifesciences' patented Duraflo heparin treatment, which has been shown to improve the compatibility of medical devices used in cardiopulmonary bypass procedures with a patient's blood.
Edwards Lifesciences recently expanded its offering of perfusion products to include hardware with the acquisition of the COBE Century Heart Lung Machine business, one of the most popular heart-lung machine systems for cardiopulmonary bypass. Edwards Lifesciences also recently acquired and now offers the Metaplus Blood Pump System, a next-generation cardiopulmonary bypass circuit.
Although Edwards Lifesciences had been manufacturing and distributing perfusion products for years, it did not become active in the service side of the perfusion business until 1996, when it merged two previously acquired contract perfusion service companies, PSICOR, Inc. and SETA, Inc., into one company operating as an indirect, wholly owned subsidiary of Edwards Lifesciences. Through this subsidiary, coupled with the addition of several smaller regional perfusion service providers in the United States and Europe, Edwards Lifesciences now owns or operates the world's largest practice of contract perfusionists, employing more than 400 clinical perfusionists who perform an aggregate of more than 50,000 perfusion cases for open heart surgery per year in the United States. In all but one state, Edwards Lifesciences' perfusion services allow hospitals to purchase perfusion supplies and capital equipment as well as contract for highly trained personnel who perform perfusion during open heart and transplant surgeries, blood salvage, and intra-aortic balloon pumping procedures.
Competition
The medical devices industry is highly competitive. Edwards Lifesciences competes with many companies ranging from small start-up enterprises to companies that are larger and more established than Edwards Lifesciences with access to significant financial resources. Furthermore, rapid product development and technological change characterize the market in which Edwards Lifesciences competes. The present or future products of Edwards Lifesciences could be rendered obsolete or uneconomical by technological advances by one or more of Edwards Lifesciences' present or future competitors or by other therapies, including drug therapies. Edwards Lifesciences must continue to develop and acquire new products and technologies to remain competitive in the cardiovascular medical devices industry.
Edwards Lifesciences believes that it competes primarily on the basis of product reliability and performance, product features that enhance patient benefit, customer and sales support, and cost-effectiveness.
The cardiovascular segment of the medical device industry is dynamic and currently undergoing significant change due to cost-of-care considerations, regulatory reform, industry and customer consolidation, and evolving patient needs. The ability to provide cost-effective products and services that improve clinical outcomes is becoming increasingly important for medical device manufacturers.
Edwards Lifesciences' products and services face substantial competition from a number of companies. In cardiac surgery, the primary competitors include St. Jude Medical, Inc., Medtronic, Inc., and Sulzer Medica, Ltd. In critical care, Edwards Lifesciences' principal competitors include Abbott Laboratories Inc. and Arrow International, Inc., as well as a number of smaller companies. In vascular, Edwards Lifesciences' primary competitors include W.L. Gore and Associates, Inc. and Applied Medical Resources Corporation. In perfusion products, Edwards Lifesciences' major competitors include Medtronic, Inc., Sorin Biomedica Ltd. and Terumo Corporation. In addition, while Edwards Lifesciences is also the leading contract supplier of perfusion services in the United States, there are many small regional contract service providers who compete with Edwards Lifesciences for contracts in those hospitals that outsource perfusion services.
Sales and Marketing
Edwards Lifesciences has a number of broad product lines which require a sales and marketing strategy that is tailored to its customers in order to deliver high quality, cost-effective products and services to all of its customers worldwide. We believe that Edwards Lifesciences' portfolio includes some of the most respected product brands in cardiovascular devices today, including Carpentier-Edwards, Cosgrove-Edwards, Duraflo, Fogarty, Starr- Edwards and Swan-Ganz. Because of the diverse global needs of the population that Edwards Lifesciences serves, Edwards Lifesciences' distribution system includes a direct sales force and independent distributors. In 1999, approximately 13% of Edwards Lifesciences' pro forma net sales were from sales to Allegiance Corporation, which serves as a distributor of Edwards Lifesciences products in the United States. The Allegiance distribution agreement extends until December 31, 2000 and provides for distribution of Edwards Lifesciences' products by Allegiance on a generally non-exclusive basis for a percentage of the price paid to Edwards Lifesciences by Allegiance for the products. Allegiance distributes Edwards Lifesciences products to a variety of customers, including hospitals, surgical centers and other health care institutions. Edwards Lifesciences is not dependent on any single end- user customer and no single end-user customer accounted for more than 10% of Edwards Lifesciences' pro forma net sales in 1999.
Sales personnel work closely with the primary decision makers who purchase Edwards Lifesciences' products, whether they are physicians, material managers, nurses, biomedical staff, hospital administrators or purchasing managers. Additionally, Edwards Lifesciences' sales force actively pursues approval of Edwards Lifesciences as a qualified supplier for hospital group purchasing organizations that negotiate contracts with suppliers of medical products. Edwards Lifesciences already has contracts with a number of national buying groups and is working with a growing number of regional buying groups that are emerging in response to cost containment pressures and health care reform in the United States.
United States
In the United States, Edwards Lifesciences sells substantially all of its products through its direct sales force. Substantially all of its direct sales force consists of employees of Edwards Lifesciences. In 1999, 62% of Edwards Lifesciences' pro forma sales were derived from sales to customers in the United States (on a historical basis for the CardioVascular business, it was 56%).
International
In 1999, 38% of Edwards Lifesciences' pro forma sales were derived internationally through its direct sales force and independent distributors (on a historical basis for the CardioVascular business, it was 44%). Edwards Lifesciences sells its products in more than 80 countries. Major international countries in which Edwards Lifesciences' products are sold include: Australia, Belgium, Canada, France, Germany, Italy, Japan (through a contractual joint venture with Baxter), The Netherlands, Spain and the United Kingdom. The sales and marketing approach in international geographies varies depending on each country's size and state of development. See "Edwards Lifesciences' Relationship With Baxter After The Distribution--Distribution Agreements" and "--Contractual Joint Venture in Japan."
Raw Materials and Manufacturing
Edwards Lifesciences uses a diverse and broad range of raw and organic materials in the design, development and manufacture of its products. Edwards Lifesciences purchases certain of the materials and components used in manufacturing its products from external suppliers. In addition, Edwards Lifesciences purchases certain supplies from single sources for reasons of quality assurance, sole source availability, cost effectiveness or constraints resulting from regulatory requirements. Edwards Lifesciences works closely with its suppliers to assure continuity of supply while maintaining high quality and reliability. Edwards Lifesciences uses a diverse and broad range of raw and organic materials in the design, development and manufacture of its products. Edwards Lifesciences purchases certain of the materials and components used in manufacturing its products from external suppliers. In addition, Edwards Lifesciences purchases certain supplies from single sources for reasons of quality assurance, cost effectiveness or constraints resulting from regulatory requirements. Edwards Lifesciences works closely with its suppliers to assure continuity of supply while maintaining high quality and reliability. Alternative supplier options are generally considered and identified, although Edwards Lifesciences does not typically pursue regulatory qualification of alternative sources due to the strength of its
existing supplier relationships and the time and expense associated with the regulatory process. Although a change in suppliers could require significant effort or investment by Edwards Lifesciences in circumstances where the items supplied are integral to the performance of Edwards Lifesciences' products or incorporate unique technology, management does not believe that the loss of any existing supply contract would have a material adverse effect on the company.
Edwards Lifesciences' non-implantable products are manufactured from man- made raw materials including resins, chemicals, electronics and metal. Most of Edwards Lifesciences' heart valve therapy products are manufactured from natural tissues harvested from animal tissue, as well as man-made materials. In an effort to reduce potential product liability exposure, certain suppliers have announced that they intend to limit or terminate sales of certain materials and parts to companies that manufacture implantable medical devices.
In 1998, Congress enacted the Biomaterials Access Assurance Act to help ensure a continued supply of raw materials and component parts essential to the manufacture of medical devices by allowing for rapid dismissal of claims against suppliers in product liability lawsuits if certain facts and circumstances exist. This law has not yet had a material impact, and it is not possible to assess the long-term impact it will have, on the continued availability of raw materials. The inability to develop satisfactory alternatives, if required, or a reduction or interruption in supply or a significant increase in the price of materials or components could have a material adverse effect on Edwards Lifesciences' business.
Quality Assurance
Edwards Lifesciences is committed to providing high quality products to its customers. To meet this commitment, Edwards Lifesciences has implemented modern quality systems and concepts throughout the organization. The quality system starts with the initial product specification and continues through the design of the product, component specification processes and the manufacturing, sales and servicing of the product. The quality system is designed to build in quality and to utilize continuous improvement concepts throughout the product life.
Edwards Lifesciences' operations are certified under the applicable international quality systems standards, such as ISO 9001, ISO 9002, EN46001 and EN46002. ISO 9001 and 9002 require, among other items, an implemented quality system that applies to component quality, supplier control and manufacturing operations. In addition, ISO 9001 and EN46001 require an implemented quality system that applies to product design. These certifications can be obtained only after a complete audit of a company's quality system has been conducted by an independent outside auditor. These certifications require that Edwards Lifesciences' facilities undergo periodic reexamination.
Research and Development
Edwards Lifesciences is engaged in ongoing research and development to introduce clinically advanced new products, to enhance the effectiveness, ease of use, safety and reliability of its existing products and to expand the applications of its products as appropriate. Edwards Lifesciences is dedicated to developing novel technologies that will furnish health care providers with a more complete line of products to treat late-stage cardiovascular disease.
Edwards Lifesciences' research and development activities are carried out primarily in facilities located in the United States. Edwards Lifesciences' research and development staff is focused on product design and development, quality, clinical research and regulatory compliance. To pursue primary research efforts, Edwards Lifesciences has developed alliances with several leading research institutions and universities. Edwards Lifesciences also works with leading clinicians around the world in conducting scientific studies on Edwards Lifesciences' existing and developing products. These studies include clinical trials which provide data for use in regulatory submissions and post-market approval studies involving applications of Edwards Lifesciences' products.
The CardioVascular business spent $55 million on research and development (6% of total sales) in 1999, approximately $56 million (7% of total sales) in 1998 and approximately $53 million (6% of total sales) in 1997. These funds have been used primarily to develop new products and to improve and expand the applications for existing products.
Proprietary Technology
Patents and other proprietary rights are important to the success of Edwards Lifesciences' business. Edwards Lifesciences also relies upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain its competitive position. All employees and consultants that have access to confidential and proprietary information, or that are employed to perform duties or services that are likely to result in inventions, are required to sign either our standard employment agreement or our standard consulting agreement. In addition, all third parties that are given access to confidential and proprietary information are required to sign our standard outgoing confidentiality agreement. Edwards Lifesciences reviews third-party patents and patent applications in an effort to develop an effective patent strategy, identify licensing opportunities and monitor the patent claims of others.
The medical device industry has been engaged in substantial litigation in recent years regarding patent and other intellectual property rights in the medical device industry. From time to time, Edwards Lifesciences may be subject to claims of, and legal actions alleging, infringement of the patent rights of others. While Edwards Lifesciences has taken numerous steps to continuously review the patents of others with regard to its products, there can be no assurance that all pertinent third-party patents have been identified. An adverse outcome with respect to any one or more of these claims or actions could have a material adverse effect on Edwards Lifesciences.
Edwards Lifesciences owns approximately 294 issued U.S. patents and 110 pending U.S. patent applications, 444 issued foreign patents and 300 pending patent applications, and has licensed approximately 59 issued U.S. patents, 31 pending U.S. patent applications, 168 issued foreign patents and 75 pending foreign patent applications, that relate to aspects of the technology incorporated in many of Edwards Lifesciences' products. This proprietary protection often affords Edwards Lifesciences the opportunity to enhance its position in the marketplace by precluding its competitors from using or otherwise exploiting Edwards Lifesciences' technology.
Most of Edwards Lifesciences' products are protected in some way by issued patents and/or pending patent applications. Edwards Lifesciences has several key patents and pending patent applications in the United States, Europe, Australia, Japan and Canada on improvements to the Carpentier-Edwards pericardial valve which enhance and extend the original patent coverage on such product. Although the original pericardial patent will be expiring in 2002 in most countries, because of design improvements made since the original filing, management does not expect this to have a significant effect on its business. Edwards Lifesciences also has many important United States and foreign patents and pending patent applications related to mitral valve repair and, in particular, patent coverage on the Cosgrove-Edwards annuloplasty system and the Carpentier-Edwards physio annuloplasty ring. The AAA Lifepath System for endovascular repair of aortic abdominal aneurysms is an important technology which is protected by at least ten issued or allowed United States patents and foreign applications pending in Europe, Canada, Japan and Australia. Edwards Lifesciences also has numerous key United States and foreign patents and patent applications that cover catheters, systems and methods for measuring and monitoring continuous cardiac output (CCO) and vascular access products, including combinations of introducers and central venous catheters. Many of the CCO and vascular access patents were issued only recently and are expected to protect Edwards Lifesciences' intellectual property rights in such technologies for the next thirteen to seventeen years. Edwards Lifesciences' Duraflo treatment technology plays a significant role in the success of its perfusion products and services. The earliest Duraflo patents held in the United States and Japan do not expire until 2005-2006, and Edwards Lifesciences is in the process of developing further improvements. In addition, Edwards Lifesciences has purchased and licensed extensive United States and foreign patents and patent applications in the angiogenesis field.
Although some of Edwards Lifesciences' patents are due to expire within the next five years, Edwards Lifesciences' patent strategy is to file improvement patent applications and, in some cases, additional patent applications covering new aspects or modifications of the affected products, or line extensions of these products. As a result, the duration of the patents covering Edwards Lifesciences' products can extend up to twenty years from the date of filing of the patent application. Edwards Lifesciences management does not believe that the
expiration of any one or more of its patents that are due to expire in the next five years will cause a material adverse effect on the sales of Edwards Lifesciences' products. In addition, Edwards Lifesciences is a party to several license agreements with unrelated third parties pursuant to which it has obtained, for varying terms, the exclusive or non-exclusive rights to certain patents held by such third parties in consideration for cross- licensing rights or royalty payments. Edwards Lifesciences has also granted various rights in its own patents to others under license agreements. There can be no assurance that pending patent applications will result in issued patents. Competitors may challenge the validity and enforceability of, or circumvent these patents issued to or licensed by Edwards Lifesciences. Such patents may also be found to be not infringed and thus insufficiently broad to provide Edwards Lifesciences with a competitive advantage.
Edwards Lifesciences actively monitors the products of its competitors for possible infringement of Edwards Lifesciences' owned and/or licensed patents. Historically, litigation has been necessary to enforce certain patent rights held by Edwards Lifesciences and Edwards Lifesciences plans to continue to defend and prosecute its rights with respect to such patents. However, Edwards Lifesciences' efforts in this regard may not be successful. In addition, patent litigation could result in substantial cost to and diversion of effort by Edwards Lifesciences. Edwards Lifesciences also relies upon trade secrets for protection of its confidential and proprietary information. Others may independently develop substantially equivalent proprietary information and techniques, and third parties may otherwise gain access to Edwards Lifesciences' trade secrets.
It is Edwards Lifesciences' policy to require certain of its employees, consultants and other parties to execute confidentiality and invention assignment agreements upon the commencement of employment, consulting or other relationships with Edwards Lifesciences. However, these agreements may not provide meaningful protection against, or adequate remedies for, the unauthorized use or disclosure of Edwards Lifesciences' trade secrets.
Edwards Lifesciences has the following registered trademarks and non- registered trademarks that are referred to in this information statement:
Registered trademarks:
Novacor(R)
AnastaFlo(R) Duraflo(R) Starr-Edwards(R)
Bentley(R) Edwards MIRA(R) Swan-Ganz(R)
Carpentier-Edwards(R) Fogarty(R) Vantex(R)
Cosgrove-Edwards(R) Lifepath AAA(R) System
Non-registered trademarks:
Century(TM) Metaplus(TM)
Edwards Prima Plus(TM) Side Branch Occlusion(TM)
Edwards Prima(TM) Plus System
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Many of these trademarks have also been registered for use in certain foreign countries where registration is available and Edwards Lifesciences has determined it is commercially advantageous to do so.
Government Regulation and Other Matters
Regulatory Approvals
In the United States, the FDA, among other government agencies, is responsible for regulating the introduction of new medical devices. The FDA regulates laboratory and manufacturing practices, labeling and record keeping for medical devices, and review of required manufacturers' reports of adverse experience to identify potential problems with marketed medical devices. Many of the devices that Edwards Lifesciences develops and markets are in a category for which the FDA has implemented stringent clinical investigation and pre-market approval requirements. The process of obtaining FDA approval to market a product can be resource-intensive, lengthy and costly. FDA review may involve substantial delays that adversely affect the marketing and sale of Edwards Lifesciences' products. Any delay or acceleration experienced by Edwards Lifesciences in obtaining regulatory approvals to conduct clinical trials or in obtaining required market clearances (especially with respect to significant products in the regulatory process that have been discussed in public announcements) may affect Edwards Lifesciences' operations or the market's expectations for the timing of such events and, consequently, the market price for Edwards Lifesciences' common stock.
The FDA has the authority to halt the distribution of certain medical devices, detain or seize adulterated or misbranded medical devices, or order the repair, replacement or refund of the costs of such devices. The FDA may also require notification of health professionals and others with regard to medical devices that present unreasonable risks of substantial harm to the public health. The FDA may enjoin and restrain certain violations of the Food, Drug and Cosmetic Act and the Safe Medical Devices Act pertaining to medical devices, or initiate action for criminal prosecution of such violations. Moreover, the FDA administers certain controls over the export of medical devices from the United States and the importation of devices into the United States.
Medical device laws are also in effect in the other countries in which Edwards Lifesciences does business outside of the United States. These range from comprehensive device approval requirements for some or all of Edwards Lifesciences' medical device products to requests for product data or certifications. The number and scope of these requirements are increasing.
Health Care Initiatives
Government and private sector initiatives to limit the growth of health care costs, including price regulation and competitive pricing, are continuing in many countries where Edwards Lifesciences does business, including the United States. As a result of these changes, the marketplace has placed increased emphasis on the delivery of more cost-effective medical therapies. Although Edwards Lifesciences believes it is well positioned to respond to changes resulting from this worldwide trend toward cost containment, proposed legislation and/or changes in the marketplace could have an adverse impact on future operating results.
Diagnostic-related groups' reimbursement schedules regulate the amount the United States government, through the United States Health Care Financing Administration, will reimburse hospitals and doctors for the in-patient care of persons covered by Medicare. In response to rising Medicare and Medicaid costs, several legislative proposals in the United States have been advanced which would restrict future funding increases for these programs. While Edwards Lifesciences has been unaware of significant domestic price resistance directly as a result of the reimbursement policies of diagnostic-related groups, changes in these reimbursement levels and processes could have an adverse effect on Edwards Lifesciences' domestic pricing flexibility.
In keeping with the increased emphasis on cost-effectiveness in health care delivery, the current trend among hospitals and other customers of medical device manufacturers is to consolidate into larger purchasing groups to enhance purchasing power. The medical device industry has also experienced some consolidation, partly in order to offer a broader range of products to large purchasers. As a result, transactions with customers are larger, more complex and tend to involve more long-term contracts than in the past. The enhanced purchasing power of these larger customers may also increase the pressure on product pricing, although management is unable to estimate the potential impact at this time.
Legal Matters
Edwards Lifesciences operates in an industry susceptible to significant product liability claims. In recent years, there has been an increased public interest in product liability claims for implanted or other medical devices. These claims may be brought by individuals seeking relief for themselves or, increasingly, by groups seeking to represent a class. In addition, product liability claims may be asserted against Edwards Lifesciences in the future arising out of events not known to management at the present time. Management believes that Edwards Lifesciences' risk management practices, including insurance coverage, are adequate to protect against potential product and professional liability losses.
In 1996, government authorities in Germany began an investigation into certain business and accounting practices by heart valve manufacturers. As a part of this investigation, documents were seized from the CardioVascular business and certain other manufacturers. Based upon currently available information, Edwards Lifesciences does not expect these investigations to have a materially adverse impact on the company's financial position, results of operations or liquidity.
Edwards Lifesciences is also subject to various environmental laws and regulations both within and outside of the United States. The operations of Edwards Lifesciences, like those of other medical device companies,
involve the use of substances regulated under environmental laws, primarily in manufacturing and sterilization processes. While it is difficult to quantify the potential impact of compliance with environmental protection laws, management believes that such compliance will not have a material impact on Edwards Lifesciences' financial position, results of operations or liquidity.
Properties
The locations and uses of the major properties of Edwards Lifesciences are as follows:
North America
Irvine, California (1) Headquarters, Research and Development,
Regulatory and Clinical Affairs and
Manufacturing
Oakland, California (2) Administrative, Research and Development,
Regulatory and Clinical Affairs and
Manufacturing
San Diego, California (2) Administrative, Service Center and Warehouse
Memphis, Tennessee (1) Distribution and Logistics
Midvale, Utah (1) Administrative, Research and Development,
Regulatory Affairs and Manufacturing
Haina, the Dominican Republic (2) Manufacturing
Anasco, Puerto Rico (2) Manufacturing
Europe
Uden, The Netherlands (1) Warehouse, Distribution, Manufacturing and
Offices
Horw, Switzerland (2) Manufacturing
Lausanne, Switzerland (2) European Headquarters
South America
Sao Paulo, Brazil (2) Manufacturing
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The leases for the leased properties set forth above generally expire within eight years. The Oakland, California lease expires in 2002; the San Diego, California lease expires in 2006; the Dominican Republic lease expires in 2006; the Puerto Rico lease expires in 2008; and the Horw, Switzerland lease expires in 2001. The Lausanne, Switzerland and Sao Paulo, Brazil leases will be entered into prior to the distribution date. The leased properties range in size from approximately 19,000 square feet to 46,000 square feet with rents ranging from approximately $1.00 to $4.00 per square foot. These leases generally are not renewable. Each of the existing leases listed above will require the consent of the landlord for Baxter to assign or sublease the property to Edwards Lifesciences.
Employees
Edwards Lifesciences employs over 5,000 employees worldwide, the majority of whom are located at the company's headquarters in Irvine, California, and at its manufacturing facility in Puerto Rico. Other major concentrations of employees are located in Europe and Brazil. Edwards Lifesciences emphasizes competitive compensation, benefits, equity participation and work environment policies in its efforts to attract and retain qualified personnel. None of Edwards Lifesciences' North American employees is represented by a labor union. In various countries outside of North America, there are a limited number of employees who have relationships with works councils or trade unions. Edwards Lifesciences considers its relations with its employees to be good.
EDWARDS LIFESCIENCES' RELATIONSHIP WITH BAXTER AFTER THE DISTRIBUTION
General
Immediately prior to the distribution, Edwards Lifesciences will be a wholly-owned subsidiary of Baxter. After the distribution, Baxter will not have any ownership interest in the common stock of Edwards Lifesciences, which will be an independent, publicly traded company and no Baxter directors will also be Edwards Lifesciences directors.
Immediately prior to the distribution, Baxter and Edwards Lifesciences will enter into certain agreements to define their ongoing relationship after the distribution and to allocate tax, employee benefits and certain other liabilities and obligations arising from periods prior to the distribution date. These agreements are being entered into between Baxter and Edwards Lifesciences while Edwards Lifesciences is still a wholly owned subsidiary of Baxter, and certain terms of these agreements are not the same as would have been obtained through negotiations with an unaffiliated third party.
Reorganization Agreement
Baxter and Edwards Lifesciences will enter into an Agreement and Plan of Reorganization (the reorganization agreement) providing for, among other things, the principal corporate transactions required to effect the separation of the CardioVascular business from the remaining Baxter businesses and the distribution, and certain other agreements governing the relationship between Baxter and Edwards Lifesciences after the distribution. The following description is intended as a summary of all material terms of the reorganization agreement. We encourage you to read, in its entirety, the reorganization agreement, which is included as an exhibit to the registration statement of which this information statement is a part.
Pursuant to the reorganization agreement, Baxter will transfer to Edwards Lifesciences substantially all of the assets, and Edwards Lifesciences will assume substantially all of the corresponding liabilities, of the CardioVascular business (other than cash, third party distribution relationships and inventory where Baxter continues to serve as the distributor for Edwards Lifesciences, and assets and liabilities related to Japan). See "Edwards Lifesciences' Business." The assets of the CardioVascular business will be transferred to Edwards Lifesciences on an "as is, where is" basis and no representations or warranties will be made by Baxter with respect to the assets other than certain product-related indemnities.
Subject to certain exceptions, the reorganization agreement will provide for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of the CardioVascular business with Edwards Lifesciences and financial responsibility for the obligations and liabilities of Baxter's retained businesses and its other subsidiaries with Baxter. Specifically, Edwards Lifesciences has agreed to assume liability for, and to indemnify Baxter against, any and all liabilities associated with the CardioVascular business, including any litigation, proceedings or claims relating to the products and operations of the transferred business whether or not the underlying basis for such litigation, proceeding or claim arose prior to or after the distribution date. See "Edwards Lifesciences' Business-- Government Regulation and Other Matters." Baxter has agreed to indemnify Edwards Lifesciences against any and all liabilities associated with Baxter's retained businesses and its other subsidiaries. Other than the obligations contained in the reorganization agreement and the other agreements entered into in connection with the distribution, the reorganization agreement provides that Baxter and Edwards Lifesciences will release each other from all claims existing at the time of the distribution.
The reorganization agreement will also provide that Edwards Lifesciences will assume and indemnify Baxter for all environmental liabilities that arise from or are attributable to the operations of the CardioVascular business regardless of when these liabilities arose. This includes, but is not limited to, off-site waste disposal liabilities, except that Baxter will retain the liabilities relating to two off-site disposal locations. In addition, Baxter has agreed to indemnify Edwards Lifesciences against any and all environmental liabilities associated with the retained Baxter businesses and its other subsidiaries.
The reorganization provides that Baxter will receive from Edwards Lifesciences and its subsidiaries an aggregate of approximately $305 million through either payments for assets transferred to Edwards Lifesciences or its subsidiaries or through repayment of intercompany debt existing immediately prior to the distribution date.
The reorganization agreement will also provide, among other things, that, in order to avoid potentially adverse tax consequences relating to the distribution, for a period of two years after the distribution, Edwards Lifesciences will not:
(1) cease to engage in an active trade or business within the meaning of the Internal Revenue Code of 1986, as amended;
(2) issue or redeem any share of stock of Edwards Lifesciences, except for certain issuances and redemptions for the benefit of Edwards Lifesciences' employees, or to effect acquisitions by Edwards Lifesciences in the ordinary course of business, or in connection with the issuance of any convertible debt by Edwards Lifesciences, or in accordance with the requirements for permitted purchases of Edwards Lifesciences common stock as set forth in Section 4.05(1)(b) of Revenue Procedure 96-30 issued by the IRS; or
(3) liquidate or merge with any other corporation;
unless, with respect to (1), (2) or (3) above, either (a) an opinion is obtained from counsel to Baxter, or (b) a ruling is obtained from the IRS, in either case to the effect that such act or event will not adversely affect the federal income tax consequences of the distribution to Baxter or its stockholders who receive Edwards Lifesciences stock. Edwards Lifesciences believes that these limitations will not significantly constrain its activities or its ability to respond to unanticipated developments. See "The Distribution--Important Federal Income Tax Consequences."
The reorganization agreement will also provide that if, as a result of certain transactions occurring after the distribution date involving either the stock or assets of either Edwards Lifesciences or any of its subsidiaries, or any combination thereof, the distribution fails to qualify as tax-free under the provisions of Section 355 of the United States tax code, Edwards Lifesciences will indemnify Baxter for all taxes, liabilities and associated expenses, including penalties and interest, incurred as a result of such failure of the distribution to qualify under Section 355 of the tax code. The reorganization agreement will further provide that if the distribution fails to qualify as tax-free under the provisions of Section 355 of the tax code, other than as a result of a transaction occurring after the distribution date involving either the stock or assets of Edwards Lifesciences or any of its subsidiaries, or any combination of stock or assets, then Edwards Lifesciences will not be liable for those taxes, liabilities or expenses. See "The Distribution--Important Federal Income Tax Consequences."
The reorganization agreement will also provide for cross-licensing of certain intellectual property transferred to Edwards Lifesciences or retained by Baxter. Specifically, to the extent that research and development related to Baxter's CardioVascular business resulted in the creation of intellectual property, Baxter will transfer this intellectual property, subject to certain exceptions, to Edwards Lifesciences as part of the assets being transferred under the reorganization agreement. Edwards Lifesciences will grant to Baxter a license for such intellectual property to the extent that Baxter is using this intellectual property immediately prior to the distribution or to the extent that Baxter requires the use of this intellectual property for product extensions developed and manufactured within the three-year period following the distribution. Conversely, Baxter will grant to Edwards Lifesciences a license to use certain intellectual property retained by Baxter to the extent that such intellectual property is being used by Baxter's CardioVascular business immediately prior to the distribution or to the extent that Edwards Lifesciences requires the use of this intellectual property for product extensions developed and manufactured within the three-year period following the distribution.
The reorganization agreement will also provide for the allocation of benefits between Baxter and Edwards Lifesciences under existing insurance policies after the distribution date for claims made or occurrences prior to the distribution date. The reorganization agreement also sets forth procedures for the administration of insured claims. In addition, the reorganization agreement provides that Baxter will use its reasonable efforts to maintain directors' and officers' insurance at substantially the level of Baxter's current directors' and officers' insurance policy for a period of six years with respect to the directors and officers of Baxter who will become directors and officers of Edwards Lifesciences as of the distribution date for acts relating to periods prior to the distribution date.
The reorganization agreement will provide that prior to the distribution date the certificate of incorporation and bylaws of Edwards Lifesciences will be substantially in the forms attached as exhibits to the registration statement of which this information statement is a part and that as of the distribution date the directors of Edwards Lifesciences will be the persons named in "Edwards Lifesciences Management--Board of Directors."
The reorganization agreement will also provide that each of Baxter and Edwards Lifesciences will be granted access to certain records and information in the possession of the other. In addition, the reorganization
agreement requires Baxter and Edwards Lifesciences to retain for a period of ten years following the distribution the information in its possession relating to the other. After the ten year period, Baxter and Edwards Lifesciences must give prior notice to the other of their intention to dispose of such information.
The reorganization agreement will also address the treatment of employee benefit matters and other compensation arrangements for certain former and current Edwards Lifesciences employees and their beneficiaries and dependents (we refer to these persons collectively as the Edwards Lifesciences Participants). These provisions of the reorganization agreement contemplate that Edwards Lifesciences will establish certain profit sharing, retirement savings and welfare plans effective on the distribution date. The reorganization agreement will provide that the account balances (including outstanding loans) of all Edwards Lifesciences Participants in the Baxter International Inc. and Subsidiaries Incentive Investment Plan, and the plan assets related to these liabilities, will be transferred to Edwards Lifesciences' new retirement savings plan. The reorganization agreement also contemplates that Edwards Lifesciences Participants in the Baxter International Inc. and Subsidiaries Pension Plan will be fully vested in their accrued benefits as of the distribution date under such plan and that Baxter will remain responsible for the liabilities associated with such benefits. The reorganization agreement will also provide that Baxter will remain responsible for all liabilities associated with accruals as of the distribution date for Edwards Lifesciences Participants under the Baxter International Inc. and Subsidiaries Supplemental Pension Plan and that Edwards Lifesciences will become responsible for providing all benefits accrued as of the distribution date for Edwards Lifesciences Participants under the Baxter International Inc. and Subsidiaries Deferred Compensation Plan. Moreover, the reorganization agreement will also generally provide that, after the distribution date, Edwards Lifesciences will assume certain liabilities for benefits under any welfare and retirement plans related to Edwards Lifesciences Participants, other than certain claims incurred on or before the distribution date.
The reorganization agreement also provides that as of the distribution date, neither Baxter nor Edwards Lifesciences will have entered into, and within the first six months following the distribution date, neither Baxter nor Edwards Lifesciences will enter into any agreements, understandings, arrangements or substantial negotiations that would result, individually or collectively, in a change of ownership of 50% or more of either within the meaning of Section 355(e) of the tax code.
The reorganization agreement provides that disputes arising under the reorganization agreement or the other agreements entered into to implement the distribution will be resolved through good faith negotiation between senior management or, if still unresolved, through binding arbitration.
Finally, the reorganization agreement will provide that the distribution will not be made until specified conditions are satisfied or waived by the Baxter board of directors in its sole discretion. Even if all of the conditions are satisfied, the reorganization agreement may be terminated and the distribution abandoned by the Baxter board of directors, in its sole discretion, without the approval of the Baxter stockholders, at any time prior to the distribution date. See "The Distribution--Distribution Conditions and Termination."
Tax Sharing Agreement
Baxter and Edwards Lifesciences will enter into a tax sharing agreement that will:
1. allocate responsibility for federal, state and foreign tax liabilities of the Edwards Lifesciences business attributable to periods including, or ending on or before, the distribution date;
2. allocate liability for transfer taxes arising under the distribution or related transactions;
3. provide for the allocation of tax attributes in accordance with United States Treasury Regulations or other applicable authorities;
4. allocate responsibility for tax return filings, records retention, the payment of tax liabilities and the administration of tax audits which relate to the Edwards Lifesciences business;
5. allocate responsibility for property considered abandoned under state law as of the distribution date; and
6. allocate deductions related to stock acquired under employee compensation plans prior to, or as a result of, the distribution.
Distribution Agreements
Baxter and Edwards Lifesciences will enter into a number of distribution agreements, to be effective as of the distribution date, pursuant to which Baxter will serve as the distributor of Edwards Lifesciences products in
Argentina, Bolivia, Paraguay, Uruguay, Australia, Greece, Ireland, New Zealand, China, Russia, Colombia and in certain Nordic, Central European, Middle Eastern and African countries. In addition, in most European countries, as well as in India, Baxter will provide distribution services that will be limited to various physical distribution services. In the other countries, Baxter will provide more extensive sales and marketing assistance and will take legal title to products before resale to the end customers. Baxter may also contract with third-party distributors for the distribution of Edwards Lifesciences products. In addition, Baxter may provide certain sales and marketing support services to Edwards Lifesciences in other parts of the world.
The initial term of the distribution agreements is less than two years. Generally, the distribution agreements automatically renew for an additional one-year period unless one of the parties provides the other with a notice of non-renewal at least four months prior to the expiration of the initial term. In the event of a change in control of one of the parties to the distribution agreements, the other party to the agreement will have the right, subject to certain notice periods and other restrictions, to terminate such agreement prior to its normal expiration.
Under certain distribution agreements, Edwards Lifesciences is required within the applicable territories to distribute all covered products through Baxter, subject to certain exceptions. In addition, in certain jurisdictions, Baxter may not market, promote or solicit orders for any product that competes with any covered product. Baxter may, however, take orders for, stock and sell competing products in response to customer requests.
The compensation received by Baxter under the distribution agreements generally will approximate or be based upon Baxter's direct and indirect costs of distribution, plus, in the case of those territories where Baxter performs more than mere physical distribution services, a margin comparable to the amounts reflected in the pro forma financial statement of Edwards Lifesciences contained elsewhere in this document. See "Edwards Lifesciences' Unaudited Pro Forma Financial Data" on page 39.
Contractual Joint Venture in Japan
The CardioVascular business in Japan, including certain manufacturing operations, will not be transferred to Edwards Lifesciences at the time of the distribution due to Japanese regulatory requirements and business culture considerations. It will be operated pursuant to a contractual joint venture under which a Japanese subsidiary of Baxter will retain ownership of the business assets, but a subsidiary of Edwards Lifesciences will hold a 90% profit interest. Edwards Lifesciences will make an initial capital contribution of approximately $215 million to obtain its interest in the joint venture. Edwards Lifesciences will receive 10% of the interest earned on the initial capital contribution. The joint venture has a term of ten years, but is terminable by Baxter on six months notice to Edwards Lifesciences and by Baxter or Edwards Lifesciences in certain other circumstances. Edwards Lifesciences will also have an option to purchase the Japanese business assets, which option may be exercised no earlier than 28 months following the distribution date and no later than 60 months following the distribution date. The exercise price of the option is approximately $245 million. Of the $245 million exercise price, approximately $215 million would be obtained by Edwards Lifesciences upon termination of the joint venture from the return of its fair value in the joint venture at inception. In the event of any termination of the joint venture or a change in control of Baxter, the option becomes immediately exercisable. Edwards Lifesciences will also enter into a fifteen-year distribution agreement with Baxter granting Baxter the exclusive right to distribute Edwards Lifesciences products in Japan. Amounts received by Baxter under the distribution agreement will be included as part of the joint venture. Edwards Lifesciences will include the results of the Japanese operations using the equity method of accounting.
Services Agreements
Baxter and Edwards Lifesciences will enter into several services agreements, to be effective as of the distribution date, pursuant to which Baxter will provide to Edwards Lifesciences certain administrative services that may be necessary for Edwards Lifesciences to conduct its business. Baxter will provide a variety of services to Edwards Lifesciences, including information systems and telecommunications, human resources, finance and accounting and other administrative services. The initial term of the services agreements is generally less than two years. Generally, the services agreements automatically renew for an additional one-year period unless one of the parties provides the other with a notice of non-renewal at least four months prior to the expiration of the initial term. Under certain circumstances involving a change in control, Edwards Lifesciences and Baxter may terminate the agreements within a shorter timeframe. The prices at which Baxter will provide these services generally will be equal to or based on the actual cost of rendering these services.
THE DISTRIBUTION
Background and Reasons for the Distribution
Baxter is creating an independent, publicly traded company for its CardioVascular business because it believes that the combined value of two separate companies will be greater than the value of Baxter as a whole today. Edwards Lifesciences expects that the distribution will allow it to compete more effectively in the intensely competitive and rapidly consolidating cardiovascular medical device industry. Following the distribution, Baxter will have the ability to invest more resources in its remaining core businesses, which it expects will further enhance its ability to bring new products to market and to expand in global markets.
Improved Ability to Compete in Cardiovascular Medical Device Industry
Edwards Lifesciences will benefit from focusing on treating late-stage cardiovascular disease. While Edwards Lifesciences has developed leadership positions in several niche segments of the cardiovascular medical device industry, its competitive position is being challenged by larger and more focused "pure play" competitors. As size, breadth and access to emerging technologies become more important in the rapidly evolving and consolidating cardiovascular medical device industry, Edwards Lifesciences intends to accelerate its rate of innovation, and make a significant contribution to its product development pipeline. Edwards Lifesciences expects this strategy to ultimately lead to the commercialization of more and improved treatment options for Edwards Lifesciences' customers and their patients. In addition, Edwards Lifesciences expects that it will increase funding of internal development and be more aggressive in pursuing acquisition and strategic alliance opportunities. The distribution will provide Edwards Lifesciences with a publicly traded equity security that can be used to provide it with more flexibility in making acquisitions.
Attraction and Retention of Key Employees
Edwards Lifesciences' management believes that having a publicly traded equity security will create a highly effective incentive tool for motivating senior management and attracting and retaining talented employees at all levels of the company. Following the distribution, the stock price of Edwards Lifesciences will be heavily influenced by the operational and financial performance of Edwards Lifesciences. This direct link between performance and stock price appreciation should create an effective incentive system and should serve to enhance the levels of dedication, commitment and productivity of the management and employees of Edwards Lifesciences. The impact of this form of incentive system on Edwards Lifesciences' performance will grow as management and employee ownership in the company increases through the use of stock options and participation in stock incentive programs.
Capital Structure and Dividend Policy Optimization
The distribution will provide both Baxter and Edwards Lifesciences the opportunity to create capital structures and adopt dividend policies that best reflect the cash flow, investment requirements, competitive landscape, stockholder expectations and corporate strategy and business objectives of each company. By appropriately tailoring the capital structures of Baxter and Edwards Lifesciences, each should be better able to pursue their strategic objectives while achieving the lowest overall cost of capital consistent with the risk profiles and competitive factors inherent in each business.
Manner of Effecting the Distribution
The general terms and conditions relating to the distribution are set forth in the reorganization agreement between Baxter and Edwards Lifesciences. See "Edwards Lifesciences' Relationship With Baxter After The Distribution-- Reorganization Agreement."
On the distribution date, Baxter will effect the distribution by delivering all of the outstanding shares of Edwards Lifesciences common stock to First Chicago Trust Company, a division of EquiServe, as distribution
agent, for distribution to the holders of record of Baxter common stock at the close of business on the record date. The distribution will be made on the basis of one share of Edwards Lifesciences common stock for every five shares of Baxter common stock.
The actual number of shares of Edwards Lifesciences common stock that will be distributed will depend on the number of shares of Baxter common stock outstanding on the record date. The shares of Edwards Lifesciences common stock will be validly issued, fully paid and nonassessable, and the holders of such shares will not be entitled to preemptive rights. See "Description of Edwards Lifesciences Capital Stock." It is expected that certificates representing shares of Edwards Lifesciences common stock will be mailed to Baxter stockholders on or about March 31, 2000.
Certificates or script representing fractional shares of Edwards Lifesciences common stock will not be issued to Baxter stockholders as part of the distribution. Instead, each holder of Baxter common stock who would otherwise be entitled to receive a fractional share will receive cash for those fractional interests less applicable taxes. The distribution agent will, on or after the distribution date, aggregate and sell all those fractional interests on the open market at then market prices and distribute the aggregate proceeds ratably to Baxter stockholders otherwise entitled to those fractional interests. Baxter will pay all brokers' fees and commissions in connection with the sale of fractional interests. See "The Distribution-- Important Federal Income Tax Consequences" for a discussion of the United States federal income tax treatment of proceeds from fractional share interests.
Accounting Treatment of Plan of Reorganization
The distribution will be accounted for on a historical cost basis and no gain or loss will be recorded.
Important Federal Income Tax Consequences
Baxter received a ruling from the IRS substantially to the effect that, among other things, the distribution should qualify as a tax-free spin-off to Baxter and to Baxter's United States stockholders under the tax-free spin-off provisions (Section 355) of the Internal Revenue Code of 1986, as amended.
The ruling is based on current provisions of the Internal Revenue Code, existing regulations under the tax code and current administrative rulings and court decisions, all of which are subject to change. We have not attempted to comment on all federal income tax consequences of the distribution that may be relevant to particular holders, including holders that are subject to special tax rules such as dealers in securities, foreign persons, mutual funds, insurance companies, tax-exempt entities, stockholders who acquire their Edwards Lifesciences common stock pursuant to the exercise of employee stock options or otherwise as compensation and holders who do not hold their Baxter common stock as capital assets. We urge holders of Baxter common stock to consult their own tax advisors regarding the federal income tax consequences of the distribution in light of their personal circumstances and the consequences under applicable state, local and foreign tax laws.
Provided that the distribution qualifies as a tax-free distribution under the tax-free spin-off provisions of the tax code, as expected based on the IRS ruling, a Baxter stockholder will not recognize any income, gain or loss as a result of the distribution, except, as described below, in connection with fractional share proceeds from the deemed receipt and sale of any Edwards Lifesciences common stock:
1. A Baxter stockholder's aggregate tax basis for Baxter common stock on which Edwards Lifesciences common stock is distributed and the Edwards Lifesciences common stock received by such stockholder in the distribution (including any fractional shares of Edwards Lifesciences common stock to which such stockholder may be entitled) will be the same as the basis of Baxter common stock held by such stockholder immediately prior to the distribution;
2. A Baxter stockholder's aggregate tax basis will be allocated between his or her Baxter common stock and Edwards Lifesciences common stock received in the distribution (including any fractional shares of Edwards Lifesciences common stock deemed received) in proportion to the fair market value of both the Baxter common stock and Edwards Lifesciences common stock on the distribution date;
3. A Baxter stockholder's holding period for the Edwards Lifesciences common stock received in the distribution (including any fractional shares of Edwards Lifesciences common stock to which such stockholder may be entitled) will include the holding period of the Baxter common stock on which the distribution is made, provided that such Baxter common stock is held as a capital asset by such stockholder on the distribution date;
4. A Baxter stockholder who receives fractional share proceeds as a result of the sale of shares of Edwards Lifesciences common stock by the distribution agent will be treated as if such fractional share had been received by the stockholder as part of the distribution and then sold by such stockholder. Accordingly, such stockholder will recognize gain or loss equal to the difference between the cash so received and the portion of the tax basis in Edwards Lifesciences common stock that is allocable to such fractional share. Such gain or loss will be capital gain or loss, provided that such fractional share was held by such stockholder as a capital asset at the time of the distribution; and
5. Baxter will not recognize any gain or loss on the distribution.
If for any reason the distribution does not qualify as a tax-free spin-off under Section 355 of the tax code, Baxter would be required to recognize gain equal to the excess of the fair market value of the Edwards Lifesciences common stock distributed to its stockholders over Baxter's basis in the Edwards Lifesciences common stock. Baxter has agreed to indemnify Edwards Lifesciences for any tax liability imposed on Edwards Lifesciences or any of its subsidiaries as a result of the distribution being determined to be a taxable transaction other than due to any act or failure to act of Edwards Lifesciences or any of its subsidiaries. In addition, if the distribution fails to qualify as a tax-free spin-off under Section 355 of the tax code, each Baxter stockholder would be generally treated as if such stockholder had received a taxable dividend in an amount equal to the fair market value of the Edwards Lifesciences common stock received.
Current United States Treasury Regulations require each Baxter stockholder who receives Edwards Lifesciences common stock pursuant to the distribution to attach to his or her federal income tax return for the year in which the distribution occurs a detailed statement setting forth data as may be appropriate in order to show the applicability under Section 355 of the tax code to the distribution. Baxter will provide the appropriate information to each stockholder of record as of the record date.
Under the tax code, a holder of Baxter common stock may be subject, under certain circumstances, to backup withholding at a rate of 31% with respect to the amount of cash, if any, received as a result of the sale of fractional share interests unless the holder provides proof of an applicable exemption or correct taxpayer identification number, and otherwise complies with applicable requirements of the backup withholding rules. Any amounts withheld under the backup withholding rules are not additional tax and may be refunded or credited against the holder's federal income tax liability, provided the required information is furnished to the IRS.
Market for Edwards Lifesciences Common Stock
There is no existing market for Edwards Lifesciences common stock. Edwards Lifesciences common stock will be listed and trade on the NYSE. A "when- issued" trading market for Edwards Lifesciences common stock is expected to develop on or shortly before the record date. The term "when-issued" means that shares can be traded prior to the time certificates are actually available or issued. We cannot predict the trading prices for Edwards Lifesciences common stock before or after the distribution date. Until the common stock is fully distributed and an orderly market develops, the trading prices for Edwards Lifesciences' common stock may fluctuate. Prices for Edwards Lifesciences common stock will be determined in the trading markets and may be influenced by many factors, including:
. the depth and liquidity of the market for Edwards Lifesciences common stock;
. developments generally affecting Edwards Lifesciences' business;
. the impact of the factors referred to in "Risk Factors" beginning on page 7;
. investor perceptions of Edwards Lifesciences and its business;
. the financial results of Edwards Lifesciences;
. the dividend policy of Edwards Lifesciences; and
. general economic and market conditions.
Edwards Lifesciences common stock will be traded on the NYSE under the symbol "EW." The transfer agent and registrar for the Edwards Lifesciences common stock will be First Chicago Trust Company, a division of EquiServe.
As of February 1, 1999, Baxter had 60,830 stockholders of record. Except for those stockholders who would be entitled to receive less than one share of Edwards Lifesciences common stock, and assuming that each stockholder is a stockholder of record on the record date, each stockholder will become a stockholder of record of Edwards Lifesciences. For certain information regarding options and other equity-based awards involving Edwards Lifesciences common stock which may become outstanding after the distribution, see "Edwards Lifesciences Executive Compensation." Shares of Edwards Lifesciences common stock distributed to Baxter stockholders in the distribution will be freely transferable under the Securities Act of 1933, except for shares of Edwards Lifesciences common stock received by persons who may be deemed to be affiliates of Edwards Lifesciences. Persons who may be deemed to be affiliates of Edwards Lifesciences after the distribution generally include individuals or entities that control, are controlled by or are under common control with Edwards Lifesciences and may include certain officers and directors, or principal stockholders, of Edwards Lifesciences. After Edwards Lifesciences becomes a publicly traded company, securities held by persons who are its affiliates will be subject to resale restrictions under the Securities Act. Affiliates of Edwards Lifesciences will be permitted to sell shares of the entity of which such persons are affiliates only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.
Dividend Policy
Edwards Lifesciences has no current plans to pay dividends following the distribution. Dividends will be paid on Edwards Lifesciences common stock only if declared by the Edwards Lifesciences board of directors in its sole discretion following the distribution. The payment and level of cash dividends, if any, will be based upon a number of factors, including the operating results, cash flow and financial requirements of Edwards Lifesciences. The actual amount and timing of dividends, if any, will depend on Edwards Lifesciences' financial condition, results of operations, business prospects, capital requirements and any other matters as Edwards Lifesciences' board of directors may deem relevant.
Distribution Conditions and Termination
We expect that the distribution will be effective on the distribution date, March 31, 2000, provided that, among other things:
1. the SEC has declared effective the registration statement on Form 10 under the Exchange Act, as amended, filed by Edwards Lifesciences and no stop order relating to the registration statement is in effect;
2. Baxter and Edwards Lifesciences have received all necessary permits, registrations and consents required under the securities or blue sky laws of states or other political subdivisions of the United States in connection with the distribution or these permits, registrations and consents have become effective;
3. Baxter and Edwards Lifesciences have received the favorable tax ruling from the IRS and the ruling has not been revoked or modified in any material respect;
4. the NYSE has approved the Edwards Lifesciences common stock for listing on the NYSE, subject to official notice of issuance;
5. Baxter has completed the transfers of assets and liabilities to Edwards Lifesciences required to constitute Edwards Lifesciences as described in this information statement;
6. no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the distribution or any of the transactions related thereto (including the transfers of assets and liabilities contemplated by the reorganization agreement) is in effect; and
7. Baxter's board of directors has received opinions of its financial advisors regarding the fairness of the distribution to stockholders of Baxter.
The fulfillment of the foregoing conditions will not create any obligation on the part of Baxter to effect the distribution, and Baxter's board of directors has reserved the right to amend, modify or abandon the distribution and the related transactions at any time prior to the distribution date. Certain of these conditions have already been fulfilled. Baxter's board of directors may also waive any of these conditions.
Opinions of Financial Advisors
Baxter has engaged Credit Suisse First Boston Corporation (CSFB) and J.P. Morgan Securities Inc. (J.P. Morgan) as financial advisors in connection with the distribution. The Baxter board of directors relied, in part, upon the receipt of the opinions described below in deciding to formally declare the distribution dividend. The receipt of these opinions was a condition to the distribution. Baxter's board of directors or a duly authorized committee could have waived this condition.
CSFB and J.P. Morgan delivered to the Baxter board of directors their written opinions, each dated March 17, 2000, regarding the fairness of the distribution to stockholders of Baxter.
Each of CSFB and J.P. Morgan will receive customary fees, including reimbursement of expenses, for its services as financial advisor related to the distribution, a portion of which is contingent upon the consummation of the distribution. Baxter also has agreed to indemnify each of CSFB and J.P. Morgan against certain liabilities and expenses in connection with its services as financial advisor.
CSFB and J.P. Morgan and their respective affiliates have acted, and may in the future act, as underwriters for, and have participated as members of underwriting syndicates with respect to, offerings of Baxter securities. CSFB and J.P. Morgan have effected securities transactions for Baxter and performed financial advisory services in connection with certain acquisitions and dispositions by Baxter. CSFB and J.P. Morgan have received fees from Baxter in the past for these services and may receive such fees in the future. Each of CSFB and J.P. Morgan may in the future serve as an underwriter of Edwards Lifesciences securities.
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected financial information with respect to the CardioVascular business. These results present the CardioVascular business as it has historically been operated as a division of Baxter. Subsequent to the distribution, the Japan operations will be presented on an equity basis as opposed to the consolidation method reflected in the historical results. As such, the results reflected here will not be comparable to the presentation subsequent to the distribution. See "Unaudited Pro Forma Financial Data." The information, relating to each of the years ended December 31, 1995 through 1999, has been derived from annual financial statements and related notes found elsewhere in this information statement. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the "Combined Financial Statements" and related notes to the financial statements found elsewhere in this information statement. Historical per share data for net income and dividends have not been presented because Edwards Lifesciences was not incorporated until September 1999. Pro forma net income per share data is presented elsewhere in this information statement. See Note 3 to the "Combined Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for discussions of the effect of certain acquisitions on revenues, expenses and financial position.
Selected Historical Financial Data
As of or for the years ended
December 31,
-----------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(in millions)
Income Statement Data
Net sales............................. $ 905 $ 865 $ 879 $ 837 $ 730
Gross profit.......................... $ 439 $ 399 $ 416 $ 395 $ 366
Net income(a)......................... $ 82 $ 62 $ (52) $ 87 $ 66
Balance Sheet Data
Total assets.......................... $1,437 $1,483 $1,526 $1,473 $1,390
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EDWARDS LIFESCIENCES' UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined statement of income and unaudited pro forma combined balance sheet present the combined results of Edwards Lifesciences and its financial position, assuming that the transactions contemplated by the distribution had been completed as of January 1, 1999 for income statement purposes and as of December 31, 1999 for balance sheet purposes.
The unaudited pro forma information has been prepared utilizing the historical combined financial statements of the CardioVascular business. You should read this information in conjunction with the historical combined financial statements and related notes included on pages F-1 to F-18 of this information statement. We have included the unaudited pro forma financial data as required by the rules and regulations of the SEC and it is for comparative purposes only. The unaudited pro forma financial data does not purport to be indicative of the results of Edwards Lifesciences in the future or what the financial position of results of operations would have been had Edwards Lifesciences been a separate, stand-alone entity during the period shown.
Unaudited Pro Forma Combined Statement of Income
(in millions, except shares and per share information)
Year ended December 31, 1999
------------------------------------------------
Pro Forma
Adjustments
to Reflect
Japan on an
Pro Forma Equity
Historical Adjustments Basis Pro Forma
---------- ----------- ----------- -----------
Net sales...................... $905 $-- $(96)(e) $ 809
Costs and expenses
Cost of goods sold........... 460 3 (a) (37)(e) 426
Cost of goods sold--
transactions with Baxter.... 6 -- -- 6
Marketing and administrative
expenses.................... 189 25 (b) (43)(e) 171
Marketing and administrative
expenses--transactions with
Baxter...................... 44 -- -- 44
Research and development
expenses.................... 41 -- (2)(e) 39
Research and development
expenses--transactions with
Baxter...................... 14 -- -- 14
Interest, net................ -- 29 (c) -- 29
Goodwill amortization........ 34 -- -- 34
Other expense (income)....... 4 -- (14)(e) (10)
---- ---- ---- -----------
Total costs and expenses....... 792 57 (96) 753
---- ---- ---- -----------
Income (loss) before income
taxes......................... 113 (57) -- 56
Income tax expense (benefit)... 31 (16)(d) -- 15
---- ---- ---- -----------
Net income (loss).............. $ 82 $(41) $-- $ 41
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Share information
Shares to be issued (f)...... 58,180,903
===========
Net income per share (f)..... $ 0.70
===========
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Pro Forma Adjustments
(a) To reflect estimated incremental costs resulting from new or revised distribution agreements with Baxter in certain foreign locations subsequent to the distribution. While such distribution agreements are in the process of being finalized, based on an analysis of the current intercompany charges, it is anticipated that the draft revised agreements will result in increased costs to Edwards Lifesciences on a stand-alone basis.
(b) To reflect estimated incremental costs associated with being an independent public company, including costs associated with corporate administrative services such as accounting, tax, treasury, risk management, insurance, legal, stockholder relations and human resources. The historical combined financial statements include all costs incurred by Baxter on behalf of the CardioVascular business. However, there will be incremental and continuing costs directly attributable to the planned spin-off, as there will be a loss of certain synergies and benefits of economies of scale that existed while the CardioVascular business was part of Baxter. Management estimated such incremental costs utilizing the parent company's historical headcount and cost analysis, and the company's organizational chart, which has been finalized. Management also utilized knowledge and expertise obtained from executing similar spin-off transactions in the past, and knowledge of the approximate headcount and cost structures of Edward Lifesciences' competitor companies. The following is a summary of the estimated incremental costs by significant function (in millions):
. Accounting, tax and legal........................................... $ 8
. Insurance and risk management....................................... 4
. Human resources..................................................... 7
. Treasury, stockholder relations and other costs..................... 6
---
Total............................................................. $25
===
|
(c) To reflect the estimated interest expense which would have been incurred
by Edwards Lifesciences based on the incurrence of $520 million of debt at
a weighted-average interest rate of 5.6%. The company's debt facilities
are not yet finalized. The weighted-average interest rate was estimated by
management using current market interest rates and was based on the
assumed mix of debt balances for Edwards Lifesciences, by country, and the
market-quoted LIBOR for the applicable currency coupled with the company's
anticipated credit spread in each applicable country. An increase or
decrease of 0.125 points in the weighted average interest rate would
result in an increase or decrease in interest expense of approximately $1
million.
(d) To reflect the estimated tax impact at statutory rates, for pro forma
adjustments (a) through (c), as well as the estimated impact of different
tax rates available to Edwards Lifesciences as a stand-alone company. It
is anticipated that Edwards Lifesciences will have different tax rates as
a stand-alone company due to the different tax and legal structures it
will have as a stand-alone company subsequent to spin-off date. Management
does not expect the future effective tax rate to be significantly
different from the 1999 pro forma effective tax rate.
(e) To reflect the Japanese operations on an equity basis. See "Edwards
Lifesciences' Relationship With Baxter After The Distribution--Contractual
Joint Venture in Japan."
(f) Pro forma net income per share is computed as if the 58,180,903 common
shares of Edwards Lifesciences, estimated to be issuable in the
distribution, had been outstanding for the periods presented. Refer to
footnote (b) and (c) on page 41 regarding the determination of the
anticipated common shares outstanding.
Unaudited Pro Forma Combined Balance Sheet
(in millions, except shares and per share data)
December 31, 1999
-------------------------------------------
Pro Forma
Adjustments
to Reflect
Japan on an
Pro Forma Equity Pro
Historical Adjustments Basis Forma
---------- ----------- ----------- ------
Current assets
Accounts receivable, net of
allowances of $8 million at
December 31, 1999............... $ 133 -- (22)(d) $ 111
Other receivables................ 22 -- -- 22
Inventories...................... 182 -- (34)(d) 148
Short-term deferred income taxes. 9 -- -- 9
Prepaid expenses................. 10 -- -- 10
------ ----- ---- ------
Total current assets........... 356 -- (56) 300
------ ----- ---- ------
Property, plant and equipment
Property, plant and equipment.... 496 -- (58)(d) 438
Accumulated depreciation and
amortization.................... (270) -- 38 (d) (232)
------ ----- ---- ------
Net property, plant and
equipment..................... 226 -- (20) 206
------ ----- ---- ------
Other assets
Goodwill and other intangibles... 839 -- -- 839
Other............................ 16 -- (4)(d) 12
------ ----- ---- ------
Total other assets............. 855 -- (4) 851
------ ----- ---- ------
Total assets................. $1,437 -- (80) $1,357
====== ===== ==== ======
Current liabilities
Accounts payable and accrued
liabilities..................... $ 156 -- (19)(d) $ 137
------ ----- ---- ------
Total current liabilities...... 156 -- (19) 137
------ ----- ---- ------
Long-term debt and other noncurrent
liabilities....................... 57 $ 520 (a) (5)(d) 572
------ ----- ---- ------
Stockholders' equity
Retained earnings................ 418 (2)(c) (56)(d) 362
2 (b)
Investments by and advances from
Baxter International Inc........ 833 (520)(a) --
(313)(b) -- --
Common stock, $1 par value,
authorized 350,000,000 shares,
outstanding 58,180,903 shares... -- 58 (b) -- 58
Other equity..................... -- 253 (b) -- 255
2 (c)
Accumulated other comprehensive
income (loss)................... (27) -- -- (27)
------ ----- ---- ------
Total stockholders' equity .... 1,224 (520) (56) 648
------ ----- ---- ------
Total liabilities and
stockholders' equity........ $1,437 $ -- $(80) $1,357
====== ===== ==== ======
|
Pro Forma Adjustments
(a) The "Investments by and advances from Baxter International Inc." account includes common stock, additional paid-in capital and net intercompany balances with Edwards Lifesciences which will be contributed at the time of the spin-off. Refer to Note 2 to the Combined Financial Statements for further information. Approximately $520 million of Baxter's existing debt will be indirectly assumed by Edwards Lifesciences through the issuance of new third-party debt. This adjustment represents an estimate based on available information. The company's debt agreements are in the process of being finalized. Management does not expect this adjustment to materially differ from the final amount.
(b) To reflect the anticipated distribution of 58,039,903 shares of common stock at $1.00 par value share (at an assumed distribution ratio of one share of Edwards Lifesciences common stock for every five shares of Baxter common stock held on the record date) and the elimination of Baxter's equity investment effected by the anticipated distribution of all outstanding shares of Edwards Lifesciences stock to Baxter stockholders. The anticipated total shares outstanding of 58,180,903 also reflects shares to be issued to hourly employees, as discussed in footnote (c) below.
(c) To reflect the anticipated initial contribution of principally common stock to hourly employees worldwide to be held in a special stock account under the Edwards Lifesciences Retirement Plan. See further discussion on pages 62 and 64.
(d) To reflect the Japanese operations on an equity basis. See "Edwards Lifesciences' Relationship With Baxter After The Distribution--Contractual Joint Venture in Japan."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis presents the factors that had a material effect on the results of operations of the CardioVascular business during the years ended December 31, 1999, 1998 and 1997. Also discussed is its financial position as of December 31, 1999 and 1998. You should read this discussion in conjunction with the historical and pro forma combined financial statements and related notes thereto included elsewhere in this information statement.
Overview
Edwards Lifesciences provides a comprehensive line of products and services to treat late-stage cardiovascular disease. Edwards Lifesciences is the world's leader, and has been a pioneer in the development and commercialization of tissue valves and repair products, used to replace or repair a patient's diseased or defective heart. Edwards Lifesciences' sales are categorized in four main product areas: cardiac surgery, critical care, vascular and perfusion products and services. See "Edwards Lifesciences' Product and Service Offerings" elsewhere in this information statement. In addition, Edwards Lifesciences also offers a diverse grouping of product lines comprised mostly of select distributed products that are sold in international markets, and miscellaneous pharmaceutical products. Edwards Lifesciences is headquartered in Irvine, California, and supplies its products and services to customers in more than 80 countries, both through direct sales and distributor relationships. Edwards Lifesciences' products are manufactured in locations throughout the world, including Brazil, the Dominican Republic, Japan (through a contractual joint venture with Baxter), The Netherlands, Puerto Rico, Switzerland and the United States.
Edwards Lifesciences' cardiac surgery portfolio is comprised of products relating to heart-valve therapy, mechanical cardiac assist, and cannulae and cardioplegia products used during open-heart surgery. Edwards Lifesciences is the world's leader, and has been a pioneer in the development and commercialization of tissue valves and repair products, used to replace or repair a patient's diseased or defective heart valve. In the critical care area, Edwards Lifesciences is a world leader in hemodynamic monitoring systems that are used to measure a patient's heart function in surgical and intensive care settings. Edwards Lifesciences' vascular product lines include a line of balloon catheter-based products, surgical clips and inserts, angioscopy equipment and artificial implantable grafts, as well as an endovascular system that is used to treat less invasively life-threatening abdominal aortic aneurysms. In the perfusion products and services category, Edwards Lifesciences designs, develops, manufactures and markets a diverse line of disposable products used during cardiopulmonary bypass procedures, including oxygenators, blood containers, filters and related devices, as well as bypass equipment. Edwards Lifesciences is also the world's leading provider of perfusion services, employing more than 400 certified perfusionists who perform an aggregate of more than 50,000 perfusion cases for open heart surgery per year.
Cardiovascular disease is the leading cause of death in the world. Edwards Lifesciences believes that there is a continual and growing need for the treatment of cardiovascular disease primarily due to the aging population, the progressive nature of the disease and the continued economic development of countries around the world that allows for additional funds to be allocated for the treatment of chronic health conditions. Edwards Lifesciences' business strategy is to develop, manufacture and market products and services that result in improved therapeutic outcomes for patients with late-stage cardiovascular disease. Edwards Lifesciences plans to aggressively expand its leading product offerings and develop new products and therapies that improve the quality of patient care and reduce overall treatment costs.
The health-care marketplace continues to be competitive. There has been consolidation in Edwards Lifesciences' customer base and among its competitors, which has resulted in pricing and market share pressures. Edwards Lifesciences has experienced increases in its labor and material costs, which are primarily influenced by general inflationary trends. Competitive market conditions have minimized inflation's impact on the selling prices of Edwards Lifesciences' products and services. Management expects these trends to continue. Edwards Lifesciences will continue to manage these factors by capitalizing on its existing leading positions, developing
new products and services through further commitment to internal research and development activities, investing capital and human resources to upgrade and expand facilities, leveraging its cost structure and pursuing acquisitions and strategic alliances.
Results of Operations
Net Sales Trends
The following is a summary of domestic and international net sales:
Year ended
December 31,
------------------
1999 1998 1997
---- ---- ----
(Dollars in
millions)
United States......................................... $504 $508 $515
% increase/(decrease)............................. (1%) (1%)
International......................................... 401 357 364
% increase/(decrease)............................. 12% (2%)
---- ---- ----
Total net sales....................................... $905 $865 $879
% increase/(decrease)............................. 5% (2%)
==== ==== ====
|
Fluctuations in net sales were primarily due to increases in sales of cardiac surgery products offset by a decline in perfusion product sales and perfusion service revenues as well as fluctuations in foreign currency exchange rates. The fluctuations in foreign currency exchange rates were primarily related to the movement of the U.S. dollar against the Euro and the Japanese Yen. Excluding the effects of foreign currency exchange rate fluctuations, net sales worldwide increased 2% in the year ended December 31, 1999 and increased 1% in the year ended December 31, 1998.
The impact of foreign currency exchange rate fluctuations on net sales is not necessarily indicative of the impact on net income due to the corresponding effect of foreign currency exchange rate fluctuations on operating costs and expenses, and hedging activities. For more information, see "Currency Risk" below.
The following is a summary of net sales by product line:
Year ended
December 31,
------------------
1999 1998 1997
---- ---- ----
(Dollars in
millions)
Cardiac surgery....................................... 306 $273 $247
% increase/(decrease)............................. 12% 11%
Critical care......................................... 242 221 227
% increase/(decrease)............................. 10% (3%)
Vascular.............................................. 61 60 57
% increase/(decrease)............................. 2% 5%
Perfusion products and services....................... 244 269 289
% increase/(decrease)............................. (9%) (7%)
Other................................................. 52 42 59
% increase /(decrease)............................ 24% (29%)
--- ---- ----
Total net sales....................................... 905 $865 $879
% increase /(decrease)............................ 5% (2%)
=== ==== ====
|
Cardiac Surgery
Net sales of cardiac surgery products increased 12% in the year ended December 31, 1999 and increased 11% in the year ended December 31, 1998. Excluding the impact of foreign currency exchange rate fluctuations, net sales of cardiac surgery products would have increased 11% in the year ended December 31, 1999 and 13% in the year ended December 31, 1998.
Increased demand for heart-valve therapy products is the primary reason for the growth in sales for all periods presented. Sales growth in 1998 also benefited from a full year of sales related to the acquisition of Research Medical, Inc., in March 1997. Research Medical is a leading manufacturer of cannulae and cardioplegia products used during open-heart procedures. Edwards Lifesciences now offers more than 1,200 types of cannulae and accessories. Management expects that its heart-valve therapy products will continue to serve as the key driver of sales growth.
Critical Care
Net sales of critical care products increased 10% in the year ended December 31, 1999 and decreased 3% in the year ended December 31, 1998. Excluding the impact of foreign currency exchange rate fluctuations, net sales of critical care products would have increased 6% in the year ended December 31, 1999 and 2% in the year ended December 31, 1998.
The growth in 1999 was due primarily to an increased demand for disposable pressure monitoring devices and the recent European launch of the first anti- microbial central venous catheter. Although critical care products have been, and are expected to continue to be, significant contributors to Edwards Lifesciences' total sales, Edwards Lifesciences management believes that future sales growth could be impacted by global pricing pressures and potential reimbursement decreases in Japan.
Vascular
Net sales of vascular products increased 2% in the year ended December 31, 1999 and increased 5% in the year ended December 31, 1998. Excluding the impact of foreign currency exchange rate fluctuations, net sales of vascular products would have been flat in the year ended December 31, 1999 and would have increased 7% in the year ended December 31, 1998.
The sales growth in 1998 was due to new revenues generated from a third party arrangement involving Edwards Lifesciences' proprietary PTFE (synthetic material) technology and an increase in sales of Edwards Lifesciences' Side Branch Occlusion System that was introduced in July 1997. The Side Branch Occlusion System is an innovative technology that helps vascular surgeons efficiently restore circulation in the saphenous vein (a critical vein within the blood circulatory system located in the legs) by effectively removing clots and other blockages within the vein itself.
Edwards Lifesciences has made a significant commitment to the development of endovascular grafts, which are used to treat potentially life-threatening abdominal aortic aneurysms (AAA) through a minimally invasive approach. In 1999, Edwards Lifesciences commercially launched its Lifepath AAA endovascular graft in Europe and Australia, which is expected to add to future sales growth. Edwards Lifesciences is pursuing clinical trials in the United States and expects to obtain FDA regulatory approval within the next two years.
Perfusion Products and Services
Net sales of perfusion products and services decreased 9% in the year ended December 31, 1999 and decreased 7% in the year ended December 31, 1998. Excluding the impact of foreign currency exchange rate fluctuations, net sales of perfusion products and services would have decreased 10% in the year ended December 31, 1999 and 6% in the year ended December 31, 1998.
Management believes that the decrease in sales of perfusion products and services was due primarily to a continued slowing in the number of coronary artery bypass graft procedures on a worldwide basis as well as significant continuing pricing pressures. Management believes that the slowdown in the number of traditional coronary bypass graft procedure surgeries has been caused by increased acceptance of newer, less-invasive procedures such as coronary stenting, which often eliminates or defers the need for cardiac surgery. Additionally, there has been an increase in the number of heart surgeries performed "off-pump" (the surgery is performed on
a beating heart without cardiopulmonary bypass) and this trend has reduced the need for perfusion services and the use of many traditional perfusion products manufactured and sold by Edwards Lifesciences. Also, perfusion products and services sales declined when the CardioVascular business ceased distributing certain perfusion products in the United States on behalf of Haemonetics, Inc. effective January 1, 1999. Net sales of product distributed on behalf of Haemonetics, Inc. were approximately $20 million for the year ended December 31, 1998.
Other
Other net sales increased 24% in the year ended December 31, 1999 and decreased 29% in the year ended December 31, 1998. Excluding the impact of foreign currency exchange rate fluctuations, other net sales would have increased 10% in the year ended December 31, 1999 and would have decreased 26% in the year ended December 31, 1998.
Other sales include a diverse grouping of product lines comprised primarily of select distributed products that are sold in international regions, and miscellaneous pharmaceutical products. This category of sales, which generally represents less than ten percent of total sales, has fluctuated based on the timing of new or terminated distribution agreements, foreign currency exchange rate fluctuations and other factors and events.
Contractual Joint Venture in Japan
Subsequent to the distribution, the CardioVascular business in Japan will be operated pursuant to a contractual joint venture under which a Japanese subsidiary of Baxter will retain ownership of the Japanese business assets, but a subsidiary of Edwards Lifesciences will hold a 90% profit interest. Edwards Lifesciences will also have an option to purchase the Japanese business assets, which option may be exercised no earlier than 28 months following the distribution date and no later than 60 months following the distribution date. The Japanese operations are consolidated in the accompanying combined financial statements as that is the historical treatment of the operations while a part of Baxter. Subsequent to the distribution, and based on new agreements between Baxter and the company, Edwards Lifesciences will record its interest in the joint venture on the equity method. On a pro forma basis, sales and other income statement amounts are different from the historical amounts, but net income for all periods is the same as the historical amounts. Reflecting the Japanese operations on the equity method, pro forma sales were $809 million in 1999, $790 million in 1998 and $791 million in 1997, and pro forma sales growth was 2% in 1999 and sales were approximately flat in 1998.
Gross Margin
Year ended
December 31,
--------------------------
1999 1998 1997
---- ---- -----
Gross margin percentage........................ 48.5% 46.1% 47.3%
Increase/(decrease).......................... 2.4 pts. (1.2 pts.)
|
The gross margin percentage increased 2.4 points in the year ended December 31, 1999 and decreased 1.2 points in the year ended December 31, 1998. Excluding the impact of foreign currency exchange rate fluctuations, the gross margin percentage would have increased 0.8 points in the year ended December 31, 1999 and 1.7 points in the year ended December 31, 1998. The increase in the gross margin percentage for both periods was due to increased sales of higher-margin cardiac surgery products and by a reduction in sales of lower- margin perfusion products and services.
Reflecting the Japanese operations on the equity method, the pro forma gross margin percentage was 46.6% in 1999, 44.8% in 1998 and 45.5% in 1997.
Marketing and Administrative Expenses
Year ended
December 31,
--------------------
1999 1998 1997
---- ---- ----
Marketing & administrative expenses as a
percentage of sales.............................. 25.7% 25.7% 24.0%
Increase......................................... -- 1.7 pts.
|
Marketing and administrative expenses increased as a percentage of sales in the year ended December 31, 1998 due to an increased investment in the direct United States field-sales force as a result of discontinuing sales of Research Medical products through outside distributors following the acquisition of Research Medical in March 1997. Reflecting the Japanese operations on the equity method, the pro forma marketing & administrative expenses as a percentatge of sales would have been 26.6% in 1999, 26.6% in 1998, and 24.9% in 1997.
Research and Development Expenses
Year ended
December 31,
-----------------
1999 1998 1997
---- ---- ----
(Dollars in
millions)
Research and development expenses........................ $55 $56 $53
% increase/(decrease)................................ (2%) 6%
Research and development expenses as a percentage of
sales................................................... 6.1% 6.5% 6.0%
|
Research and development expenses presented above exclude the in-process research and development charge relating to the acquisition of Research Medical in 1997, which is discussed in more detail in Note 3 of "Notes to Combined Financial Statements." As a percentage of sales, these expenses have remained relatively constant over the periods presented.
Edwards Lifesciences is engaged in ongoing research and development to introduce clinically-advanced new products, to maximize the effectiveness, ease of use, safety and reliability of its existing products and to expand the applications of its products as appropriate. Edwards Lifesciences has a strong commitment to bolster its research and development activities in the future with the goal of developing and commercializing new innovative products and therapies that enhance performance and patient quality of life and address cost-containment issues.
Goodwill Amortization
Goodwill amortization remained constant in the years ended December 31, 1999, 1998 and 1997.
Other Income and Expense
Refer to Note 9 to the "Combined Financial Statements" for a summary of the amounts included in other income and expense. Other income in 1998 principally consisted of $13 million of net insurance proceeds associated with hurricane damage at one of the company's manufacturing facilities, net of a $3 million loss associated with the impairment of a minority equity investment.
Income before Taxes
As a result of the factors discussed above, excluding the charge for in- process research and development in 1997, income before taxes increased 22% in the year ended December 31, 1999 and decreased 21% in the year ended December 31, 1998.
Income Taxes
The effective income tax rate was approximately 27% in the year ended December 31, 1999, 33% in the year ended December 31, 1998 and 32% in the year ended December 31, 1997 (excluding the 1997 charge for in-process research and development). The reduction in the tax rate for the year ended December 31, 1999 was due primarily to more favorable tax grants in certain jurisdictions.
Net Income
Net income increased 32% in the year ended December 31, 1999 and decreased 23% in the year ended December 31, 1998 (excluding the 1997 charge for in- process research and development). These changes are consistent with the changes in income before taxes and the changes in the effective income tax rate, each as discussed above.
Liquidity and Capital Resources
Edwards Lifesciences management will assess Edwards Lifesciences' liquidity in terms of its overall ability to mobilize cash to support ongoing business levels and to fund its growth. Historically, the CardioVascular business has generated sufficient cash to satisfy its normal operating cash and capital requirements, and is expected to continue to do so in the future.
Cash flow provided by operations for 1999 was flat when compared to 1998 due primarily to higher inventory levels, offset by increased earnings and improved accounts receivable collections. Cash flows provided by operations for 1998 increased approximately 8% due primarily to improved accounts receivable collections, liability management, partially offset by lower earnings. In addition, included in cash flows provided by operations for 1998 was approximately $22 million in proceeds relating to the sale of certain trade receivables in Japan to an independent financial institution. An insignificant loss was recognized on the sale.
Uses of cash for investing activities included the acquisition of property, plant and equipment and acquisitions. Capital expenditures have remained fairly constant for all periods presented. Acquisition spending in 1999 related primarily to the purchase of the Century Heart Lung Machine (HLM) business of Cobe Cardiovascular Inc. from Sorin Biomedica. Net cash outflows for acquisitions in 1998 and 1997 related principally to the acquisition of Research Medical.
As of the distribution date, Edwards Lifesciences expects to have revolving credit facilities in place amounting to approximately $650 million. Approximately $520 million will be used to execute asset transfers from Baxter, assume debt from Baxter, pay bank fees related to the credit facilities and for general corporate purposes. Assuming a debt level of $520 million, Edwards Lifesciences' debt as a percent of total capital would have been 44.5% at December 31, 1999. See "Financing."
In addition to this short-term facility, Edwards Lifesciences management believes that it has sufficient cash flow from operations and financial flexibility to attract long-term capital to fund short-term and long-term growth objectives. However, no assurances can be given that such long-term capital will be available to Edwards Lifesciences on favorable terms, or at all.
Euro Conversion
On January 1, 1999, the European Economic and Monetary Union created and introduced the Euro, the official single currency for the eleven participating member countries. A transition period is currently in effect which began January 1, 1999 and will continue through December 31, 2001, during which time transactions will be executed in both the Euro and the member country's individual currencies. Effective January 1, 2002, Euro bank notes will be introduced and as of July 1, 2002, the Euro will be the sole legal tender of the European Economic and Monetary Union countries.
Edwards Lifesciences has appointed a team of individuals to address all issues associated with the conversion to the Euro and expects to be prepared for such conversion as of the designated dates. At the time Edwards Lifesciences switches to using the Euro as the sole functional currency for the affected regions, certain modifications that are primarily related to information systems will be required. The costs associated with preparing for the conversion and continued use of the Euro will be expensed as incurred and are not expected to be material to Edwards Lifesciences' financial position, results of operations or cash flows. The ultimate impact on Edwards Lifesciences' business, including the impact on the competitive environment in which Edwards Lifesciences operates, is currently unknown.
New Accounting and Disclosure Standard
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective for all quarters of fiscal years beginning after June 15, 2000. This Statement requires that all derivatives be recorded in the balance sheet as either assets or liabilities and be measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Management is in the process of evaluating this standard and has not yet determined the future impact on Edwards Lifesciences' combined financial statements.
Currency Risk
Edwards Lifesciences operates on a global basis and therefore is subject to the exposure resulting from foreign currency exchange rate fluctuations. These exposures arise from transactions denominated in foreign currencies, primarily from translation of results of operations from outside the United States. Additionally, such exposures may change over time as changes occur in Edwards Lifesciences' international operations.
For all periods presented, the CardioVascular business has been considered in Baxter's overall risk management strategy. As part of this strategy, Baxter managed its foreign currency exchange rate risk to an acceptable level based on management's judgment of the appropriate trade-off between risk, opportunity and costs. With respect to the CardioVascular business' currency risks, Baxter primarily utilized options to hedge these exposures.
As a stand-alone company, Edwards Lifesciences' objective will be to manage its exposure to foreign currency fluctuations to minimize earnings and cash flow volatility associated with foreign exchange rate changes. In order to reduce the risk of foreign currency exchange rate fluctuations, Edwards Lifesciences expects to establish a policy of hedging a substantial portion of its expected foreign currency denominated cash flow from operations. The instruments that Edwards Lifesciences expects use for hedging will be readily marketable traded forward contracts and options with financial institutions. Edwards Lifesciences expects that the changes in fair value of such contracts are expected to have a high correlation to the price changes in the related hedged cash flow. Edwards Lifesciences does not expect that the risk of transaction gains or losses from changes in the fair value of Edwards Lifesciences' foreign exchange position will be material because most transactions will occur in either the functional currency or in a currency that has a high correlation to the functional currency. The principal currencies that Edwards Lifesciences expects to hedge, which are the currencies of the markets that present the primary risk of loss to Edwards Lifesciences, are the Japanese Yen and the Euro. Any gains and losses on these hedge contracts are expected to offset changes in the value of the related exposures. Edwards Lifesciences expects to enter into foreign currency transactions only to the extent that foreign currency exposure exists. Edwards Lifesciences does not plan on entering into foreign currency transactions for speculative purposes. A sensitivity analysis of changes in the fair value of foreign currency exchange contracts outstanding at December 31, 1999 indicated that, if the U.S. dollar uniformly weakened by 10% against all currencies, the fair value of these contracts would decrease by $9 million. A similar analysis performed with respect to contracts outstanding at December 31, 1998 indicated that the fair value of such contracts would decrease by $5 million. The amount for 1999 was greater than that for 1998 due principally to a larger portfolio of foreign currency exchange contracts outstanding at December 31, 1999 and higher implied volatilities with respect to the Japanese Yen and the Euro.
FINANCING
Prior to the distribution, Edwards Lifesciences expects to have two revolving credit facilities amounting to $650 million, one of which is expected to have a maturity of one year, and another of which is expected to have a maturity of five years. A substantial portion is expected to be drawn at March 31, 2000, for the purposes described below. These facilities will enable Edwards Lifesciences to borrow funds on an unsecured basis at variable interest rates. Edwards Lifesciences expects to incur indebtedness of approximately $520 million from the facilities on or about the date of distribution, which will be used to execute asset transfers from Baxter, assume debt from Baxter, pay bank fees related to the credit facilities and for general corporate purposes. See "Edwards Lifesciences' Unaudited Pro Forma Financial Data."
EDWARDS LIFESCIENCES MANAGEMENT
Board of Directors
Immediately after the distribution date, Edwards Lifesciences expects that the Edwards Lifesciences board of directors will consist of the individuals named in the table below. The Edwards Lifesciences board of directors will be divided into three classes. Each director will serve for a term expiring at the annual meeting of stockholders in the year indicated below. For more information see "Certain Anti-Takeover Effects of Provisions of Edwards Lifesciences' Certificate of Incorporation and Bylaws and of Delaware Law."
Edwards Lifesciences will be managed under the direction of its board of directors. The Edwards Lifesciences board of directors will meet on a regular basis to review Edwards Lifesciences' operations, strategic and business plans, acquisitions and dispositions, and other significant developments affecting Edwards Lifesciences, and to act on matters requiring Edwards Lifesciences board approval. It will also hold special meetings when important matters require Edwards Lifesciences board action between scheduled meetings. Members of senior management will be invited to Edwards Lifesciences board meetings to discuss the progress of and future plans relating to their areas of responsibility.
Term as
Name/Age Director Background
-------- ------------ ----------
Michael A. Mussallem Expires 2003 Mr. Mussallem will be the Chairman of the
Age 47 Board and Chief Executive Officer of Edwards
Lifesciences. He first joined Baxter in 1979
and has been the Group Vice President of
Baxter's CardioVascular business since 1994
and Group Vice President of Baxter's
Biopharmaceutical business since 1998.
Vernon R. Loucks Jr. Expires 2001 Mr. Loucks served as a director of Baxter
Age 65 from 1975 through December 1999, including
chairman of the Board since 1987. He was
Chief Executive Officer of Baxter from 1980
through 1998 and was first elected as an
officer of Baxter in 1975. Mr. Loucks is
also a director of Affymetrix Inc.,
Anheuser-Busch Companies, Inc., Emerson
Electric Co., GeneSoft, Inc. and The Quaker
Oats Company.
Philip M. Neal Expires 2002 Mr. Neal is President and Chief Executive
Age 59 Officer and a director of Avery Dennison
Corporation, a multi-billion dollar Fortune
500 company that manufactures and markets a
wide range of products for consumer and
industrial markets, including Avery-brand
office supplies and Fasson-brand self-
adhesive materials. Mr. Neal joined Avery
Dennison in 1974, served as President and
Chief Operating Officer from 1990 through
April 1998, at which time he was elected
CEO. Mr. Neal serves as a director of
Independent Colleges of Southern California
and the Los Angeles Area Chamber of
Commerce, a trustee of Pomona College and a
Member of the Board of Governors of Town
Hall of California.
David E.I. Pyott Expires 2002 Mr. Pyott is President and Chief Executive
Age 46 Officer and a director of Allergan, Inc., a
global health care company that provides eye
care and specialty pharmaceutical products
worldwide. Prior to joining Allergan in
1998, he was a division president of
Novartis AG, and before 1996 he held various
positions with Sandoz International AG and
Sandoz Nutrition Corporation. He is also a
member of the board of directors of Avery
Dennison Corporation and the California
Healthcare Institute, serves on the
Executive Board of the Pharmaceutical
Research & Manufacturers of America and is
on the Executive Council of the University
of California-Irvine Graduate School of
Management.
|
Term as
Name/Age Director Background
-------- ------------ ----------
Victoria R. Fash Expires 2001 Ms. Fash is President and Chief Executive
Age 48 Officer of IMS Health Incorporated, a
provider of information solutions to the
pharmaceutical and healthcare industries.
From 1996 to 1998, Ms. Fash was Executive
Vice President and Chief Financial Officer of
Cognizant Technology Solutions Corporation.
Prior to that in 1995, she was Senior Vice
President of Business Strategy for Dun &
Bradstreet. Ms. Fash is also a member of the
Board of Directors of Cognizant Technology
Solutions Corporation and Orion Capital
Corporation.
Mike R. Bowlin Expires 2003 Mr. Bowlin is Chairman of the Board and Chief
Age 57 Executive Officer of Atlantic Richfield
Company. Between 1995 and 1998, he also
served as President. Atlantic Richfield
Company and its subsidiaries are engaged in
the worldwide exploration, development,
production, transportation and refining of
petroleum and natural gas liquids. In
addition to serving on the Board of Directors
of Atlantic Richfield Company, he also serves
as a Director of Wells Fargo & Company.
|
Committees of the Board of Directors
To facilitate independent director review, and to make the most effective use of the directors' time and capabilities, the Edwards Lifesciences bylaws establish the committees described below. The Edwards Lifesciences board is permitted to establish other committees from time to time as it deems appropriate.
The Audit and Public Policy Committee
The Audit and Public Policy Committee will review the scope of the audit by the independent auditors, inquire into the effectiveness of Edwards Lifesciences' accounting and internal control functions, and recommend to the Edwards Lifesciences board any changes in the appointment of independent auditors which the committee may deem to be in the best interests of Edwards Lifesciences and its stockholders. The committee will also assist the Edwards Lifesciences board in establishing and monitoring compliance with the ethical standards of Edwards Lifesciences. The Audit and Public Policy Committee will also review the policies of Edwards Lifesciences to assure they are consistent with its social responsibility to employees, customers and society, including policies relating to health and safety and ethics. The committee will consist solely of directors who are independent of management. Members of this committee are expected to be: Philip M. Neal (Chairperson), Victoria R. Fash and David E.I. Pyott.
The Compensation and Planning Committee
The Compensation and Planning Committee will determine the compensation of
officers and outside directors, other than the Chairman of the Board and Chief
Executive Officer (which will be determined by the Edwards Lifesciences
board), exercise the authority of the Edwards Lifesciences board concerning
employee benefit plans and advise the Edwards Lifesciences board on other
compensation and employee benefit matters. In addition, the committee will
make recommendations to the Edwards Lifesciences board regarding candidates
for election as directors of Edwards Lifesciences. The committee will also
advise the board on board committee structure and membership and corporate
governance matters. The committee will consist solely of directors who are
independent of management. Members of this committee are expected to be:
Vernon R. Loucks Jr. (Chairperson), Mike R. Bowlin and David E.I. Pyott.
Compensation of Directors
Cash compensation of non-employee directors will consist of a $15,000 annual retainer. Chairpersons of committees will receive an additional annual retainer of $5,000. Employee directors are not compensated separately for their board or committee activities.
In addition, to align the directors' interests more closely with the interest of all of Edwards Lifesciences' stockholders, each non-employee director will receive an additional annual retainer in the form of 7,500 options to purchase Edwards Lifesciences common stock under the Edwards Lifesciences Corporation Non-Employee Directors and Consultants Stock Incentive Program. These options will vest fifty percent per year over two years. All non-employee directors, serving as such on the distribution date or joining the board in 2000, will also receive a one-time restricted common stock grant equal to 5,000 shares shares of Edwards Lifesciences common stock under the Edwards Lifesciences Corporation Non-Employee Directors and Consultants Stock Incentive Program. The common stock will remain restricted until the first anniversary of their election to the Edwards Lifesciences board of directors when it will vest entirely, if they remain on the board on such anniversary date.
Executive Officers
Set forth below is information with respect to those individuals who Edwards Lifesciences expects to serve as executive officers of Edwards Lifesciences immediately following the distribution. Except as described below, those individuals named below who are currently officers or employees of Baxter will resign from all positions with Baxter prior to or as of the distribution date.
Michael A. Mussallem, age 47. Mr. Mussallem will be the Chairman of the Board and Chief Executive Officer of Edwards Lifesciences. Mr. Mussallem joined Baxter in 1979 and has been the Group Vice President of Baxter's CardioVascular business since 1994 and Group Vice President of Baxter's Biopharmaceutical business since 1998. During his tenure at Baxter, Mr. Mussallem has held a variety positions with increased responsibility in engineering, product development and senior management. He was appointed General Manager of Access Products in 1984, Vice President and General Manager of Pharmaceuticals in 1986, President of the Perfusion Products business in 1988 and President of the Critical Care business in 1993. In 1994, Mr. Mussallem was named Group Vice President for Baxter's Surgical Group. From 1996 until 1998, he was the Chairman of Baxter's Asia Pacific Board overseeing Baxter operations throughout Asia. Mr. Mussallem received his Bachelor of Science degree in chemical engineering from Rose-Hulman Institute of Technology and was conferred an honorary doctorate by his alma mater in 1999.
Stuart L. Foster, age 49. Mr. Foster will be the Corporate Vice President, Global Operations of Edwards Lifesciences. Mr. Foster joined Baxter's CardioVascular Group in 1994 as President of the Vascular business, and continues to hold that position today. In 1997, his responsibilities increased to include global oversight responsibilities for the Critical Care business. He is also currently responsible for all international operations of the CardioVascular business and leads the CardioVascular business' Technology Innovation Team. Prior to joining Baxter, Mr. Foster was Chief Executive Officer and President of Intramed Laboratories, which was acquired by Baxter in 1994. Prior to that, he was an executive with SensorMedics Corporation, a medical device company that he co-founded. Mr. Foster received his Bachelor of Science degree in biomedical engineering from Rensselaer Polytechnic Institute and earned his masters degree from the University of Southern California.
Anita B. Bessler, age 52. Ms. Bessler will be the Corporate Vice President, Cardiac Surgery of Edwards Lifesciences. Ms. Bessler joined Baxter in 1988 as Vice President and General Manger of Sales and Marketing for Baxter's Hyland division. Prior to her tenure with Baxter, from 1986 until 1988 she was Senior Executive Vice President with the USV/Armour Pharmaceutical Division of Rhone Poulenc Rohrer. From 1976 until 1986, Ms. Bessler held senior management positions with Revlon's Healthcare Group. She is a member of the External Advisory Board of the Department of Biomedical Engineering of the Cleveland Clinic Research Institute. She is a graduate of Indiana University, where she earned a Bachelor of Science degree in marketing and economics.
Bruce J. Bentcover, age 45. Mr. Bentcover will be the Corporate Vice President and Chief Financial Officer of Edwards Lifesciences. Mr. Bentcover joined Baxter's CardioVascular Group in January 2000. From 1997 through 1998 Mr. Bentcover was Chief Operating and Financial Officer of the Women's Healthcare Management Group, a private physician practice management company that he co-founded. Prior to that he was Senior Vice President and Chief Financial Officer of Resort Condominiums International; Vice President-- Finance and Treasurer of Hallmark Cards Inc.; Vice President and Treasurer and then Vice President--Controller of Ecolab Inc. Mr. Bentcover earned his Bachelor of Arts degree in political science from Eastern Illinois University and received his MBA from the University of Chicago.
Bruce P. Garren, age 53. Mr. Garren will be Corporate Vice President, General Counsel and Secretary of Edwards Lifesciences. Mr. Garren joined Baxter's CardioVascular Group in February 2000. Previously, he was Senior Vice President--General Counsel for Safeskin Corporation, a manufacturer of latex and synthetic gloves for the healthcare and scientific markets. From 1985 to 1998, he was employed by Tambrands Inc., a medical device manufacturer. He served in various legal counsel positions at Tambrands, becoming Vice President--Group Counsel in 1991 and Vice President--General Counsel in 1996. Mr. Garren was an Associate with the law firm of Arnold & Porter in Washington, D.C. from 1980 to 1985. He received his undergraduate degree from Antioch College and his law degree from Cornell Law School.
Richard L. Miller, age 51. Mr. Miller will be the Corporate Vice President, Critical Care of Edwards Lifesciences. Mr. Miller joined American Hospital Supply Corporation in 1971, which was later acquired by Baxter, as a sales representative for Scientific Products. Prior to his appointment as President of the Critical Care business in 1999, he was President of Baxter's Health Systems from 1994 through 1997 and President, Corporate Health Systems, from 1997 through 1998. During that time, Mr. Miller was a member of Baxter's North American Board and also led Baxter's North American Sales and Marketing Taskforce. Mr. Miller received a Bachelor of Arts in biology and chemistry from the University of Colorado and earned an MBA from Portland University. He also served in the United States Army Reserve from 1970 until 1976.
Andre-Michel Ballester, age 41. Mr. Ballester will be the Corporate Vice President, Europe for Edwards Lifesciences. Mr. Ballester joined Baxter in 1986 as a Strategic Planning Analyst for Baxter France and subsequently became Operations Manager for Baxter France. In 1989, he left the company to become General Manager of consumer electronics company Prestinox International. Mr. Ballester returned to Baxter in 1992 as Director of European Sales and Marketing for the Critical Care division of Baxter's CardioVascular Group; he was appointed Vice President of Marketing in 1995 and later assumed responsibility for the Critical Care division's global marketing and business development activities. Mr. Ballester currently serves as President of Baxter's CardioVascular Group Europe and as Chairman of Baxter France. He holds a Master of Science degree in chemical engineering from the Ecole Centrale Lille in France and an MBA from INSEAD, Fontainebleau, France.
John H. Kehl, Jr., age 46. Mr. Kehl will be the Corporate Vice President, Strategy & Business Development of Edwards Lifesciences. Mr. Kehl has held various positions of increasing responsibility at Baxter since joining its treasury department in 1975. In 1980, he was promoted to Manager of Investor Relations and Communications and, in 1985, assumed responsibility for directing all aspects of Baxter's external communications. Mr. Kehl was appointed Vice President, Controller for Baxter's CardioVascular business in 1988 with responsibility for finance, information systems and business planning. He became Vice President of Business Development in 1995, a position he continues to hold today. In his current capacity, he leads all business development initiatives, including strategy development and acquisition and divestiture activities. Mr. Kehl has also served on Baxter's Japan Board that oversees all operations in Japan. He earned his Bachelor of Arts degree in business and economics from Loras College and received his MBA from Loyola University in Chicago.
Robert C. Reindl, age 45. Mr. Reindl will be the Corporate Vice President, Human Resources of Edwards Lifesciences. From 1993 through 1997, Mr. Reindl was Vice President of Baxter's Institute for Training and
Development. In 1997, he became the Vice President, Human Resources, for Baxter's CardioVascular business. From 1987 until 1993, Mr. Reindl was a manager with Arthur Andersen & Co., where he consulted on a variety of human resource and organizational development issues, as well as designed training programs focusing on time management, communication, team building and interviewing. Prior to this, he was a communications instructor at Marietta College and Ohio University. Mr. Reindl earned his Bachelor of Science degree in communication from the University of Wisconsin-Stevens Point and his masters degree from Bowling Green State University in Ohio.
Huimin Wang, M.D., age 43. Dr. Wang will be Corporate Vice President, Japan. In addition to his responsibilities with Edwards Lifesciences, Dr. Wang will act as a representative director of Baxter Limited, a Japan corporation. Dr. Wang joined Baxter in 1993 and served as a Senior Manager of strategy development and, later, Director of product/therapy for Baxter's Renal division in Japan. In 1997, he became President of medical systems and devices, responsible for both the CardioVascular and Intravenous Systems businesses in Japan. Prior to joining Baxter, Dr. Wang was a Senior Associate with Booz, Allen & Hamilton in Chicago, specializing in strategy development, organizational change, operations improvement and mergers and acquisitions for health care providers. From 1990 until 1991, he was Vice President of Integrated Strategies Inc., a consulting and venture management firm he co- founded. He also was an Associate with McKinsey & Company. From 1981 until 1986, Dr. Wang was a Resident and Staff Physician in anesthesiology at Keio University Hospital in Tokyo. Dr. Wang earned his Doctor of Medicine degree from Kagoshima University in Japan, and his MBA from the University of Chicago.
Randel W. Woodgrift, age 38. Mr. Woodgrift will be Corporate Vice President, Manufacturing Operations of Edwards Lifesciences. Since joining Baxter in 1983, Mr. Woodgrift has held positions of increasing responsibility in research and development, manufacturing and operations, including management of the Puerto Rico operation of Baxter's CardioVascular Group. From 1990 to 1993, Mr. Woodgrift held Director positions in U.S. operations and established CardioVascular's first plant in Mexico. From 1994 to 1997, he was Vice President, Heart Valve Operations for the United States and Europe. In 1997, his responsibilities were expanded to include all European plants. In 1998, Mr. Woodgrift assumed responsibility for all CardioVascular manufacturing, logistics, facilities, environmental and health and safety functions. In 1999, he initiated CardioVascular's first operations in the Dominican Republic. Mr Woodgrift earned his Bachelor of Science degree in mechanical engineering from California Polytechnic State University, San Luis Obispo, a biomedical engineering certification from the University of California--Irvine and an MBA from Pepperdine University.
EDWARDS LIFESCIENCES EXECUTIVE COMPENSATION
1999 Compensation of Executive Officers
The following table shows the 1999 compensation for services rendered by the Chairman of the Board and Chief Executive Officer of Edwards Lifesciences and the individuals who are expected to be the next four most highly compensated executive officers of Edwards Lifesciences (collectively, referred to as the "named executive officers") based on their 1999 Baxter compensation, if any, and their expected 2000 Edwards Lifesciences compensation. The compensation shown in this table was paid by Baxter or its subsidiaries for services rendered to Baxter and its subsidiaries. References to "restricted stock" and "stock options" mean restricted shares of Baxter common stock and options to purchase Baxter common stock. Amounts shown are for each individual in his or her last position with Baxter, and do not necessarily reflect the compensation which these five individuals will earn in their new capacities as executive officers of Edwards Lifesciences.
Summary Compensation Table
Long-Term Compensation
------------------------------------------
Annual Compensation Awards Payouts
---------------------- --------------------- -------
Restricted All
Stock Securities LTIP Other
Salary Bonus Other Award(s) Underlying Payouts Compensation
Name and Principal Position Year ($)(1) ($)(1) ($)(2) ($)(3) Options(4) ($)(5) ($)(6)
--------------------------- ---- ------- ------- ------ ---------- ---------- ------- ------------
Michael A. Mussallem....... 1999 410,000 310,000 10,049 -0- 118,900 329,766 16,788
Chairman of the Board &
Chief Executive Officer
Anita B. Bessler........... 1999 237,442 96,000 -- -0- 50,800 188,438 6,914
Group Vice President
Stuart L. Foster........... 1999 236,231 96,000 -- -0- 50,800 188,438 7,332
Group Vice President
Bruce J. Bentcover......... 1999 -- -- -- -- -- -- --
Corporate Vice President(7)
Bruce P. Garren............ 1999 -- -- -- -- -- -- --
Corporate Vice President(7)
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(6) Amounts shown represent matching contributions made under the Baxter
International Inc. and Subsidiaries Incentive Investment Plan (Baxter
Incentive Investment Plan), a tax-qualified section 401(k) profit sharing
plan, additional matching contributions in Baxter's deferred compensation
plan and the dollar value of split-dollar life insurance benefits. Those
three amounts, expressed in the same order as identified above, for the
named executive officers are as follows: Mr. Mussallem--$4,800, $11,988,
and $288; Ms. Bessler--$4,800, $2,114, and $210; Mr. Foster--$4,800,
$2,532, and $156; Mr. Bentcover--$0, $0, and 0; and Mr. Garren--$0, $0,
and 0.
(7) Messrs. Bentcover and Garren joined Edwards Lifesciences in January and
February 2000, respectively, and did not earn compensation from Edwards
Lifesciences in 1999. They are, however, expected to be among the five
highest paid executive officers of Edwards Lifesciences in 2000.
Stock Option Grants
The following table contains information relating to the Baxter stock option grants made in 1999 to the named executive officers.
Option Grants Table Option Grants in Last Fiscal Year
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
------------------------------------------- -----------------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#) Fiscal Year (%)(1) ($/Sh)(2)(3) Date 0% ($) 5% (4)(5)(6) 10% (4)(5)(6)
---- ----------- ------------------ ------------ ---------- ------ --------------- ---------------
Mr. Mussallem........ 18,900 .2 67.6875 2/13/09 -0- $ 2,083,835 $ 3,318,159
100,000 1.2 63.6250 5/3/99 -0- -- --
--------------------------------------------------------------------------------------------------------------------------
Ms. Bessler.......... 10,800 .1 67.6875 2/13/09 -0- $ 1,190,763 $ 1,896,091
40,000 .5 63.6250 5/3/99 -0- -- --
--------------------------------------------------------------------------------------------------------------------------
Mr. Foster........... 10,800 .1 67.6875 2/13/09 -0- $ 1,190,763 $ 1,896,091
40,000 .5 63.6250 5/3/99 -0- -- --
--------------------------------------------------------------------------------------------------------------------------
Mr. Bentcover........ -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Mr. Garren........... -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
All Stockholders..... N/A N/A N/A N/A -0- $31,080,316,210(5) $49,490,209,190(5)
--------------------------------------------------------------------------------------------------------------------------
All Optionees........ 8,128,000 100 Various Various -0- $ 870,507,351(6) $ 1,384,137,475(6)
--------------------------------------------------------------------------------------------------------------------------
Optionee Gain as % of
All Stockholders'
Gain................ N/A N/A N/A N/A N/A 2.8% 2.8%
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full-recourse, personal loans made by commercial banks. The loans are
guaranteed by Baxter. More information on the Shared Investment Plan is
contained in Baxter's proxy statement dated March 24, 2000.
(4) Potential realizable values are calculated net of the option exercise
price but before taxes associated with exercise. The assumed rates of
stock price appreciation are set by rules of the SEC governing proxy
statement disclosure and are not intended to forecast the future
appreciation of Baxter common stock.
(5) The potential realizable values for all stockholders were calculated on
the 290,199,514 shares of Baxter stock outstanding on December 31, 1999.
The potential realizable values were calculated assuming the stockholders
purchased Baxter stock at $67.6875, the closing price on February 15,
1999. Because the Shared Investment Plan options were granted and
exercised at the closing price of Baxter stock on May 3, 1999, there was
no potential realizable value for the option term.
(6) The potential realizable values for all optionees were calculated based on
the approximately 8.1 million options that were granted to employees of
Baxter at various exercise prices at different times during the year. The
potential realizable values were calculated assuming that all of the
options were granted at the $67.6875 exercise price.
Stock Option Exercises
The following table contains information relating to the exercise of Baxter common stock options by the named executive officers in 1999, as well as the number and value of their unexercised Baxter common stock options as of December 31, 1999.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Fiscal Year-End (#)(2) Fiscal Year End ($)(3)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise (#)(1) Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ------------------ --------------- ----------- ------------- ----------- -------------
Mr. Mussallem........... 111,018 575,601 143,449 79,900 2,929,443 455,188
Ms. Bessler............. 56,754 738,014 39,525 38,800 742,798 244,125
Mr. Foster.............. 40,000 -0- 71,628 38,800 1,274,214 244,125
Mr. Bentcover........... -- -- -- -- -- --
Mr. Garren.............. -- -- -- -- -- --
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Pension Plan and Excess Pension Plan
The table on the following page shows estimated annual retirement benefits payable to participants under the Baxter International Inc. and Subsidiaries Pension Plan (Pension Plan) whose employment terminates at normal retirement age (age 65). The Pension Plan's normal retirement benefit equals (1) 1.75% of an employee's Final Average Pay multiplied by the employee's number of years of benefit service, as defined by the Pension Plan, minus (2) 1.75% of an employee's estimated primary social security benefit, multiplied by the employee's years of benefit service, as defined by the Pension Plan. An employee's Final Average Pay is equal to the average of an employee's five highest consecutive calendar years of earnings out of his or her last ten calendar years of
earnings. In general, the earnings covered by the Pension Plan include salary, annual cash bonuses and other regular pay. The figures shown include benefits payable under the Pension Plan and Baxter's related defined benefit excess pension plan. The estimates assume that benefit payments begin at age 65 under a single life annuity form. The figures are net of the Social Security offset specified by the Pension Plan's benefit formula and therefore do not include Social Security benefits payable from the federal government. The estimated primary Social Security benefit used in the calculations is that payable for an individual attaining age 65 in 1999.
Although age 65 is the normal retirement age under the Pension Plan, the Pension Plan has early retirement provisions based on a point system. Under the point system, each participant is awarded one point for each year of benefit service, as defined by the Pension Plan and one point for each year of age. Participants who terminate employment after accumulating at least 65 points, and who wait to begin receiving their Pension Plan benefits until they have 85 points, receive an unreduced Pension Plan benefit regardless of their actual age when they begin receiving their Pension Plan benefits.
Pension Plan Table
Estimated Annual Retirement Benefits
Years of Pension Plan
Final Average Pay(1)($) Participation(1)($)
----------------------- ---------------------------------------
10 15 20 25 30
------- ------- ------- ------- -------
100,000.......................... 14,500 21,700 29,000 36,200 43,400
200,000.......................... 32,000 48,000 64,000 80,000 95,900
300,000.......................... 49,500 74,200 99,000 123,700 148,400
400,000.......................... 67,000 100,500 134,000 167,500 200,900
500,000.......................... 84,500 126,700 169,000 211,200 253,400
600,000.......................... 102,000 153,000 204,000 255,000 305,900
700,000.......................... 119,500 179,200 239,000 298,700 358,400
800,000.......................... 137,000 205,500 274,000 342,500 410,900
900,000.......................... 154,500 231,700 309,000 386,200 463,400
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Baxter Common Stock Held By Edwards Lifesciences Employees
Baxter restricted common stock held by Edwards Lifesciences employees that has not yet been earned will be forfeited. Baxter restricted common stock held by Edwards Lifesciences employees that has been earned but not yet vested will vest so long as such employees remain employed by Edwards Lifesciences or Baxter through the remainder of the vesting period. It is anticipated that Edwards Lifesciences employees holding Baxter stock options will, as of the distribution date, be considered terminated and, as such, vesting and exercise will be in accordance with the terms and conditions of the outstanding grants. It is also anticipated that Edwards Lifesciences will grant converted stock options to Edwards Lifesciences employees, including the named executive officers, for certain unvested Baxter stock options pursuant to the Edwards Lifesciences Long-Term Stock Incentive Compensation Program.
Future Compensation of Executive Officers
The compensation of Edwards Lifesciences' executive officers for periods beginning on and after the distribution date will be determined by the Edwards Lifesciences board of directors or its Compensation Committee.
Compensation Philosophy For Executive Officers
Edwards Lifesciences expects that its philosophy will be to provide compensation opportunities supporting Edwards Lifesciences' business objectives and values. Forms and levels of total compensation will be structured to be competitive when compared to other companies of similar focus and size. These companies are reported in surveys whose participants include many companies in the Fortune 500 as well as other companies with which
Edwards Lifesciences and its subsidiaries compete for executive talent. This philosophy is intended to assist Edwards Lifesciences in attracting, retaining and motivating executives with superior leadership and management abilities. Consistent with this philosophy, a total compensation structure will be determined for each officer, including Mr. Mussallem, consisting primarily of salary, cash bonus, stock options and benefits. The proportions of these elements of compensation will vary among the officers depending upon their levels of responsibility. The senior executive officers will receive a larger portion of their total compensation through performance-based incentive plans, which place a greater percentage of their compensation at risk while more closely aligning their interests with the interests of Edwards Lifesciences' stockholders.
Edwards Lifesciences' philosophy with respect to the limitation on the tax- deductibility of executive compensation will be to maximize the benefit of tax laws for Edwards Lifesciences' stockholders by seeking performance-based exemptions which are consistent with Edwards Lifesciences' compensation policies and practices. Edwards Lifesciences will adopt performance goals for the officer cash bonus plan which are expected to satisfy the deductibility requirements with respect to any payments under those plans.
Compensation Elements
Salaries will be targeted each year at the median of salaries of executive officers in comparison companies. In addition, officer salaries will be based on the officer's individual performance. Bonuses are intended to provide executive officers with an opportunity to receive additional cash compensation but only if they earn it through Edwards Lifesciences' achievement of strong performance results as measured by key financial indicators. Each year, a bonus target will be established for each executive officer between the 50th and 75th percentile of the market data of comparison companies. After year-end results are calculated, each officer's bonus will be determined based on Edwards Lifesciences' performance against the key financial indicators established for the year. Achievement of the performance objectives will determine an officer's opportunity to earn bonus compensation either significantly above or below the bonus target.
Stock options will be granted under Edwards Lifesciences' 2000 Incentive Compensation Program and such other stock option plans that may be established, as described below. They represent a vehicle for more closely aligning management's and stockholders' interests, specifically motivating executives to remain focused on the market value of Edwards Lifesciences Stock.
The number of stock options granted to executive officers is expected to be market-based. The intent is to provide an opportunity to earn stock-based compensation at the 75th percentile compared to executives in comparison companies.
Long-Term Stock Program
Edwards Lifesciences expects to adopt the Edwards Lifesciences Long-Term Stock Incentive Compensation Program (Incentive Program). The Incentive Program is expected to be approved by Baxter as sole stockholder of Edwards Lifesciences prior to the distribution.
General
The Incentive Program is designed to promote success and enhance the value of Edwards Lifesciences by linking participants' interests more closely to those of Edwards Lifesciences stockholders and by providing participants with an incentive for excellence.
The Incentive Program will be administered by the Compensation Committee of Edwards Lifesciences. The Compensation Committee must consist of two or more directors who qualify as non-employee directors under Rule 16b-3 of the Securities Exchange Act of 1934 and as outside directors under Section 162(m) of the Code. Incentives may consist of the following: (a) stock options; (b) restricted stock; (c) performance shares; and (d)
performance units. Incentives may be granted to certain contractors and any employee of Edwards Lifesciences (including directors of Edwards Lifesciences who are also employees of Edwards Lifesciences) selected from time to time by the Compensation Committee.
The number of shares of Edwards Lifesciences common stock authorized for issuance (including conversion for outstanding awards) under the Incentive Program and all other stock-based compensation plans in place at the time of the distribution will not exceed 20 to 22% of the outstanding shares of Edwards Lifesciences common stock as of the distribution date.
Stock Options
Under the Incentive Program, the Compensation Committee may grant non- qualified and incentive stock options to eligible employees to purchase shares of Edwards Lifesciences common stock from Edwards Lifesciences. The Incentive Program gives the Compensation Committee discretion, with respect to any such stock option, to determine the number and purchase price of the shares subject to the option, the term of each option and the time or times during its term when the option becomes exercisable, subject to the following limitations. No stock option may be granted with a purchase price below the fair market value of the shares subject to the option on the date of grant and the term may not exceed 10 years from the date of grant. The fair market value of shares on the date of a grant shall mean the closing sale price of Edwards Lifesciences common stock as reported on the New York Stock Exchange composite reporting tape. No person may receive, in any calendar year, stock options which, in the aggregate, represent more than 1,000,000 shares of Edwards Lifesciences common stock. The initial option grant to the named executive officers is expected to be as follows: Mr. Mussallem, 470,000 shares; Ms. Bessler, 140,000 shares; Mr. Foster, 190,000 shares; Mr. Bentcover, 120,000 shares; and Mr. Garren, 75,000 shares.
Restricted Stock
Restricted stock consists of the sale or transfer by Edwards Lifesciences to an eligible employee of one or more shares of Edwards Lifesciences common stock which are subject to restrictions on their sale or other transfer by the employee. The price, if any, at which restricted stock will be sold will be determined by the Compensation Committee, and it may vary from time-to-time and among employees and may require no payment or be less than the fair market value of the shares at the date of sale. All shares of restricted stock may be subject to the attainment of performance goals under Section 162(m) of the tax code and other restrictions as the Compensation Committee may determine. Subject to these restrictions and the other requirements of the Incentive Program, a participant receiving restricted stock will have the rights of a stockholder (including voting and dividend rights) as to those shares only to the extent the Compensation Committee designates such rights at the time of the grant. Not more than 500,000 shares of Edwards Lifesciences common stock may be issued in the form of restricted stock under the Incentive Program. No person may receive, in any calendar year, shares of restricted stock which, in the aggregate, represent more than 50,000 shares of Edwards Lifesciences common stock.
Performance Shares and Performance Units
Performance shares and performance units consist of the grant by Edwards Lifesciences to an eligible employee of a contingent right to receive payment of the value of such shares or units. The performance shares or performance units will be earned to the extent performance goals set forth in the grant are achieved. The Compensation Committee shall have discretion to make payments of earned performance shares or performance units in the form of cash or Edwards Lifesciences common stock (or a combination thereof). All grants of performance shares and performance units to a person subject to Section 16(a) of the Exchange Act (executive officers of Edwards Lifesciences) will be subject to the attainment of performance goals under Section 162(m) of the tax code. The number of shares or units granted and the performance goals will be determined by the
Compensation Committee. No person may receive in any calendar year performance shares which, in the aggregate, represent more than 100,000 shares of Edwards Lifesciences common stock. No person may receive in any calendar year performance units which, in the aggregate, exceed $2,000,000.
Section 162(m) Performance Goals
Under the Incentive Program, grants of restricted stock, performance shares, and other incentives (as defined in the Incentive Program) may be subject to the attainment of performance goals under Section 162(m) of the tax code. The regulations under Section 162(m) require the performance goals related to grants under the Incentive Program to be approved separately by Edwards Lifesciences' stockholders. Performance goals for performance based grants may include, but are not limited to, stock price, sales, return on equity, cash flow, market share, earnings per share and/or costs.
Non-Transferability of Incentives
Unless otherwise determined by the Compensation Committee, no stock option, performance share or performance unit granted under the Incentive Program will be transferable by its holder, except in the event of the holder's death, by will or the laws of descent and distribution. During an employee's lifetime, these incentives may be exercised only by the employee or the employee's guardian or legal representative. The Compensation Committee may allow the limited transfer of these incentives to the immediate family of an employee to facilitate estate planning.
Amendment of the Program
Edwards Lifesciences' board of directors may amend or discontinue the Incentive Program at any time. However, no amendment or discontinuance may adversely affect in any material way an incentive previously granted without the written consent of the participant holding such incentive. In addition, the board of directors may not amend the Incentive Program without approval of Edwards Lifesciences' stockholders to the extent such approval is required by law, agreement or any exchange on which Edwards Lifesciences common stock is traded.
Acceleration of Incentives
In the event of a change in control of Edwards Lifesciences (as specified in the Incentive Program), the restrictions on all outstanding shares of restricted stock that are not performance-based will lapse immediately, all outstanding stock options will become exercisable immediately and all performance goals will be deemed to be met at target and payment made within 30 days of the effective date of the change in control.
Other Edwards Lifesciences Stock Option Plans
Edwards Lifesciences also expects to adopt one or more stock option plans to provide for the grant of non-statutory stock options to certain consultants, independent contractors and other persons who are not employees of Edwards Lifesciences and its subsidiaries, including the Edwards Lifesciences Corporation Non-Employee Directors and Consultants Stock Incentive Program.
Edwards Lifesciences Change of Control Plan and Employment Agreement
Edwards Lifesciences expects to adopt the Edwards Lifesciences Change of Control Plan. Pursuant to agreements entered into under this plan, employees selected to participate (including each of the named executive officers) will be entitled to separation pay and benefits following a change of control in Edwards Lifesciences and the employee's subsequent termination of employment unless such termination is voluntary and unprovoked or results from death, disability, retirement or cause. The eligible termination must occur within 24 months of the change of control or the agreement is void. Mr. Mussallem will be permitted to terminate his employment
voluntarily at any time during the thirteenth month following a change of control and collect the change of control separation pay and benefits. Each agreement will continue for three years from the distribution date and automatically extend for one year on each anniversary of the agreement, unless Edwards Lifesciences notifies the specific participant in writing that the agreement will not be renewed.
Under this plan, the separation pay will equal either three years' annualized base salary and target cash bonus or two years' annualized base salary and target cash bonus (as determined by the Compensation Committee in its discretion depending on the employee's position). In addition, vesting of all outstanding equity grants will be accelerated upon a change of control and other terms and conditions will be governed by the provisions of the Edwards Lifesciences 2000 Incentive Compensation Program.
In the event that any payments would be subject to an excise tax under the tax code, Edwards Lifesciences will pay an additional gross-up amount for any excise tax and federal, state and local income taxes, such that the net amount of the payments would be equal to the net payments after income taxes had the excise tax and resulting gross-up not been imposed.
Edwards Lifesiences will enter into an employment agreement with its Chief Executive Officer, Michael A. Mussallem. The agreement has a term of three years, with automatic one-year renewals after two years. The agreement sets forth Mr. Mussallem's compensation and benefits arrangements. The agreement provides that if Edwards Lifesciences terminates Mr. Mussallem for "cause" as defined in the employment agreement, he will be entitled to his base salary through the date of termination and all vested benefits. If Mr. Mussallem is involuntarily terminated by Edwards Lifesciences without "cause" as defined in the employment agreement, Edwards Lifesciences is required to pay Mr. Mussallem his unpaid base salary and accrued vacation through the date of termination; a pro rata portion of his annual target bonus for the period served; two times the sum of (1) his annualized base salary and (2) the greater of his target annual bonus for the year he is terminated or his actual annual bonus for the prior year; and 24 months of continued medical coverage. The agreement also contains non-disclosure, non-solicitation and non- disparagement obligations of Mr. Mussallem.
Edwards Lifesciences Retirement Plan for United States Employees
Edwards Lifesciences will adopt a tax-qualified defined contribution retirement plan (Edwards Lifesciences Retirement Plan) for its United States employees effective on the distribution date. This plan will include a section 401(k) deferred compensation account (401(k) account), a company matching contribution account, a performance account for Edwards Lifesciences' hourly manufacturing employees, an initial stock grant for Edwards Lifesciences' hourly employees and a transition account for each eligible employee, as described below.
The defined contribution accounts for transferring employees under the Baxter Incentive Investment Plan will be transferred to the Edwards Lifesciences Retirement Plan. The Edwards Lifesciences Retirement Plan will establish a fund to hold the Baxter common stock currently held on behalf of Edwards Lifesciences employees in the Baxter Incentive Investment Plan. The Edwards Lifesciences Retirement Plan will allow participants to redirect the balances of their Edwards Lifesciences Retirement Plan accounts that are invested in the Baxter common stock fund but not allow participants to direct that their plan accounts make new investments in Baxter common stock within the Edwards Lifesciences Retirement Plan.
401(k) Account and Company Matching Contribution Account
Employees of Edwards Lifesciences will be eligible to contribute to the Edwards Lifesciences Retirement Plan on or after the distribution date. Participants may elect to contribute, on a before-tax basis, up to 15% of their annual eligible compensation as defined by the Edwards Lifesciences Retirement Plan to their 401(k) accounts. Edwards Lifesciences will match the first 3% (from 1-3%) of the participant's annual eligible compensation contributed to the plan on a dollar for dollar basis. Edwards Lifesciences will match the next 2% (from 4-5%) of the participant's annual eligible compensation to the plan on a 50% basis.
Performance Account
Subject to the terms of the Edwards Lifesciences Retirement Plan, hourly manufacturing employees of Edwards Lifesciences in the United States will be eligible to receive contributions to their performance accounts under such plan. Edwards Lifesciences will make discretionary contributions to each performance account in an amount equal to a target of 3% of the participant's annual eligible compensation based on achievement of certain performance measures. Contributions will be made quarterly, in cash, and will be invested according to each employee's current 401(k) account investment elections if the employee is a participant in the 401(k); otherwise the contributions will be invested in the Edwards Lifesciences Common Stock Fund. Such contribution will be immediately vested, and participants may elect to re-invest them in any of the other funds within the Retirement Plan.
Initial Stock Grant Account
Edwards Lifesciences will be awarding each hourly manufacturing employee in the United States a contribution of 50 shares of Edwards Lifesciences common stock to be held in a special account under the Edwards Lifesciences Retirement Plan. The grant will be immediately vested, but the shares will not be available for loan or withdrawals, and the special stock account may not be reallocated to other funds within the 401(k) account.
Transition Account
Edwards Lifesciences has determined that it will facilitate the transition of certain longer service employees from the Baxter Pension Plan to the Edwards Lifesciences Retirement Plan by offering some additional benefits to employees who meet specific age and service criteria. Contributions to a transition account under the Edwards Lifesciences Retirement Plan will be made to five groups of salaried non-exempt and hourly manufacturing employees. These contributions will be made in cash, and will be invested according to each employee's current 401(k) account investment elections if the employee is a participant in the 401(k); otherwise the contributions will be invested in the Edwards Lifesciences Common Stock Fund. They will be immediately vested, and participants may elect to re-invest them in any of the other funds within the Retirement Plan. Annual contributions will be made for eligible participants until the earlier of when such participant terminates employment or reaches age 65.
Employees with 75 or more "points" (as determined under the terms of the Baxter Pension Plan explained on page 56) as of the distribution date will receive transition contributions equal to 5% of the participant's eligible compensation.
Employees with 70-74 "points" as of the distribution date will receive transition contributions equal to 3% of the participant's eligible compensation.
Employees with 65-69 "points" as of the distribution date will receive transition contributions equal to 2.5% of the participant's eligible compensation.
Employees with 60-64 "points" and at least 10 years of "benefit service" (as determined under the terms of the Baxter Pension Plan explained on page 56) as of the distribution date will receive transition contributions equal to 1% of the participant's eligible compensation.
Employees with 55-59 "points" and at least 10 years of "benefit service" (as determined under the terms of the Baxter Pension Plan explained on page 56) as of the distribution date will receive transition contributions equal to one-half of 1% of the participant's eligible compensation.
Edwards Lifesciences Non-Qualified Plan
Federal income tax laws limit the amount Edwards Lifesciences may contribute to the accounts of certain highly compensated participants under the Edwards Lifesciences Retirement Plan. Federal income tax laws also limit the amount participants may contribute to their accounts under the Edwards Lifesciences Retirement Plan. Edwards Lifesciences will adopt an unfunded non- qualified excess plan (Edwards Lifesciences Excess Plan) that will credit participants affected by the limits with the amount of their contributions that the participants would have contributed or that Edwards Lifesciences would have contributed on their behalf to the Edwards Lifesciences Retirement Plan but for such limits. Eligible participants may elect to defer all or a portion of their bonuses payable under the Edwards Lifesciences Incentive Plan to the Edwards Lifesciences Retirement Plan.
Baxter Pension Plan
Eligible Edwards Lifesciences employees (transferring employees) will continue to participate for purposes of benefit accruals in the Baxter Pension Plan through the distribution date. All benefit accruals for Edwards Lifesciences United States employees in the Baxter Pension Plan cease as of the distribution date and all such employees will be fully vested in their accrued benefits under the Pension Plan as of such date. Edwards Lifesciences' United States employees with vested accrued benefits in the Pension Plan will have those benefits maintained by the Pension Plan until they are eligible or required to receive them according to the terms of the Plan.
Employee Stock Purchase Plan for United States Employees
Edwards Lifesciences will adopt an employee stock purchase plan for its United States employees, as described in Section 423 of the tax code. All active employees of Edwards Lifesciences and its United States subsidiaries will be eligible to participate in the Plan. The employee stock purchase plan will make available shares of Edwards Lifesciences common stock for purchase by eligible employees through payroll deductions at a maximum rate of 12% of eligible compensation. The purchase price per share will be equal to the lesser of 85% of the fair market value of Edwards Lifesciences common stock on the effective date of subscription or 85% of the fair market value of Edwards Lifesciences common stock on the date of purchase. Purchases will be made quarterly. There will be 325,000 shares reserved for issuance under this Plan.
Transition Options for Salaried Exempt Employees
Edwards Lifesciences has determined that it will facilitate the transition of certain longer service salaried exempt employees out of the Baxter Pension Plan by offering additional stock options to salaried exempt employees who meet specific age and service criteria. Transition stock options will be provided to five groups of salaried exempt employees. Eligible employees will receive an annual grant as described below, until the earlier of when the employee reaches age 65 or terminates employment. The options will have a ten year term with three year vesting.
Employees with 75 or more "points" (as determined under the terms of the Pension Plan explained on page 52) as of the distribution date will receive an annual transition option grant equal in value to 8% of the participant's eligible compensation (based on a Black Scholes valuation of the options as of the distribution date).
Employees with 70-74 "points" as of the distribution date will receive an annual transition option grant equal in value to 6% of the participant's eligible compensation.
Employees with 65-69 "points" as of the distribution date will receive an annual transition option grant equal in value to 5.5% of the participant's eligible compensation.
Employees with 60-64 "points" and at least 10 years of "benefit service" (as determined under the terms of the Pension Plan explained on page 56) as of the distribution date will receive an annual transition option grant equal in value to 4% of the participant's eligible compensation.
Employees with 55-59 "points" and at least 10 years of "benefit service" (as determined under the terms of the Pension Plan explained on page 56) as of the distribution date will receive an annual transition option grant equal in value to 3.5% of the participant's eligible compensation.
Initial Stock Option Grant for Salaried Employees Worldwide
Edwards Lifesciences will be awarding each salaried exempt and each salaried non-exempt employee 250 Edwards Lifesciences stock options. This is a one-time stock option grant. The options will have a ten year term and three year vesting.
Employee Stock Purchase Plan for Employees Outside the United States
Employees outside the United States are also eligible to participate in an Employee Stock Purchase Plan. The terms of that plan mirror the stock plan available to United States employees. There will be 50,000 shares reserved for issuance under this plan.
Initial Stock Grant for Hourly Employees Outside the United States
As noted above, hourly employees within the United States will receive a one-time contribution of 50 shares of Edwards Lifesciences common stock to be held in a special account under the Edwards Lifesciences Retirement Plan. Hourly employees outside the United States will also receive an identical contribution where permitted by local law. In these jursidictions where it is not permitted hourly employees will receive a one time cash contribution which will be allocated to each employee's retirement plan account where permitted. These contributions will be immediately vested. Whether those shares can be allocated to the local retirement plan for those employees will be determined on a country-by-country basis.
Other Retirement Plans for Employees Outside the United States
Various other retirement plans will be offered to Edwards Lifesciences employees outside the United States according to the terms of local law and as supplemented by Edwards Lifesciences.
SECURITY OWNERSHIP OF EDWARDS LIFESCIENCES
The following table sets forth the beneficial ownership of Edwards Lifesciences common stock immediately following the distribution date based on an assumed exchange ratio of five to one by each of Edwards Lifesciences' directors, its Chief Executive Officer and the executive officers who are expected to be Edwards Lifesciences' four most highly compensated executive officers in 2000 and all directors and executive officers as a group, based upon information available to Baxter concerning ownership of shares of Baxter common stock on January 31, 2000. The mailing address of each of these individuals is c/o Edwards Lifesciences Corporation, 17221 Red Hill Avenue, Irvine, California 92614. Immediately following the distribution date, none of these directors and executive officers will individually own more than 1% of the outstanding Edwards Lifesciences common stock, and as a group all of these directors and executive officers will not cumulatively own more than 1% of the outstanding Edwards Lifesciences common stock. Except as otherwise noted, each individual has sole investment and voting power with respect to the shares listed.
Number of Shares
Projected to be
Name Beneficially Owned
---- ------------------
Michael A. Mussallem............................... 57,213(1)
Vernon R. Loucks Jr................................ 151,557(2)(3)
Philip M. Neal..................................... -0-(3)
David E.I. Pyott................................... -0-(3)
Victoria R. Fash................................... -0-(3)
Mike R. Bowlin..................................... -0-(3)
Anita B. Bessler................................... 18,943
Stuart L. Foster................................... 23,701
Bruce J. Bentcover................................. -0-
Bruce P. Garren.................................... -0-
All directors and executive officers as a group
(16 persons)...................................... 308,078(1)(2)
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Based on ownership of Baxter common stock as of December 31, 1999, the following entity is expected to be a beneficial owner of five percent or more of Edwards Lifesciences' common stock:
Percent
Projected Amount of of
Name and Address of Beneficial Owner Beneficial Ownership Class
------------------------------------ -------------------- -------
Wellington Management Company, LLP (1)
75 State Street
Boston, Massachusetts 02109 2,994,498 5.15%
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(1) Based solely on information contained in the Schedule 13G filed with the SEC by Wellington Management Company, LLP on its own behalf, on February 11, 2000.
No other person is projected to own beneficially more than 5% of the outstanding Edwards Lifesciences common stock immediately following the distribution date.
DESCRIPTION OF EDWARDS LIFESCIENCES CAPITAL STOCK
Authorized Capital Stock
The authorized capital stock of Edwards Lifesciences consists of 350,000,000 shares of common stock, par value $1.00 per share, and 50,000,000 shares of preferred stock, par value $.01 per share. Baxter will not issue any shares of Edwards Lifesciences preferred stock in connection with the distribution. Based on the number of shares of Baxter common stock outstanding as of December 31, 1999, Baxter will issue up to approximately 58,039,903 shares of Edwards Lifesciences common stock to Baxter stockholders in the distribution. All of the shares of Edwards Lifesciences common stock issued in the distribution will be validly issued, fully paid and non-assessable. The following is a summary description of the capital stock of Edwards Lifesciences. For more complete information, you should read the amended and restated certificate of incorporation (certificate of incorporation) and amended and restated bylaws (bylaws) of Edwards Lifesciences that are included as exhibits to the registration statement of which this information statement is a part.
Edwards Lifesciences Common Stock
Edwards Lifesciences stockholders are entitled to one vote for each share of common stock held by that stockholder on all matters submitted to a vote of stockholders. A majority of the votes cast is required for all actions to be taken by stockholders, except for the election of directors which requires a plurality of the votes cast, and amendments of certain provisions of the certificate of incorporation and bylaws as described below under "Certain Anti-Takeover Effects of Provisions of Edwards Lifesciences' Certificate of Incorporation and Bylaws and of Delaware Law--Certificate of Incorporation and Bylaws--Amendment of Certain Provisions of the Certificate of Incorporation and Bylaws."
Edwards Lifesciences stockholders will not have cumulative voting rights in the election of directors. Edwards Lifesciences stockholders will not have any preemptive, subscription, redemption, sinking fund or conversion rights. Edwards Lifesciences stockholders are entitled to the dividends that may be declared by the Edwards Lifesciences board out of funds legally available for dividends, subject to preferences that may apply to holders of any outstanding shares of Edwards Lifesciences preferred stock. If there is a liquidation, dissolution or winding-up of Edwards Lifesciences, Edwards Lifesciences will distribute the assets that are legally available for distribution to stockholders ratably among the holders of Edwards Lifesciences common stock outstanding at that time, subject to prior distribution rights of creditors and to the preferential rights of any outstanding shares of Edwards Lifesciences preferred stock.
Edwards Lifesciences Preferred Stock
Under the Edwards Lifesciences certificate of incorporation, the Edwards Lifesciences board is authorized to provide for the issuance of Edwards Lifesciences preferred stock, in one or more series. The Edwards Lifesciences board is authorized to determine the designations, voting powers, preferences and rights of any series of preferred stock, and any qualifications, limitations or restrictions of any series of preferred stock. The Edwards Lifesciences board designated a series of preferred stock in connection with the rights agreement described below.
Edwards Lifesciences Rights Agreement
Edwards Lifesciences' board adopted a rights agreement between Edwards Lifesciences and EquiServe Trust Company, N.A., as rights agent. The board will cause Edwards Lifesciences to issue one preferred share purchase right with each share of Edwards Lifesciences common stock issued at the close of business on the record date for the distribution. Each right will entitle the registered holder to purchase from Edwards Lifesciences one one-hundredth of a share of Series A Junior Participating Preferred Stock for a price to be determined by a pricing committee of the board prior to the distribution, subject to the adjustments specified in the rights agreement. The terms of the rights will be set forth in the rights agreement. The description set forth below is intended as a summary of the rights and the rights agreement. For more complete information, you should read the form of rights agreement that is included as an exhibit to the registration statement of which this information statement is a part.
The rights become exercisable upon the earliest to occur of:
. 10 days after the first public announcement that any person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of the outstanding shares of Edwards Lifesciences common stock, subject to certain exceptions (an "Acquiring Person"); and
. 10 business days, unless delayed by the board, after the commencement by any person of a tender or exchange offer if, upon the consummation of the tender or exchange offer, that person would be the beneficial owner of 15% or more of the outstanding shares of Edwards Lifesciences common stock.
The earliest of the dates specified in the preceding sentence is called the "Rights Distribution Date."
Until the rights become exercisable, they will only be represented by the stock certificates for the Edwards Lifesciences common stock and will not trade independently, but only with the associated shares of Edwards Lifesciences common stock. If the rights become exercisable, separate certificates representing the rights will be distributed to holders and the rights will then trade independently from the Edwards Lifesciences common stock. Until a right is exercised, the holder of the right, as such, will have no rights as a stockholder of Edwards Lifesciences, including, without limitation, the right to vote or to receive dividends. Preferred shares purchasable upon exercise of the rights will not be redeemable. The rights are not exercisable until the Rights Distribution Date. The rights will expire ten years from the date of issuance, unless the expiration date is extended or unless the rights are earlier redeemed or exchanged by Edwards Lifesciences, as described below.
Because of the nature of the dividend, liquidation and voting rights of the Series A preferred stock, the value of one one-hundredth interest in a share of Series A preferred stock purchasable upon exercise of each right should approximate the value of one share of Edwards Lifesciences common stock. Each preferred share will be entitled to a minimum preferential quarterly dividend payment of $1 per share and an aggregate dividend of 100 times the dividend declared per share of Edwards Lifesciences common stock. If there is a liquidation of Edwards Lifesciences, the holders of the preferred shares will be entitled to a minimum preferential liquidation payment of $100 per share. Each preferred share will have 100 votes and will vote together with the Edwards Lifesciences common stock. Finally, if there is any merger, consolidation or other transaction in which shares of Edwards Lifesciences common stock are exchanged, each preferred share will be entitled to receive 100 times the amount received per share of Edwards Lifesciences common stock. Edwards Lifesciences will not issue fractional shares of preferred stock, other than fractions that are integral multiples of one one-hundredth of a share of preferred stock, which may, at Edwards Lifesciences election, be evidenced by depositary receipts. In lieu of fractional shares, an adjustment in cash will be made based on the market price of the preferred shares on the last trading day prior to the date of exercise. The rights are protected by customary anti-dilution provisions.
If any person or group of affiliated or associated persons becomes an Acquiring Person, as defined in the rights agreement, each holder of a right, other than rights beneficially owned by the Acquiring Person which will be voided, will have the right to receive upon exercise of the right the number of shares of Edwards Lifesciences common stock having a market value of two times the exercise price of the right. If Edwards Lifesciences is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold after a person or group of affiliated or associated persons has become an Acquiring Person, each holder of a right will have the right to receive, upon the exercise of the right, the number of shares of common stock of the acquiring company that at the time of the transaction will have a market value of two times the exercise price of the right.
At any time after any person or group of affiliates or associated persons becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding shares of Edwards Lifesciences common stock, the Edwards Lifesciences board may exchange the rights, other than rights that have become void, in whole or in part, at an exchange ratio of one share of Edwards Lifesciences common stock, or one one-hundredth of a preferred share, or of a share of a class or series of Edwards Lifesciences preferred stock having equivalent rights, preferences and privileges, per right, subject to adjustment.
In general, Edwards Lifesciences may redeem the rights in whole, but not in part, at a price of $.01 per right at any time until ten days following the first public announcement that a person or group of affiliated or associated persons has become an Acquiring Person. Immediately upon the board's authorization of a redemption, the rights will terminate and the only right of the holders of the rights will be to receive the redemption price.
The terms of the rights may be amended by the Edwards Lifesciences board without the consent of the holders of the rights. However, from and after such time as any person or group of affiliated or associated persons becomes an Acquiring Person, the Edwards Lifesciences board may not amend the terms of the rights in a manner adversely affecting the interests of the holders of the rights.
The rights will have an anti-takeover effect because the rights will cause substantial dilution to a person or group that attempts to acquire Edwards Lifesciences on terms not approved by the Edwards Lifesciences board. The rights should not interfere with any merger or other business combination approved by the Edwards Lifesciences board because the rights may be redeemed by Edwards Lifesciences until the tenth day following the first public announcement that a person or group has become an Acquiring Person.
CERTAIN ANTI-TAKEOVER EFFECTS OF
PROVISIONS OF EDWARDS LIFESCIENCES' CERTIFICATE OF INCORPORATION AND
BYLAWS AND OF DELAWARE LAW
Certificate of Incorporation and Bylaws
Edwards Lifesciences' certificate of incorporation and bylaws contain provisions that could make it more difficult to acquire Edwards Lifesciences by means of a tender offer, proxy contest or otherwise. The description set forth below is intended as a summary only; for more complete information you should read the certificate of incorporation and the bylaws that are included as exhibits to the registration statement, of which this information statement is a part.
Classified Board of Directors
Edwards Lifesciences' certificate of incorporation provides that the Edwards Lifesciences directors, other than those who may be elected by the holders of any series of preferred stock under specified circumstances, will be divided into three classes of directors, with the classes to be as nearly equal in number as possible, and with each class serving a staggered term. Immediately after the distribution, the Edwards Lifesciences board will consist of the persons referred to in "Edwards Lifesciences Management--Board of Directors." The certificate of incorporation provides that the term of office of the first class will expire at the 2001 annual meeting of stockholders. The term of office of the second class will expire at the 2002 annual meeting of stockholders. The term of office of the third class will expire at the 2003 annual meeting of stockholders.
The classification of directors will make it more difficult for stockholders to change the composition of the Edwards Lifesciences board. At least two annual meetings of stockholders, instead of one, will be required to change a majority of the Edwards Lifesciences board. Such a delay may help ensure that the Edwards Lifesciences board, if confronted by a stockholder's attempt to force a stock repurchase at a premium above market price, a proxy contest or an extraordinary corporate transaction, would have sufficient time to review the proposal as well as any available alternatives to the proposal and to act in what they believe to be the best interests of the stockholders. However, the classification provisions could have the effect of discouraging a third party from initiating a proxy contest, making a tender offer or otherwise attempting to obtain control of Edwards Lifesciences, even though such an attempt might be beneficial to Edwards Lifesciences and its stockholders. In addition, the classification of the Edwards Lifesciences board could increase the likelihood that incumbent directors will retain their positions. Finally, because the classification provisions may discourage accumulations of large blocks of Edwards Lifesciences' stock by purchasers whose objective is to take control of Edwards Lifesciences and remove a majority of the Edwards Lifesciences board, the classification of the Edwards
Lifesciences board could reduce the likelihood of fluctuations in the market price of Edwards Lifesciences common stock that might result from accumulations of large blocks. Accordingly, stockholders could be deprived of certain opportunities to sell their shares of Edwards Lifesciences common stock at a higher market price than they might otherwise obtain.
Number of Directors; Filling Vacancies; Removal
Edwards Lifesciences' certificate of incorporation provides that the Edwards Lifesciences board will fix the number of Edwards Lifesciences directors, subject to any rights of holders of Edwards Lifesciences preferred stock to elect additional directors under specific circumstances. In addition, the certificate of incorporation provides that any vacancy that results from an increase in the number of directors or for any other reason may be filled only by a majority of directors then in office, subject to any rights of holders of Edwards Lifesciences preferred stock. Accordingly, absent an amendment to the Edwards Lifesciences certificate of incorporation, the Edwards Lifesciences board could prevent a stockholder from increasing the size of the Edwards Lifesciences board and filling the newly created directorships with that stockholder's own nominees. Under Delaware General Corporation Law, unless otherwise provided in the certificate of incorporation, directors serving on a classified board may be removed by the stockholders only for cause.
No Stockholder Action by Written Consent; Special Meetings
Edwards Lifesciences' certificate of incorporation prohibits stockholder action by written consent in lieu of a meeting. The bylaws provide that special meetings of the stockholders may be called only by the chairman of the board or the secretary or by resolution of the directors, and shall be called upon a request signed by a majority of the directors.
The provisions of Edwards Lifesciences' certificate of incorporation prohibiting stockholder action by written consent may have the effect of delaying consideration of a stockholder proposal until the next annual meeting unless a special meeting is called at the request of a majority of the board. These provisions would also prevent the holders of a majority of the voting power of the voting stock from unilaterally using the written consent procedure to take stockholder action. Moreover, a stockholder could not force stockholder consideration of a proposal over the opposition of the Edwards Lifesciences board by calling a special meeting of stockholders prior to the time a majority of the board believes such consideration to be appropriate.
Advance Notice of Stockholder Nominations and Stockholder Proposals Required
The Edwards Lifesciences bylaws establish an advance notice procedure for stockholders to make nominations of candidates for election as directors, or bring other business before an annual meeting of stockholders.
The advance notice procedures provide that the only persons who are eligible for election as Edwards Lifesciences directors are those who are nominated by, or at the direction of, the Edwards Lifesciences board, or by a stockholder who has given timely written notice to the secretary prior to the meeting at which directors are to be elected. The advance notice procedures provide that at an annual meeting the only business that may be conducted is that which has been brought before the meeting by, or at the direction of, the Edwards Lifesciences board or by a stockholder who has given timely written notice to Edwards Lifesciences' secretary of that stockholder's intention to bring that business before the meeting. Under the advance notice procedures, for a stockholder to timely provide notice of any stockholder nominations at an annual meeting, Edwards Lifesciences must receive the notice not less than 75 days nor more than 100 days prior to the first anniversary of the previous year's annual meeting. However, if Edwards Lifesciences advances the date of any other annual meeting by more than 30 days from the anniversary date of the meeting, a stockholder must provide notice not later than the 10th day after Edwards Lifesciences mails or publicly announces the notice of the date of the annual meeting. Under the advance notice procedures, for a stockholder to timely provide notice of any stockholder nominations at a special meeting at which directors are to be elected, Edwards Lifesciences must receive the notice not less than 75 days nor more than 100 days prior to the special meeting or by the 10th day after Edwards Lifesciences publicly announces the date of the special meeting.
A stockholder's notice to Edwards Lifesciences proposing to nominate a person for election as a director must contain certain information including, without limitation, the name and address of the nominating stockholder, the class and number of shares of stock of Edwards Lifesciences that are owned by that stockholder and all information regarding the proposed nominee that would be required to be included in a proxy statement soliciting proxies for the proposed nominee. A stockholder's notice to Edwards Lifesciences relating to other proposed business must contain certain information about the proposed business and about the proposing stockholder, including, without limitation, a brief description of the business, the reasons for conducting the business at the meeting, the name and address of the proposing stockholder, the class and number of shares of stock of Edwards Lifesciences beneficially owned by such stockholder and any material interest of that stockholder in the business so proposed. If the chairman of the board or other officer presiding at the meeting determines that a person was not nominated or other business was not properly brought before the meeting, that person will not be eligible for election as a director or that business will not be conducted at the meeting, as the case may be.
The advance notice procedures regarding election of directors afford Edwards Lifesciences' board an opportunity to consider the qualifications of the proposed nominees and, to the extent deemed necessary or desirable by the Edwards Lifesciences board regarding other proposed business, provide a more orderly procedure for conducting annual meetings of stockholders. In addition, these advance notice procedures will provide the Edwards Lifesciences board with an opportunity to inform stockholders in advance of a meeting, to the extent deemed necessary or desirable by the Edwards Lifesciences board, of any business proposed to be conducted at the meeting and any board recommendation regarding the proposed business, so that stockholders can better decide whether to attend the meeting or to grant a proxy regarding the disposition of the proposed business.
Although the bylaws do not give the Edwards Lifesciences board any power to approve or disapprove of stockholder nominations for the election of directors or other proposals, they may preclude a contest for the election of directors or the consideration of stockholder proposals if the proper procedures are not followed. In addition, these procedures may discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal, without regard to whether consideration of those nominees or proposals might be harmful or beneficial to Edwards Lifesciences and its stockholders.
Amendment of Certain Provisions of the Certificate of Incorporation and Bylaws
Under Delaware General Corporation Law, the stockholders have the right to adopt, amend or repeal the bylaws and, with the approval of the board of directors, the certificate of incorporation of a corporation. In addition, under Delaware General Corporation Law, if the certificate of incorporation so provides, the bylaws may be adopted, amended or repealed by the board of directors. Edwards Lifesciences' certificate of incorporation provides that the affirmative vote of the holders of at least 80% of the voting power of the outstanding shares of voting stock, voting together as a single class, is required to amend provisions of the certificate of incorporation relating to:
. the prohibition of stockholder action without a meeting;
. the number, election and term of Edwards Lifesciences' directors;
. super-majority voting requirements to amend the charter; and
. the issuance of rights.
The bylaws may be amended by the Edwards Lifesciences board or by the affirmative vote of the holders of at least 80% of the voting power of the outstanding shares of voting stock, voting together as a single class. These super-majority voting requirements will have the effect of making more difficult any amendment by stockholders of the bylaws or of any of the provisions of the certificate of incorporation described above, even if a majority of Edwards Lifesciences' stockholders believe that an amendment would be in their best interests.
Delaware Law
Anti-Takeover Legislation
Section 203 of the Delaware General Corporation Law provides that, subject to the exceptions specified in that section, a corporation may not engage in any business combination with any interested stockholder for a three-year period following the time that such stockholder becomes an interested stockholder unless:
. prior to that time, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding certain shares); or
. at or subsequent to that time, the business combination is approved by the board of directors of the corporation and by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.
Except as specified in Section 203 of the Delaware General Corporation Law, an "interested stockholder" is defined to include:
. any person that is the owner of 15% or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation, at any time within three years immediately prior to the relevant date; and
. the affiliates and associates of any person described in the preceding clause.
Under certain circumstances, Section 203 of the Delaware General
Corporation Law makes it more difficult for a person who would be an
interested stockholder to effect various business combinations with a
corporation for a three-year period. It is anticipated that the provisions of
Section 203 may encourage persons interested in acquiring Edwards Lifesciences
to negotiate in advance with the Edwards Lifesciences board, since those
persons could avoid the stockholder approval requirement if a majority of the
directors then in office approves either the business combination or the
transaction that results in the stockholder becoming an interested
stockholder.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF EDWARDS LIFESCIENCES DIRECTORS
AND OFFICERS
Limitation of Liability of Directors
Edwards Lifesciences' certificate of incorporation provides that a director of Edwards Lifesciences will not be personally liable to Edwards Lifesciences or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to Edwards Lifesciences or its stockholders;
. for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, which concerns unlawful payments of dividends, stock purchases or redemptions; or
. for any transaction from which the director derived an improper personal benefit.
While Edwards Lifesciences' certificate of incorporation provides directors with protection from awards for monetary damages for breaches of their duty of care, it does not eliminate their duty of care. Accordingly, the certificate of incorporation will have no effect on the availability of equitable remedies such as an injunction or rescission based on a director's breach of his or her duty of care. The provisions of the certificate of incorporation described above apply to an officer of Edwards Lifesciences only if he or she is a director of Edwards Lifesciences and is acting in his or her capacity as director, and do not apply to officers of Edwards Lifesciences who are not directors.
Indemnification of Directors and Officers
The Edwards Lifesciences certificate of incorporation provides that each person who is, or was, or has agreed to become a director or officer of Edwards Lifesciences, and each person who serves, or may have served, at the request of Edwards Lifesciences as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, will be indemnified by Edwards Lifesciences to the fullest extent permitted from time to time by Delaware law, as the same exists or may hereafter be amended. Directors and officers will not be indemnified with respect to an action commenced by such directors or officers against Edwards Lifesciences or by such directors or officers as a derivative action.
The certificate of incorporation of Edwards Lifesciences provides that the right to indemnification and the payment of expenses conferred in the certificate of incorporation will not be exclusive of any other right which any person may have or may in the future acquire under any agreement, vote of stockholders, vote of disinterested directors or otherwise. The certificate of incorporation permits Edwards Lifesciences to maintain insurance on behalf of any person who is, or was, a director, officer, employee or agent of Edwards Lifesciences, or is serving at the request of Edwards Lifesciences as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not Edwards Lifesciences would have the power to indemnify such person against that liability under the certificate of incorporation or Delaware law.
Edwards Lifesciences intends to obtain directors and officers liability insurance providing coverage to its directors and officers.
EDWARDS LIFESCIENCES' 2001 ANNUAL MEETING OF STOCKHOLDERS
The Edwards Lifesciences bylaws provide that an annual meeting of stockholders will be held each year on a date specified by the Edwards Lifesciences board of directors. The first annual meeting of Edwards Lifesciences stockholders after the distribution is expected to be held on May 10, 2001. In order to be considered for inclusion in Edwards Lifesciences' proxy materials for the 2001 annual stockholders meeting, any proposals by stockholders must be received at Edwards Lifesciences' principal executive offices at 17221 Red Hill Avenue, Irvine, California 92614, prior to January 10, 2001. Edwards Lifesciences anticipates commencing the mailing of proxies for the 2001 annual stockholders meeting on or about March 9, 2001. In addition, stockholders at the Edwards Lifesciences 2001 annual meeting may consider stockholder proposals or nominations brought by a stockholder of record on the record date for the 2001 annual meeting, who is entitled to vote at such annual meeting and who has complied with the advance notice procedures established by the Edwards Lifesciences bylaws. A stockholder proposal or nomination intended to be brought before the Edwards Lifesciences 2001 annual meeting must be received by Edwards Lifesciences' secretary on or after January 30, 2001 and on or prior to February 24, 2001. See "Certain Anti- Takeover Effects of Provisions of Edwards Lifesciences' Certificate of Incorporation and Bylaws and of Delaware Law--Certificate of Incorporation and Bylaws."
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement, of which this information statement constitutes a part, under the Securities Exchange Act of 1934 with respect to the Edwards Lifesciences common stock being received by Baxter stockholders in the distribution. This information statement does not contain all of the information set forth in the registration statement. For further information with respect to our business and the common stock being received by Baxter stockholders in the distribution, please refer to the registration statement. While we have provided a summary of the material terms of the contents of certain contracts and other documents, the summary does not describe all of the details of the contracts and other documents. In each instance where a copy of a contract or other document has been filed as an exhibit to the registration statement, please refer to the registration statement. Each statement in this information statement regarding a contract or
other document is qualified in all respects by such exhibit. You may read and copy all or any portion of the registration statement at the offices of the SEC at Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the Public Reference Section of the SEC, Washington, D.C. 20549 upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the public reference rooms. The SEC maintains a Web site, http://www.sec.gov, that contains reports, proxy and information statements and other information regarding registrants, such as Baxter and Edwards Lifesciences, that file electronically with the SEC. Upon completion of this offering, Edwards Lifesciences will become subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, and, in accordance therewith, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's public reference rooms and the SEC's Web site.
Edwards Lifesciences intends to furnish its stockholders with annual reports containing consolidated financial statements (beginning with fiscal year 2000) audited by independent accountants.
You should rely only on the information contained in this information statement and other documents referred to in this information statement. Baxter and Edwards Lifesciences have not authorized anyone to provide you with information that is different. This information statement is being furnished by Baxter solely to provide information to Baxter stockholders who will receive Edwards Lifesciences common stock in the distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any securities of Baxter or Edwards Lifesciences. Baxter and Edwards Lifesciences believe that the information presented herein is accurate as of the date hereof. Changes will occur after the date hereof, and neither Baxter nor Edwards Lifesciences will update the information except to the extent required in the normal course of their respective public disclosure practices and as required pursuant to the federal securities laws.
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
INDEX TO COMBINED FINANCIAL STATEMENTS AND SCHEDULE
Page
----
Report of Independent Accountants.......................................... F-2
Combined Balance Sheets.................................................... F-3
Combined Statements of Income.............................................. F-4
Combined Statements of Cash Flows.......................................... F-5
Combined Statements of Equity and Comprehensive Income..................... F-6
Notes to Edwards Lifesciences Corporation Combined Financial Statements.... F-7
|
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders of
Baxter International Inc.
In our opinion, the combined financial statements listed on the accompanying index present fairly, in all material respects, the financial position of Edwards Lifesciences Corporation (the Company, a division of Baxter International Inc.) at December 31, 1999, 1998 and 1997 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related combined 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 generally accepted auditing standards in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit 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 the opinion expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 18, 2000
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
COMBINED BALANCE SHEETS
(in millions)
December 31,
--------------
1999 1998
------ ------
Current assets
Accounts receivable, net of allowances of $8 million at
December 31, 1999 and December 31, 1998..................... $ 133 $ 141
Other receivables............................................ 22 28
Inventories.................................................. 182 156
Short-term deferred income taxes............................. 9 14
Prepaid expenses............................................. 10 14
------ ------
Total current assets....................................... 356 353
------ ------
Property, plant and equipment
Property, plant and equipment................................ 496 480
Accumulated depreciation and amortization.................... (270) (253)
------ ------
Net property, plant and equipment.......................... 226 227
------ ------
Other assets
Goodwill and other intangibles............................... 839 886
Other........................................................ 16 17
------ ------
Total other assets......................................... 855 903
------ ------
Total assets............................................. $1,437 $1,483
====== ======
Current liabilities
Accounts payable and accrued liabilities..................... $ 156 $ 157
------ ------
Total current liabilities.................................. 156 157
------ ------
Other noncurrent liabilities................................... 57 55
Contingencies and commitments..................................
Equity
Retained earnings............................................ 418 336
Investments by and advances from (payments to) Baxter
International Inc., net..................................... 833 960
Accumulated other comprehensive income (loss)................ (27) (25)
------ ------
Total equity............................................... 1,224 1,271
------ ------
Total liabilities and equity............................. $1,437 $1,483
====== ======
|
The accompanying notes are an integral part of these combined financial statements.
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
COMBINED STATEMENTS OF INCOME
(in millions)
Years ended
December 31,
---------------
1999 1998 1997
---- ---- ----
Net sales..................................................... $905 $865 $879
Costs and expenses
Cost of goods sold.......................................... 460 455 455
Cost of goods sold--transactions with Baxter................ 6 11 8
Marketing and administrative expenses....................... 189 187 168
Marketing and administrative expenses--transactions with
Baxter..................................................... 44 35 43
Research and development expenses........................... 41 40 41
Research and development expenses--transactions with Baxter. 14 16 12
In-process research and development......................... -- -- 132
Goodwill amortization....................................... 34 34 34
Other expense (income)...................................... 4 (6) 1
---- ---- ----
Total costs and expenses...................................... 792 772 894
---- ---- ----
Income (loss) before income taxes............................. 113 93 (15)
Income tax expense............................................ 31 31 37
---- ---- ----
Net income (loss)............................................. $ 82 $ 62 ($52)
==== ==== ====
|
The accompanying notes are an integral part of these combined financial statements.
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
COMBINED STATEMENTS OF CASH FLOWS
(in millions)
Years ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
(Brackets denote cash outflows)
Cash flow provided from operations
Net income (loss)........................ $ 82 $ 62 $ (52)
Adjustments
Depreciation and amortization.......... 84 82 80
In-process research and development.... -- -- 132
Other.................................. 12 14 (3)
Changes in balance sheet items
Accounts receivable.................... 14 9 (6)
Inventories............................ (14) (1) 10
Accounts payable and accrued
liabilities........................... (1) 6 4
Other.................................. (1) 4 (2)
---------- ---------- ----------
Cash flow provided by operations......... 176 176 163
---------- ---------- ----------
Investment transactions
Capital expenditures..................... (42) (40) (42)
Acquisitions (net of cash received)...... (7) (12) (16)
---------- ---------- ----------
Investment transactions, net............. (49) (52) (58)
---------- ---------- ----------
Financing transactions
Investments by and advances from
(payments to)
Baxter International Inc., net.......... (127) (124) (105)
---------- ---------- ----------
Financing transactions, net.............. (127) (124) (105)
---------- ---------- ----------
Change in cash and equivalents............. -- -- --
Cash and equivalents at beginning of
period.................................... -- -- --
---------- ---------- ----------
Cash and equivalents at end of period...... $ -- $ -- $ --
========== ========== ==========
Disclosure of noncash activity
Acquisition of business with Baxter
International Inc. common stock......... $ -- $ -- $ 223
========== ========== ==========
|
The accompanying notes are an integral part of these combined financial statements.
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
COMBINED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
(in millions)
Investments by
and advances
from (payments Accumulated
to) Baxter other
Total Retained International comprehensive Comprehensive
equity earnings Inc., net income (loss) Income (loss)
------ -------- -------------- ------------- -------------
Balance at December 31,
1996.................. $1,284 $326 $ 966 $ (8)
Net loss............. (52) (52) $(52)
----
Other comprehensive
income (loss):
Currency
translation
adjustments....... (16)
Unrealized net loss
on marketable
security, net of
tax benefit of $2. (3)
----
Other
comprehensive
income (loss)... (19) (19) (19)
----
Investments by and
advances from
(payments to) Baxter
International Inc.,
net:
Cash............... (105) (105)
Acquisition of
business with
Baxter
International Inc.
common stock...... 223 223
------ ---- ----- ----
Comprehensive income
(loss)................ $(71)
====
Balance at December 31,
1997.................. 1,331 274 1,084 (27)
Net income........... 62 62 $ 62
----
Other comprehensive
income:
Currency
translation
adjustments....... --
Unrealized net gain
on marketable
security, net of
tax of $1......... 2
----
Other
comprehensive
income.......... 2 2 2
----
Investments by and
advances from
(payments to) Baxter
International Inc.,
net................. (124) (124)
------ ---- ----- ----
Comprehensive income... $ 64
====
Balance at December 31,
1998.................. 1,271 336 960 (25)
Net income........... 82 82 $ 82
Other comprehensive
income:
Currency
translation
adjustments....... (1)
Unrealized net loss
on marketable
security, net of
tax benefit of $1. (1)
----
Other
comprehensive
income (loss)... (2) (2) (2)
----
Investments by and
advances from
(payments to) Baxter
International Inc.,
net................. (127) (127)
------ ---- ----- ---- ----
Comprehensive income... $ 80
====
Balance at December 31,
1999.................. $1,224 $418 $ 833 $(27)
====== ==== ===== ====
|
The accompanying notes are an integral part of these combined financial statements.
EDWARDS LIFESCIENCES CORPORATION
A DIVISION OF BAXTER INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
On July 11, 1999, the board of directors of Baxter International Inc. (Baxter) approved a plan to spin off its CardioVascular business to Baxter stockholders. Management expects that shares of the new cardiovascular company, Edwards Lifesciences Corporation (Edwards Lifesciences or the company,) will be distributed to Baxter stockholders (the distribution) in the first quarter of 2000 and that the spin-off will be tax-free. The distribution will result in Edwards Lifesciences operating as an independent entity with publicly traded common stock.
Edwards Lifesciences is a global leader in providing a comprehensive line of products and services to treat late-stage cardiovascular disease. Edwards Lifesciences' sales are categorized in four main product areas: (a) cardiac surgery, (b) critical care, (c) vascular and (d) perfusion products and services. In addition, Edwards Lifesciences also offers a diverse grouping of product lines comprised mostly of pharmaceuticals and selected distributed products. Edwards Lifesciences' cardiac surgery portfolio is comprised of products relating to heart valve therapy, mechanical cardiac assist, and cannulae and cardioplegia products used during open-heart surgery. The critical care product category primarily includes hemodynamic monitoring systems used to measure a patient's heart function in surgical and intensive care settings. The vascular product area includes balloon catheter-based products, surgical clips and inserts, angioscopy equipment, artificial implantable grafts, and an endovascular system used for less-invasive abdominal aortic aneurysms. The perfusion products and services area includes disposable products used during cardiopulmonary bypass procedures and contract perfusion services.
Baxter will have no ownership interest in Edwards Lifesciences after the spin-off, but will continue to conduct business pursuant to various agreements, which are outlined in Note 7. However, unless released by third parties, Baxter will remain liable for certain lease and other obligations and liabilities that are transferred to and assumed by Edwards Lifesciences. Edwards Lifesciences will be obligated by the reorganization agreement to indemnify Baxter against liabilities related to those transferred obligations and liabilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the reader in understanding and evaluating the combined financial statements. These policies are in conformity with accounting principles generally accepted in the United States (GAAP) and have been applied consistently in all material respects. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses during the reporting period, and related disclosures. Actual results could differ from those estimates.
Basis of presentation
Baxter does not account for its businesses on the basis of separate legal entities. The specific product lines included in Baxter's CardioVascular business are described in Note 1 above. The accompanying combined financial statements include those assets, liabilities, revenues, expenses and cash flows directly attributable to the operations associated with the product lines described above. The combined financial statements have been prepared using Baxter's historical bases in the assets and liabilities and the historical results of operations of the CardioVascular business, operated primarily as a division of Baxter, except for the accounting for income taxes which is further discussed in Note 10. All material intercompany balances have been eliminated. The combined financial statements include allocations of certain Baxter corporate assets, liabilities and expenses to Edwards Lifesciences. These amounts have been allocated to the company on the basis that is considered by management to reflect most fairly or reasonably the utilization of the services provided to or the benefit obtained by the company. Typical measures and activity indicators used for allocation purposes include headcount, sales, payroll expense, or the specific level of activity related to the allocated item. Management believes the methods used to
allocate amounts are reasonable. However, the financial information included herein does not necessarily reflect what the financial position, results of operations and cash flows of the company would have been had it operated as a stand-alone public entity during the periods covered, and may not be indicative of future operations, cash flows or financial position. The combined financial statements do not include an allocation of Baxter's consolidated debt and interest expense.
Estimated incremental selling, general and administrative costs associated with being an independent public company total approximately $25 million on an annual basis. The following is a summary of the estimated annual incremental costs (pretax) by significant function:
(in millions)
Accounting, tax and legal.................................................. $ 8
Insurance and risk management.............................................. 4
Human resources............................................................ 7
Treasury, stockholder relations and other costs............................ 6
---
Total...................................................................... $25
===
|
Estimated incremental annual pretax interest expense is $29 million. The company's debt agreements are not yet finalized. This management estimate is based on the incurrence of $520 million of debt at a weighted-average interest rate of 5.6%.
Fiscal year of international operations
Certain operations outside the United States and its territories are included in the combined financial statements on the basis of fiscal years ending November 30 in order to facilitate timely combination.
Foreign currency translation
The results of operations for non-U.S. subsidiaries, other than those located in highly inflationary countries, are translated into U.S. dollars using the average exchange rates during the year, while assets and liabilities are translated using period-end rates. Resulting translation adjustments are recorded as currency translation adjustments within other comprehensive income. Where foreign affiliates operate in highly inflationary economies, non-monetary amounts are remeasured at historical exchange rates while monetary assets and liabilities are remeasured at the current rate with the related adjustments reflected in the combined statements of income.
Revenue recognition
The company's practice is to recognize revenues from product sales when title transfers and for services as performed. For certain products, the company maintains consigned inventory at customer locations. For these products, revenue is recognized at the time the company is notified that the inventory has been used by the customer.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market value. Market value for raw materials is based on replacement costs and, for other inventory classifications, on net realizable value.
Inventories consisted of the following:
December
31,
---------
1999 1998
---- ----
(in
millions)
Raw materials......................................................... $ 29 $ 33
Work in process....................................................... 28 36
Finished products..................................................... 125 87
---- ----
Total inventories..................................................... $182 $156
==== ====
|
Reserves for excess and obsolete inventory were approximately $12 million at December 31, 1999 and $10 million at December 31, 1998.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation and amortization are principally calculated for financial reporting purposes on the straight-line method over the estimated useful lives of the related assets,
which range from 20 to 50 years for buildings and improvements and from three to 15 years for machinery and equipment. Leasehold improvements are amortized over the life of the related facility leases or the asset, whichever is shorter. Straight-line and accelerated methods of depreciation are used for income tax purposes.
Property, plant and equipment consisted of the following:
as of December 31 1999 1998
----------------- ----- -----
(in
millions)
Land.............................................................. $ 27 $ 28
Buildings and leasehold improvements.............................. 79 82
Machinery and equipment........................................... 281 274
Equipment with customers.......................................... 96 81
Construction in progress.......................................... 13 15
----- -----
Total property, plant and equipment, at cost...................... 496 480
Accumulated depreciation and amortization......................... (270) (253)
----- -----
Net property, plant and equipment................................. $ 226 $ 227
===== =====
|
Depreciation expense was $37 million in 1999, $35 million in 1998, and $33 million in 1997. Repairs and maintenance expense was $8 million in 1999, $10 million in 1998 and $7 million in 1997.
Goodwill and other intangible assets
Goodwill represents the excess of cost over the fair value of net assets acquired and is amortized on a straight-line basis over estimated useful lives ranging from 15 to 40 years.
Other intangible assets include purchased patents, trademarks and other identified rights and are amortized on a straight-line basis over their legal or estimated useful lives, whichever is shorter (generally not exceeding 17 years).
Goodwill and other intangible assets are summarized as follows:
as of December 31 1999 1998
----------------- ------ ------
(in millions)
Goodwill........................................................ $1,115 $1,116
Accumulated amortization........................................ (371) (337)
------ ------
Net goodwill.................................................... 744 779
------ ------
Other intangibles............................................... 184 184
Accumulated amortization........................................ (89) (77)
------ ------
Net other intangibles........................................... 95 107
------ ------
Goodwill and other intangibles.................................. $ 839 $ 886
====== ======
|
Management reviews the carrying amounts of goodwill and other intangibles whenever events and circumstances indicate that the carrying amounts of an asset may not be recoverable. Impairment indicators include, among other conditions, cash flow deficits, historic or anticipated declines in revenue or operating profit and adverse legal or regulatory developments. If it is determined that such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair market value. Estimated fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. For the purpose of identifying and measuring impairment, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. Based upon management's assessment of the future undiscounted operating cash flows of acquired businesses, the carrying values of goodwill and other intangibles at December 31, 1999, have not been impaired.
Income taxes
Edwards Lifesciences' operations were historically included in Baxter's consolidated U.S. federal and state income tax returns and in the tax returns of certain Baxter foreign subsidiaries. The provision for income taxes has been determined as if Edwards Lifesciences had filed separate tax returns under its existing structure for the periods presented. Accordingly, the effective tax rate of Edwards Lifesciences in future years could vary from its historical effective rates depending on Edwards Lifesciences' future legal structure and tax elections. All income taxes are settled with Baxter on a current basis through the "Investments by and advances from (payments to) Baxter International Inc., net" account.
Derivatives
For all periods presented, Edwards Lifesciences has been considered in Baxter's overall risk management strategy. Baxter's accounting policies with respect to derivatives are summarized below as they apply to Edwards Lifesciences.
Gains and option premiums relating to qualifying foreign currency hedges of anticipated transactions are deferred and recognized in income as offsets of gains and losses resulting from the underlying hedged transactions. Gains relating to terminations of qualifying hedges are deferred and recognized in income at the same time as the underlying hedged transactions. In circumstances where the underlying anticipated transaction is no longer expected to occur, any remaining deferred amounts are recognized immediately in income. Foreign currency contracts not qualifying for hedge treatment are marked to market at each balance sheet date with resulting gains and losses recognized in earnings. Cash flows from derivatives are classified in the same category as the cash flows from the related hedged activity. Foreign currency financial instruments are used to hedge economic risks and are not used for trading purposes.
Investments by and Advances from (payments to) Baxter International Inc., net
Investments by and advances from (payments to) Baxter International Inc., net includes common stock, additional paid-in capital and net intercompany balances with Edwards Lifesciences which will be contributed at the time of the spin-off. Baxter does not manage the activity in this account on the basis of separate legal entities. There is no distinction in this account between net investments in and net advances to Edwards Lifesciences as there was no term associated with the cash infusions and no intent or expectation that the infusions would be remitted to Baxter.
Comprehensive income (loss)
Comprehensive income (loss) encompasses all changes in equity other than those arising from transactions with stockholders, and consists of net income, currency translation adjustments and unrealized net gains and losses on marketable equity securities. The company does not provide for U.S. income taxes on foreign currency translation adjustments since it does not provide for such taxes on undistributed earnings of foreign subsidiaries. The net unrealized gain on a marketable security of $2 million for 1998 (net-of-tax) principally consisted of a reclassification adjustment for an impairment loss included in net income during the year.
Recent accounting pronouncement
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (Statement No. 133) which was to be effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In June 1999, the FASB issued Statement No. 137, "Accounting for Derivative Instruments -- Deferral of the Effective Date of FASB Statement No. 133" (Statement No. 137). Statement No. 137 deferred the effective date of Statement No. 133 to all fiscal quarters of fiscal years beginning after June 15, 2000. Statement No. 133 requires that all derivatives be recorded in the balance sheet as either assets or liabilities and be measured at fair value. The accounting for changes in the fair
value of a derivative will depend on the intended use of the derivative and the resulting designation. Management is in the process of evaluating this standard and has not yet determined the future impact on the company's financial statements.
3. ACQUISITIONS
All acquisitions during the three years ended December 31, 1999 were accounted for under the purchase method. Results of operations of acquired companies are included in the company's results of operations as of the respective acquisition dates. The purchase price of each acquisition was allocated to the net assets acquired based on estimates of their fair values at the date of the acquisition. The excess of the purchase price over the fair values of the net tangible assets and liabilities and identifiable intangibles acquired was allocated to goodwill.
Research Medical, Inc.
In March 1997, Edwards Lifesciences acquired Research Medical, Inc. (Research Medical), a manufacturer of specialized products used in open-heart surgery for approximately $239 million. Approximately $223 million of the purchase price was in the form of 4,801,711 shares of Baxter International Inc. common stock, issued from treasury. As further discussed below, $132 million of the purchase price was allocated to in-process research and development (IPR&D), and, under generally accepted accounting principles, immediately expensed. Approximately $40 million and $38 million of the purchase price was allocated to existing product technology and goodwill, respectively, and is being amortized on a straight-line basis over 14 years and 20 years, respectively.
In-process Research and Development
The amount allocated to IPR&D was determined on the basis of independent appraisals using the income approach, which measures the value of an asset by the present value of its future economic benefits. Estimated cash flows for each project category were discounted to their present values at rates of return that incorporate the risk-free rate, the expected rate of inflation, and risks associated with the particular projects, including their stages of completion. Projected revenue and cost assumptions were determined considering the company's historical experience and industry trends and averages. At the date of acquisition, it was determined that the technology acquired had no alternative future use. No value was assigned to any IPR&D project unless it was probable of being further developed.
Approximately $76 million of the total IPR&D charge pertained to minimally invasive surgical (MIS) procedures, with the remainder relating principally to heparin removal technology, autologous fibrin delivery kit and sealant technologies, retrograde reprofusion system technologies and ischemic limb reperfusion system technologies. The status of development, stage of completion, assumptions, nature and timing of remaining efforts for completion, risks and uncertainties, and other key factors varied by individual project. Discount rates on individual projects ranged from 14 percent to 20 percent, with a discount rate of 16 percent used for the MIS procedures project. Material net cash inflows for the most significant projects were forecasted to commence between 1998 and 2000. Assumed research and development expenditures prior to the various dates of product introductions totaled approximately $2 million.
The products under development were at various stages of development, and substantial further research and development, pre-clinical testing and clinical trials would be required to determine their technical feasibility and commercial viability. Any delay in the development, introduction or marketing of the products under development could result either in such products being marketed at a time when their cost and performance characteristics would not be competitive in the marketplace or in a shortening of their commercial lives. If the products are not completed on time, the expected returns on the investment could be significantly and unfavorably impacted.
As part of the post-acquisition integration and research and development (R&D) rationalization process, management reassessed all of Research Medical's ongoing R&D projects. Based on these subsequent analyses of the costs versus potential future benefits of continuing the Research Medical projects, several of the R&D projects in-process at acquisition date were terminated in late 1997. Such projects related principally to heparin removal technology, autologous fibrin delivery kit and sealant technologies, retrograde reprofusion system technologies and ischemic limb reperfusion system technologies. The total IPR&D charge recorded at acquisition date relating to these projects subsequently terminated totaled approximately $56 million.
With respect to the MIS procedures project, at the time of acquisition, the MIS industry was still in an embryonic state, with virtually no commercially available product offerings. It was believed that over the next several years, a significant transition from traditional surgical to MIS procedures would occur in the marketplace. Several competitors were in the process of developing products for the emerging MIS sector. While at the date of acquisition, Research Medical had introduced only a couple of basic MIS products to the marketplace, the company had a number of promising MIS products in the process of being developed. Such products under development required substantial further research and development and would require regulatory approval prior to becoming available for sale. At the date of acquisition, it was expected that net cash inflows would commence in the year after acquisition and increase significantly over the following two to five years.
The expected timetable for significant net cash inflows from the MIS procedures IPR&D has been significantly and unfavorably impacted by the effect of a significantly slower than anticipated transition from traditional surgical procedures to MIS procedures in the marketplace. While sales are currently being generated, the current and anticipated future level is significantly less than projected in the original timetable. In addition, the expected future R&D costs to be incurred to generate such future revenues are significantly more than anticipated at the time of acquisition. Management's current net present value of estimated future net cash inflows is substantially less than that estimated at acquisition date. It is currently not clear whether originally projected sales are delayed or whether the originally anticipated levels will not be achieved. Substantial research and development, and sales and marketing costs will need to be expended to achieve the projections. It is possible that, even with such substantial efforts, the MIS market will never develop to the initially anticipated size. It is also possible that management will reduce its investments in the MIS sector in the future based on its ongoing assessment of the marketplace and re- prioritization of strategic initiatives.
Acquisition reserves
Approximately $14 million of reserves were established with respect to the acquisition of Research Medical. Of this total, approximately $1 million was reserved to eliminate 17 positions at Research Medical, principally in the sales and marketing and research and development functions, and approximately $13 million was established principally to terminate certain distribution contracts relating to the acquired company. The reserves were fully utilized as of December 31, 1998 and such utilization was in accordance with the original plans.
Pro forma information (unaudited)
Had the acquisition of Research Medical taken place on January 1, 1997, combined net sales and net income would not have been materially different from the reported amounts in 1997 and, therefore, pro forma information is not presented.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following:
as of December 31 1999 1998
----------------- ---- ----
(in
millions)
Accounts payable, principally trade............................ $ 41 $ 44
Employee compensation and withholdings......................... 52 47
Property, payroll and other taxes.............................. 9 10
Other accrued liabilities...................................... 41 45
Other accounts payable......................................... 13 11
---- ----
Accounts payable and accrued liabilities....................... $156 $157
==== ====
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5. LEASE OBLIGATIONS
Certain facilities and equipment are leased under operating leases expiring at various dates. Most of the operating leases contain renewal options. Total expense for all operating leases was $9 million in 1999, $8 million in 1998 and $9 million in 1997.
Future minimum lease payments (including interest) under noncancelable operating leases at December 31, 1999 were as follows:
Operating
leases
-------------
(in millions)
2000........................................................ $ 8
2001........................................................ 4
2002........................................................ 3
2003........................................................ 2
2004........................................................ 2
Thereafter.................................................. --
----
Total obligations and commitments........................... $ 19
====
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6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Concentrations of credit risk
In the normal course of business, Edwards Lifesciences provides credit to customers in the health-care industry, performs credit evaluations of these customers and maintains reserves for potential credit losses which, when realized, have been within the range of management's allowance for doubtful accounts.
Foreign exchange risk management
For all periods presented, Edwards Lifesciences has been considered in Baxter's overall risk management strategy. As part of this strategy, Baxter uses certain financial instruments to reduce its exposure to adverse movements in foreign exchange rates. These financial instruments are not used for trading purposes. The financial instruments contain credit risk in that the banking counterparty may be unable to meet the terms of the agreements. Such risk is minimized by limiting counterparties to major financial institutions and by management's monitoring of credit risk. In addition, where appropriate, Baxter has arranged collateralization and master-netting agreements to minimize the risk of loss.
As part of implementing its strategy, Baxter enters into foreign exchange contracts, principally options, with terms generally less than two years, to hedge anticipated but not yet committed sales expected to be denominated in foreign currencies. Baxter has allocated to Edwards Lifesciences the net income associated with certain of
such contracts in the amounts of $1 million in 1999 and $3 million in both 1998 and 1997. The approximate notional amounts associated with the allocated portion of these foreign exchange contracts was $349 million and $177 million at December 31, 1999 and 1998, respectively. The allocations were determined based on Edwards Lifesciences' hedged sales relative to Baxter's total hedged sales, by applicable currency. With respect to Edwards Lifesciences' foreign currency exposures, Baxter principally hedges the Japanese Yen and the Euro.
Fair values of financial instruments
Carrying Approximate
amounts fair values
--------- ------------
as of December 31 1999 1998 1999 1998
----------------- ---- ---- ----- -----
(in millions)
Investments in affiliates.............................. $ 1 $ 1 $ 1 $ 1
Foreign currency hedges................................ 7 2 1 2
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The carrying values of accounts receivable and payable and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities.
7. RELATED PARTY TRANSACTIONS
Baxter has provided to Edwards Lifesciences certain legal, treasury, employee benefits, insurance and administrative services. Charges for these services, which have been recorded in cost of sales, marketing and administrative expenses and research and development expenses, as applicable, are based on actual costs incurred by Baxter and totaled $64 million, $62 million and $63 million in 1999, 1998 and 1997, respectively. The bases for the amounts charged to Edwards Lifesciences varied depending on the nature of the service, but generally were determined using headcount, sales, payroll, square footage or other appropriate data, or were determined based on actual utilization of services. Management believes that the bases used for allocating services is reasonable. However, the terms of these transactions may differ from those that would result from transactions with unrelated third parties or had Edwards Lifesciences performed these functions on their own.
Edwards Lifesciences participates in a centralized cash management program administered by Baxter. Short-term advances from Baxter or excess cash sent to Baxter has been treated as an adjustment to the "Investments by and advances from (payments to) Baxter International Inc., net" account as of and through the respective balance sheet dates. No interest is charged on this balance.
Effective on the distribution date, Baxter and Edwards Lifesciences will enter into a series of administrative services agreements pursuant to which Baxter and Edwards Lifesciences will continue to provide, for a specified period of time, certain administrative services which each entity historically has provided to the other. These agreements require both parties to pay each other a fee which approximates the actual costs of these services. Additionally, subsequent to the spin-off, Edwards Lifesciences will have continuing relationships with Baxter as a customer and supplier for certain products. See "Edwards Lifesciences' Relationship with Baxter after the Distribution" included elsewhere in this Information Statement, for detailed descriptions of the related agreements.
8. RETIREMENT AND OTHER BENEFIT PROGRAMS
Edwards Lifesciences employees participated in Baxter-sponsored non- contributory, defined benefit pension plans covering substantially all employees in the U.S. and Puerto Rico and employees in certain other countries. The benefits were based on years of service and the employee's compensation during 5 of the last 10 years of employment as defined by the plans. Baxter and Edwards Lifesciences have announced their intent to freeze benefits under the U.S. plan at the date of the spin-off for the Edwards Lifesciences employees. Edwards Lifesciences has also announced that it will not have a defined benefit pension plan in the U.S. to replace the Baxter plan. The pension liability related to Edwards Lifesciences' U.S. employees' service prior to the spin-off
date will remain with Baxter. With respect to the Puerto Rico plan, Baxter plans to transfer the assets and liabilities relating to Edwards Lifesciences' employees to Edwards Lifesciences at spin-off date. Edwards Lifesciences intends to continue to have a non-contributory, defined benefit pension plan in Puerto Rico after the spin-off date.
Pension expense for the Baxter-sponsored plans in the U.S. and Puerto Rico relating to Edwards Lifesciences' employees was $5 million, $4 million, $3 million in 1999, 1998 and 1997, respectively. The assumed discount rate applied to benefit obligations to determine 1999 and 1998 pension expense was 7.25% and 7.5%, respectively. The assumed long-term rate of return on assets was 10.5% for 1999 and 1998. The assumed rate of compensation increase was 4.5% and 4.0% for the U.S. and Puerto Rico plan, respectively, in both 1999 and 1998.
In addition to pension benefits, Edwards Lifesciences participated in Baxter-sponsored contributory health-care and life insurance benefits for substantially all domestic retired employees. Baxter and Edwards Lifesciences have announced that they will freeze benefits under these plans at the date of the spin-off for Edwards Lifesciences employees. Edwards Lifesciences has announced its intention not to establish new health-care and life insurance plans for employees retiring subsequent to the spin-off date. Expense associated with these benefits relating to Edwards Lifesciences employees was less than $1 million in each of the years 1999, 1998 and 1997.
Most U.S. employees have been eligible to participate in a qualified 401(k) plan. Participants could contribute up to 12% of their annual compensation (subject to IRS limitation) to the plan and Baxter matched participants' contributions, up to 3% of an individual participant's compensation. Matching contributions relating to Edwards Lifesciences employees were approximately $3 million in each of 1999, 1998 and 1997.
9. OTHER EXPENSE (INCOME)
Components of other expense (income) are as follows:
years ended December 31: 1999 1998 1997
------------------------ ---- ---- ----
(in millions)
Asset dispositions and writedowns, net................... $ 1 $ 6 $--
Insurance and legal settlements.......................... (1) (13) --
Foreign exchange......................................... 2 1 --
Other.................................................... 2 -- 1
--- ---- ----
Total other expense (income)............................. $ 4 $ (6) $ 1
=== ==== ====
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10. INCOME TAXES
Income before tax expense by category is as follows:
years ended December 31: 1999 1998 1997
------------------------ ---- ---- ----
(in millions)
U.S...................................................... $ 92 $66 $(42)
International............................................ 21 27 27
---- --- ----
Income before income tax expense......................... $113 $93 $(15)
==== === ====
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Income tax expense by category and by income statement classification is as follows:
years ended December 31: 1999 1998 1997
------------------------ ---- ---- ----
(in millions)
Current
U.S.
Federal................................................. $ 13 $ 16 $ 18
State and local, including Puerto Rico.................. 8 11 16
International............................................ 8 4 7
---- ---- ----
Current income tax expense................................ 29 31 41
Deferred
U.S.
Federal................................................. 2 -- (3)
State and local, including Puerto Rico.................. -- -- (1)
International........................................... -- -- --
---- ---- ----
Deferred income tax expense............................... 2 -- (4)
---- ---- ----
Income tax expense........................................ $ 31 $ 31 $ 37
==== ==== ====
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The income tax shown above was calculated as if Edwards Lifesciences were a stand-alone entity.
The components of deferred tax assets and liabilities are as follows:
years ended December 31: 1999 1998 1997
------------------------ ---- ---- ----
(in millions)
Deferred tax assets
Accrued expenses..................................... $ 8 $ 12 $ 8
Other................................................ 1 2 2
---- ---- ----
Total deferred tax assets.......................... 9 14 10
Deferred tax liabilities
Asset basis differences.............................. 47 43 45
Other................................................ 1 1 1
---- ---- ----
Total deferred tax liabilities..................... 48 44 46
---- ---- ----
Net deferred tax assets (liabilities).................. $(39) $(30) $(36)
==== ==== ====
|
Income tax expense differs from income tax expense calculated by using the U.S. federal income tax rate for the following reasons:
years ended December 31: 1999 1998 1997
------------------------ ---- ---- ----
(in millions)
Income tax expense at statutory rate................... $ 40 $ 33 $ (5)
Tax-exempt operations.................................. (24) (12) (16)
Nondeductible goodwill................................. 12 12 12
State and local taxes.................................. 3 4 4
Foreign tax expense.................................... -- (6) (4)
In-process R&D expense................................. -- -- 46
---- ---- ----
Income tax expense..................................... $ 31 $ 31 $ 37
==== ==== ====
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The company has manufacturing operations outside the United States, namely in Puerto Rico and Switzerland, which benefit from reductions in local tax rates under various tax incentives. As a result of the spin-
off of the company from Baxter and other actions, the company will seek to renegotiate these existing tax incentives. It is expected that comparable tax grants will be secured on a stand-alone basis in due course.
11. LEGAL PROCEEDINGS
Upon the distribution, Edwards Lifesciences will assume the defense of litigation involving cases and claims related to the Edwards Lifesciences business. Edwards Lifesciences has not been named as a defendant in such matters but will be defending and indemnifying Baxter Healthcare Corporation, as contemplated by the reorganization agreement, for all related expenses and potential liabilities. It is possible that Edwards Lifesciences may be added as a defendant in existing cases and claims.
The cases and claims relate primarily to products and services currently or formerly manufactured or performed, as applicable, by Edwards Lifesciences. Such cases and claims raise difficult and complex factual and legal issues and are subject to many uncertainties and complexities, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable law. Accordingly, in certain cases, Edwards Lifesciences is not able to estimate the amount of its liabilities with respect to such matters.
Upon resolution of any pending legal matters, Edwards Lifesciences may incur charges in excess of presently established reserves. While such a charge could have a material adverse impact on Edwards Lifesciences' net income or net cash flows in the period in which it is recorded or paid, management believes that no such charge would have a material adverse effect on Edwards Lifesciences' combined financial position.
Edwards Lifesciences believes that the liability and defense costs relating to its legal matters will be within self-insured retentions or substantially covered by insurance, subject to exclusions, conditions, policy limits and potential insurer insolvency.
12. STOCK-BASED COMPENSATION PLANS
Certain employees of Edwards Lifesciences participated in stock-based compensation plans sponsored by Baxter. Such plans principally included fixed stock option plans and employee stock purchase plans. Baxter applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for such plans. Accordingly, no compensation cost has been recognized by Baxter for its fixed stock option plans and its stock purchase plans. These plans are the sole responsibility of Baxter and, accordingly, no information is presented herein.
Employees who transfer to the cardiovascular business will be required to exercise any vested options within 90 days from the date of spin-off, which is currently anticipated to occur during the first quarter of 2000. All unvested options will be canceled 90 days after the date of spin-off.
13. SEGMENT INFORMATION
The company manages its business on the basis of one reportable segment. Refer to Note 1 for a description of the company's business. The company's products and services share similar distribution channels and customers and are sold principally to hospitals and physicians. Management evaluates its various global product portfolios on a revenue basis, which is presented below, and profitability is generally evaluated on an enterprise-wide basis due to shared infrastructures. Edwards Lifesciences' principal markets are the United States, Europe and Japan.
Geographic area data includes net sales based on product shipment destination and long-lived asset data is presented based on physical location.
as of or for the year ended December 31 1999 1998 1997
--------------------------------------- ---- ---- ----
(in millions)
Net Sales by Geographic Area
United States............................................. $504 $508 $515
Japan..................................................... 166 138 154
Other countries........................................... 235 219 210
---- ---- ----
Totals.................................................... $905 $865 $879
==== ==== ====
Net Sales by Major Product and Service Area
Cardiac Surgery........................................... $306 $273 $247
Vascular.................................................. 61 60 57
Critical Care............................................. 242 221 227
Perfusion Products and Services........................... 244 269 289
Other..................................................... 52 42 59
---- ---- ----
Totals.................................................... $905 $865 $879
==== ==== ====
Long-Lived Assets by Geographic Area
United States............................................. $196 $198 $189
Other countries........................................... 30 29 28
---- ---- ----
Totals.................................................... $226 $227 $217
==== ==== ====
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Sales to Allegiance Corporation, a subsidiary of Cardinal Health, Inc., represented approximately 12 percent, 13 percent and 10 percent of the company's total net sales in 1999, 1998 and 1997, respectively.
SCHEDULE II
Valuation and Qualifying Accounts
Additions
----------------------
Balance at Charged to Charged to Deductions Balance
beginning costs and other from at end of
of period expenses accounts(a) reserves period
---------- ---------- ----------- ---------- ---------
(In millions of dollars)
Year ended December 31,
1999:
Allowance for doubtful
accounts and returns. $ 8 $ 5 -- $(5) $ 8
Inventory reserves.... 10 9 1 (8) 12
Litigation reserves... 1 1 -- -- 2
--- --- --- --- ---
Year ended December 31,
1998:
Allowance for doubtful
accounts and returns. 6 8 -- (6) 8
Inventory reserves.... 13 4 -- (7) 10
Litigation reserves... 1 1 -- (1) 1
--- --- --- --- ---
Year ended December 31,
1997:
Allowance for doubtful
accounts and returns. 6 6 (1) (5) 6
Inventory reserves.... 15 3 -- (5) 13
Litigation reserves... -- 1 -- -- 1
Deferred tax asset
valuation allowance.. 1 -- -- (1) --
--- --- --- --- ---
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 5 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.
/s/ Michael A. Mussallem
By: _________________________________
Name: Michael A. Mussallem
Title: Chief Executive Officer
Date: April 4, 2000
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(b) Exhibits
3.1* Amended and Restated Certificate of Incorporation of
Edwards Lifesciences Corporation
3.2* Amended and Restated Bylaws of Edwards Lifesciences
Corporation
3.3* Form of Certificate of Designation for Edwards
Lifesciences Corporation Series A Junior Participating
Preferred Stock (included as Exhibit A to Exhibit 10.9)
4.1** Specimen form of certificate representing Edwards
Lifesciences Corporation common stock
10.1** Agreement and Plan of Reorganization, dated March 31, 2000
between Edwards Lifesciences Corporation and Baxter
International Inc.
10.2** Tax Sharing Agreement, dated March 31, 2000 between
Edwards Lifesciences Corporation and Baxter International
Inc.
10.3* Edwards Lifesciences Corporation Long-Term Stock Incentive
Compensation Program
10.4* Edwards Lifesciences Corporation Change in Control
Severance Agreement
10.5* Employment Agreement For Michael A. Mussallem
10.6* Edwards Lifesciences Corporation Employee Stock Purchase
Plan for United States Employees
10.7* Edwards Lifesciences Corporation Deferred Compensation
Plan
10.8* Edwards Lifesciences Corporation Chief Executive Officer
Change in Control Severance Agreement
10.9** Rights Agreement between Edwards Lifesciences Corporation
and EquiServe Trust Company, N.A, as Rights Agent, dated
as of March 31, 2000
10.10* Services and Distribution Agreement between Edwards
Lifesciences LLC, as successor in interest to Baxter
Healthcare Corporation, and Allegiance Healthcare
Corporation, dated as of October 1, 1996. CONFIDENTIAL
INFORMATION APPEARING IN THIS DOCUMENT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION IN ACCORDANCE WITH SECTION 24(b) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED AND RULE 24b-2
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN
REPLACED WITH ASTERISKS.
10.11* Form of Employment Agreement
10.12* Form of Consulting Agreement
10.13* Form of Outgoing Confidentiality Agreement
10.14* Edwards Lifesciences Corporation Nonemployee Directors and
Consultants Stock Incentive Program
10.15* Edwards Lifesciences Corporation Employee Stock Purchase
Plan for International Employees
10.16** Tokumei Kumiai Agreement by and between Baxter Limited and
Edwards Lifesciences Finance Limited, dated as of April 1,
2000
10.17** Option Agreement by and between Baxter Limited and Edwards
Lifesciences Limited, dated as of April 1, 2000
10.18** Japan Distribution Agreement by and between Baxter Limited
and Edwards Lifesciences LLC, dated as of April 1, 2000
21.1* Subsidiaries of Edwards Lifesciences Corporation
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27.1* Financial Data Schedule--December 31, 1999 27.2* Financial Data Schedule--December 31, 1998 27.3* Financial Data Schedule--December 31, 1997 |
NOTE
*previously filed
**filed herewith
Exhibit 4.1
Edwards Lifesciences SHARES Corporation [Edwards Logo]
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE CUSIP 28176E 10 8
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE
IN NEW YORK, NY AND JERSEY CITY, NJ
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF
ONE DOLLAR ($1) EACH OF THE COMMON STOCK of Edwards Lifesciences Corporation, transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated
Facsimile Signature Facsimile Signature
Secretary Chief Executive Officer
Countersigned and Registered:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
TRANSFER AGENT
AND REGISTRAR
BY [PHOTO]
AUTHORIZED SIGNATURE
[ART]
|
Edwards Lifsciences Corporation
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with the
right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT -_______________________ Custodian _________________
(Cust) (Minor)
under Uniform Gifts to Minors Act
Act __________________________
(State)
UNIF TRF MIN ACT -_________________ Custodian (until age_________________)
(Cust)
_________________ under Uniform Transfers
(Minor)
to Minors Act _______________________
(State)
Additional abbreviations may be used though not in the above list.
For Value Received, ______________________ hereby sell, assign and transfer unto
_________________________________________________________________________ Shares of the capital stock represented by the within certificate, and do hereby irrevocably constitute and appoint
_______________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises.
Dated: ________________________
THE SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR STOCK BROKER AFFILIATED WITH ONE OF THE MAJOR STOCK EXCHANGES.
This certificate also evidences and entitles the holder hereof to certain rights as set forth in the Rights Agreement between Edwards Lifesciences Corporation (the "Company") and Equiserve Trust Company, N.A. (the "Rights Agent") dated as of March 31, 2000 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any
subsequent holder, may become null and void.
REORGANIZATION AGREEMENT
Dated as of March 15, 2000
by and between
BAXTER INTERNATIONAL INC.
and
EDWARDS LIFESCIENCES CORPORATION
Page
----
ARTICLE I - DEFINITIONS AND INTERPRETATION................................................... 2
1.1. Definitions.......................................................................... 2
1.2. Interpretation....................................................................... 19
ARTICLE II - THE DISTRIBUTION................................................................. 21
2.1. Issuance and Delivery of Edwards Shares.............................................. 21
2.2. Distribution of Edwards Shares....................................................... 21
2.3. Treatment of Fractional Shares....................................................... 21
2.4. Baxter Board Action.................................................................. 21
2.5. Additional Approvals................................................................. 22
ARTICLE III - FOREIGN TRANSFERS............................................................... 22
3.1. Edwards World Trade.................................................................. 22
3.2. Puerto Rico (936).................................................................... 22
3.3. Puerto Rico (MS&P)................................................................... 23
3.4. Dominican Republic................................................................... 24
3.5. Intentionally Omitted................................................................ 24
3.6. Brazil............................................................................... 25
3.7. Canada............................................................................... 25
3.8. China................................................................................ 26
3.9. Taiwan............................................................................... 26
3.10. Singapore and the Philippines........................................................ 27
3.11. Malaysia............................................................................. 28
3.12. Thailand............................................................................. 28
3.13. Korea................................................................................ 29
3.14. India................................................................................ 29
3.15. Latin America........................................................................ 30
3.16. Switzerland.......................................................................... 33
3.17. EU Holdings (Denmark)................................................................ 35
3.18. Germany.............................................................................. 35
3.19. Austria.............................................................................. 36
3.20. France............................................................................... 37
3.21. Italy................................................................................ 37
3.22. Belgium/Luxembourg................................................................... 38
3.23. Netherlands.......................................................................... 39
3.24. Uden................................................................................. 40
3.25. Spain................................................................................ 40
3.26. United Kingdom....................................................................... 41
3.27. Restrictions on Intercompany Debt.................................................... 41
3.28. Transfer of Assets................................................................... 41
3.29. Transfer of Liabilities.............................................................. 41
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Page
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3.30. Transfer of Edwards World Trade to Baxter........................................ 42
3.31. Edwards Holdings Switzerland..................................................... 42
3.32. Transfer of Inventory............................................................ 42
ARTICLE IV - TRANSFERS TO EDWARDS U.S. OPERATING SUBSIDIARY.............................. 42
4.1. Organization of Edwards U.S. Operating Subsidiary................................ 42
4.2. Transfer of Assets............................................................... 42
4.3. Transfer of Third-Party Distribution Contracts................................... 43
4.4. Assumption of Liabilities........................................................ 43
4.5. Transfer of Intangibles and Operating Subsidiaries............................... 43
ARTICLE V - ORGANIZATION OF EDWARDS LIFESCIENCES CORPORATION............................. 43
5.1. Organization of Edwards.......................................................... 43
5.2. Transfer of Certain Subsidiaries................................................. 44
5.3. Transfer of Assets............................................................... 44
5.4. Transfer of Liabilities.......................................................... 44
ARTICLE VI - EXCLUSIONS FROM TRANSFERS................................................... 44
6.1. Retained Assets.................................................................. 44
6.2. Retained Liabilities............................................................. 45
6.3. Termination of Existing Intercompany Agreements.................................. 46
ARTICLE VII - ASSET SEPARATION CLOSING MATTERS........................................... 46
7.1. Delivery of Instruments of Conveyance............................................ 46
7.2. Delivery of Other Agreements..................................................... 46
7.3. Non-Assignable Contracts......................................................... 46
7.4. Further Assurances............................................................... 47
7.5. Novation of Assumed Liabilities.................................................. 48
7.6. Nominee Shares................................................................... 49
7.7. Provision of Corporate Records................................................... 49
ARTICLE VIII - REPRESENTATIONS AND WARRANTIES............................................ 49
8.1. Organization, Good Standing and Authority of Baxter.............................. 49
8.2. Organization, Good Standing and Authority of Edwards............................. 49
8.3. No Other Representations and Warranties.......................................... 49
ARTICLE IX - CERTAIN COVENANTS........................................................... 50
9.1. Conduct of Edwards Business Pending the Distribution Date........................ 50
9.2. Registration and Listing......................................................... 50
9.3. Funds Distributed to Baxter...................................................... 51
9.4. Post-Distribution Tax-Related Restrictions....................................... 51
9.5. Intercompany Receivables and Payables, Cash Management and True-Up............... 52
9.6. Intercompany Debt True-Up........................................................ 53
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Page
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9.7. Collection of Accounts Receivable.................................................. 56
9.8. Agreements Relating to Baxter and Edwards.......................................... 58
9.9. Certain Releases................................................................... 59
9.10. Litigation......................................................................... 59
9.11. Liability for Previously Delivered Products........................................ 59
9.12. Edwards Bank Accounts.............................................................. 60
9.13. Informal, Nondocumented Real Estate Leases......................................... 61
9.14. Third Party Consents............................................................... 61
9.15. Material Governmental Approvals and Consents....................................... 61
9.16. Late Payments...................................................................... 61
ARTICLE X - INTELLECTUAL PROPERTY LICENSES.................................................. 62
10.1. License to Baxter of Transferred Intellectual Property............................. 62
10.2. License to Edwards of Retained Baxter Intellectual Property........................ 63
10.3. Licenses Related to Interlink...................................................... 65
10.4. Use by Edwards of Baxter's Trademarks.............................................. 65
10.5. Limitations on Requirements to Supply.............................................. 66
10.6. Fair Market Value.................................................................. 66
ARTICLE XI - CONDITIONS TO THE DISTRIBUTION................................................. 67
11.1. Approval by Baxter Board of Directors.............................................. 67
11.2. Receipt of IRS Private Letter Tax Ruling........................................... 67
11.3. Compliance with State and Foreign Securities and................................... 67
11.4. SEC Filings and Approvals.......................................................... 67
11.5. Filing and Effectiveness of Registration Statement; No Stop Order.................. 67
11.6. Approval of NYSE Listing Application............................................... 67
11.7. Receipt of Fairness Opinions of Financial Advisors................................. 67
11.8. Ancillary Agreements............................................................... 68
11.9. Resignations....................................................................... 68
11.10. Election of Edwards Board.......................................................... 68
11.11. Consents........................................................................... 68
11.12. No Actions......................................................................... 68
11.13. New Credit Facility................................................................ 68
11.14. Consummation of Pre-Distribution Transactions...................................... 68
11.15. No Other Events.................................................................... 68
11.16. Satisfaction of Conditions......................................................... 68
ARTICLE XII - EMPLOYEES AND EMPLOYEE BENEFIT MATTERS........................................ 69
12.1. Edwards Employees.................................................................. 69
12.2. Employment of Edwards Employees.................................................... 69
12.3. Terminations/Layoff/Severance...................................................... 69
12.4. International Edwards Employees.................................................... 69
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12.5. Employment Solicitation................................................................... 70
12.6. WARN Act.................................................................................. 70
12.7. Leave of Absence Policies................................................................. 70
12.8. Withdrawal from Participation in Baxter Plans and Establishment of Edwards Plans.......... 71
12.9. Transfer of Account Balances and Accrued Benefits......................................... 71
12.10. Entitlement to Distributions Under Pension Plan........................................... 73
12.11. Welfare Benefits Provided Under Edwards Plans............................................. 73
12.12. Stock Purchase Plans...................................................................... 73
12.13. Workers' Compensation..................................................................... 74
12.14. Vacation Pay Policy....................................................................... 74
12.15. Non-Qualified Deferred Compensation Plans................................................. 74
12.16. Split-Dollar Life Insurance............................................................... 74
12.17. Restricted Stock.......................................................................... 74
12.18. Information to be Provided to Baxter...................................................... 74
12.19. Corporate Action; Delegation of Authority................................................. 75
12.20. Transfer of Employee Files................................................................ 75
ARTICLE XIII - INSURANCE MATTERS.................................................................. 75
13.1. Insurance Prior to the Distribution Date.................................................. 75
13.2. Ownership of Existing Policies and Programs............................................... 75
13.3. Procurement of Insurance for Edwards...................................................... 75
13.4. Acquisition and Maintenance of Post-Distribution Edwards Insurance Policies and Programs.. 76
13.5. Edwards Directors' and Officers' Insurance................................................ 76
13.6. Pre-Distribution Insurance Claims Administration.......................................... 77
13.7 Post-Distribution Insurance Claims Administration......................................... 77
13.8. Non-Waiver of Rights to Coverage.......................................................... 78
13.9. Scope of Affected Policies of Insurance................................................... 78
ARTICLE XIV - EXPENSE AND TAX MATTERS............................................................. 78
14.1. Allocation of Expenses.................................................................... 78
14.2. Allocation of Taxes....................................................................... 79
ARTICLE XV - RELEASE AND INDEMNIFICATION.......................................................... 79
15.1. Release of Pre-Distribution Claims........................................................ 79
15.2. Indemnification by Edwards................................................................ 81
15.3. Indemnification by Baxter................................................................. 82
15.4. Applicability of and Limitation on Indemnification........................................ 82
15.5. Adjustment of Indemnifiable Losses........................................................ 83
15.6. Procedures for Indemnification of Third Party Claims...................................... 84
15.7. Procedures for Indemnification of Direct Claims........................................... 86
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15.8. Contribution......................................................................... 86
15.9. No Third-Party Beneficiaries......................................................... 86
15.10. Remedies Cumulative.................................................................. 87
15.11. Survival............................................................................. 87
ARTICLE XVI - DISPUTE RESOLUTION.............................................................. 87
16.1. General.............................................................................. 87
16.2. Escalation........................................................................... 87
16.3. Arbitration.......................................................................... 87
16.4. Procedures........................................................................... 88
16.5. Injunctive Relief.................................................................... 88
ARTICLE XVII - ACCESS TO INFORMATION AND SERVICES............................................. 88
17.1. Access to Financial Information...................................................... 88
17.2. Ownership of Information............................................................. 89
17.3. Compensation for Providing Information............................................... 89
17.4. Retention of Records................................................................. 89
17.5. Limitations.......................................................................... 90
17.6. Production of Witnesses.............................................................. 90
17.7. Confidentiality...................................................................... 90
17.8. Privileged Matters................................................................... 91
ARTICLE XVIII - MISCELLANEOUS 92
18.1. Entire Agreement..................................................................... 92
18.2. Choice of Law and Forum.............................................................. 92
18.3. Amendment............................................................................ 93
18.4. Waiver............................................................................... 93
18.5. Partial Invalidity................................................................... 93
18.6. Execution in Counterparts............................................................ 93
18.7. Successors and Assigns............................................................... 93
18.8. Third Party Beneficiaries............................................................ 93
18.9. Notices.............................................................................. 93
18.10. Performance.......................................................................... 94
18.11. Force Majeure........................................................................ 94
18.12. No Public Announcement............................................................... 94
18.13. Termination.......................................................................... 95
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Schedule 9.8 - Shared Agreements
Schedule 9.10(a) - Assumed Actions
Schedule 9.10(b) - Transferred Actions
Schedule 9.12 - Transferred Bank Accounts
Schedule 10.2(a) - Licensed Baxter Intellectual Property
Schedule 12.1 - Edwards Employees
Schedule 12.4 - Calculation of Edwards Foreign and Puerto Rico Employees'
Pension Benefits
REORGANIZATION AGREEMENT, dated as of March 15, 2000 (this
WHEREAS, the Board of Directors of Baxter has determined that it would be advisable and in the best interests of Baxter and its stockholders for Baxter to transfer to Edwards and/or one or more of its Subsidiaries the business, operations, assets and liabilities related to the Edwards Business;
WHEREAS, it is appropriate and desirable to set forth the principal corporate transactions required to effect the Distribution and certain other agreements that will govern the relationship of Baxter and Edwards following the Distribution;
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Baxter and Edwards agree as follows:
ARTICLE I
"Accounts Receivable Report" has the meaning specified in Section
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9.7(f).
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"Act" has the meaning specified in Section 9.11(a).
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(a) All Liabilities (excluding, except as provided in subparagraph
(b) below, Loans owed to Baxter or any of its Subsidiaries) that are reflected,
disclosed or reserved for on the Balance Sheet, as such Liabilities may be
increased or decreased in the operation of the Edwards Business from the date of
the Balance Sheet through the Distribution Date in the ordinary course of
business consistent with past practice;
(d) All warranty, performance and similar obligations entered into or made prior to the Distribution Date with respect to the products or services of the Edwards Business;
(e) All Liabilities related to any and all Actions asserting a violation of any law, rule or regulation related to or arising out of the operations of the Edwards Business, whether before or after the Distribution Date and the Liabilities relating to any Assumed Actions;
(i) All Liabilities under any mortgage interest subsidy program on behalf of any Edwards Employee;
(j) All Liabilities associated with the transfer of assets from the Baxter Savings Plan to the Edwards Savings Plan;
(k) All Liabilities related to the Transferred Intellectual Property included as part of the Transferred Assets;
(n) All Liabilities for property taxes with respect to any of the Transferred Assets;
(o) All Liabilities for deferred taxes with respect to the Edwards Business consistent with FAS 109;
(p) All Liabilities related to Governmental Permits; and
(q) All other Liabilities (other than the Retained Liabilities) relating to the Edwards Business or any Divested Business, whether existing on the date hereof or arising at any time or from time to time after the date hereof, and whether based on circumstances, events or actions arising heretofore or hereafter, whether or not such Liabilities shall have been disclosed herein, and whether or not reflected on the books and records of Baxter or Edwards or the Balance Sheet.
"Baxter Foreign Pension Plan" has the meaning specified in Section
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12.4.
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"Baxter Indemnified Parties" has the meaning specified in Section
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9.11(b).
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"Edwards Germany Holdings" has the meaning specified in Section
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3.18(a)(i).
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"Edwards Holdings Switzerland" has the meaning specified in Section
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3.31.
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"Edwards Indemnified Parties" has the meaning specified in Section
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15.3.
----
"Edwards Italy" has the meaning specified in Section 3.21(a).
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"Edwards Korea" has the meaning specified in Section 3.13(a).
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"Edwards Lifesciences AG" has the meaning specified in Section
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3.16(a)(i).
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"Edwards LLC" has the meaning specified in Section 4.1(a).
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"Edwards Mexico" has the meaning specified in Section 3.15(e).
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"Edwards Severance Pay Plan" has the meaning specified in Section
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12.8(b).
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Corporation Employee Stock Purchase Plan for United States Employees and the Edwards Lifesciences Corporation Stock Purchase Plan for International Employees.
"Edwards Swiss Commissionaire" has the meaning specified in Section
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3.16(c)(i).
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"Edwards Uden" has the meaning specified in Section 3.24(a).
------------ ---------------
"Edwards UK" has the meaning specified in Section 3.26(a).
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"Edwards U.S." has the meaning specified in Section 4.1(b).
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"Privileged Information" has the meaning specified in Section 17.8(a).
---------------------- --------------- "Products" has the meaning specified in Section 9.11. -------- ------------ |
(i) any federal, state, local or foreign net income, gross income, gross receipts, windfall profit, severance, property, production, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, value-added, transfer, stamp, or environmental tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, addition to tax or additional amount imposed by any Governmental Authority; and
(ii) any liability of either Party for the payment of amounts with respect to payments of a type described in clause (i) as a result of being a member of an affiliated, consolidated, combined or unitary group, or as a result of any obligation of either Party under any Tax sharing arrangement or Tax indemnity arrangement.
(ii) all payments received after the Distribution Date on account of the Receivables ;
(iii) all manufacturers' warranties or guarantees related to the Transferred Assets or related to any of the Assumed Liabilities; and
(iv) any and all manufacturers' or third-party service or replacement programs relating to the Transferred Assets;
(ii) all raw materials inventory related to Edwards Products other than Edwards Products manufactured by Baxter or one of its Subsidiaries pursuant to the Manufacturing Contracts;
(iii) all supplies, packaging and other inventories related to the Edwards Business but excluding any such items in the possession of Baxter or one of its Subsidiaries that relate to Edwards Products manufactured by Baxter or one of its Subsidiaries pursuant to the Manufacturing Contracts; and
(iv) rights with respect to consignment inventory of Edwards Products held by others;
(i) All business and non-technical information; non-patented or non-patentable technical information, inventions, processes and formulations; and discoveries, trade secrets, know-how and technical data (A) used Exclusively in connection with the Edwards Business as of the Distribution Date and made or conceived by employees, consultants or contractors of Baxter or its Subsidiaries or any third-party; or (B) to be used Exclusively in connection with the Edwards Business and to be made or conceived by third parties pursuant to Contracts with said third parties;
(iii) All Copyrights used Exclusively in connection with the Edwards Business as of the Distribution Date; and
(iii) all customer leases under which the underlying equipment is the Exclusive marketing responsibility of Edwards;
(ix) all manufacturing Contracts Exclusive to the Edwards Business;
"Xenomedica" has the meaning specified in Section 3.16.
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1.2. Interpretation. (a) In this Agreement, unless the context
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clearly indicates otherwise:
(i) words used in the singular include the plural and words in the plural include the singular;
(ii) reference to any Person includes such Person's successors and assigns, but only if such successors and assigns are permitted by this Agreement;
(iii) reference to any gender includes the other gender;
(iv) the word "including" (and with correlative meaning "include") means "including but not limited to";
(v) reference to any Article, Section, Exhibit or Schedule means such Article or Section of, or such Exhibit or Schedule to, this Agreement, as the case may be, and references in any Section or definition to any clause means such clause of such Section or definition;
(vi) the words "herein," "hereunder," "hereof," "hereto" and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Section or other provision hereof;
(vii) reference to any agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Agreement;
(viii) reference to any law (including statutes and ordinances) means such law (including all rules and regulations promulgated thereunder) as amended, modified, codified or reenacted, in whole or in part, and in effect at the time of determining compliance or applicability;
(ix) relative to the determination of any period of time, "from" means "from and including," "to" means "to but excluding" and "through" means "through and including";
(x) accounting terms used herein shall have the meanings historically ascribed to them by Baxter and its Subsidiaries based upon Baxter's internal financial policies and procedures in effect prior to the date of this Agreement;
(xi) in the event of any conflict between the provisions of the body of this Agreement and the Exhibits or Schedules hereto, the provisions of the body of this Agreement shall control;
(xii) the titles to Articles and headings of Sections contained in this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of or to affect the meaning or interpretation of this Agreement; and
(xiii) references to "dollars" or "$" shall mean United States Dollars unless otherwise indicated.
ARTICLE II
ARTICLE III
(b) Edwards Puerto Rico (936) shall be qualified as a foreign corporation under the laws of Puerto Rico;
(c) Baxter Alaska shall transfer to Edwards Puerto Rico (936) all of its right, title and interest in and to the Anasco Division in return for 100 shares of capital stock of Edwards Puerto Rico (936);
(d) Baxter Alaska shall transfer to Baxter Pharmacy Services all of its right, title and interest in and to the capital stock of Edwards Puerto Rico (936);
(h) After the Distribution Date, at the option of Edwards, Edwards Puerto Rico (936) shall transfer to Edwards Lifesciences AG or its designated affiliate, by novation, all of its right, title and interest in and to certain Transferred Assets and the Assumed Liabilities transferred to Edwards Puerto Rico (936) by Baxter Alaska as part of the Anasco Division, which assets and liabilities relate to the Edwards Business conducted in the Dominican Republic prior to the Distribution Date, in return for cash or other consideration equal to the fair market value of such Transferred Assets net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities.
(b) Edwards Puerto Rico (MS&P) shall be qualified as a foreign corporation under the laws of Puerto Rico;
(c) Baxter Sales and Distribution shall transfer to Edwards Puerto Rico (MS&P) all of its right, title and interest in and to the Transferred Assets and the Assumed Liabilities, including those assets and liabilities relating to the marketing and sales business conducted in Puerto Rico, in return for cash or other consideration equal to the fair market value of such Transferred Assets net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities;
(d) Baxter Pharmacy Services shall transfer to Edwards Puerto Rico (MS&P) all of its right, title and interest in and to the Transferred Assets and the Assumed Liabilities, including those assets, if any, liabilities and employees relating to the perfusion business conducted in Puerto Rico in return for cash or other consideration equal to the fair market value
of such Transferred Assets net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities;
(h) Edwards Lifesciences Cardiovascular Resources, Inc., a Pennsylvania corporation, shall transfer to Edwards Puerto Rico (MS&P) all of its right, title and interest in and to the Transferred Assets and Assumed Liabilities, if any, relating to the perfusion business conducted in Puerto Rico, in exchange for cash or other consideration equal to the fair market value of such Transferred Assets net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities.
(a) A branch office of Edwards Lifesciences AG shall be established in the Dominican Republic and Edwards Lifesciences AG shall be qualified as a foreign corporation under the laws of the Dominican Republic;
(b) Baxter Panama shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to the Transferred Assets and the Assumed Liabilities, consisting of contracts for the construction and leasing of a manufacturing facility located in the Dominican Republic; and
(a) BRL shall transfer to BPCL all of its right, title and interest in and to 6,750,947 quotas of Macchi, together with all of its right, title and interest in the Agreement for the Assignment and Transfer of Quotas of Macchi and other Covenants dated December 22, 1993, in exchange for the transfer by BPCL to BRL of all of BPCL's right, title and interest in and to 17,448,432 quotas of Baxter Hospitalar;
(b) BRL shall transfer to Edwards all of its right, title and interest in and to 1 quota of Macchi;
(c) BPCL shall transfer to Baxter Export Corporation all of its right, title and interest in and to 1 quota of Baxter Hospitalar;
(d) Baxter World Trade shall transfer to Edwards World Trade as a contribution to capital all of its right, title and interest in and to 25,158,211 quotas of BPCL;
(e) Baxter Export Corporation shall transfer (i) to Edwards World Trade all of its right, title and interest in and to 764 quotas of BPCL and (ii) to Edwards all of its right, title and interest in and to 1 quota of BPCL; and
(f) Baxter World Trade, S.A., a company organized under the laws of Belgium, shall transfer to Edwards Lifesciences Japan Holdings, Inc. all of their right, title and interest in and to debt of Macchi owing to such company in exchange for cash or other consideration equal to the face value of such debt plus accrued interest thereon;
(g) Macchi shall repay debt, together with accrued interest thereon, owing to Baxter Uruguay, S.A., a company organized under the laws of Uruguay, in the amount of $5,643,000; and
(h) Edwards World Trade shall pay $2,380,000 to Baxter World Trade, S.A. as a reduction of the debt owing to Baxter World Trade, S.A. by Baxter Uruguay, S.A.
(b) Baxter Canada shall transfer to Edwards Canada all of its right, title and interest in and to the Transferred Assets and the Assumed Liabilities for cash equal to the fair
market value of the Transferred Assets net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities.
(a) A representative office of Edwards World Trade shall be established in Shanghai, China;
(b) Baxter Hong Kong and Baxter China shall each directly or indirectly transfer to Edwards World Trade all of its respective right, title and interest in and to the Transferred Assets and the Assumed Liabilities (except for third-party distribution agreements, inventory and accounts receivable and accounts payable relating to the purchase of products) in return for cash or other consideration equal to the fair market value of such Transferred Assets net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities;
(c) Baxter Hong Kong and Baxter China shall each directly or indirectly transfer to Edwards LLC all of its respective right, title and interest in and to all third-party distribution agreements relating to the purchase of products in U.S. dollars in its name but relating Exclusively to the Edwards Business and all accounts receivable and accounts payable relating to such sales activity in return for cash or other consideration equal to the fair market of such agreements and accounts receivable net of such accounts payable and the Assumed Liabilities under such agreements, plus the assumption of such accounts payable and the Assumed Liabilities under such agreements; and
(a) A branch office of Edwards World Trade shall be established in Taipei, Taiwan;
(b) Baxter Taiwan shall transfer to Edwards World Trade all of its right, title and interest in and to the product registrations relating Exclusively to the Edwards Business;
(c) Baxter Taiwan shall transfer all third-party distribution agreements relating to the purchase of products relating Exclusively to the Edwards Business to Edwards LLC; and
(d) Edwards World Trade Taiwan branch shall enter into an agreement with Edwards LLC whereby the Taiwan branch of Edwards World Trade shall provide, for a fee, certain sales and promotion activities on behalf of Edwards LLC in connection with the distribution of Edwards Products by third-party distributors in Taiwan.
(a) A representative office of Edwards World Trade shall be established in Singapore;
(b) Baxter Asia shall transfer to Edwards World Trade all of its right, title and interest in and to the Transferred Assets and the Assumed Liabilities relating Exclusively to the Edwards Business conducted in Singapore (except for public hospital contracts, third-party distribution agreements, inventory and accounts receivable and accounts payable relating to the purchase of products) in return for cash or other consideration equal to the fair market value of such Transferred Assets net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities;
(c) Baxter Asia shall transfer all of its right, title and interest in and to certain public hospital contracts relating Exclusively to the Edwards Business conducted in Singapore to a third-party distributor in return for its release from its obligations under such contracts;
(d) Baxter Philippines shall transfer to third-party distributors all of its right, title and interest in and to the product registrations in its name but relating Exclusively to the Edwards Business conducted in the Philippines;
(e) Baxter Asia shall transfer all of its right, title and interest in and to the third-party distribution agreements related to the purchase of products relating Exclusively to the Edwards Business conducted in Singapore, Malaysia, Brunei, Indonesia, Pakistan, Sri Lanka, Taiwan, Myanmar, Laos and Cambodia and all accounts receivable and accounts payable relating to such sales activity to Edwards LLC in return for cash or other consideration equal to the fair market value of such agreements and accounts receivable net of such accounts payable
and the Assumed Liabilities under such agreements, plus the assumption of such accounts payable and the Assumed Liabilities under such agreements; and
(f) Baxter Philippines shall transfer all of its right, title and interest in and to the third-party distribution agreements related to the purchase of products relating Exclusively to the Edwards Business conducted in the Philippines and all accounts receivable and accounts payable relating to such sales activity to Edwards LLC in return for cash or other consideration equal to the fair market value of such agreements and accounts receivable net of such accounts payable and the Assumed Liabilities under such agreements, plus the assumption of such accounts payable and the Assumed Liabilities under such agreements.
(a) A representative office of Edwards World Trade shall be established in Malaysia;
(b) Baxter Asia shall transfer all of its right, title and interest in and to all accounts receivable and accounts payable relating to the purchase of products relating Exclusively to the Edwards Business conducted in Malaysia to Edwards LLC in return for cash or other consideration equal to the fair market value of such accounts receivable net of such accounts payable, plus the assumption of such accounts payable.
(a) A representative office of Edwards World Trade shall be established in Bangkok, Thailand;
(b) Baxter Thailand shall transfer to Edwards World Trade all of its right, title and interest in and to the fixed assets relating Exclusively to the Edwards Business conducted in Thailand and the liabilities relating thereto in return for cash or other consideration equal to the fair market value of such assets net of such liabilities, plus the assumption of such liabilities;
(c) Baxter Thailand shall transfer all of its right, title and interest in and to all bank guarantee deposits, third-party distribution agreements relating to the purchase of products in its name but relating Exclusively to the Edwards Business conducted in Thailand and Vietnam and all accounts receivable relating to such sales activity to Edwards LLC in return for cash or other consideration equal to the fair market value of such deposits, agreements and accounts receivable net of the assumption of the Assumed Liabilities under such agreements, plus the assumption of the Assumed Liabilities under such agreements;
(d) Baxter Thailand shall permit product registrations in its name but relating Exclusively to the Edwards Business conducted in Thailand to lapse, and Osotspa Co., Ltd., a third-party distributor of Edwards Products in Thailand, shall apply for new product registrations for such Edwards Products; and
(e) Edwards World Trade shall reimburse Baxter Thailand for all severance payments required to be made to Edwards Employees due to the termination of their employment by Baxter Thailand.
(b) Baxter Korea shall transfer to Edwards Korea all of its right, title and interest in and to the Transferred Assets and the Assumed Liabilities in return for cash or other consideration equal to the fair market value of such Transferred Assets net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities.
(a) BIPL shall transfer to Edwards World Trade all of its right, title and interest in and to 2,999,980 shares of capital stock of ELIPL for 29,999,800 Indian Rupees (approximately $689,000 on March 7, 2000);
(b) Sanjiv Verma shall transfer to Edwards all of his right, title and interest in and to 20 shares of capital stock of ELIPL for 200 Indian Rupees (approximately $4.60 on March 7, 2000);
(c) Edwards World Trade shall subscribe for 15,216,020 additional shares of capital stock of ELIPL for 152,160,200 Indian Rupees (approximately $3.49 million on March 7, 2000);
(d) Edwards shall subscribe for 183,980 additional shares of capital stock of ELIPL for 1,839,800 Indian Rupees (approximately $42,200 on March 7, 2000); and
(e) BIPL shall transfer to ELIPL all of its right, title and interest in and to the Transferred Assets and the Assumed Liabilities as a going concern, which constitutes the Edwards Business conducted by BIPL in return for cash or other consideration equal to the fair
market value of such Transferred Assets net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities.
conducted in Chile and all other products or equipment related Exclusively to the Edwards Business conducted in Chile but in the possession of third parties;
(iii) Upon termination of the distribution arrangement for Mexico, Edwards Mexico shall purchase all of the right, title and interest of Baxter Mexico in and to the inventory relating to the sale of products related Exclusively to the Edwards Business conducted in Mexico and all other products or equipment related Exclusively to the Edwards Business conducted in Mexico but in the possession of third parties;
(ii) Baxter Edwards shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to the Transferred Assets and the Assumed Liabilities, which constitutes the Edwards Business conducted by Baxter Edwards (except for the sales employees and related assets and Liabilities), in return for 248 shares of capital stock of Edwards Lifesciences AG;
(iii) Peter Wiget and Nicole Sidler shall each subscribe for one share of capital stock of Edwards Lifesciences AG;
(iv) Baxter Edwards shall transfer to Baxter World Trade as a dividend, all of its right, title and interest in and to the stock of Edwards Lifesciences AG;
(v) Baxter Woodlands shall transfer the Swiss Sales Branch to Edwards Lifesciences AG in return for 25,000 Swiss francs (approximately $14,900 on March 7,
2000) and assumption by Edwards Lifesciences AG of the Liabilities of the Swiss Sales Branch;
(vii) The third-party distribution agreements relating to the purchase of products relating Exclusively to the Edwards Business, and all accounts receivable and accounts payable relating to such sales activity, in Malta and Portugal shall be transferred from the applicable Baxter Subsidiaries to Edwards Lifesciences AG in return for cash or other consideration equal to the fair market value of such agreements and accounts receivable net of such accounts payable and the Assumed Liabilities under such agreements, plus the assumption of such accounts payable and the Assumed Liabilities under such agreements;
(viii) Baxter World Trade shall transfer to Edwards World Trade as a contribution to capital all of its right, title and interest in and to the capital stock of Xenomedica; and
(ix) Baxter World Trade shall transfer to Edwards World Trade as a contribution to capital all of its right, title and interest in and to the capital stock of Edwards Lifesciences AG.
(i) Baxter AG, Volketswil, will transfer all of its right, title and interest in all third-party distribution agreements in its name but relating Exclusively to the Edwards Business conducted in Switzerland to Edwards Lifesciences AG; and
(ii) Baxter AG, Volketswil, will transfer to Edwards Swiss Commissionaire all of its right, title and interest in certain assets and the Assumed Liabilities related thereto in return for cash or other consideration equal to the fair market value of such assets net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities.
(ii) Baxter Edwards shall transfer to Edwards Swiss Commissionaire all of the sales employees relating to the Edwards Business conducted by Baxter Edwards together with all of its right, title and interest in certain related assets and liabilities in return for cash or other consideration equal to the fair market value of such transferred assets net of such assumed liabilities, plus the assumption of such assumed liabilities.
(b) Baxter shall purchase all issued and outstanding capital stock (500 shares) of Edwards EU Holdings from the organizer of Edwards EU Holdings for 500,000 Danish Krone (approximately $64,400 on March 7, 2000);
(c) Baxter shall transfer to Baxter World Trade as a contribution to capital all of its right, title and interest in and to the capital stock of Edwards EU Holdings; and
(d) Baxter World Trade shall transfer to Edwards World Trade as a contribution to capital all of its right, title and interest in and to the capital stock of Edwards EU Holdings.
(ii) Edwards EU Holdings shall purchase all issued and outstanding capital stock (one share) of Edwards Germany Holdings from the organizer of Edwards Germany Holdings for 25,000 Euro (approximately $24,000 on March 7, 2000).
(ii) Edwards Germany Holdings shall purchase all issued and outstanding capital stock (one share) of Edwards Germany from the organizer of Edwards Germany for 25,000 Euro (approximately $24,000 on March 7, 2000);
accounts receivable and accounts payable that are not capable of being specifically separated between Baxter Germany and Edwards Germany, which shall be Retained Assets and Retained Liabilities, respectively) as well as its partnership interest in Pas Palzer KG in return for cash or other consideration equal to the fair market value of such Transferred Assets and partnership interest net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities;
(iv) Baxter Germany shall transfer to Baxter Belgium all of its right, title and interest in and to certain U.S. sourced inventory relating Exclusively to the Edwards Business in Germany in return for cash or other consideration equal to the fair market value of such inventory;
(v) Baxter Germany shall transfer to Edwards Lifesciences AG all other inventory relating Exclusively to the Edwards Business in Germany in return for cash or other consideration equal to the fair market value of such inventory;
(vi) Baxter Germany Holdings shall transfer to Edwards Germany Holdings all issued and outstanding capital stock (one share) of Pas Palzer Verwaltungs in return for cash or other consideration equal to the fair market value of such capital stock; and
(vii) After the Distribution Date, Edwards Germany shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to the accounts receivable held by Edwards Germany in return for cash or other consideration equal to the fair market value of such accounts receivable.
(b) Baxter Austria shall transfer to Edwards Austria all of its right, title and interest in and to the Transferred Assets and the Assumed Liabilities (except for inventory) in return for cash or other consideration equal to the fair market value of such Transferred Assets net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities;
(c) Baxter Austria shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to all inventory relating Exclusively to the Edwards Business in Austria in return for cash or other consideration equal to the fair market value of such inventory; and
(d) After the Distribution Date, Edwards Austria shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to the accounts receivable held by
Edwards Austria in return for cash or other consideration equal to the fair market value of such accounts receivable.
(b) Baxter France shall transfer to Baxter Belgium all of its right, title and interest in and to certain U.S. sourced inventory relating Exclusively to the Edwards Business in France in return for cash or other consideration equal to the fair market value of such inventory;
(c) Baxter France shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to all other inventory relating Exclusively to the Edwards Business in France in return for cash or other consideration equal to the fair market value of such inventory;
(d) Baxter France shall transfer to Edwards France all of its right, title and interest in and to the Transferred Assets and the Assumed Liabilities in return for 4,000 shares of capital stock of Edwards France;
(e) Edwards France shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to all third-party distribution agreements in its name but relating Exclusively to the Edwards Business conducted in France;
(f) Baxter France shall transfer to Edwards EU Holdings all of its right, title and interest in and to the capital stock of Edwards France for cash or other consideration equal to the fair market value of such capital stock; and
(g) After the Distribution Date, Edwards France shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to the accounts receivable held by Edwards France in return for cash or other consideration equal to the fair market value of such accounts receivable.
(a) Baxter Italy shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to the accounts receivable and inventory relating to the sale of products relating Exclusively to the Edwards Business conducted in Italy in return for cash or other consideration equal to the fair market value of such accounts receivable and inventory;
(c) As a result, Baxter World Trade and Baxter Export Corporation shall jointly own the entire share capital of Edwards Italy;
(e) Edwards Italy shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to all third-party distribution agreements in its name but relating Exclusively to the Edwards Business and the inventory relating Exclusively to the Edwards Business conducted in Italy in return for cash or other consideration equal to the fair market value of such agreements and inventory net of the Assumed Liabilities under such agreements, plus the assumption of the Assumed Liabilities under such agreements;
(b) Baxter Belgium shall transfer to Edwards Belgium all of its right, title and interest in and to the Transferred Assets and the Assumed Liabilities, in return for cash or other consideration equal to the fair market value of such Transferred Assets net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities;
(c) Edwards Belgium shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to the inventory relating Exclusively to the Edwards Business in Germany, France, Belgium, Luxembourg, the Netherlands, Austria and the U.K. in return for cash or other consideration equal to the fair market value of such inventory; and
(d) After the Distribution Date, Edwards Belgium shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to the accounts receivable held by Edwards Belgium in return for cash or other consideration equal to the fair market value of such accounts receivable.
(b) Baxter Netherlands shall transfer to Edwards Netherlands all of its right, title and interest in and to the Transferred Assets and the Assumed Liabilities (except for inventory, third-party distribution agreements and the Uden Manufacturing Facility) in return for cash or other consideration equal to the fair market value of such Transferred Assets net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities;
(c) Baxter Netherlands shall transfer to Baxter Belgium all of its right, title and interest in and to certain U.S. sourced inventory relating Exclusively to the Edwards Business in the Netherlands in return for cash or other consideration equal to the fair market value of such inventory;
(d) Baxter Netherlands shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to all third-party distribution agreements in its name but relating Exclusively to the Edwards Business conducted in the Netherlands;
(e) Baxter Netherlands shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to all other inventory relating Exclusively to the Edwards Business
in the Netherlands in return for cash or other consideration equal to the fair market value of such inventory; and
(f) After the Distribution Date, Edwards Netherlands shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to the accounts receivable held by Edwards Netherlands in return for cash or other consideration equal to the fair market value of such accounts receivable.
(b) Baxter Netherlands shall transfer to Edwards Uden all of its right, title and interest in and to the Uden Manufacturing Facility in return for cash or other consideration equal to the fair market value of the Uden Manufacturing Facility net of the Assumed Liabilities included therein, plus the assumption of the Assumed Liabilities included therein.
(b) Baxter Spain shall transfer to Edwards Spain all of its right, title and interest in and to the Transferred Assets and the Assumed Liabilities (except for inventory and third-party distribution agreements) in return for cash or other consideration equal to the fair market value of such Transferred Assets net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities;
(c) Baxter Spain shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to the inventory relating Exclusively to the Edwards Business in Spain in return for cash or other consideration equal to the fair market value of such inventory;
(d) Baxter Spain shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to all third-party distribution agreements in its name but relating Exclusively to the Edwards Business conducted in Spain; and
(e) After the Distribution Date, Edwards Spain shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to the accounts receivable held by
Edwards Spain in return for cash or other consideration equal to the fair market value of such accounts receivable.
(b) Baxter U.K. shall transfer to Edwards U.K. all of its right, title and interest in and to the Transferred Assets and the Assumed Liabilities (except for inventory and third-party distribution agreements), in return for cash or other consideration equal to the fair market value of such Transferred Assets net of such Assumed Liabilities, plus the assumption of such Assumed Liabilities;
(c) Baxter U.K. shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to all third-party distribution agreements in its name but relating Exclusively to the Edwards Business conducted in the United Kingdom;
(d) Baxter U.K. shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to all inventory relating Exclusively to the Edwards Business in the United Kingdom in return for cash or other consideration equal to the fair market value of such inventory; and
(e) After the Distribution Date, Edwards U.K. shall transfer to Edwards Lifesciences AG all of its right, title and interest in and to the accounts receivable held by Edwards U.K. in return for cash or other consideration equal to the fair market value of such accounts receivable.
ARTICLE IV
(a) all right, title and interest of BHC in and to the Transferred Assets (other than intangible assets included in the Transferred Assets);
(b) all of the right, title and interest of Baxter Export Corporation in inventory relating Exclusively to the Edwards Business, accounts receivable relating to the purchase of
products relating Exclusively to the Edwards Business and accounts receivable due from Macchi in return for cash or other consideration equal to the fair market value of such inventory and accounts receivable; and
(c) all right, title and interest of Baxter Export Division of Baxter Alaska in accounts receivable due from Macchi in return for cash or other consideration equal to the fair market value of such accounts receivable.
ARTICLE V
Distribution Date, the persons named on Exhibit H. Edwards has taken appropriate action to be qualified as a foreign corporation under the General Corporation Law of California.
(a) BHC shall distribute as a dividend to Baxter all of BHC's right, title and interest in and to the capital stock of Edwards U.S.; and
(b) Baxter shall contribute to Edwards, in exchange for the assumption by Edwards of $65 million of debt owed by Baxter to Baxter Hemoglobin Therapeutics, Inc., a Delaware corporation, all of Baxter's right, title and interest in and to the capital stock of (i) Edwards U.S., (ii) Edwards World Trade, (iii) Edwards Lifesciences Research Medical, Inc., a Utah corporation, and (iv) Edwards Lifesciences Sub Inc., a Delaware corporation.
ARTICLE VI
(b) Except as otherwise provided in the Tax Sharing Agreement, any right, title or interest of Baxter or its Subsidiaries in any foreign, federal, state or local tax refund, credit or benefit (including any income with respect thereto) relating to the operations of the Edwards Business prior to the Distribution Date;
(c) Any amounts accrued on the books and records of Baxter or its Subsidiaries or the Edwards Business with respect to any Retained Liabilities;
(g) All assets held by Baxter Japan;
(i) All assets used in connection with Baxter's Tisseal product;
(j) The accounts receivable of Baxter Germany that are not capable of being specifically separated between Baxter Germany and Edwards Germany; and
(k) All other assets, properties and rights of Baxter and its Subsidiaries not used Exclusively in the conduct of the Edwards Business and not specifically included as Transferred Assets.
(a) Liabilities of Baxter Japan;
not including any Liabilities under any Edwards Contracts other than Liabilities required to be performed on or before such date;
(f) The accounts payable of Baxter Germany that are not capable of being specifically separated between Baxter Germany and Edwards Germany; and
(g) Liabilities or obligations in respect of the Retained Assets.
ARTICLE VII
borrowed money existing on the Transferred Assets immediately prior to the Distribution Date other than liens securing Assumed Liabilities or liens incurred in connection with the transactions contemplated by this Agreement.
(c) If, after the Distribution Date, either Party identifies any commercial or other service, product or component that can be provided by the other Party, that is needed to assure a smooth and orderly transition of the businesses in connection with the consummation of the transactions contemplated hereby, and that is not otherwise governed by the provisions of this Agreement, the Implementation Agreements, the Operating Agreements or the Tax Sharing Agreement, the Parties will cooperate in determining whether there is a mutually acceptable arm's-length basis, consistent with the terms of the this Agreement, the Implementation Agreements, the Operating Agreements and the Tax Sharing Agreement, on which one Party will provide such service to the other Party.
(b) Edwards agrees to promptly provide Baxter, upon written request, with a list of Contracts included in the Transferred Assets under which Baxter or one of its Subsidiaries remains liable and which has a base term that is subject to automatic renewal or renewal in the absence of notice at the option of Edwards or one of its Subsidiaries. Edwards agrees that if so requested by Baxter with respect to any individual Contract or Contracts included on such list or which should have been included on such list, it will not exercise any option to renew such Contract and, to the extent such Contract provides for automatic renewal, Edwards agrees that it will not permit such Contract to enter an auto-renewal period.
ARTICLE VIII
ARTICLE IX
(b) The Parties shall use commercially reasonable efforts to take all such action as may be necessary or appropriate under state and foreign securities and "Blue Sky" laws in connection with the transactions contemplated by this Agreement.
(c) Baxter and Edwards shall prepare, and Edwards shall file and seek to make effective, an application for the listing of the Edwards Common Stock on the NYSE, subject to official notice of issuance.
(d) The Parties shall cooperate in preparing, filing with the SEC and causing to become effective any registration statements or amendments thereto that are necessary or appropriate in order to effect the transactions contemplated hereby or to reflect the establishment of, or amendments to, any employee benefit plans contemplated hereby.
(i) cease to engage in the active conduct of a trade or business within the meaning of Section 355 of the Code;
(ii) issue or redeem any share of stock of Edwards, except for issuances and redemptions
(A) for the benefit of Edwards' employees, or
(B) to effect acquisitions by Edwards in the ordinary course of business, or
(C) in connection with the issuance of any convertible debt by Edwards, or
(D) in accordance with the requirements for permitted purchases of Edwards stock as set forth in Section 4.05(1)(b) of Revenue Procedure 96-30 issued by the IRS; or
(iii) liquidate or merge with any other corporation;
unless, with respect to (i), (ii) or (iii) above, either (x) an opinion is obtained from counsel to Baxter reasonably acceptable to Edwards, or (y) a ruling is obtained from the IRS, in either case
to the effect that such act or event will not adversely affect the federal income tax consequences of the Distribution to Baxter, its stockholders who receive Edwards Shares or Edwards.
(b) If, as a result of any transaction occurring after the Distribution Date involving either the stock or assets of either Edwards or any of its Subsidiaries, or any combination thereof, the Distribution fails to qualify as tax-free under the provisions of Section 355 of the Code, Edwards shall indemnify Baxter for all Taxes, Liabilities and associated expenses, including penalties and interest, incurred as a result of such failure of the Distribution to qualify under Section 355 of the Code. If the Distribution fails to qualify as tax-free under the provisions of Section 355 of the Code other than as a result of a transaction occurring after the Distribution Date involving either the stock or assets of Edwards or any of its Subsidiaries, or any combination thereof, then Edwards shall not be liable for such Taxes, Liabilities or expenses.
(c) All Loans owing by Edwards or any of its Subsidiaries to Baxter or any of its Subsidiaries after giving effect to the transactions contemplated
(d) Edwards or an appropriate Subsidiary thereof shall be responsible for payment of all checks or drafts issued up to the Distribution Date against disbursement accounts transferred to Edwards or such Subsidiary, which checks or drafts have not been charged against
such disbursement accounts on or prior to the Distribution Date (other than with respect to payroll accounts, which will be assumed by Baxter or its Subsidiaries).
(e) Baxter shall assist Edwards and each of its Subsidiaries in establishing a separate cash management system effective as of and immediately after the Distribution Date.
then Edwards will reimburse Baxter for that amount within 10 days of the final determination of such amount.
(ii) greater than the Debt True-Up Amount, Baxter shall, within 10 days of the delivery of the Debt True-Up Notice, pay to Edwards the difference between the Debt True-Up and the Aggregate Amount Received by wire transfer of immediately available funds to the account designated by Edwards.
(c) If, after the Distribution Date, Edwards or any of its Subsidiaries shall receive any remittance from any account debtors with respect to the accounts receivable arising out of the Retained Assets or other amounts due Baxter or its Subsidiaries in respect of services rendered or products sold by Baxter or its Subsidiaries after the Distribution Date, or Baxter or any of its Subsidiaries shall receive any remittance from any account debtors with respect to the accounts receivable arising out of the Transferred Assets or other amounts due Edwards or its Subsidiaries in respect of services rendered or products sold by Edwards or its Subsidiaries after the Distribution Date, such Party shall receive and deposit such remittance and deliver cash in an amount equal thereto to the other Party as soon as practicable. In the absence of any designation of the specific invoice being paid by a customer thereby, payments from account debtors shall be applied to the earliest invoice outstanding with respect to indebtedness of such account debtor owing to either Baxter or Edwards.
(d) The Parties acknowledge that certain accounts receivable and accounts payable are not capable of being specifically separated between Baxter and its Subsidiaries, on the one hand, and Edwards and its Subsidiaries, on the other hand. Accordingly, the Parties agree that, notwithstanding the foregoing, Baxter shall cause one or more of its Subsidiaries to administer the collection of such accounts receivable and the payment of such accounts payable. Baxter shall pay or cause to be paid to Edwards or its appropriate Subsidiary an allocable portion of the amounts collected with respect to such accounts receivable determined by Baxter in accordance with Baxter's past practices. Edwards shall pay or cause to be paid to Baxter or its appropriate Subsidiary an allocable portion of the amounts paid with respect to such accounts payable determined by Baxter in accordance with Baxter's past practices.
(e) Each Party shall deliver to the other such schedules and other information with respect to the accounts receivable included in the Transferred Assets and those not included therein as each shall reasonably request from time to time in order to permit such Parties to reconcile their respective records and to monitor the collection of all accounts receivable (whether or not Transferred Assets). Each Party shall afford the other reasonable access to its books and records relating to any accounts receivable.
(ii) If any of the accounts receivable that were not paid to and received by Baxter prior to the first anniversary of the Distribution Date are in fact subsequently collected by Baxter, the amount so collected shall be paid by Baxter to Edwards within 15 business days of collection.
(b) Each of Baxter and Edwards shall use commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things reasonably necessary, proper or advisable under applicable laws, regulations and agreements to afford the rights and privileges of the allocable portion of the Shared Agreements to the other.
(c) If any of the Shared Agreements contains a minimum purchase obligation or provides for the payment to Baxter and Edwards of a rebate or similar payment or reimbursement based upon the volume of purchases, and if such minimum purchase obligation or rebate or similar payment or reimbursement is not allocated between Baxter and its Subsidiaries and Edwards and its Subsidiaries pursuant to the terms of the Shared Agreement, then such minimum purchase obligation or rebate or similar payment or reimbursement shall be allocated between the Parties based upon the relative performance of the Retained Business and the Edwards Business under such Shared Agreement during the twelve-month period immediately prior to the Distribution Date.
(d) Liabilities pursuant to, arising under or relating to a Shared Agreement shall be allocated between Baxter and its Subsidiaries, on the one hand, and Edwards and its Subsidiaries, on the other hand, as follows:
(i) First, if a Liability is incurred exclusively in respect of a benefit received by one Party, the Party receiving such benefit shall be responsible for such Liability;
(ii) Second, if a Liability cannot be so allocated under clause (i), such Liability shall be allocated between the Parties based on the relative proportions of total benefit received (based upon the performance under such Shared Agreement during the twelve-month period immediately prior to the Distribution Date) under the relevant Shared Agreement. Notwithstanding the foregoing, each Party shall be responsible for any and all Liabilities arising out of or resulting from a breach of the relevant Shared Agreement attributable to the Edwards Business, in the case of Edwards, or the Retained Business, in the case of Baxter.
(e) If either Baxter or its Subsidiaries, on the one hand, or Edwards or its Subsidiaries, on the other hand, improperly receives any benefit or payment under any Shared Agreement that was intended for the other, the Party receiving such benefit or payment will use commercially reasonable efforts to deliver, transfer or otherwise afford such benefit or payment to the other Party.
received, by mistake or otherwise, after the Distribution Date on account of the Edwards Business to be transferred promptly to Edwards and its Subsidiaries, as appropriate.
(a) The occupying Party shall pay to the other Party rent with respect to such occupied space for the period from and after the Distribution Date during which such space is so occupied, which rent shall be determined by the other Party on the same basis on which the other Party allocates rent with respect to the occupancy of space by business units of the other Party or as the occupying Party presently is paying, whichever is lower. Such rent shall be payable from time to time by the occupying Party (but not more frequently than monthly) promptly following delivery by the other Party to the occupying Party of a statement therefor.
(b) The occupying Party may, at any time, upon not less than 15 days' prior written notice to Baxter's Director of Corporate Real Estate, with a copy to Edwards, terminate its occupancy of any or all of such space.
(c) The other Party may, at any time, upon not less than 30 days' prior written notice to the occupying Party, require the occupying Party to cease occupancy of any or all of such space as designated in a notice sent to the occupying Party.
ARTICLE X
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(b) Ownership of the Licensed Edwards Intellectual Property. Baxter
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and Baxter and its Subsidiaries remain liable for any breach of such obligations by such third-party contract manufacturer. Edwards and its Subsidiaries shall not allow any registration or other protection for any Licensed Edwards Intellectual Property to lapse without notifying Baxter thereof at least one month prior thereto. Upon Baxter's receipt of such notice, (i) Baxter and its Subsidiaries shall have the right, but not the obligation, to take steps (at Baxter's expense and in Edwards' and its Subsidiaries' names, if necessary) to prevent such a lapse, and (ii) Edwards and its Subsidiaries shall cooperate with Baxter and its Subsidiaries (at Baxter's or its Subsidiaries' reasonable request and at Baxter's expense) to assign to Baxter or its Subsidiaries such Licensed Edwards Intellectual Property.
(i) Fibrin sealant biopharmaceuticals and the associated delivery devices which shall be the subject of a separate supply agreement;
(ii) The spinning membrane separation technology acquired by Baxter through the HemaScience acquisition which shall be the subject of a separate supply agreement;
(iii) Continuous renal replacement therapy which shall be the subject of separate distribution agreements;
(iv) Hemoglobin Therapeutics technology, including human, bovine and recombinant hemoglobin based biopharmaceuticals and perfluorocarbon-based pharmaceuticals; and
(v) Non-polyvinylchloride based film, tubing, containers and compositions developed as an alternative/replacement for PVC (only if acquired from Bieffe and/or developed under the IV Systems Marc project) which shall be the subject of a separate supply agreement.
(a) Baxter hereby grants to Edwards and its Subsidiaries a nonexclusive, royalty-free, fully paid-up right and license to use the Baxter Marks on Edwards Products in all appropriate jurisdictions for only so long as is reasonably necessary to transfer product registrations, deplete existing inventory and complete labeling and reimbursement qualifications. Edwards and its Subsidiaries shall use their commercially reasonable efforts to cease using the Baxter Marks as soon as possible after the Distribution Date, but in no event shall Edwards or its Subsidiaries use the Baxter Marks on Edwards Products after December 31, 2001.
(b) Edwards and its Subsidiaries will use their commercially reasonable efforts to cease the use of the Baxter Marks on or in connection with materials other than labels of Edwards Products including signs, stationery, trucks and customer brochures, as soon as reasonably practical, but in no event later than December 31, 2001.
(c) If delays in obtaining regulatory approval require Edwards or its Subsidiaries to use the Baxter Marks beyond the time limits set forth above, Baxter shall be reasonable in granting extensions of the time limits as necessary.
(d) Any use of the Baxter Marks by Edwards or its Subsidiaries pursuant to the above terms and conditions shall inure to the benefit of Baxter and shall be in the same form as existed prior to the Distribution Date. Any products or processes offered by Edwards or its Subsidiaries for sale under the Baxter Marks shall meet the same product specifications and quality assurance standards as existed prior to the Distribution Date. Baxter shall have the right to inspect any and all materials and products offered in connection with the Baxter Marks including label copy and marketing and sales materials.
(e) Any use of the Baxter Marks by Edwards or its Subsidiaries shall indicate that Baxter is the owner of the Baxter Marks and that such use is pursuant to a license from Baxter.
(f) Edwards and its Subsidiaries shall do nothing to impair Baxter's rights in the Baxter Marks. Edwards and its Subsidiaries shall inform Baxter promptly of any infringement of the Baxter Marks.
ARTICLE XI
The obligation of Baxter to effect the Distribution is subject to the satisfaction or the waiver by Baxter, at or prior to the Distribution Date, of each of the following conditions:
(b) Baxter shall have obtained all Third Party Consents required in connection with the Distribution, except those for which the failure to obtain such Third Party Consents would not, in the reasonable opinion of Baxter, individually or in the aggregate have a material adverse effect on Baxter, Edwards or the consummation of the Distribution.
ARTICLE XII
(c) Effective as of the Distribution Date, Edwards (or the applicable Edwards Subsidiary) shall have the obligation to reimburse Baxter for the severance benefits paid by Baxter under the Baxter Severance Pay Plan on or after the Distribution Date to any employee who was terminated by Baxter prior to the Distribution Date while employed in any Edwards Business unit. Edwards (or the applicable Edwards Subsidiary) shall have the obligation to pay severance benefits to any employee terminated by Edwards after the Distribution Date who is eligible to receive severance benefits under the Edwards Severance Pay Plan.
(b) No later than the Distribution Date: (i) Edwards shall adopt, and shall cause each of its Subsidiaries to adopt, its own leave of absence policies; (ii) Edwards shall
(c) As soon as administratively possible after the Distribution Date and upon request to Baxter's Senior Vice President of Human Resources, Baxter shall provide to Edwards copies of all records pertaining to the Baxter leave of absence policies with respect to all Edwards Employees to the extent such records have not been provided previously to Edwards or one of its Subsidiaries.
Edwards Savings Plan for periods of service with Baxter or any of its Subsidiaries or Affiliates. The plan administrator for the Edwards Savings Plan shall distribute any amounts from such Transferred Accounts that may be necessary in order for the Baxter Savings Plan to satisfy any requirements of applicable law (including, nondiscrimination rules) as instructed by the plan administrator for the Baxter Savings Plan. The plan administrator for the Edwards Savings Plan shall take any other action reasonably requested by the plan administrator for the Baxter Savings Plan that is necessary or advisable, in the opinion of the plan administrator for the Baxter Savings Plan, to maintain the tax-qualified status of the Baxter Savings Plan or to avoid the imposition of any penalties with respect to such plan.
to maintain the tax-qualified status of the Baxter PR Pension Plan or to avoid the imposition of any penalties with respect to such plan.
(c) Baxter (or the applicable Baxter Subsidiary) shall pay all claims under the Baxter Medical Plan and the Baxter Dental Plan relating to Edwards Employees that as of the Distribution Date have been incurred but not paid, but only if claims for such costs are submitted in written form to the authorized agents of Baxter (or the applicable Baxter Subsidiary) during the six-month period beginning on the Distribution Date.
(d) Baxter (or the applicable Baxter Subsidiary) shall pay all costs associated with the provision of benefits under the terms of the Baxter Retiree Welfare Plan for all persons who as of the Distribution Date have satisfied the age and service eligibility requirements for receiving benefits under such plan. Edwards (or the applicable Edwards Subsidiary) shall assume and pay all costs, if any, associated with the provision of retiree welfare benefits for all Edwards U.S. Employees who after the Distribution Date satisfy the age and service eligibility requirements under the corresponding Edwards plan, if any, for receiving such benefits.
Distribution, Edwards Employees may become eligible to participate in the Edwards Stock Purchase Plans in accordance with the provisions of such plans.
no later than 30 days after such information is made available to Edwards or any such Subsidiaries.
ARTICLE XIII
pay any additional premium or other charges in respect to, or waive or otherwise limit any of its rights, benefits or privileges under, any Baxter Policy in order to effect the naming of Edwards and its Subsidiaries as such additional insureds.
the extent Baxter receives insurance proceeds from the above coverage, but only to the extent such proceeds are actually received by Baxter.
inhibit or preclude any right of Edwards, Baxter or any other insured to insurance coverage for any Insured Claims under the Baxter Policies.
ARTICLE XIV
agent and registrar relating to the initial issuance of Edwards Shares as a dividend to Baxter's stockholders; (xi) the NYSE listing fees for the Edwards Shares; (xii) the design and initial printing of certificates of the Edwards Shares; (xiii) the initial distribution of the certificates of Edwards Common Stock as a dividend to Baxter stockholders; (xiv) the development, search and registration of the name "Edwards"; and (xv) various other international professional services related directly to the Distribution, such as valuation services, legal services and tax services.
ARTICLE XV
(i) any Liability transferred, assigned or allocated to, or assumed or retained by, a Party in accordance with this Agreement, any Conveyancing Instrument, any Implementation Agreement, any Operating Agreement or the Tax Sharing Agreement;
(ii) any Liability provided in or resulting from this Agreement, any Conveyancing Instrument, any Implementation Agreement, any Operating Agreement, the Tax Sharing Agreement or any agreement between any of Baxter and its Subsidiaries, on the one hand, and Edwards and its Subsidiaries, on the other hand, that is not to terminate pursuant to the Distribution or any other agreement between any of the Parties entered into in contemplation that such agreement would remain in effect after the Distribution;
(iii) any Liability for unpaid amounts for the sale, lease, construction or receipt of goods, property or services purchased, obtained or used in the ordinary course of business by one Party from the other Party prior to the Distribution Date;
(iv) any Liability for unpaid amounts for products or services or refunds owing on products or services due on a value-received basis for work done by one Party at the request or on behalf of the other Party;
(a) any claim that the information included in the Registration Statement or the Information Statement that relates to the Edwards Business, or any other information relating to the Edwards Business provided to Baxter or distributed to third parties by employees of Edwards or individuals who were employees of the Edwards Business prior to the Distribution Date, is or was false or misleading with respect to any material fact or omits or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, regardless of whether the occurrence, action or other event giving rise to the applicable matter took place prior or subsequent to the Distribution Date;
(b) the Edwards Business as conducted by Baxter or its Subsidiaries, Affiliates or predecessors on or at any time prior to the Distribution Date;
(c) the Transferred Assets;
(d) the Assumed Liabilities;
(e) the Transferred Subsidiaries;
(f) the breach by Edwards or any of its Subsidiaries of any covenant or agreement set forth in this Agreement, any Conveyancing Instrument, any Implementation Agreement or the Tax Sharing Agreement, regardless of when or where the loss, claim, accident, occurrence, event or happening giving rise to the Expense or Loss took place, or whether any such loss, claim, accident, occurrence, event or happening is known or unknown, or reported or unreported;
(h) the Indemnifiable matters set forth in Sections 7.3, 9.4(b) and
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9.11(b) and Article XII; or
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(a) any claim that the information included in the Registration Statement or the Information Statement that relates to Baxter or the Retained Business is or was false or misleading with respect to any material fact or omits or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, regardless of whether the occurrence, action or other event giving rise to the applicable matter took place prior or subsequent to the Distribution Date;
(b) the business (other than the Edwards Business) conducted by Baxter or its Subsidiaries, Affiliates or predecessors on or at any time prior to the Distribution Date;
(c) the assets owned by Baxter or its Subsidiaries other than the Transferred Assets and the Shared Agreements;
(d) the Liabilities (including the Retained Liabilities) of Baxter or its Subsidiaries other than the Assumed Liabilities;
(e) the breach by Baxter or any of its Subsidiaries of any covenant or agreement set forth in this Agreement, any Conveyancing Instrument, any Implementation Agreement or the Tax Sharing Agreement, regardless of when or where the loss, claim, accident, occurrence, event or happening giving rise to the Expense or Loss took place, or whether any such loss, claim, accident, occurrence, event or happening is known or unknown, or reported or unreported; or
REGARD TO WHETHER THE LOSS, LIABILITY, CLAIM, DAMAGE, COST OR EXPENSE FOR WHICH INDEMNITY IS CLAIMED HEREUNDER IS BASED ON STRICT LIABILITY, ABSOLUTE LIABILITY OR ARISES AS AN OBLIGATION FOR CONTRIBUTION.
(b) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL BAXTER BE LIABLE TO EDWARDS (OR ANY EDWARDS INDEMNIFIED PARTY), OR EDWARDS BE LIABLE TO BAXTER (OR ANY BAXTER INDEMNIFIED PARTY), UNDER THIS AGREEMENT FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, INCLUDING LOSS OF ANTICIPATED PROFITS OR LOSS OR DIMINUTION OF REVENUES, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT OR OTHERWISE, EXCEPT TO THE EXTENT THAT SUCH LIABILITY HAS BEEN ASSERTED BY A THIRD PARTY AGAINST A PARTY ENTITLED TO INDEMNIFICATION HEREUNDER.
(c) If any Indemnified Party realizes a Tax benefit or detriment in one or more Tax periods by reason of having incurred an Expense or a Loss for which such Indemnified Party receives an Indemnity Payment from an Indemnifying Party (or by reason of the receipt of any Indemnity Payment), then such Indemnified Party shall pay to such Indemnifying Party an amount equal to the Tax benefit or such Indemnifying Party shall pay to such Indemnified Party an additional amount equal to the Tax detriment (taking into account, without limitation, any Tax detriment resulting from the receipt of such additional amounts), as the case may be. The amount of any Tax benefit or any Tax detriment for a Tax period realized by an Indemnified Party by reason of having incurred an Expense or a Loss (or by reason of the receipt of any Indemnity Payment) shall be deemed to equal the product obtained by multiplying (i) the amount of any deduction or loss or inclusion in income for such period resulting from such Expense or
(d) In the event that an Indemnity Payment shall be denominated in a currency other than United States dollars, the amount of such payment shall be translated into United States dollars using the Foreign Exchange Rate for such currency determined in accordance with the following rules:
(i) with respect to an Expense or a Loss arising from payment by a financial institution under a guarantee, comfort letter, letter of credit, foreign exchange contract or similar instrument, the Foreign Exchange Rate for such currency shall be determined as of the date on which such financial institution shall have been reimbursed;
(ii) with respect to an Expense or a Loss covered by insurance, the Foreign Exchange Rate for such currency shall be the Foreign Exchange Rate employed by the insurance company providing such insurance in settling such Expense or Loss with the Indemnifying Party; and
(iii) with respect to an Expense or a Loss not covered by clause (i) or (ii) above, the Foreign Exchange Rate for such currency shall be determined as of the date that notice of the claim with respect to such Expense or Loss shall be given to the Indemnified Party.
If the Indemnifying Party shall not have undertaken the conduct and control of the defense of any Third Party Claim as provided above, the Indemnifying Party shall nevertheless be entitled through counsel chosen by the Indemnifying Party and reasonably acceptable to the Indemnified Party to monitor the conduct or settlement of such claim by the Indemnified Party, and the Indemnified Party shall provide the Indemnifying Party and such counsel with such information regarding such Third Party Claim as either of them may reasonably request (which request may be general or specific), but all costs and expenses incurred in connection with such monitoring shall be borne by the Indemnifying Party.
Sharing Agreement, any Implementation Agreement or any Operating Agreement shall not inure to the benefit of any third-party or parties and shall not relieve any insurer or other third-party who otherwise would be obligated to pay any claim or assume the responsibility with respect thereto, or, solely by virtue of the indemnification provisions hereof, provide any subrogation rights with respect thereto, and each Party agrees to waive such rights against the other to the fullest extent permitted.
ARTICLE XVI
Escalation Notice shall be settled by binding arbitration in accordance with the CPR Non-Administered Arbitration Rules in effect on the date of this Agreement, by three independent and impartial arbitrators, none of whom shall be appointed by either Party. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. (S)(S) 1-16, as the same may be amended from time to time, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of the arbitration shall be Lake County, Illinois or Orange County, California, and shall be determined by the Party that initiated the dispute resolution process. The arbitrators may award attorneys' fees in their discretion. Otherwise, the arbitrators are not empowered to award damages in excess of compensatory damages, and each Party hereby irrevocably waives any right to recover such damages.
ARTICLE XVII
(c) After the Distribution Date, (i) Edwards shall maintain in effect at its own cost and expense adequate systems and controls to the extent necessary to enable Baxter and its Subsidiaries to satisfy their respective reporting, accounting, audit and other obligations, and (ii) Edwards shall provide, or cause to be provided, to Baxter in such form as Baxter shall request, at no charge to Baxter, all financial and other data and information as Baxter determines necessary or advisable in order to prepare Baxter financial statements and reports or filings with any Governmental Authority.
ARTICLE XVIII
transmission is received, (iii) if transmitted by electronic mail when confirmation of such transmission is received, (iv) if sent by registered or certified mail, postage prepaid, return receipt requested, on the third business day after mailing or (v) if sent by private courier when received; and shall be addressed as follows:
If to Baxter, to:
Baxter International Inc.
One Baxter Parkway
Deerfield, IL 60015-4633
Attention: General Counsel
Facsimile: (847) 948-2450
If to Edwards, to:
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, CA 92614
Attention: General Counsel Facsimile: (949) 250-6868
or to such other address as such Party may indicate by a notice delivered to the other Party.
provisions of this Agreement or to comply with the accounting and SEC disclosure obligations or the rules of any stock exchange.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their authorized representatives as of the date first above written.
BAXTER INTERNATIONAL INC.
By: /s/ Harry M. Jansen Kraemer, Jr.
--------------------------------
Harry M. Jansen Kraemer, Jr.
Chairman and Chief Executive Officer
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EDWARDS LIFESCIENCES CORPORATION
By: /s/ Michael A. Mussallem
------------------------
Michael A. Mussallem
Chairman and Chief Executive Officer
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Signature Page to the
Reorganization Agreement
TAX SHARING AGREEMENT
DATED AS OF MARCH 31, 2000
BY AND BETWEEN
BAXTER INTERNATIONAL INC.
AND
EDWARDS LIFESCIENCES CORPORATION
TABLE OF CONTENTS Page
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Article I Definitions 2
Article II Preparation and Filing of Tax Returns 9
2.01 Manner of Preparation 9
2.02 Pre-Distribution Consolidated U.S. Federal Income Tax 9
2.03 Pre-Distribution U.S. State Income Tax Returns 10
2.04 International Tax Returns - Edwards Entities 11
2.05 Other Pre-Distribution Tax Returns 12
2.06 Sales, Use or Property Tax Returns 12
2.07 Franchise Tax Returns 12
2.08 Tax Packages and Other Information 13
2.09 Post-Distribution Date Tax Returns 13
2.10 Allocation of Tax Attributes 13
2.11 Employee Stock Incentives Other Than Restricted Stock 14
2.12 Restricted Stock 15
2.13 Abandoned/Unclaimed Property 15
Article III Tax Deficiencies and Overpayments 16
3.01 General Rule 16
3.02 Payments by Edwards 16
3.03 Payments by Baxter 20
3.04 Manner of Payments - Legal Entities 22
3.05 Transaction Taxes 22
3.06 Puerto Rico Filing Obligations 22
3.07 Harbor Maintenance Taxes 23
3.08 No Other Payments 23
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Article IV Tax Audits and Administrative Matters 24
4.01 Tax Audits and Controversies 24
4.02 Retention of Books and Records 25
4.03 Cooperation Regarding Return Filing, Examinations And Controversies 26
4.04 Interest on Late Payments 28
4.05 Character and Effect of Payments 28
4.06 Agency 28
Article V Miscellaneous 28
5.01 Severability 28
5.02 Modification of Agreement 28
5.03 Conflict with the Reorganization Agreement or Other Tax Agreements 29
5.04 Notices 29
5.05 Application to Present and Future Subsidiaries 30
5.06 Term 30
5.07 Titles and Headings 30
5.08 Singular and Plural 30
5.09 Governing Law 31
5.10 Dispute Resolution 31
5.11 Counterparts 31
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TAX SHARING AGREEMENT
Tax Sharing Agreement (the "Agreement"), dated as of March 31, 2000 by and between Baxter International Inc., a Delaware corporation ("Baxter") and, Edwards Lifesciences Corporation, a Delaware corporation (Edwards):
WHEREAS, Baxter and Edwards have entered into an Agreement and Plan of Reorganization dated as of March 15, 2000 (the "Reorganization Agreement");
WHEREAS, pursuant to the Reorganization Agreement all the issued and outstanding common stock of Edwards will be distributed by Baxter (pro rata) to the holders of its common stock (the "Distribution"); and
WHEREAS, the parties hereto desire to provide for the payment of tax liabilities and entitlement to tax refunds for the taxable periods ending before, on or after the date of the Distribution, to allocate responsibility and provide for cooperation in the preparation and filing of tax returns with respect to such taxable periods, and to provide for certain other related matters:
NOW, THEREFORE, Baxter, on behalf of itself and members of the Baxter Group (as hereinafter defined), and Edwards, on behalf of itself and members of the Edwards Group (as hereinafter defined), in consideration of the mutual covenants contained herein, agree as follows:
ARTICLE I
As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and the plural forms of the terms defined):
"Baxter Businesses" means the present and former subsidiaries, divisions and businesses of any member of the Baxter Group, other than the Edwards Business.
"Baxter Employee" means any employee of the Baxter Group who is not an Edwards Employee.
"Baxter Group" means Baxter and its past and present subsidiaries, except
for: (1) members of the Edwards Group, (2) the Edwards Business, and (3) any
past or present subsidiaries, divisions or businesses of Baxter (or of any of
its past or present subsidiaries) which (i) relate to the Edwards Business and
(ii) which are not, or are not contemplated by the Reorganization Agreement to
be, part of the Baxter Group after the Distribution.
"Code" means the Internal Revenue Code of 1986, as amended, or any successor thereto.
"Disqualifying Disposition" means any disposition of Section 423 Edwards Stock or Section 423 Baxter Stock which does not meet the requirements of section 423(a) of the Code.
"Distribution Date" has the meaning set forth in the Reorganization Agreement for "Distribution Date". For all purposes of this Agreement, the
Distribution shall be deemed effective as of the close of business on the Distribution Date.
"Edwards" means the present and future subsidiaries, divisions and businesses and former divisions and businesses of any member of the Edwards Group which are not, or are not contemplated by the Reorganization Agreement to be, part of the Baxter Group immediately after the Distribution, including former divisions or subsidiaries described as the Divested Businesses in the Reorganization Agreement.
"Edwards Business" has the meaning set forth in the Reorganization Agreement for "Edwards Business" but shall also be defined to include any operations, entities or contractual arrangements in which Edwards has a majority participating interest.
"Edwards Employee" has the meaning set forth in section 12.1 of the Reorganization Agreement.
"Edwards Group" means the "Edwards Business" as defined in the Reorganization Agreement and its direct and indirect subsidiaries on and after the Distribution Date, including former divisions and subsidiaries described as the Divested Businesses as defined in the Reorganization Agreement.
"Edwards Distribution Date Balance Sheet" means the Edwards balance sheet as of the Distribution Date.
"Edwards 1999 Currently Payable Federal Income Tax Expense" means the amount of U.S. Baxter consolidated federal income tax liability attributable to the Edwards Business for items reported in Baxter's 1999 consolidated federal
income tax return as filed, computed at a 35% tax rate. This amount shall be determined in good faith by Baxter, after consulting with Edwards, on the basis of Edwards Business items as such items are reported (or should properly have been reported) on the tax packages and other information provided by Edwards under section 2.08 of this Agreement.
"Edwards 1999 Estimated Currently Payable Federal Income Tax Expense" means the U.S. Baxter 1999 consolidated federal income tax expense attributable to the Edwards Business for the taxable year ended December 31 1999, less the net increase (or plus the net decrease) in the deferred federal income tax liabilities attributable to the Edwards Business through December 31, 1999, as reported in Edwards' consolidated balance sheet as of the December 31, 1999 and consolidated income statement through December 31, 1999. Any adjustments to Edwards' deferred tax liabilities for periods ending prior to January 1, 1999 shall be disregarded for this purpose.
"Edwards 1999 Currently Payable State Income Tax Expense" means the amount of U.S. state income tax liability attributable to the Edwards Business for items reported in Baxter's 1999 state income tax returns as filed, computed at an 8% tax rate. This amount shall be determined in good faith by Baxter, after consulting with Edwards, on the basis of Edwards Business items as such items are reported (or should properly have been reported) on the tax packages and other information provided by Edwards under section 2.05 of this Agreement.
"Edwards 1999 Estimated Currently Payable State Income Tax Expense" means the U.S. state income tax expense attributable to the Edwards Business through December 31, 1999, less the net increase (or plus the net decrease) in the deferred state income tax liabilities attributable to the Edwards Business through December 31, 1999, as reported in Edwards' consolidated balance sheet as of December 31, 1999 and consolidated income statement through
December 31, 1999. Any adjustments to Edwards' deferred tax liabilities for periods ending prior to January 1, 1999 shall be disregarded for this purpose.
"Edwards 2000 Currently Payable Federal Income Tax Expense" means the amount of U.S. Baxter consolidated federal income tax liability attributable to the Edwards Business for items reported in Baxter's 2000 consolidated federal income tax return as filed, computed at a 35% tax rate. This amount shall be determined in good faith by Baxter, after consulting with Edwards, on the basis of Edwards Business items as such items are reported (or should properly have been reported) on the tax packages and other information provided by Edwards under section 2.08 of this Agreement.
"Edwards 2000 Estimated Currently Payable Federal Income Tax Expense" means the U.S. Baxter 2000 consolidated federal income tax expense attributable to the Edwards Business through the Distribution Date, less the net increase (or plus the net decrease) in the deferred federal income tax liabilities attributable to the Edwards Business through the Distribution Date, as reported in Edwards' consolidated balance sheet as of the Distribution Date and consolidated income statement through the Distribution Date. Any adjustments to Edwards' deferred tax liabilities for periods ending prior to January 1, 2000 shall be disregarded for this purpose.
"Edwards 2000 Currently Payable State Income Tax Expense" means the amount of U.S. state income tax liability attributable to the Edwards Business for items reported in Baxter's 2000 state income tax returns as filed, computed at an 8% tax rate. This amount shall be determined in good faith by Baxter, after consulting with Edwards, on the basis of Edwards Business items as such items are reported (or should properly have been reported) on the tax packages and other information provided by Edwards under section 2.05 of this Agreement.
"Edwards 2000 Estimated Currently Payable State Income Tax Expense" means the U.S. state income tax expense attributable to the Edwards Business through the Distribution Date, less the net increase (or plus the net decrease) in the deferred state income tax liabilities attributable to the Edwards Business through the Distribution Date, as reported in Edwards' consolidated balance sheet as of the Distribution Date and consolidated income statement through the Distribution Date. Any adjustments to Edwards' deferred tax liabilities for periods ending prior to January 1, 2000 shall be disregarded for this purpose.
"Final Determination" means, with respect to any issue or item for any taxable period the earliest to occur of the following: (i) a decision by a court of competent jurisdiction, but only after such decision has become final and unappealable; (ii) the expiration of the time for filing a claim for refund or, if a refund claim has been timely filed, the time for instituting a suit in respect of such refund claim, provided that no further adjustment to the items of income, gain, loss, deduction or credit for such period may thereafter be made; (iii) the execution by or on behalf of the taxpayer and the IRS of a closing agreement under Section 7121 of the Code or comparable agreements under the laws of other jurisdictions; (iv) the acceptance by the IRS or its counsel of a tender pursuant to an offer in compromise under Section 7122 of the Code, or comparable agreements under the laws of other jurisdictions; (v) the execution of a Form 870 or Form 870AD and the subsequent payment of the tax deficiency or the receipt of the refund reflected therein; or (vi) any other final and irrevocable determination of the tax liability of a party to this Agreement for any taxable period.
"IRS Adjustments" means any adjustments made by the Internal Revenue Service ("IRS") with respect to any United States ("U.S.") Federal income Tax Returns of Baxter (or any member of the Baxter Group) in which any part of Edwards is included for taxable periods beginning before the Distribution Date.
"Sales, Use, or Property Tax" means any sales, use, or property tax (and any related interest or penalties) relating to the Edwards Businesses conducted in the United States.
"Section 423 Edwards Stock" means Edwards Stock received as a distribution on Section 423 Baxter Stock pursuant to the Reorganization Agreement.
"Section 423 Baxter Stock" means Baxter stock acquired pursuant to the Baxter Qualified Employee Stock Purchase Plan, adopted pursuant to the 1987 Incentive Compensation Program.
"Tax" means any of the Taxes.
"Taxes" means taxes arising from all forms of taxation, whenever created or imposed, and whether of the United States of America or elsewhere, and whether imposed by a local, municipal, governmental, state, federation or other body, and without limiting the generality of the foregoing, shall include income, sales, use, ad valorem, gross receipts, value added, franchise, transfer, stamp, recording, withholding, payroll, employment, excise, occupation, premium or property taxes, together with any related interest, penalties and additions to tax, or additional amounts imposed by any taxing authority (domestic or foreign) upon the Edwards Group, the Baxter Group or any of their respective members or divisions or branches.
A "Tax Benefit" arises whenever a member's liability for Taxes may be reduced in future periods as a result of an adjustment by a taxing authority in the year under examination, whether or not such reduction is presently assured. Examples of a Tax Benefit include the Taxes associated with an increase in the
basis of an asset or the deferral of a deduction or the reallocation upon audit of a deduction within the same taxable period between Edwards and Baxter. A Tax Benefit does not include a change in the amount of a tax credit available. The amount of any Tax Benefit shall be computed using a tax rate of 35% for federal income tax purposes and 5.2% (8% state income tax rate less a 35% federal benefit) for state income tax purposes.
A "Tax Detriment" arises whenever a member's liability for Taxes may be increased in future periods as a result of an adjustment by a taxing jurisdiction in the year under examination, whether or not such increase is presently assured. Examples of a Tax Detriment include the Taxes associated with a decrease in the basis of an asset or the acceleration of a deduction or the reallocation upon audit of a deduction within the same taxable period between Edwards and Baxter. A Tax Detriment does not include a change in the amount of a tax credit available. The amount of a Tax Detriment shall be computed using a tax rate of 35% for federal income tax purposes and 5.2% (8% state income tax rate less a 35% federal benefit) for state income tax purposes.
"Tax Return" means any return, filing, questionnaire or other document required to be filed, including amended returns that may be filed, for any period with any taxing authority (whether domestic or foreign) in connection with any Tax or Taxes (whether or not a payment is required to be made with respect to such filing).
"Transaction Taxes" means all sales, use, transfer, VAT, stamp, registration, capital gains, income tax, ad valorem, gross receipts, recording, withholding (other than payroll tax withholding), and similar taxes or fees (including, without limitation, all real estate, patent, copyright and trademark transfer taxes and recording fees) payable in connection with the transactions
contemplated in the Reorganization Agreement and the transfer of the Edwards Business, together with any related interest, penalties, or additions to tax.
ARTICLE II
Baxter shall refund to Edwards any excess of: (i) Edwards 1999 Estimated Currently Payable Federal Income Tax Expense, over (ii) Edwards 1999 Currently Payable Federal Income Tax Expense. Edwards shall refund to Baxter
any excess of: (i) Edwards 1999 Currently Payable Federal Income Tax Expense, over (ii) Edwards 1999 Estimated Currently Payable Federal Income Tax Expense. Payments under this section shall be due within 30 days after the due date (including extensions) of Baxter's 1999 consolidated U.S. federal income tax return.
Baxter shall refund to Edwards any excess of: (i) Edwards 2000 Estimated Currently Payable Federal Income Tax Expense, over (ii) Edwards 2000 Currently Payable Federal Income Tax Expense. Edwards shall refund to Baxter any excess of: (i) Edwards 2000 Currently Payable Federal Income Tax Expense, over (ii) Edwards 2000 Estimated Currently Payable Federal Income Tax Expense. Payments under this section shall be due within 30 days after the due date (including extensions) of Baxter's 2000 consolidated U.S. federal income tax return.
(i) include part of the Edwards Business, and
(ii) are required to be filed for periods beginning before the Distribution Date
shall be filed by the Baxter member. The Baxter member shall also be responsible for paying the tax liability shown on the return to the appropriate taxing authority.
Baxter shall refund to Edwards any excess of: (i) Edwards 1999 Estimated
Currently Payable State Income Tax Expense, over (ii) Edwards 1999 Currently
Payable State Income Tax Expense. Edwards shall refund to Baxter any excess of:
(i) Edwards 1999 Currently Payable State Income Tax Expense, over (ii)
Edwards 1999 Estimated Currently Payable State Income Tax Expense. Payments under this section shall be due within 30 days after the due date (including extensions) of the relevant state income tax return.
Baxter shall refund to Edwards any excess of: (i) Edwards 2000 Estimated
Currently Payable State Income Tax Expense, over (ii) Edwards 2000 Currently
Payable State Income Tax Expense. Edwards shall refund to Baxter any excess of:
(i) Edwards 2000 Currently Payable State Income Tax Expense, over (ii) Edwards
2000 Estimated Currently Payable State Income Tax Expense. Payments under this
section shall be due within 30 days after the due date (including extensions) of
the relevant state income tax return.
Baxter Participacoes e Commercial Ltda. (Brazil)
Macchi Engenharia Ltda. (Brazil)
Baxter Cardiovascular Private Limited (India)
Xenomedica A.G
PAS Palzer GmbH and Co. KG
PAS Palzer Verwaltungs GmbH
Edwards shall also be responsible for filing Tax Returns and paying all Tax Liabilities with respect to Edwards entities that are formed pursuant to the Reorganization Agreement.
(i) include or are filed by a member of the Baxter Group or the Edwards
Group, and
(ii) are required to be filed for periods beginning before the Distribution Date
shall be filed by the appropriate Baxter or Edwards member in accordance with local law or custom as finally determined in good faith by Baxter after consultation with Edwards. The party filing such return shall also be responsible for paying the tax liability shown on the return to the appropriate taxing authority.
by Baxter, and (iii) a reconciliation of book income to U.S. federal taxable income for the Edwards Businesses for 1999 and the period January 1, 2000 through the Distribution Date.
Edwards shall use its best efforts to provide Baxter with such tax packages, information, documentation, working papers, schedules and book-tax reconciliation on or before the first day of the fourth month following the end of the period to which they relate, but in any event shall provide them no later than the fifteenth day of the sixth month following the end of the period to which they relate.
was not correct. Baxter has provided documentation to Edwards to support such gross receipts and qualified research expenses, and will provide Edwards with access to the original tax packages and Tax Returns as necessary for audit purposes.
Baxter shall be entitled to all tax deductions arising by reason of any Disqualifying Disposition by: (i) Baxter Employees of Section 423 Edwards Stock or Section 423 Baxter Stock, or (ii) Edwards Employees of Section 423 Baxter Stock. Edwards shall be entitled to all tax deductions arising by reason of any Disqualifying Disposition by Edwards Employees of Section 423 Edwards Stock.
Baxter shall be responsible to make all reports required to be made to the relevant tax authorities with respect to Disqualifying Dispositions where Baxter is entitled to the corresponding tax deductions hereunder. Edwards shall be responsible to make all reports required to be made to the relevant tax authorities with respect to Disqualifying Dispositions where Edwards is entitled to the corresponding tax deductions hereunder.
Edwards shall report to Baxter, in no case later than 30 days after the end of each calendar month, any Disqualifying Disposition made by Baxter Employees during such month of Section 423 Edwards Stock.
Baxter shall be entitled to all tax deductions arising by reason of any exercises of nonqualified stock options to purchase Baxter shares of stock.
The party entitled to tax deductions under this Section 2.11 shall also be responsible for any employment related taxes and governmental filings associated with the tax deduction being claimed.
If, pursuant to a Final Determination, all or any part of a tax deduction described in this section is disallowed to Baxter, then Edwards shall reimburse Baxter for any additional Taxes owed by reason of such disallowance, but only to the extent that, as a result of such disallowance, Edwards is allowed a tax deduction attributable to such Disqualifying Disposition. In such case, Edwards shall report the allowed tax deduction and shall reimburse Baxter at the time Edwards receives a refund attributable to such deduction or otherwise realizes the economic benefit thereof.
unclaimed property. Edwards will retain liability for abandoned and unclaimed property of Edwards not reported to Baxter as of the Distribution Date.
ARTICLE III
Pursuant to Sections 3.02 through 3.08 hereof, Baxter is entitled to cash reimbursements from Edwards, or must make cash payments to Edwards, in certain circumstances described below.
No cash reimbursements or payments are required with respect to adjustments made by any taxing authority relating to the returns of any member of the Edwards Group which do not include Baxter or a member of the Baxter Group.
solely to Edwards failure to provide timely sufficient documentation under
Section 4.03 of this Agreement, Edwards shall pay Baxter the amount of such Tax
Benefit or additional Taxes as the case may be. Where any such adjustment is
attributable solely to Edwards failure to provide timely documentation pursuant
to the request of the IRS or any state tax authority, Edwards shall also pay
Baxter any interest, penalties, or additions to tax attributable to such
adjustment (per Section 3.02(a)(2)). The amount of such Tax Benefit shall be
determined in good faith by Baxter, after consulting with Edwards.
i) are attributable to part of the Edwards Business; or
ii.) the transfer thereof, and
iii.) may decrease the net taxable income of, or increase the net taxable loss
or tax credits of, any member of the Edwards Business for taxable
periods beginning on or after the Distribution Date, and
iv.) result in a greater Tax liability for Baxter or any member of the Baxter
Group (in either case without regard to any offsetting adjustments to
other members of the Baxter Group),
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Edwards and each other member of the Edwards Group shall pay Baxter the difference between the Tax liability on the respective Baxter Tax Return before and after taking into account the adjustment, determined without regard to any interest, penalties, or additions to tax, unless such interest, penalties, or additions to tax are attributable to failure to provide timely sufficient documentation under Section 4.03 of this Agreement by any member of the Edwards Group. The amount of such adjustment shall be determined in good faith by Baxter, after consulting with Edwards, and be payable under Section 3.02(e) except for any amounts payable pursuant to Section 3.02(c)(ii) which shall be payable under Section 3.02(f).
i.) are attributable to the transfer of the Edwards Business; or
ii.) are attributable to the operations of the Edwards Business after the
Distribution Date, and
iii.) result in a greater Tax liability for Baxter or any member of the Baxter
Group (in either case without regard to any offsetting adjustments to
other members of the Baxter Group),
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Edwards shall pay Baxter the difference between the Tax liability on the respective Baxter Tax Return before and after taking into account the adjustment, determined without regard to any interest, penalties, or additions to tax. Also, in the event that any joint venture governed by this paragraph is the subject of an income tax audit, the parties agree to allocate any resulting taxable income adjustment in proportion to their profit allocation percentages in the relevant operations. In either case, the amount of such adjustment shall be determined in good faith by Baxter, after consulting with Edwards and be payable under Section 3.02(e) except for any amounts payable pursuant to Section 3.02(d)(i) which shall be payable under Section 3.02(f).
the transfer of the Edwards Business (Basis Increase). For purposes of determining the amount of any economic benefit (Tax Reduction) under this Section, Edwards shall prepare three separate income tax returns for the jurisdiction in which the relevant Basis Increase is available. One return shall be prepared in accordance with local law and filed with the local tax authorities (Actual Return). A proforma return shall be prepared on the same basis as the Actual Return but which shall also exclude any tax deductions or credits arising out of tax strategies which occur after the Distribution Date (such as material changes in accounting policies, changes in capital structure to increase leverage, and acquisitions or reorganizations which produce tax deductions greater than their operating income) (First Pro Forma Return). Another pro forma return shall be prepared on the same basis as the First Pro Forma Return but which shall also exclude any tax deductions or credits associated with the Basis Increase (Second Pro Forma Return). The excess of the tax liability on the Second Pro Forma Return over the tax liability on the First Pro Forma Return shall be considered as the Tax Reduction under this Section. The Tax Reduction shall be determined in good faith by Edwards, after consulting with Baxter and shall be reimbursed by Edwards to Baxter within 30 days after the last extended legal due date for filing of the Actual Return. Edwards' liability to Baxter hereunder shall continue until the Basis Increase no longer constitutes an allowable deduction for tax purposes in the relevant jurisdiction.
The delayed timing of reimbursement provided by this Section as an exception to Section 3.02(e) shall apply only to those Tax liabilities otherwise subject to reimbursement hereunder which individually (i.e. on a per country basis) exceed $3,000,000.
that includes any part of the Edwards Business for taxable periods beginning before the Distribution Date results in a Tax Detriment to any member of the Edwards Group, Baxter shall remit to Edwards the amount of such Tax Detriment, determined without regard to any interest, penalties, or additions to tax. The amount of such Tax Detriment shall be determined in good faith by Baxter, after consulting with Edwards.
i) result in a reduced Tax liability for Baxter (without regard to any offsetting adjustments to other members of the Baxter Group),and
ii.) may increase the net taxable income of, or decrease the net taxable loss or tax credits of, any member of the Edwards Business for taxable periods beginning on or after the Distribution Date,
then Baxter shall pay to Edwards the difference between the Tax liability on the respective Tax Return before and after taking into account the adjustment, determined without regard to any interest, penalties, or additions to tax. The amount of such adjustment shall be determined in good faith by Baxter, after consulting with Edwards.
provided however that patent, copyright and trademark transfer taxes and recording fees shall be the responsibility of Baxter.
(a) Edwards will prepare local Tax Returns for its perfusion business in Puerto Rico, pay the appropriate taxes, interest and penalties, if any, to Puerto Rico and provide Baxter with copies of the local Tax Returns and underlying documentation. Edwards shall file such returns within 6 months following the Distribution Date.
(b) Baxter will refund to Edwards any increase in foreign tax credits (Extra Credits) allowable to Baxter as a result of taxes paid pursuant to the local Tax Returns prepared by Edwards under Section 3.06(a).
(c) Any amounts payable by Baxter hereunder shall be paid to Edwards within seven months after Edwards files related Tax Returns under Section 3.06(a).
(d) Edwards and Baxter agree to share equally professional fees incurred in the preparation of local Tax Returns under Section 3.05(a) above.
(e) If, pursuant to a Final Determination, any Extra Credits are disallowed to Baxter on the basis that the Extra Credits are attributable to Edwards,
Edwards shall reimburse Baxter an amount equal to the Extra Credits so disallowed within 30 days after the related Final Determination.
ARTICLE IV
Such representation shall include, but shall not be limited to exclusive control over (i) any response to any examination by the IRS of U.S. federal income Tax Returns and (ii) any contest through a Final Determination of any issue included in any U.S. federal income Tax Return that includes a member of the Baxter Group, including, but not limited to (A) whether and in what forum to conduct such contest, and (B) whether and on what basis to settle such contest.
Baxter shall give timely notice to Edwards of any inquiry, the assertion of any claim or the commencement of any suit, action or proceeding in respect of which any member of the Edwards Group may incur any then known (by Baxter) future U.S. federal income Tax liability or in respect of which indemnity for U.S. federal corporate income taxes may be sought under this Agreement against Edwards or any member of the Edwards Group and will give Edwards such information with respect thereto as Edwards may reasonably request.
with respect to taxable periods after the Distribution Date Baxter's actions under this Section 4.01 shall be subject to dispute resolution under Section 5.10.
This section 4.02 is in addition to any records retention requirements contained in the Reorganization Agreement. In the event of any conflict, the provisions of this Tax Sharing Agreement shall govern.
for any member of the Baxter Group for any taxable period beginning before the Distribution Date, and relating to issues involving the Edwards Business. Such cooperation shall include, but not be limited to, making available to Baxter, during normal business hours, and within thirty (30) days after any request therefor, all books, records and information, and the assistance of all officers and employees, necessary or useful in connection with any tax inquiry, audit, examination, investigation, dispute, litigation, or any other matter. Baxter and Edwards will share on an equitable basis professional fees with respect to audits of post Distribution Date taxable periods of any Baxter legal entity that includes part of the Edwards Business. The sharing shall be based upon the proportionate amount of professional time spent on matters relating to the Edwards Business.
Edwards agrees on behalf of itself and each member of the Edwards Group to execute and deliver to Baxter, when so requested by Baxter, any power of attorney required to allow Baxter and its counsel to represent Edwards or such other Edwards Group member in any controversy which Baxter shall have the right to control pursuant to the terms of Section 4.01 of this Agreement.
Baxter agrees on behalf of itself and each member of the Baxter Group to execute and deliver to Edwards, when so requested by Edwards, any power of attorney required to allow Edwards and its counsel to represent Baxter or such other Baxter Group member in any controversy which Edwards shall have the right to control pursuant to the terms of Section 4.01(b) of this Agreement.
ARTICLE V
(a) In the case of Baxter, to:
Baxter International Inc.
One Baxter Parkway
Deerfield, IL 60015
Attn: Vice President - Taxes
(b) In the case of Edwards, to:
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, CA 92614
Attn: Vice President or Director - Taxes
all actions, agreements and obligations provided for under this Agreement of each member of the Baxter Group and the Edwards Group, respectively. Baxter and Edwards shall, upon the written request of the other, cause any of their respective group members formally to execute this Agreement. This Agreement shall be binding upon, and shall inure to the benefit of, the successors, assigns and persons controlling any of the corporations bound hereby.
agreement, and shall become a binding agreement when one or more counterparts have been signed by each party and delivered to the other parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers, all on the day and year first above written.
BAXTER INTERNATIONAL INC.
By:____________________________
Its
Edwards Lifesciences Corporation
By________________________
Its
Exhibit 10.9
Edwards Lifesciences Corporation
and
Equiserve Trust Company, N.A.
as
Rights Agent
Rights Agreement
Dated as of March 31, 2000
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of March 31, 2000 (the "Agreement"), between Edwards Lifesciences Corporation, a Delaware corporation (the "Company"), and Equiserve Trust Company, N.A., a federally chartered trust company (the "Rights Agent").
W I T N E S S E T H:
WHEREAS, on March 10, 2000 (the "Rights Dividend Declaration Date"), the Board of Directors of the Company authorized and declared a dividend distribution of one Right (as hereinafter defined) for each share of Common Stock (as hereinafter defined) of the Company outstanding at the Close of Business on March 31, 2000, after giving effect to the distribution of shares of Common Stock by Baxter International Inc. to its stockholders (the "Record Date"), each Right initially representing the right to purchase one one- hundredth of a share of Series A Junior Participating Preferred Stock of the Company having the rights, powers and preferences set forth in the form of Certificate of Designations attached hereto as Exhibit A, upon the terms and subject to the conditions hereinafter set forth (the "Rights"), and has further authorized the issuance of one Right (as such number may hereinafter be adjusted pursuant to the provisions of Section 11(p) hereof) for each share of Common Stock of the Company issued between the Record Date and the earlier of the Distribution Date or the Expiration Date (as such terms are hereinafter defined) or, in certain circumstances provided in Section 22 hereof, after the Distribution Date (as hereinafter defined);
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:
(j) "Section 11(a)(ii) Event" shall mean the event described in Section 11(a)(ii) hereof.
(k) "Section 13 Event" shall have the meaning set forth in
Section 13(a) hereof.
(l) "Stock Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to
Section 13(d) under the Exchange Act) by the Company or an
Acquiring Person that an Acquiring Person has become such.
(m) "Subsidiary" shall mean, with reference to any Person, any corporation or other entity of which an amount of voting securities sufficient to elect at least a majority of the directors, or other Persons acting in a capacity similar to directors, of such corporation or other entity is beneficially owned, directly or indirectly, by such Person, or otherwise controlled by such Person.
(n) "Triggering Event" shall mean any Section 11(a)(ii) Event or any Section 13 Event.
In addition, for purposes of this Agreement, the following terms have the meanings indicated in specified sections of this Agreement: (i) "Adjustment Shares" shall have the meaning set forth in Section 11(a)(ii) hereof; (ii) "common stock equivalents" shall have the meaning set forth in Section 11(a)(iii) hereof; (iii) "current market price" shall have the meaning set forth in Section 11(d) hereof; (iv) "Current Value" shall have the meaning set forth in Section 11(a)(iii) hereof; (v) "Distribution Date" shall have the meaning set forth in Section 3(a) hereof; (vi) "equivalent preferred stock" shall have the meaning set forth in Section 11(b) hereof; (vii) "Exchange Ratio" shall have the meaning set forth in Section 24(a) hereof; (viii) "Expiration Date" shall have the meaning set forth in Section 7(a) hereof; (ix) "Final Expiration Date" shall have the meaning set forth in Section 7(a) hereof; (x) "Nasdaq" shall have the meaning set forth in Section 11(d)(i) hereof; (xi) "Principal Party" shall have the meaning set forth in Section 13(b) hereof; (xii) "Purchase Price" shall have the meaning set forth in Section 4(a); (xiii) "Record Date" shall have the meaning set forth in the recitals hereof; (xiv) "Redemption Price" shall have the meaning set forth in Section 23(a) hereof; (xv) "Rights" shall have the meaning set forth in the recitals hereof; (xvi) "Rights Certificates" shall have the meaning set forth in Section 3(a) hereof; (xvii) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth in Section 11(a)(iii) hereof; (xviii) "Spread" shall have the meaning set forth in Section 11(a)(iii) hereof; (xix) "Substitution Period" shall have the meaning set forth in Section 11(a)(iii) hereof; (xx) "Summary of Rights" shall have the meaning set forth in Section 3(b) hereof; and (xxi) "Trading Day" shall have the meaning set forth in Section 11(d)(i) hereof.
(a) Until the earlier of (i) the Close of Business on the tenth day after the Stock Acquisition Date (or, if the tenth day after the Stock Acquisition Date occurs before the Record Date,
the Close of Business on the Record Date) or (ii) the Close of Business on the tenth Business Day (or such later date as may be determined by action of the Board of Directors of the Company prior to such time as any Person becomes an Acquiring Person) after the date that a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person organized, appointed or established by the Company for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon consummation thereof, such Person would be the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding, (the earlier of (i) and (ii) being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for the Common Stock registered in the names of the holders of the Common Stock (which certificates for Common Stock shall be deemed also to be certificates for Rights) and not by separate certificates and (y) the Rights will be transferable only in connection with the transfer of the underlying shares of Common Stock (including a transfer to the Company). The Company shall give the Rights Agent prompt written notice of the Distribution Date. As soon as practicable after the Distribution Date, and receipt of written notice of the Distribution Date from the Company, the Rights Agent will, at the Company's expense, send by first-class, insured, postage prepaid mail, to each record holder of the Common Stock as of the Close of Business on the Distribution Date, at the address of such holder shown on the records of the Company, one or more Rights certificates, in substantially the form of Exhibit B hereto (the "Rights Certificates"), evidencing one Right for each share of Common Stock so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to Section 11(p) hereof, at the time of distribution of the Rights Certificates, the Company shall make the necessary and appropriate rounding adjustments (in accordance with Section 14(a) hereof) so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Rights. As of and after the Distribution Date, the Rights will be evidenced solely by such Rights Certificates.
(b) As promptly as practicable following the Record Date, the Company will send a copy of a Summary of Rights to Purchase Preferred Stock, in substantially the form attached hereto as Exhibit C (the "Summary of Rights"), by first-class, postage prepaid mail, to each record holder of the Common Stock as of the Close of Business on the Record Date, at the address of such holder shown on the records of the Company. With respect to certificates for the Common Stock outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates registered in the names of the holders thereof together with a copy of the Summary of Rights attached thereto. Until the earlier of the Distribution Date or the Expiration Date, the surrender for transfer of any certificate representing shares of Common Stock in respect of which Rights have been issued, with or without a copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights associated with such shares of Common Stock.
(c) Rights shall be issued in respect of all shares of Common Stock which are issued after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date or, in certain circumstances provided in Section 22 hereof, after the Distribution Date. Certificates representing such shares of Common Stock shall also be deemed to be certificates for Rights, and shall bear a legend substantially in the following form:
This certificate also evidences and entitles the holder hereof to certain rights as set forth in the Rights Agreement between Edwards Lifesciences Corporation (the "Company") and Equiserve Trust Company, N.A. (the "Rights Agent") dated as of March 31, 2000 (the "Rights Agreement"), the terms of
one one-hundredths of a share of Preferred Stock (or, following a Triggering
Event, Common Stock, other securities, cash or other assets, as the case may be)
as the Rights Certificate or Certificates surrendered then entitled such holder
(or former holder in the case of a transfer) to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Rights Certificate or
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Rights Certificate or Certificates to be transferred,
split up, combined or exchanged at the principal office or offices of the Rights
Agent designated for such purpose. Neither the Rights Agent nor the Company
shall be obligated to take any action whatsoever with respect to the transfer of
any such surrendered Rights Certificate until the registered holder shall have
completed and signed the certificate contained in the form of assignment on the
reverse side of such Rights Certificate and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company or the Rights Agent shall
reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b),
Section 7(e), Section 14 and Section 24 hereof, countersign and deliver to the
Person entitled thereto a Rights Certificate or Rights Certificates, as the case
may be, as so requested. The Company may require payment by the holders of
Rights of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificates if mutilated, the Company will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.
(a) Subject to Section 7(e) hereof, the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein including, without limitation, the restrictions on exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part at any time after the Distribution Date upon surrender of the Rights Certificate, with the form of election to purchase and the certificate on the reverse side thereof duly executed, to the Rights Agent at the principal office or offices of the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price with respect to the total number of one one-hundredths of a share of Preferred Stock (or other securities, cash or other assets, as the case may be) as to which such surrendered Rights are then exercisable, at or prior to the earliest of (i) the Close of Business on March 31, 2010 (the "Final Expiration Date"), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof or (iii) the time at which such Rights are exchanged pursuant to Section 24 hereof (the earliest of (i), (ii) and (iii) being herein referred to as the "Expiration Date"). Notwithstanding anything in this Agreement to the contrary, the Rights shall not be exercisable prior to the Distribution Date.
(b) The Purchase Price for each one one-hundredth of a share of Preferred Stock pursuant to the exercise of a Right shall initially be $80, and shall be subject to adjustment from time to time as provided in Sections 11 and 13(a) hereof and shall be payable in accordance with paragraph (c) below.
Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the holder of certificates representing shares of Common Stock) shall be sufficiently given or made if sent by first- class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company.
All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.
For all purposes of this Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(l)(i) of the General Rules and Regulations under the Exchange Act. The Board of Directors of the Company shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board of Directors of the Company or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation,
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
EDWARDS LIFESCIENCES CORPORATION
By: /s/ Bruce P. Garren
--------------------------------------
Name: Bruce P. Garren
Title: Corporate Vice President, General
Counsel and Secretary
|
By: /s/ Michael S. Duncan
--------------------------------------
Name: Michael S. Duncan
Title: Director, Corporate Actions
|
FORM OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
EDWARDS LIFESCIENCES CORPORATION
Pursuant to Section 151 of the
Delaware General Corporation Act
RESOLVED, that pursuant to the authority vested in the board of directors (the "Board of Directors") of Edwards Lifesciences Corporation, a Delaware corporation (the "Corporation"), by the Amended and Restated Certificate of Incorporation (the "Charter"), the Board of Directors does hereby create, authorize and provide for the issue of a series of Preferred Stock, par value $.01 per share, of the Corporation, to be designated "Series A Junior Participating Preferred Stock" (hereinafter referred to as the "Series A Preferred Stock"), initially consisting of 3,500,000 shares, and to the extent that the designations, powers, preferences and relative and other special rights and the qualifications, limitations or restrictions of the Series A Preferred Stock are not stated and expressed in the Charter, does hereby fix and herein state and express such designations, powers, preferences and relative and other special rights and the qualifications, limitations and restrictions thereof, as follows (all terms used herein which are defined in the Charter shall be deemed to have the meanings provided therein):
(A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first business day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $.01 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, par value $1.00 per share, of the Corporation (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time after March 10, 2000 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a
[Form of Rights Certificate]
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER MARCH 31, 2010 OR EARLIER IF REDEEMED OR EXCHANGED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER RIGHT, AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]/1/
RIGHTS CERTIFICATE
Edwards Lifesciences Corporation
This certifies that _______________, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of March 31, 2000 (the "Rights Agreement"), between Edwards Lifesciences Corporation, a Delaware corporation (the "Company"), and Equiserve Trust Company, N.A. (the "Rights Agent"), to purchase from the Company at any time prior to 5:00 P.M. (New York time) on March 31, 2010 at the office or offices of the Rights Agent designated for such purpose, or its successors as Rights Agent, one one-hundredth of a fully paid, nonassessable share of Series A Junior Participating Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Company, at a purchase price of $80 per one one-hundredth of a share (the "Purchase Price"), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase and related Certificate duly executed. The number of Rights evidenced by this Rights Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price per share set forth above, are the number and Purchase Price as of March 31, 2000, based on the Preferred Stock as constituted at such date. The Company reserves the right to require prior to the occurrence of a Triggering Event (as such term is defined in the Rights Agreement) that, upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined in the Rights Agreement), if the Rights evidenced by this Rights Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any such Acquiring Person, Associate or Affiliate, or (iii) under certain circumstances specified in the Rights Agreement, a transferee of a person who, after such transfer, became an Acquiring Person or an Affiliate or Associate of such Person, such Rights shall become null and void and no holder hereof shall have any right with respect to such Rights from and after the occurrence of such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number and kind of shares of Preferred Stock or other securities which may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events, including Triggering Events.
This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates, which limitations of rights include the temporary suspension of the exercisability of such Rights under the specific circumstances set forth in the Rights Agreement. Copies of the Rights Agreement are on file at the above-mentioned office of the Rights Agent and are also available upon written request to the Company.
SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
On March 10, 2000, the Board of Directors of Edwards Lifesciences Corporation (the "Company") declared a dividend distribution of one Right for each outstanding share of the Company's common stock, par value $1.00 per share ("Common Stock"), to stockholders of record at the Close of Business on March 31, 2000. Each Right entitles the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share (a "Unit") of Series A Junior Participating Preferred Stock, par value $.01 per share (the "Preferred Stock"), at a Purchase Price of $80 per Unit, subject to adjustment. The following is a summary description of the Rights and is qualified in its entirety by the Rights Agreement (the "Rights Agreement") dated as of March 31, 2000 between the Company and Equiserve Trust Company, N.A., as Rights Agent.
Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding, and no separate Rights certificates will be distributed. The Rights will separate from the Common Stock and the Distribution Date will occur upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of Common Stock (the "Stock Acquisition Date") or (ii) 10 business days (or such later date as may be determined by action of the Board of Directors prior to such time as any person or group becomes an Acquiring Person) following the commencement of a tender offer or exchange offer which, if consummated, would result in a person or group beneficially owning 15% or more of the outstanding shares of Common Stock.
Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such Common Stock certificates, (ii) new Common Stock certificates issued after March 31, 2000, will contain a notation incorporating the Rights Agreement by reference and (iii) the surrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate.
Pursuant to the Rights Agreement, the Company reserves the right to require prior to the occurrence of a Triggering Event (as defined below) that, upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Preferred Stock will be issued.
The Rights are not exercisable until the Distribution Date and will expire at the Close of Business on March 31, 2010, unless earlier redeemed by the Company as described below.
As soon as practicable after the Distribution Date, Rights certificates will be mailed to holders of record of the Common Stock as of the Close of Business on the Distribution Date and, thereafter, the separate Rights certificates alone will represent the Rights. Except as otherwise provided in the Rights Agreement, only shares of Common Stock issued prior to the Distribution Date will be issued with Rights.
In the event that, at any time following the Distribution Date, a person or group becomes an Acquiring Person, each holder of a Right will thereafter have the right to receive, upon
exercise, Common Stock having a value equal to two times the exercise price of the Right. If an insufficient number of shares of Common Stock is authorized for issuance, then the Board would be required to substitute cash, property or other securities of the Company for the Common Stock. Notwithstanding any of the foregoing, following the occurrence of the event set forth in this paragraph, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person will be null and void. However, Rights are not exercisable following the occurrence of the event set forth in this paragraph until such time as the Rights are no longer redeemable by the Company as set forth below.
For example, at an exercise price of $80 per Right, each Right not owned by an Acquiring Person (or by certain related parties) following an event set forth in the preceding paragraph would entitle its holder to purchase $160 worth of Common Stock (or other consideration, as noted above) for $80. Assuming that the Common Stock had a per share value of $40 at such time, the holder of each valid Right would be entitled to purchase 4 shares of Common Stock for $80.
In the event that, at any time following the Stock Acquisition Date,
(i) the Company is acquired in a merger or other business combination
transaction in which the Company is not the surviving corporation, (ii) the
Company is acquired in a merger or other business combination transaction in
which the Company is the surviving corporation and all or part of the Common
Stock is converted into securities of another entity, cash or other property, or
(iii) 50% or more of the Company's assets, cash flow or earning power is sold or
transferred, each holder of a Right (except Rights which previously have been
voided as set forth above) shall thereafter have the right to receive, upon
exercise, common stock of the acquiring company having a value equal to two
times the exercise price of the Right. The events set forth in this paragraph
and in the second preceding paragraph are referred to as the "Triggering
Events."
The purchase price payable, and the number of Units of Preferred Stock
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) if holders of the Preferred Stock are granted certain
rights, options or warrants to subscribe for Preferred Stock or convertible
securities at less than the current market price of the Preferred Stock, or
(iii) upon the distribution to holders of the Preferred Stock of evidences of
indebtedness or assets (excluding regular periodic cash dividends) or of
subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. No fractional Units will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Stock on the last trading day prior to the date of exercise.
At any time after any person or group becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding shares of Common Stock, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such person or group which will have become void), in whole or in part, at an exchange ratio of one share of Common Stock, or one one-hundredth of a share of Preferred Stock (or of a share of a class or series of the Company's preferred stock having equivalent rights, preferences and privileges), per Right (subject to adjustment).
EXHIBIT 10.16
TOKUMEI KUMIAI AGREEMENT
This Tokumei Kumiai Agreement is made this 1st day of April, 2000, between Baxter Limited, a company organized under the laws of Japan having its head office at 4, Rokubancho, Chiyoda-ku, Tokyo, Japan, as Eigyo-sha (the "Operator"), and Edwards Lifesciences Finance Limited, a company established under the laws of Japan having its head office at 2-8 Rokubancho, Chiyoda-ku, Tokyo, Japan, as Tokumei Kumiai-In (the "Investor").
WITNESSETH:
WHEREAS, the Operator has been engaged in various businesses in Japan, including: (i) the cardiovascular business described in Exhibit A hereto("CV Business"); (ii) the renal business to manufacture, import, and distribute products and provide services to improve therapies to treat and combat kidney disease; (iii) the biotechnology business to import and distribute products and therapies and to provide services in transfusion medicine; and (iv) the intravenous business described in Exhibit B hereto ("IV Business").
AND WHEREAS, the Operator has established the CV Business in Japan, possesses all relevant CV Business import licenses in Japan, has established effective distribution channels in Japan, has employees fully dedicated to the success of the CV
Business in Japan, and desires to increase the value of the CV Business in Japan;
AND WHEREAS, the Operator has established the IV Business in Japan, possesses all relevant IV Business import licenses in Japan, has established effective distribution channels in Japan, has employees fully dedicated to the success of the IV Business in Japan, and desires to increase the value of the IV Business in Japan but such business is currently too small to operate economically unless it can share staff and other resources with the CV Business;
AND WHEREAS, the Operator desires current access to capital, for purposes of the CV Business and IV Business and for purposes of a one-time loan of unused funds to certain Affiliates of Operator, in a form which will complement its future financing options and decisions, and which will not inhibit its ability to engage in future financing related to any of its businesses;
AND WHEREAS, the Operator wishes to increase the value of its CV Business and IV Business in Japan, but also desires to reduce its overall exposure to the annual variability in the profitability of the CV Business, and wishes to grow the small IV Business to a size where it can economically operate as a stand alone division independent of the CV Business;
AND WHEREAS, as an eigyo sha of a tokumei kumiai ("TK") as described in Articles 535 through 542 of the Japanese Commercial Code, the Operator is willing to provide the Investor, as a tokumei kumiai'in of a TK, with a share of the
annual profits or losses of the CV Business and the IV Business, in recognition of the following consideration from the Investor:
* the amount of the TK contribution under this Agreement;
* the willingness of the Investor to forego any right to share in any appreciation in the value of the CV Business and the IV Business over the term of this Agreement;
* the willingness of the Investor to grant the Operator the right to withdraw the IV Business from the TK Business pursuant to Article 11 hereof;
AND WHEREAS, the Investor desires to provide financing, through the contribution as the Investor, to the Operator and to receive profits or losses realized from the CV Business and IV Business, subject to the risks and rewards of the CV Business and IV Business, in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and other good consideration, the parties hereto agree as follows:
Article 1. Definitions
In this Agreement the following expressions shall, except where the context otherwise requires, have the following respective meanings:
"Account" shall mean the deposit account in the name of the Operator established at the head office of The Bank of Tokyo Mitsubishi, Ltd. or such other bank accounts as may be established by the Operator from time to time and notified to the Investor.
"Affiliate" shall mean, with respect to either party, a juridical person (i) that owns, directly or indirectly, at least fifty percent (50%) of the voting shares or ownership interest in such party, or (ii) at least fifty percent (50%) of the voting shares or ownership interest of which are owned, directly or indirectly, by an Affiliate as defined in item (i).
"Agreement" shall mean this Tokumei Kumiai Agreement, as originally executed by the parties hereto and as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof.
"Auditor" shall mean PricewaterhouseCoopers or such successor firm (also serving as general corporate auditor for the Operator) as may be appointed by the Operator.
"Capital Contribution" shall mean the amount that the Investor shall contribute to the Operator pursuant to Article 4 herein. The parties hereto hereby confirm that the Capital Contribution has been determined after considering (i) the fair market value of the CV Business and the IV Business of the Operator, which have been appraised by PricewaterhouseCoopers as of February 29, 2000, and (ii) the value of the one time loans included within the TK Business.
"CV Business" shall have the meaning set forth in the first recital and shall include, after the date hereof, all activities conducted by Operator pursuant to the Japan Distribution Agreement.
"Effective Date" shall mean the date first written above or such other date as the parties hereto agree.
"Fiscal Period" shall mean each month following the Effective Date. The first Fiscal Period shall commence on the Effective Date and end on April 30, 2000.
"IV Business" shall have the meaning set forth in the first recital.
"Investor's Allocation Formula" shall mean 90% of the "Net Profits" or "Net Losses", as the case may be, plus 10% of the "Notional Yield" and, in accordance with Article 5, Paragraph 3, below, shall not include Profits or Losses attributable to realized or unrealized appreciation or depreciation of the TK Business or the Property upon expiration or termination of this Agreement.
"Japan Distribution Agreement" shall mean the Japan Distribution Agreement dated as of April 1, 2000 between Operator and Edwards Lifesciences LLC, an Affiliate of Investor, as the same may be amended from time to time.
"Losses" shall mean the Net Loss Before Income Tax, if any, of the Operator arising from the operation of the TK Business as shall be determined by the Operator in accordance with generally accepted accounting principles applicable in Japan,
subject to audit review rights as set forth in Article 8 below.
"Net Losses" shall mean, for any Fiscal Period, (i) the excess, if any, of the "Notional Yield" over the "Profits" for such Fiscal Period or (ii) the "Losses" less the "Notional Yield" (i.e. the Notional Yield amount will increase the Net Losses) for such Fiscal Period.
"Net Profits" shall mean, for any Fiscal Period, the excess, if any, of the "Profits", over the "Notional Yield" for such Fiscal Period.
"Notional Yield" shall mean the monthly return on a notional investment of (Yen) 23.2 billion, paying a rate of return equivalent to the annual coupon rate as of April 3, 2000 on ten-year Japanese Government Bonds plus 50 basis points; provided that Notional Yield for the first month under this Agreement shall be calculated from April 3, 2000 forward.
"Operator's Allocation Formula" shall mean 10% of the "Net Profits" or "Net Losses", as the case may be, plus 90% of the "Notional Yield".
"Payment Date" shall mean April 3, 2000.
"Profits" shall mean the Net Income Before Income Taxes, if any, of the Operator arising from the operation of the TK Business as shall be determined by the Operator in accordance with generally accepted accounting principles applicable in Japan, subject to audit review rights as set forth in Article 8 below.
"Property" shall mean all of the assets and property of the Operator which are utilized by the Operator in the operation of the TK Business.
"TK Business" shall mean the CV Business, the IV Business and the one-time loan of unused funds to certain Affiliates (Baxter World Trade S.A., a Belgium company and Baxter Holdings Limited) of Operator.
"Tokumei Kumiai" shall mean the tokumei kumiai relationship established pursuant to the terms of this Agreement and Articles 535 through 542 of the Commercial Code of Japan.
Article 2. The Tokumei Kumiai
(1) The purpose of the Tokumei Kumiai shall be to achieve the business objectives of the Operator and the Investor as summarized above, and to allocate and distribute the Profits or Losses of the TK Business between the Investor and the Operator in accordance with the terms of this Agreement.
(2) The Operator shall use the Capital Contribution for purposes of the TK Business.
(3) The Operator shall use reasonable care in the conduct of the TK Business with the intention of preserving the Property and maximizing the Profits, but shall not be deemed to have breached this Article 2(3) in the absence of gross negligence or willful or wanton misconduct.
(4) The TK Business shall be conducted by and under the name of the Operator as a separate division.
(5) The Investor acknowledges and agrees that it shall have no ownership rights or claims whatsoever in respect of the Property and shall have no right to participate in the operation or management of the TK Business, which in all respects shall be conducted solely by the Operator, and to participate in the results thereof in the manner and to the extent as provided herein.
(6) The Operator acknowledges and agrees that this Agreement does not constitute the Operator as an agent or legal representative of the Investor for any purpose and that the Operator is not authorized to assume or create any obligation or responsibility, expressed or implied, on behalf or in the name of the Investor, or to bind the Investor in any manner.
Article 3. Representations and Warranties of the Operator
The Operator hereby represents and warrants to the Investor as follows:
(1) Authority of Operator
The Operator has full power, authority and legal right to enter into this Agreement, to perform its obligations hereunder and to conduct the TK Business.
(2) Government and Third Party Consents
No material consent, authorization, license, permit, registration or approval of, or other action by, or notice to, any governmental or public body or authority or any other party is required in connection with the Operator's execution
and delivery of this Agreement or the performance by the Operator of its obligations hereunder.
(3) Effect of Agreement
The Operator's execution and delivery of this Agreement, performance of the Operator's obligations hereunder and consummation of the transactions contemplated hereby will not (a) violate any provision of any material statute, law, act, ordinance, or other code, decree, order, rule, regulation, license, permit, authorization of any governmental body or court to which Operator is subject; or (b) violate any material judgment, order, writ, injunction or decree of any court applicable to the Operator.
(4) Restrictive Documents
The Operator is not subject to, or a party to, any material mortgage, lien, lease, license, permit, agreement, contract, instrument, law, rule, ordinance, regulation, order, judgment or decree, or any other material restriction of any kind or character, which would prevent consummation of the transactions contemplated by this Agreement, compliance by the Operator with the terms, conditions and provisions hereof or the continued operation of the Operator's business after the date hereof on substantially the same basis as heretofore operated, aside from that certain Option Agreement dated March 31, 2000 between Operator and Edwards Lifesciences Limited, which has been disclosed to the Investor.
(5) Financial Statements
The Operator has heretofore furnished the Investor with copies of (1) the income statement of the Operator for the period from April 1, 1998 through March 31, 1999, and (2) the balance sheet of the Operator as of March 31, 1999, both of which financial statements have been attached as Exhibit C hereto (the "Financial Statements"). The Financial Statements fairly present the financial condition and results of operations of the Operator as of the dates and for the periods therein specified in conformity with generally accepted accounting principles applicable in Japan, except for the absence of footnotes and for normal year-end audit adjustments.
(6) No Adverse Changes
Since March 31, 1999 there has not been (a) any material adverse change in the financial condition or in the results of operations, business, prospects, Property or assets of the Operator not provided for or disclosed in the Operator's business plan provided to the Investor; (b) any material loss, damage, destruction or other casualty to the Property or assets of the Operator not covered by insurance; (c) any material change in any material method of accounting or accounting practice; (d) any material adverse change in the relationships of the Operator with its principal suppliers, customers or employees; (e) any material capital expenditure by the Operator or commitment therefor not provided for in the Operator's business plan provided to the Investor; (f) except as contemplated by the Japan Distribution Agreement, any amendment or termination of any material contract, lease or other instrument to which it is a party or any agreement
to amend or terminate any such contract, lease or instrument; and (g) any sale, assignment or transfer of any material asset or Property of the Operator.
(7) Litigation
Except for the case of Nippon Zion v. Baxter Limited, currently pending in the Tokyo District Court and previously disclosed to Investor, there are no material actions, suits, proceedings or investigations pending or, to the best knowledge of the Operator, threatened against the Operator which might materially adversely affect the CV Business, the IV Business, the Property, or any other assets or rights of the Operator.
Article 4. Capital Contributions
(1) The Investor shall transfer 23.2 billion yen ((Yen) 23,200,000,000) in immediately available funds to the Account as its original Capital Contribution to the Operator on the Payment Date.
(2) The Investor shall make additional Capital Contributions to the Operator on a monthly basis, if and as required by Article 5(5), such that the remaining balance of the Investor's original Capital Contribution shall not be diminished by the portion of Net Losses allocable to the Investor under the Investor's Allocation Formula.
Article 5. Distribution and Allocation of Profits and Losses
(1) The Operator shall compute the Profits or Losses, as the case may be, and Notional Yield for each Fiscal Period, and notify the Investor of the same within 10 days after the end of such Fiscal Period. The Profits and Losses shall include actual interest earned from the one-time loan of unused funds to certain Affiliates and shall be determined after allocating the costs and expenses of the Operator among the CV Business, the IV Business and its other businesses in a reasonable manner to be separately determined between the Operator and the Investor. If any subsequent adjustments are required (by reason of audit or otherwise) to the Profits or Losses computed for any particular Fiscal Period, those adjustments shall be taken into account in determining Profits or Losses for the Fiscal Period in which such adjustments are made.
(2) The Operator shall allocate the Net Profits, Net Losses, and Notional Yield for each Fiscal Period to the Investor in accordance with the Investor's Allocation Formula.
(3) Profits or Losses attributable to unrealized appreciation or depreciation of the CV Business, the IV Business or the Property (or to appreciation or depreciation realized as a result of the expiration or termination, or any event that causes the expiration or termination, of this Tokumei Kumiai Agreement, below),
shall, upon expiration or termination of this Tokumei Kumiai Agreement pursuant to Article 12, be allocated wholly to the Operator.
(4) The amount of the Net Profits and Notional Yield allocated to the Investor pursuant to Article 5(2) shall be distributed to the Investor within 25 days after the end of the applicable Fiscal Period, by remitting cash to the bank account of the Investor notified to the Operator. For avoidance of doubt, unused funds lent out under the TK Business shall be deemed available for remittance up to the amount of any such distribution. The remaining Net Profits and Notional Yield, being those allocated to the Operator, shall be deemed to be distributed to the Operator at the same time.
(5) If, for any Fiscal Period, Net Losses are allocated to the Investor pursuant to Article 5(2), the Investor shall make an additional Capital Contribution equal to the amount of such allocated Net Loss to the Operator within 25 days after the end of the applicable Fiscal Period.
Article 6. Liability of the Operator
All obligations and liabilities of any kind incurred with respect to the TK Business shall be liabilities of the Operator and not the Investor. However, liabilities incurred by the Operator with respect to the CV Business or (subject to Article 11) the IV Business, including product liabilities attributable to the CV Business or IV Business, will be
included within the computation of Profits and Losses herein for the periods in which they accrue.
Article 7. Rights of Investor
The Investor, its employees, directors or agents, may after giving prior written notice to the Operator, during the Operator's regular business hours, examine the condition of the Property and the activities of the Tokumei Kumiai and audit the Tokumei Kumiai's books of account and other records at its own cost.
Article 8. Accounting
(1) The Operator shall prepare and maintain accurate books of account and records covering all transactions relating to the TK Business.
(2) The Operator shall, within 10 days after the end of each Fiscal Period, prepare and deliver to the Investor financial statements of the Tokumei Kumiai for the relevant Fiscal Period.
(3) The Operator shall, within 90 days after the end of each calendar year, provide to the Investor audited financial statements of the Tokumei Kumiai for that calendar year.
(4) The Operator shall, within 90 days after the expiration or the termination of this Agreement, provide to the Investor audited financial statements with respect to the Tokumei Kumiai for the period commencing the day following the end of its immediately preceding calendar
year and ending as of the date of the expiration or the termination.
(5) The Investor shall be entitled (i) to request that the Operator produce audited financial statements, and/or (ii) to conduct its own audit of the financial statements, in each case for any Fiscal Period or Fiscal Periods. If the Investor does not agree with the results of any such audited financial statements produced by the Operator pursuant to (i) above, or if the Operator does not agree with the results of any such audit conducted by the Investor pursuant to (ii) above, such dispute will be resolved pursuant to Article 21. The cost of any such audits performed by or for the Operator pursuant to (i) above shall be charged to the Tokumei Kumiai. The cost of any such audits performed by or for the Investor pursuant to (ii) above shall be borne by the Investor; provided, however that if a discrepancy of more than 5% of the reported Profit or Loss for the Fiscal Period or Fiscal Periods subject to such audit is ultimately found to exist between the audit performed by or for the Investor (as adjusted pursuant to the dispute resolution procedures of Article 21) and the financial information provided to the Investor by the Operator, the cost of the audit shall be borne by the Operator.
Article 9. Assignment
(1) The Operator shall not be permitted to assign any of its rights, duties or obligations under this Agreement to
any non-Affiliates without the prior written consent of the Investor.
(2) The Investor shall be permitted to assign any or all of its rights under this Agreement to any third party without the consent of the Operator.
Article 10. Term
This Agreement shall take effect on the Effective Date and shall continue in force for a period of ten years, subject to the termination provisions described in Article 12, below. At the expiration of such term, the parties may mutually agree to renew this Agreement with such changes as may be warranted by changes in circumstances during the initial ten year term.
Article 11. Modification of TK Business
(1) The Operator retains the right, within its sole discretion, to modify the definition of the TK Business to exclude the IV Business. If the Operator does not exercise such rights under this Article, the IV Business will continue to be part of the definition of the TK Business.
(2) The Operator will not modify the definition of the TK Business to exclude the IV Business for a period of twenty-one (21) months from the Effective Date of this Agreement, except subject to the notice and modification fee clauses described within this Article.
(3) If the Operator wishes to modify the definition of the TK Business to exclude the IV Business, it must provide
written notice to the Investor at least six months prior to the effective date of such modification under this Article.
(4) If the Operator provides such notice such that the effective date of such modification is within the period described in Clause 2 of this Article, the Operator will pay to Investor a modification fee equal to the expected allocation to Investor related to the IV Business for the remaining portion of the twenty-one month period, based on an expected allocation of (Yen) 20,000,000 per month, which expected amount may not become fixed or conclusive prior to the time of the exclusion of the IV Business, and may be subject to any amendment through reasonable consultations between the Operator and Investor.
(5) The expenses relating to the modification of the TK Business pursuant to this Article will not be reflected in the financial statements of the Tokumei Kumiai.
Article 12. Termination
(1) The Investor may terminate this Agreement in the event of any material breach by the Operator of a term of this Agreement occurs which is not rectified within 60 days after receipt by Operator of written notice of breach from the Investor; provided, however, that if Operator disputes such termination, this Agreement shall remain in full force and effect until completion of the dispute resolution procedures in Article 21.
(2) The Agreement shall terminate in the event either party 1) enters bankruptcy, corporate reorganization or similar proceedings or 2) is dissolved or liquidated, unless the relevant party assigns its rights and obligations to another entity as permitted under the terms of Article 9.
(3) This Agreement shall terminate immediately prior to the disposition by the Operator of any substantial portion of the CV Business outside of the ordinary course of business, unless the Investor provides written consent to an assignment of the Operator's rights and obligations under this Agreement to the Purchaser pursuant to the terms of Article 9.
(4) The provisions of Article 10 of this Agreement notwithstanding, if Operator shall provide notice in writing of a desire to terminate this Agreement at any time prior to the tenth anniversary of the Effective Date, then this Agreement shall be terminated on the date that falls six months following the Investor's receipt of such notice.
(5) The provisions of Article 10 of this Agreement notwithstanding, this Agreement may be terminated at any time by the written mutual agreement of the parties specifying the effective date of such termination.
Article 13. Consequences of Expiration or Termination
(1) In the event of the expiration of this Agreement or the termination of this Agreement pursuant to Article 10 or
12 herein, the Operator shall (i) distribute to the Investor, within five
(5) days after such expiration or termination, cash in an amount equal to
the original Capital Contribution made pursuant to Article 4(1), and (ii)
provide to the Investor, within ninety (90) days after the date of such
expiration or termination, audited financial statements with respect to the
Tokumei Kumiai and a full and proper accounting of Profits, Losses and
Notional Yield as of the date of the expiration or the termination in
accordance with Article 8(4). Within five (5) days after the audited
financial statements are provided pursuant to the preceding sentence, (i)
the Operator shall distribute to the Investor the Investor's share of Net
Profits (excluding any and all unrealized appreciation or depreciation in
the value of the CV Business and the IV Business) and Notional Yield
accrued under the principles of Article 5(2) as of the date of such
expiration or termination and to the extent not previously distributed to
the Investor and/or (ii) the Investor shall pay to Operator any Net Losses
allocated to the Investor pursuant to this Agreement which have not been
followed by additional Capital Contributions, as prescribed in Article 4,
above. In no event shall the Investor acquire any right or interest in the
Property (including any appreciation in the value thereof) or in the CV
Business or the IV Business.
(2) If, at any time following the expiration or termination of this Agreement, the Operator shall pay any liability
arising from the operation of the TK Business during the term of this Agreement (including, without limitation, contingent liabilities incurred during the term of this Agreement) and that was not taken into account in determining Net Profits and Net Losses hereunder, the Investor shall reimburse the Operator for 90% of such amount within ten (10) business days after receipt of notice thereof from the Operator.
(3) If, at any time following the expiration or termination of this Agreement, the Operator shall receive any payment that results from the operation of the TK Business (other than the one-time loan of cash to Affiliates of the Operator) during the term of this Agreement (including, without limitation, any reimbursement of liabilities pursuant to the Japan Distribution Agreement) and that was not taken into account in determining Net Profits and Net Losses hereunder, the Operator shall pay 90% of such amount to Investor within ten (10) business days after Operator's receipt of such payment.
(4) The provisions of Clauses (2) and (3) of this Article 13 shall survive the expiration or termination of this Agreement.
Article 14. Notices
All notices, requests, demands or other communications that shall or may be given hereunder shall be in writing in the
English language and shall be deemed to have been duly given or made:
(a) at the time of delivery to a duly authorized person, if delivered by hand;
(b) upon receipt, if made by letter, or
(c) if given by telefax when confirmed by telephone or return telefax. Such notices, requests, demands or other communications shall be dispatched to or given at:
If to Investor:
Edwards Lifesciences Finance Limited
2-8 Rokubancho, Chiyoda-ku
Tokyo, 102-0085 Japan
Attention: President, Director
with a copy to:
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, California 92614
USA
Attention: International Counsel
Telefax: 949-250-6868
If to Operator:
Baxter Limited
4, Rokubancho, Chiyoda-ku
Tokyo 102-8468 Japan
Attention: President
Telefax: 81-3-5213-5111
with a copy to:
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
USA
Attention: International Counsel
Facsimile: 847-948-4634
or such other person, address or number as either party may designate in writing to the other by a similar notice.
Article 15. Amendments
This Agreement may not be renewed, amended or modified in any manner, except by an instrument in writing signed by an authorized representative of Investor and the President of Operator.
Article 16. Waiver
The waiver, express or implied, by either of the parties hereto of any right hereunder or of any failure to perform any term of this Agreement or breach hereof by the other party hereto shall not constitute or be deemed a waiver of any other right hereunder or of any other failure to perform any term of this Agreement or breach hereof by such other party, whether of a similar or dissimilar nature thereto.
Article 17. Severability
Should any provision of this Agreement be held in whole or in part invalid or unenforceable, such provision or part thereof shall be deemed deleted from this Agreement and, to the extent not so held invalid or unenforceable, each provision hereof shall remain in full force and effect. In the event any provision deleted hereunder is deemed by either party to be a material provision hereof, the parties shall negotiate in good faith a mutually acceptable substitute provision that gives full effect to the spirit and intent of this Agreement.
Article 18. Confidentiality
Neither the Operator nor the Investor may divulge the contents of this Agreement or any information with respect to the operation of the Tokumei Kumiai or the other party; provided that this restriction shall not apply in the event (i) disclosure is requested by appropriate authorities pursuant to statutory authority or (ii) either party determines, with the advice of counsel, that such disclosure is required pursuant to applicable securities laws or regulations or stock exchange requirements.
Article 19. Late Interest
In the event the Operator or the Investor shall be late in the payment of money provided for in this Agreement, such party shall pay interest at the rate of 3% over the then-effective Japanese long-term prime rate per annum in respect to the relevant outstanding amount for the period from and
including the date payment thereof was due until and including the date full payment thereof is made.
Article 20. Governing Law
This Agreement shall be executed in the English language and shall be governed by and construed in accordance with the laws of Japan.
Article 21. Dispute Resolution
(1) Any dispute arising out of or relating to this Agreement shall be resolved in accordance with the procedures specified in this Article 21 which shall be the sole and exclusive procedures for the resolution of any such disputes.
(2) The parties will attempt in good faith to resolve expeditiously any dispute, claim or controversy arising out of or relating to the execution, interpretation and performance of this Agreement (including the validity, scope and enforceability of this arbitration provision) promptly by negotiations between executives who have authority to settle the controversy and who are at a higher level of management than the persons with direct responsibility for the administration of this Agreement. Either party may give the other party written notice (an "Escalation Notice") of any dispute not resolved in the normal course of business. Within fifteen days after delivery of the Escalation Notice, the receiving party shall submit to the other a written response. The Escalation Notice and the response thereto shall include
(a) a statement of each party's position and a summary of arguments supporting that position, and (b) the name and title of the executive who will represent that party and of any other person who will accompany the executive. Within 30 days after delivery of the Escalation Notice, the executives of both parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute. All reasonable requests for information made by one party to the other will be honored. All negotiations pursuant to this clause are confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence.
(3) Any dispute, claim or controversy arising out of or relating to this Agreement or its breach, termination or validity which has not been resolved by the specified non-binding procedure set forth in clause (2) above within 90 days of the date of delivery of the Escalation Notice shall be finally settled by arbitration in Tokyo pursuant to the Commercial Arbitration Rules of the Japan Commercial Arbitration Association.
Article 22. Section Headings
The headings in this Agreement are inserted for convenience and identification only, and are in no way intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision thereof.
Article 23. Copies
This Agreement shall be executed in two (2) original copies, with the Operator and the Investor each retaining one original.
*****
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above.
Baxter Limited Edwards Lifesciences Finance Limited
/s/ James Robert Hurley /s/ Bruce P. Garren
----------------------- -------------------
Name: James Robert Hurley Name: Bruce P. Garren
Title: President and Title: General Counsel
Representative Director
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Exhibit A
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The Cardiovascular Group sells or is engaged in the development of following product categories in Japan through its three business units (Cardiovascular Surgery, or CVS, Anesthesia and Medication Delivery, or AMD, and Vascular and Interventional Cardiology, or VIC):
. Tissue and mechanical heart valves and rings, pericardial patches, oxygenators, and cardiopulmonary bypass circuits including reservoirs and arterial filters, cardioplegia devices, heart-lung machines, centrifugal pumps, arterial and venous cannulae, CDI oxygen monitor cells, Novacor left ventricular assist devices
. Thermo-dilution (Swan-Ganz) catheters, pacing catheters, central venous catheters, venous introducers, Invos cerebral tissue oxygen monitor devices, VIA continuous arterial blood gas monitor devices, Lifespan PTFE endovascular grafts, Fogarty atraumatic occlusion clips and clamps, Intramed angioscopy equipment, Thombex PMT clot extraction catheters
. Direct blood pressure monitor kit, disposable pressure transducers, Embolectomy (Fogarty) catheters, Lifepath abdominal aortic aneurysm endovascular graft system, Datascope intra-aortic balloon pumps and catheters, VasoSeal collagen hemostasis devices, UniCath percutaneous
transluminal coronary angioplasty balloon catheters and stents, Medtronic pacemakers
The Cardiovascular Group in Japan also manufacturers Custom Pac cardiopulmonary circuits and direct blood pressure monitor kits at the Miyazaki plant.
The IV Business consists of the importation and distribution of the products that Operator currently sells or plans to sell in Japan in the following product categories:
. Infusors, TUR solutions and sets, EIS infusion pumps and Interlink products, epidural trays and Sabratek pumps,
together with any improved versions of such products introduced after date hereof. For the avoidance of doubt, the IV Business shall not include any products subsequently acquired by Operator or its Affiliates as a result of an acquisition or similar transaction that closes after date hereof.
See attached.
Exhibit 10.17
OPTION AGREEMENT
Dated As Of
March 31, 2000
RELATING TO
JAPANESE EDWARDS BUSINESS
Page
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ARTICLE I DEFINITIONS.........................................................1
1.1. Definitions...........................................................1
ARTICLE II GRANT OF OPTION....................................................6
2.1. Grant of Option.......................................................6
2.2. Exercise Period.......................................................6
2.3. Manner of Exercise....................................................6
2.4. Transfer of Purchased Business........................................6
ARTICLE III DETERMINATION OF STRIKE PRICE.....................................7
3.1. Strike Price..........................................................7
3.2. Opening Net Worth.....................................................7
3.3. Closing Date Net Worth ...............................................8
3.4. Access to Information.................................................9
ARTICLE IV PURCHASE AND SALE..................................................9
4.1. Purchased Business....................................................9
4.2. Excluded Assets......................................................10
4.3. Assumed Liabilities..................................................11
4.4. Excluded Liabilities.................................................12
ARTICLE V CLOSING; POST-CLOSING ADJUSTMENT...................................12
5.1. Conditions to Closing................................................12
5.2. Closing Date.........................................................13
5.3. Edwards Optionholder's Deliveries at Closing........................13
5.4. Baxter Japan's Deliveries at Closing.................................13
5.5. Post Closing Adjustment..............................................13
5.6. Non-Assignable Contracts.............................................14
5.7. Further Assurances...................................................14
5.8. Novation of Assumed Liabilities......................................15
ARTICLE VI REPRESENTATIONS AND WARRANTIES....................................16
6.1. Organization, Good Standing and Authority of Baxter Japan............16
6.2. Organization, Good Standing and Authority of Edwards Optionholder....16
6.3. No Other Representations or Warranties...............................16
ARTICLE VII PRE-CLOSING COVENANTS............................................17
7.1. Operation of Japanese Edwards Business...............................17
7.2. Consents of Third Parties; Governmental Approvals....................18
7.3. Services.............................................................19
7.4. Financial Statements.................................................19
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Page
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ARTICLE VIII POST-CLOSING COVENANTS..........................................19
8.1. Collection of Accounts Receivable....................................19
8.2. Agreements Relating to Edwards Optionholder and Baxter Japan.........20
8.3. Informal, Nondocumented Real Estate Leases...........................21
ARTICLE IX [INTENTIONALLY OMITTED]...........................................21
ARTICLE X EMPLOYEES AND EMPLOYEE BENEFIT MATTERS.............................21
10.1. Employment of Edwards Employees......................................21
10.2. Terminations/Layoff/Severance........................................22
10.3. Employee Benefit Plans...............................................22
10.4. Transfer of Account Balances and Accrued Benefits....................22
10.5. Stock Purchase Plans.................................................23
10.6. Workers' Compensation................................................23
10.7. Vacation Pay Policy..................................................23
10.8. Information to be Provided to Baxter Japan...........................23
10.9. Transfer of Employee Files...........................................23
10.10. Employment Solicitation..............................................23
ARTICLE XI INSURANCE MATTERS.................................................24
11.1. Insurance Prior to the Closing Date..................................24
11.2. Ownership of Existing Policies and Programs..........................24
11.3. Procurement of Insurance for Edwards Optionholder....................24
11.4. Acquisition and Maintenance of Post-Closing Edwards Optionholder's
Insurance Policies and Programs......................................24
11.5. Edwards Optionholder Directors' and Officers' Insurance..............25
11.6. Pre-Closing Insurance Claims Administration..........................25
11.7. Post-Closing Insurance Claims Administration.........................25
11.8. Non-Waiver of Rights to Coverage.....................................26
11.9. Scope of Affected Policies of Insurance..............................26
ARTICLE XII INDEMNIFICATION..................................................27
12.1. Indemnification by Edwards Optionholder..............................27
12.2. Indemnification by Baxter Japan......................................27
12.3. Applicability of and Limitation on Indemnification...................28
12.4. Adjustment of Indemnifiable Losses...................................28
12.5. Procedures for Indemnification of Third Party Claims.................29
12.6. Procedures for Indemnification of Direct Claims......................31
12.7. Remedies Cumulative..................................................31
ARTICLE XIII DISPUTE RESOLUTION..............................................31
13.1. General..............................................................31
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13.2. Escalation...........................................................31
13.3. Arbitration..........................................................32
13.4. Procedures...........................................................32
13.5. Injunctive Relief....................................................33
ARTICLE XIV GENERAL PROVISIONS...............................................33
14.1. Notices..............................................................33
14.2. Successors and Assigns...............................................34
14.3. Access to Records after Closing......................................34
14.4. Entire Agreement; Amendments.........................................35
14.5. Interpretation.......................................................35
14.6. Waivers..............................................................35
14.7. Expenses.............................................................35
14.8. Partial Invalidity...................................................35
14.9. Execution in Counterparts............................................35
14.10. Governing Law........................................................36
14.11. Submission to Jurisdiction...........................................36
14.12. Termination..........................................................36
14.13. Survival of Obligations..............................................36
14.14. Currency.............................................................36
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EXHIBITS
A Description of Japanese Edwards Business
B Form of Instrument of Assignment
C Form of Instrument of Assumption
D Valuation Date Balance Sheet
E Description of IV Business
SCHEDULES
1.1 Agreed Accounting Policies and Allocation Methodology
4.1(iv) Governmental Permits
4.1(v) Real Estate Leases
4.1(vi) Personal Property
4.1(vii) Contracts
7.3 Services/Facilities
10.4 Allocation of Pension Plan Assets
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OPTION AGREEMENT
OPTION AGREEMENT, dated as of March 31, 2000 (this "Agreement"), between Baxter Limited, a Japanese corporation ("Baxter Japan"), and Edwards Lifesciences (Japan) Limited, a Japanese corporation ("Edwards Optionholder").
WHEREAS, Baxter Japan currently conducts all of the business of the Cardiovascular Group of Baxter International Inc. in Japan, all as more specifically described in Exhibit A hereto (the "Japanese Edwards Business"); and
WHEREAS, Baxter Japan desires to grant to Edwards Optionholder, and Edwards Optionholder desires to acquire from Baxter Japan, an irrevocable option to purchase, on a going concern basis, the Japanese Edwards Business, all on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, it is hereby agreed between Baxter Japan and Edwards Optionholder as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. In this Agreement, the following terms have the meanings specified or referred to in this Section 1.1 and shall be equally applicable to both the singular and plural forms. Any agreement referred to below shall mean such agreement as amended, supplemented and modified from time to time to the extent permitted by the applicable provisions thereof and by this Agreement.
"Action" means any action, claim, suit, arbitration, inquiry, subpoena, discovery request, proceeding or investigation by or before any court or grand jury, any governmental or other regulatory or administrative entity, agency or commission or any arbitration tribunal.
"Affiliate" means, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person.
"Agreed Accounting Policies and Allocation Methodology" means Japanese generally accepted accounting principles consistently applied, provided that, with respect to any matter as to which there is more than one Japanese generally accepted accounting principle, Agreed Accounting Policies and Allocation Methodology means the generally accepted accounting principles applied in the preparation of the Valuation Date Balance Sheet; provided further that, notwithstanding the foregoing, Agreed Accounting Policies and Allocation Methodology shall include the accounting policies and be subject to the allocation methodology and direct accounts described in Schedule 1.1; and provided further that, for purposes of the Agreed Accounting Policies and Allocation Methodology, no known adjustments for items or matters, regardless of the amount thereof, shall be deemed to be immaterial.
"Agreed Interest Rate" means, for any date, the sum of (i) the average rate at which overnight deposits in Yen are offered to prime banks in the Tokyo interbank market, as determined by reference to a mutually agreed-upon source, plus (ii) 2.00%.
"Assumed Liabilities" has the meaning specified in Section 4.3.
"Baxter" means Baxter International Inc., a Delaware corporation.
"Baxter Japan" has the meaning specified in the first paragraph of this Agreement.
"Baxter Japan Change in Control" shall mean (i) the acquisition, directly or indirectly, by any Person or Persons of more than 30% of the voting stock of Baxter Japan or any Person that controls Baxter Japan, other than an acquisition by Baxter of, or a Person or Persons that are controlled by Baxter of, Baxter Japan, (ii) any merger or consolidation involving Baxter or any Affiliate of Baxter that requires a vote of the stockholders of Baxter, or (iii) the sale, assignment, transfer or other disposition (including any disposition through a merger) of all or substantially all of the business and assets of any Person that controls Baxter Japan.
"Baxter Japan Group Member" means Baxter Japan and its Affiliates and their respective successors and assigns.
"Baxter Japan Pension Plan" has the meaning specified in Section 10.4.
"Baxter Plans" has the meaning specified in Section 10.3(a).
"Closing" has the meaning specified in Section 5.2.
"Closing Date" has the meaning specified in Section 5.2.
"Closing Date Balance Sheet" means the balance sheet established pursuant to the provisions of Section 3.3.
"Contracts" means all contracts, agreements, arrangements, leases (other than Real Estate Leases), manufacturers' warranties, memoranda, understandings and offers open for acceptance of any nature, whether written or oral.
"Divested Business" means any portion of the Japanese Edwards Business that is divested by Baxter Japan between the date hereof and the Closing Date.
"Edwards" means Edwards Lifesciences Corporation, a Delaware corporation.
"Edwards Lifesciences Division President" means any person appointed as President of the Edwards Lifesciences division of Baxter Japan and approved in writing by Edwards.
"Edwards Employees" means the employees of Baxter Japan who are assigned to the Edwards Lifesciences division of Baxter Japan, including those employees of the Edwards Lifesciences division at the Miyazaki plant.
"Edwards Japan Pension Plan" has the meaning specified in Section 10.3(b).
"Edwards Optionholder" has the meaning specified in the first paragraph of this Agreement.
"Edwards Optionholder Change in Control" shall mean (i) the acquisition, directly or indirectly, by any Person or Persons of more than 30% of the voting stock of Edwards Optionholder or any Person that controls Edwards Optionholder, other than an acquisition by Edwards of, or a Person or Persons that are controlled by Edwards of, Edwards Optionholder, (ii) any merger or consolidation involving Edwards or any Affiliate of Edwards that requires a vote of the stockholders of Edwards, or (iii) the sale, assignment, transfer or other disposition (including any disposition through a merger) of all or substantially all of the business and assets of any Person that controls Edwards Optionholder.
"Edwards Optionholder Group Member" means Edwards Optionholder and its Affiliates and their respective successors and assigns.
"Edwards Products" means the products referred to in Exhibit A, together with any additional products manufactured, imported or distributed by the Japanese Edwards Business after the date hereof.
"Encumbrance" means any lien, claim, charge, security interest, mortgage, pledge, easement, conditional sale or other title retention agreement, defect in title, covenant or other restriction of any kind.
"Estimated Strike Price" shall mean an amount equal to (Yen)26.41 billion.
"Excluded Assets" has the meaning specified in Section 4.2.
"Excluded Liabilities" has the meaning specified in Section 4.4.
"Exercise Period" shall mean the period during which the Option is exercisable, as specified in Section 2.2.
"Expense" means any and all expenses incurred in connection with investigating, defending or asserting any claim, action, suit or proceeding incident to any matter indemnified against hereunder (including, without limitation, court filing fees, court costs, arbitration fees or costs, witness fees, and reasonable fees and disbursements of legal counsel, investigators, expert witnesses, consultants, accountants and other professionals).
"Final TK Balance Sheet" shall mean the balance sheet delivered by Baxter Japan as part of its full accounting as of the date of expiration or termination of the TK Agreement.
"Governmental Body" means any foreign, federal, state, local or other governmental authority or regulatory body.
"Governmental Permits" means all licenses, franchises, permits, privileges, immunities, approvals and other authorizations from a Governmental Body.
"Indemnified Party" shall have the meaning specified in Section 12.4.
"Indemnifying Party" shall have the meaning specified in Section 12.4.
"Indemnity Payment" shall have the meaning specified in Section 12.5.
"Instrument of Assignment" means an Instrument of Assignment in the form of Exhibit B.
"Instrument of Assumption" means an Instrument of Assumption in the form of Exhibit C.
"Insurance Amount" has the meaning specified in Section 11.5.
"Insurance Charges" has the meaning specified in Section 11.7.
"IV Business" has the meaning specified in Exhibit E hereto.
"Japan Distribution Agreement" means the Japan Distribution Agreement to be dated as of April 1, 2000 between Baxter Japan and Edwards Lifesciences LLC.
"Japanese Edwards Business" has the meaning specified in the first recital and shall include, after the date hereof, all activities conducted by Baxter Japan pursuant to the Japan Distribution Agreement.
"Liability" means any and all debts, liabilities and obligations, absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising (unless otherwise specified in this Agreement), including all costs and expenses relating thereto, and including, without limitation, those debts, liabilities and obligations arising under any law, rule, regulation, Action, threatened Action, order or consent decree of any Governmental Body or any award of any arbitrator of any kind, and those arising under any contract, commitment or undertaking.
"Loss" means any and all losses, costs, obligations, liabilities, settlement payments, awards, judgments, fines, penalties, damages, expenses, deficiencies or other charges.
"Net Worth Adjustment" means (i) the Closing Date Net Worth (as defined in Section 3.3) minus (ii) the Opening Net Worth (as defined in Section 3.2).
"New Subsidiary" has the meaning specified in Section 2.4.
"Notice of Exercise" has the meaning specified in Section 2.3.
"Opening Balance Sheet" means the balance sheet established pursuant to the provisions of Section 3.2.
"Operating Agreements" shall mean the agreements referred to in
Section 7.3.
"Option" has the meaning specified in Section 2.1.
"Owned Real Property" means each parcel of real property owned by Baxter Japan and used in or relating to the Japanese Edwards Business.
"Permitted Encumbrances" means (a) liens for taxes and other governmental charges and assessments which are not yet due and payable, (b) liens of landlords and liens of carriers, warehousemen, mechanics and materialmen and other like liens arising in the ordinary course of business for sums not yet due and payable and (c) other liens or imperfections on property which are not material in amount or do not materially detract from the value or materially impair the existing use of the property affected by such lien or imperfection.
"Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or Governmental Body.
"Pre-Closing Claims Administration" has the meaning specified in
Section 11.6.
"Purchased Business" has the meaning specified in Section 4.1.
"Real Estate Leases" has the meaning specified in Section 4.1(v).
"Retained Business" means all businesses of Baxter Japan other than the Japanese Edwards Business.
"Shared Agreements" has the meaning specified in Section 8.2(a).
"Software" means computer software programs and software systems, including, without limitation, all databases, compilations, tool sets, compilers, higher level or "proprietary" languages, related documentation and materials, whether in source code, object code or human readable form.
"Strike Price" has the meaning specified in Section 3.1.
"Subsidiary" means, when used with reference to any Person, any corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however, that no Person that is not directly or indirectly wholly-owned by any other
Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person.
"Tax" means any net income, alternative or add-on minimum, gross income, gross receipts, consumption, property, sales, use, transfer, gains, license, excise, employment, payroll, withholding or minimum tax, or any other tax custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any Governmental Body.
"TK Agreement" means a Tokumei Kumiai Agreement to be dated April 1, 2000, between Baxter Japan and Edwards Lifesciences Finance Limited.
"Transferred Employee" has the meaning specified in Section 10.1.
"Valuation Date Balance Sheet" means the December 31, 1999 balance sheet of the Japanese Edwards Business attached as Exhibit D hereto.
ARTICLE II
GRANT OF OPTION
2.1. Grant of Option. In consideration of the payment by Edwards
Optionholder of (Yen)1,337,500,000 and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Baxter Japan hereby grants and issues to Edwards Optionholder, upon the terms
and conditions set forth herein, an irrevocable option (the "Option") to
purchase all, but not less than all, of the Purchased Business in exchange for
(i) cash in an amount equal to the Strike Price, and (ii) the assumption by
Edwards Optionholder of the Assumed Liabilities.
2.2. Exercise Period. The Option may be exercised at any time (i) from and including August 1, 2002 through and including the earlier of (x) March 31, 2005 and (y) 180 days after the occurrence of an Edwards Optionholder Change in Control, (ii) in the event of a Baxter Japan Change in Control, during a period of 180 days thereafter, and (iii) in the event Baxter Japan provides a notice of termination under Article 12(4) of the TK Agreement, during a period of 180 days after such notice is given; provided, however, that if Edwards provides a notice of termination under Article 12(1) of the TK Agreement, the Option may be exercised only during a period of 180 days after such notice is given, and clauses (i), (ii) and (iii) above shall no longer apply.
2.3. Manner of Exercise. Edwards Optionholder may exercise the Option at any time during the Exercise Period by delivering a written notice of exercise (the "Notice of Exercise") to Baxter Japan.
2.4. Transfer of Purchased Business. Edwards Optionholder agrees that Baxter Japan may, at its option, at any time prior to the exercise of the Option, transfer all of the Purchased Business and Assumed Liabilities, determined as of the date of transfer, to a subsidiary of Baxter Japan (the "New Subsidiary"). If so, the parties will amend this Agreement
to provide for Edwards Optionholder to have the option to purchase all of the capital stock of the New Subsidiary in exchange for cash in an amount equal to the Strike Price, and the remainder of this Agreement shall be amended to the extent necessary or advisable as a result of such change in structure.
ARTICLE III
DETERMINATION OF STRIKE PRICE
3.1. Strike Price. (a) The "Strike Price" shall be an amount equal to (i) (Yen)26.41 billion plus (ii) the Net Worth Adjustment.
3.2. Opening Net Worth.
(a) The term "Opening Net Worth" shall mean (i) the sum of all assets reflected in the Opening Balance Sheet minus (ii) the sum of all liabilities reflected in the Opening Balance Sheet.
(b) As promptly as practicable following the date hereof, Baxter Japan shall prepare, in accordance with the Agreed Accounting Policies and Allocation Methodology, a balance sheet as of the date hereof with respect to the Purchased Business and the Assumed Liabilities, as if the Closing Date were March 31, 2000 (the "Preliminary Opening Balance Sheet"), and shall deliver same to Edwards Optionholder.
(c) Promptly following receipt of the Preliminary Opening Balance Sheet, Edwards Optionholder may review the same and, within 30 days after the date of such receipt, may deliver to Baxter Japan a certificate (signed by its chief financial officer or its chief accounting officer) setting forth its objections to the Preliminary Opening Balance Sheet, together with a summary of the reasons therefor and calculations which, in its view, are necessary to eliminate such objections. In the event Edwards Optionholder does not so object within such 30-day period, the Preliminary Opening Balance Sheet shall be final and binding as the Opening Balance Sheet for purposes of this Agreement.
(d) In the event Edwards Optionholder so objects within such 30-day period, Edwards Optionholder and Baxter Japan shall use their reasonable efforts to resolve by written agreement (the "Opening Agreed Adjustments") any differences as to the Opening Balance Sheet and, in the event Baxter Japan and Edwards Optionholder so resolve all such differences, the Preliminary Opening Balance Sheet, as adjusted by the Opening Agreed Adjustments, shall be final and binding as the Opening Balance Sheet for purposes of this Agreement.
(e) If all such differences are not resolved by Opening Agreed Adjustments within the 30-day period next following such 30-day objection period, then Edwards Optionholder and Baxter Japan shall submit the objections that are then unresolved to an international accounting firm acceptable to both Baxter Japan and Edwards Optionholder and such firm (the "Accounting Firm") shall be directed by Edwards Optionholder and Baxter Japan to resolve the unresolved objections (based solely on the presentations by Edwards Optionholder and by Baxter Japan as to whether any disputed matter had been determined in a manner
consistent with the Agreed Accounting Policies and Allocation Methodology) as promptly as reasonable practicable and to deliver written notice to each of Edwards Optionholder and Baxter Japan setting forth its resolution of the disputed matters. The Preliminary Opening Balance Sheet, after giving effect to any Opening Agreed Adjustments and to the resolution of disputed matters by the Accounting Firm, shall be final and binding as the Opening Balance Sheet for purposes of this Agreement.
3.3. Closing Date Net Worth.
(a) The term "Closing Date Net Worth" shall mean (i) the sum of all assets reflected in the Closing Date Balance Sheet minus (ii) the sum of all liabilities reflected in the Closing Date Balance Sheet.
(b) As promptly as practicable following the Closing Date (but not later than 30 days after the Closing Date), Baxter Japan shall prepare, in accordance with the Agreed Accounting Policies and Allocation Methodology, a balance sheet as of the Closing Date with respect to the Purchased Business and the Assumed Liabilities (the "Preliminary Closing Date Balance Sheet") and shall deliver same to Edwards Optionholder.
(c) Promptly following receipt of the Preliminary Closing Date Balance Sheet, Edwards Optionholder may review the same and, within 30 days after the date of such receipt, may deliver to Baxter Japan a certificate (signed by its chief financial officer or its chief accounting officer) setting forth its objections to the Preliminary Closing Date Balance Sheet, together with a summary of the reasons therefor and calculations which, in its view, are necessary to eliminate such objections. In the event Edwards Optionholder does not so object within such 30-day period, the Preliminary Closing Date Balance Sheet shall be final and binding as the Closing Date Balance Sheet for purposes of this Agreement.
(d) In the event Edwards Optionholder so objects within such 30-day objection period, Edwards Optionholder and Baxter Japan shall use their reasonable efforts to resolve by written agreement (the "Closing Agreed Adjustments") any differences as to the Preliminary Closing Date Balance Sheet and, in the event Baxter Japan and Edwards Optionholder so resolve all such differences, the Preliminary Closing Date Balance Sheet as adjusted by the Closing Agreed Adjustments shall be final and binding as the Closing Date Balance Sheet for purposes of this Agreement.
(e) If all such differences are not resolved by the Closing Agreed Adjustments within the 30-day period next following such 30-day period, then Edwards Optionholder and Baxter Japan shall submit the objections that are then unresolved to the Accounting Firm and such firm shall be directed by Edwards Optionholder and Baxter Japan to resolve the unresolved objections (based solely on the presentations by Edwards Optionholder and by Baxter Japan as to whether any disputed matter had been determined in a manner consistent with the Agreed Accounting Policies and Allocation Methodology) as promptly as reasonably practicable and to deliver written notice to each of Edwards Optionholder and Baxter Japan setting forth its resolution of the disputed matters. The Preliminary Closing Date Balance Sheet, after giving effect to any Closing Agreed Adjustments and to the resolution of disputed matters by the
Accounting Firm, shall be final and binding as the Closing Date Balance Sheet for purposes of this Agreement.
3.4. Access to Information. The parties hereto shall make available to each other and, if applicable, the Accounting Firm, such books, records and other information (including work papers) as any of the foregoing may reasonably request to prepare or review the Preliminary Opening Balance Sheet, the Preliminary Closing Date Balance Sheet or any matters submitted to the Accounting Firm pursuant to the terms hereof. The fees and expenses of the Accounting Firm hereunder shall be paid 50% by Edwards Optionholder and 50% by Baxter Japan.
ARTICLE IV
PURCHASE AND SALE
4.1. Purchased Business. In the event that Edwards Optionholder exercises the Option, upon the terms and subject to the conditions of this Agreement, on the Closing Date, Baxter Japan shall sell, transfer, assign, convey and deliver to Edwards Optionholder, and Edwards Optionholder shall purchase from Baxter Japan, on a going concern basis, all of Baxter Japan's right, title and interest in and under the Japanese Edwards Business and all of the assets and properties of Baxter Japan of every kind and description, wherever located, real, personal or mixed, tangible or intangible, relating exclusively to the Japanese Edwards Business as the same shall exist on the Closing Date (herein collectively called the "Purchased Business"), including, without limitation, all right, title and interest of Baxter Japan in, to and under:
(i) all notes, accounts and other receivables generated by the Japanese Edwards Business;
(ii) all prepayments relating exclusively to the Japanese Edwards Business;
(iii) all raw materials, supplies, work-in-process, spare parts and other materials relating exclusively to the Japanese Edwards Business, other than items of inventory relating to products to be supplied by Baxter Japan to Edwards Optionholder after the Closing under Operating Agreements entered into pursuant to Section 7.3;
(iv) all Governmental Permits, including all product registrations and import licenses, that relate exclusively to the Japanese Edwards Business, including those listed or described in Schedule 4.1(iv);
(v) the real estate leases and leasehold improvements that relate exclusively to the Japanese Edwards Business including those listed or described in Schedule 4.1(v) (the "Real Estate Leases");
(vi) all machinery, equipment, vehicles, furniture and other personal property that relate exclusively to the Japanese Edwards Business including those listed or described in Schedule 4.1(vi);
(vii) all Contracts that relate exclusively to the Japanese Edwards Business, including the Japan Distribution Agreement and the Contracts listed or described in Schedule 4.1(vii);
(viii) all trade secrets and other proprietary or confidential information used exclusively in connection with the Japanese Edwards Business;
(ix) all (x) Software that relates exclusively to the Japanese Edwards Business, (y) PC-based Software located on hardware included in the assets of the Purchased Business and (z) Contracts related to the aforementioned Software;
(x) all of Baxter Japan's rights, claims or causes of action against third parties relating exclusively to the Japanese Edwards Business;
(xi) all books and records (including all data and other information stored on discs, tapes or other media) of Baxter Japan relating exclusively to the Japanese Edwards Business;
(xii) all office supplies, production supplies, purchase orders, forms, labels, shipping material, art work, catalogues, sales brochures, operating manuals and advertising and promotional material and all other printed or written material that relate exclusively to the Japanese Edwards Business;
(xiii) Baxter Japan's interest in and to all telephone, telex and telephone facsimile numbers, domain names and other directory listings utilized exclusively in connection with the Japanese Edwards Business; and
(xiv) all other assets, tangible or intangible, including all goodwill and all deposits or other security from customers of the Japanese Edwards Business, that are exclusive to the operations of, or otherwise relate exclusively to, the Japanese Edwards Business;
provided, however, that the Purchased Business shall not include any assets listed in Schedules 4.1(iv), 4.1(v), 4.1(vi) or 4.1(vii) that are disposed of or converted into cash after the date hereof.
4.2. Excluded Assets. Notwithstanding the provisions of Section 4.1, the Purchased Business shall not include the following (herein referred to as the "Excluded Assets"):
(i) all cash, bank deposits and cash equivalents, except for (i) all
deposits or other security from customers of the Japanese Edwards Business,
(ii) deposits securing bonds, letters of credit, leases and all other
obligations related exclusively to the Japanese Edwards Business and (iii)
petty cash and impressed funds related exclusively to the Japanese Edwards
Business;
(ii) the name "Baxter" or any related or similar trade names, trademarks, service marks or logos to the extent the same incorporate the name "Baxter" or any variation thereof;
(iii) Baxter Japan's rights, claims or causes of action against third parties relating to the Japanese Edwards Business which may arise in connection with the discharge by Baxter Japan of the Excluded Liabilities;
(iv) all contracts of insurance;
(v) all corporate minute books, stock transfer books, the corporate seal and all hanko of Baxter Japan;
(vi) any right, title or interest of Baxter Japan in any tax refund, credit or benefit (including any income with respect thereto) relating to the operations of the Japanese Edwards Business prior to the Closing Date;
(vii) all assets relating to all employee benefit plans of Baxter Japan, other than as provided in Article X;
(viii) all real estate owned or leased by Baxter Japan at its Miyazaki plant and all leasehold improvements thereon except for those leasehold improvements specifically listed or described in Schedule 4.1(v);
(ix) the IV Business; and
(x) All other assets, properties and rights of Baxter Japan not used exclusively in the conduct of the Japanese Edwards Business and not specifically included in the Purchased Business.
4.3. Assumed Liabilities. On the Closing Date, Edwards Optionholder shall assume and agree to discharge, in accordance with their respective terms and subject to the respective conditions thereof, all contractual and other Liabilities of Baxter Japan arising out of or related to the Japanese Edwards Business, any Divested Business and/or any of the past or present facilities of Baxter Japan used primarily in connection with the Japanese Edwards Business or any Divested Business, including, without limitation:
(i) All Liabilities in respect of Taxes except income Taxes;
(ii) All accounts payable and accrued liabilities of the Japanese Edwards Business;
(iii) All Liabilities of Baxter Japan under the Contracts and Real Estate Leases included in the Purchased Business;
(iv) All Liabilities of Baxter Japan under the TK Agreement, other than payment obligations under Articles 5, 11 and 13 of the TK Agreement;
(v) All warranty, performance and similar obligations entered into or made prior to the Closing Date with respect to the products or services of the Japanese Edwards Business;
(vi) All Liabilities related to any and all Actions asserting a violation of any law, rule or regulation related to or arising out of the operations of the Japanese Edwards Business, whether before or after the Closing Date;
(vii) All Liabilities arising under any laws regarding the management, control and clean-up of hazardous materials (including off-site waste disposal liabilities) relating to or arising out of the operations of the Japanese Edwards Business, whether before or after the Closing Date;
(viii) All Liabilities in connection with workers' compensation claims of past, current or prospective employees of the Japanese Edwards Business, whether incurred prior to, on or after the Closing Date;
(ix) All Liabilities relating to severance or termination of any Edwards Employees whether before or after the Closing Date, and including any Edwards Employees who do not accept employment by Edwards Optionholder at the Closing Date;
(x) All Liabilities associated with the transfer of assets from the Baxter Japan Pension Plan to the Edwards Japan Pension Plan; and
(xi) All other Liabilities relating to the Japanese Edwards Business, whether existing on the Closing Date or arising at any time or from time to time after the Closing Date, and whether based on circumstances, events or actions arising before or after the Closing Date, whether or not such Liabilities shall have been disclosed herein, and whether or not reflected on the books and records of Baxter Japan.
All of the foregoing liabilities and obligations to be assumed by Edwards Optionholder hereunder (excluding any Excluded Liabilities) are referred to herein as the "Assumed Liabilities."
4.4. Excluded Liabilities. Edwards Optionholder shall not assume or be obligated to pay, perform or otherwise discharge any Liability of Baxter Japan not expressly assumed by Edwards Optionholder pursuant to Section 4.3 (all such liabilities and obligations not being assumed being herein called the "Excluded Liabilities") and, notwithstanding anything to the contrary in Section 4.3, none of the following shall be Assumed Liabilities for purposes of this Agreement:
(i) any Liabilities in respect of income Taxes; and
(ii) any Liabilities or obligations in respect of any Excluded Assets.
ARTICLE V
CLOSING; POST-CLOSING ADJUSTMENT
5.1. Conditions to Closing. (a) Following exercise of the Option, the obligation of Baxter Japan to close the transactions contemplated hereby is subject to the satisfaction or the waiver by Baxter Japan of each of the following conditions:
(i) The absence of any material statutory, regulatory or judicial prohibition to the consummation of the transactions contemplated hereby; and
(ii) The completion of the transfer from Baxter Japan to Edwards Optionholder of all material Japanese import approvals and product registrations for the Edwards Products or the receipt by Baxter Japan of an agreement by Edwards, in form and substance satisfactory to Baxter Japan in its sole discretion, to indemnify Baxter Japan and its Affiliates for any failure to complete such transfer.
(b) Following exercise of the Option, the obligation of Edwards Optionholder to close the transactions contemplated hereby is subject to the satisfaction or the waiver by Edwards Optionholder of each of the following conditions:
(i) The absence of any material statutory, regulatory or judicial prohibition to the consummation of the transactions contemplated hereby; and
(ii) The completion of the transfer of all material Japanese import approvals and product registrations for the Edwards Products from Baxter Japan to Edwards Optionholder.
5.2. Closing Date. The closing of the transactions contemplated by this Agreement (the "Closing") shall be consummated at 10:00 A.M., local time, as soon as practicable after satisfaction or waiver of the conditions set forth in Section 5.1(a) (ii) and 5.1(b)(ii), or at such other date and time as may be agreed upon by Edwards Optionholder and Baxter Japan, at the offices of Baxter, One Baxter Parkway, Deerfield, Illinois 60015, USA, or at such other place or at such other time as shall be agreed upon by Edwards Optionholder and Baxter Japan. The time and date on which the Closing is actually held are sometimes referred to herein as the "Closing Date".
5.3. Edwards Optionholder's Deliveries at Closing. Subject to
fulfillment or waiver by Edwards Optionholder of the conditions set forth in
Section 5.1(b), at Closing Edwards Optionholder shall (i) pay Baxter Japan an
amount equal to the Estimated Strike Price by wire transfer of immediately
available funds to the account designated in writing by Baxter Japan and (ii)
deliver to Baxter Japan a duly executed Instrument of Assumption and duly
executed counterparts of the Operating Agreements.
5.4. Baxter Japan's Deliveries at Closing. Subject to fulfillment or waiver by Baxter Japan of the conditions set forth in Section 5.1(a), at Closing Baxter Japan shall deliver to Edwards Optionholder (i) a duly executed Instrument of Assignment and duly executed counterparts of the Operating Agreements and (ii) such other certificates and documents of title, assignment, transfer and conveyance as the parties shall reasonably deem necessary to transfer title in and to the Purchased Business.
5.5. Post Closing Adjustment. Promptly (but not later than five
days) after the Closing Date Balance Sheet becomes final and binding pursuant to
Section 3.3:
(a) if the Strike Price exceeds the Estimated Strike Price, Edwards
Optionholder shall pay to Baxter Japan, by wire transfer of immediately available funds to such bank account of Baxter Japan as Baxter Japan shall designate in writing to Edwards Optionholder, the amount of such excess, plus interest on such amount from the Closing Date to the date of payment thereof at a floating rate equal to the Agreed Interest Rate in effect from time to time; or
(b) if the Estimated Strike Price exceeds the Strike Price, Baxter Japan shall pay to Edwards Optionholder, by wire transfer of immediately available funds to such bank account of Edwards Optionholder as Edwards Optionholder shall designate in writing to Baxter Japan, the amount of such excess, plus interest on such excess from the Closing Date to the date of payment thereof at a floating rate equal to the Agreed Interest Rate in effect from time to time.
5.6. Non-Assignable Contracts. In the event and to the extent that the parties are unable to obtain any consent, approval or amendment to any Contract, lease, license or other rights relating to the Japanese Edwards Business that otherwise would be transferred or assigned to Edwards Optionholder or one of its Subsidiaries as contemplated by this Agreement or any other agreement or document contemplated hereby, (i) Baxter Japan shall continue to be bound thereby and the purported transfer or assignment to Edwards Optionholder shall automatically be deemed deferred until such time as all legal impediments are removed and/or all necessary consents have been obtained, and (ii) unless not permitted by the terms thereof or by law, Edwards Optionholder shall pay, perform and discharge fully all the obligations of Baxter Japan thereunder from and after the Closing Date, and indemnify Baxter Japan and its Affiliates for all indemnifiable Losses arising out of such performance by Edwards Optionholder. Baxter Japan shall, without further consideration therefor, pay and remit to Edwards Optionholder promptly all monies, rights and other considerations received in respect of such performance. Baxter Japan shall exercise or exploit its rights and options under all such Contracts, leases, licenses and other rights and commitments referred to in this Section 5.6 only as reasonably directed by Edwards Optionholder and at Edwards Optionholder's expense. If and when any such consent shall be obtained or such Contract, lease, license or other right shall otherwise become assignable or be able to be novated, Baxter Japan shall promptly assign and novate (to the extent permissible) all of its rights and obligations thereunder to Edwards Optionholder without payment of further consideration, and Edwards Optionholder shall, without the payment of any further consideration therefor, assume such rights and obligations. To the extent that the assignment of any Contract, lease, license or other right (or the proceeds thereof) pursuant to this Section 5.6 is prohibited by law, the assignment provisions of this Section 5.6 shall operate to create a subcontract with Edwards Optionholder to perform each relevant unassignable Contract, lease or license of Baxter Japan at a subcontract price equal to the monies, rights and other considerations received by Baxter Japan with respect to the performance by Edwards Optionholder under such subcontract.
5.7. Further Assurances. (a) In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties shall use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement and the other agreements and documents contemplated hereby. Without limiting the generality of the foregoing, each party shall cooperate with the other party to execute and
deliver, or use commercially reasonable efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents, approvals or authorizations of, any Governmental Body or any other Person under any permit, license, Contract or other instrument, and to take all such other actions as such party may reasonably be requested to take by the other party from time to time, consistent with the terms of this Agreement, in order to confirm the title of Edwards Optionholder to all of the Japanese Edwards Business, to put Edwards Optionholder in actual possession and operating control of the Purchased Business and to permit Edwards Optionholder to exercise all rights with respect thereto and to effectuate the provisions and purposes of this Agreement, and the other agreements and documents contemplated hereby; provided, however, that Edwards Optionholder shall be solely liable for the payment of any costs associated with transferring any import approvals and product registrations for the Edwards Products; and provided further, that except as stated in the previous proviso, neither party shall be obligated to pay any consideration to any third party in connection with any of the foregoing. In addition, Baxter Japan shall use reasonable efforts to remove or cause to be removed any liens for borrowed money existing on the Purchased Business immediately prior to the Closing Date other than liens securing Assumed Liabilities or liens incurred in connection with the transactions contemplated by this Agreement.
(b) If, as a result of mistake, oversight or otherwise, any asset reasonably necessary to the conduct of the Japanese Edwards Business is not transferred to Edwards Optionholder, or any asset reasonably necessary to the conduct of the Retained Business is transferred to Edwards Optionholder, Edwards Optionholder and Baxter Japan shall negotiate in good faith after the Closing Date to determine whether such asset should be transferred to Edwards Optionholder or Baxter Japan, as the case may be, and/or the terms and conditions upon which such asset shall be made available to Edwards Optionholder or Baxter Japan, as the case may be. Unless expressly provided to the contrary in this Agreement and the other agreements and documents contemplated hereby, if as a result of mistake, oversight or otherwise, any Liability arising out of or relating to the Japanese Edwards Business is retained by Baxter Japan, or any Liability arising out of or relating to the Retained Business is assumed by Edwards Optionholder, Edwards Optionholder and Baxter Japan shall negotiate in good faith after the Closing Date to determine whether such Liability should be transferred to Edwards Optionholder or Baxter Japan, as the case may be, and/or the terms and conditions upon which any such Liability shall be transferred.
(c) If either party identifies any commercial or other service that is needed to assure a smooth and orderly transition of the Japanese Edwards Business in connection with the consummation of the transactions contemplated hereby, and that is not otherwise governed by the provisions of this Agreement or the Operating Agreements, the parties will cooperate in determining whether there is a mutually acceptable arm's-length basis on which one party will provide such service to the other party.
5.8. Novation of Assumed Liabilities. (a) It is expressly understood and agreed to by the parties that upon the assumption by Edwards Optionholder of the Assumed Liabilities, Baxter Japan and its officers, directors, and employees shall be released unconditionally by Edwards Optionholder from any and all Liability, whether joint, several or
joint and several, for the discharge, performance or observance of any of the Assumed Liabilities, so that Edwards Optionholder will be solely responsible for such Assumed Liabilities.
(b) Edwards Optionholder shall, at the request of Baxter Japan, use commercially reasonable efforts to obtain, or cause to be obtained, any consent, approval, release, substitution or amendment required to novate (including with respect to any government contract) or assume all obligations under the Assumed Liabilities, or to obtain in writing the unconditional release of all parties to such arrangements other than Edwards Optionholder and its Affiliates; provided, however, that Edwards Optionholder shall not be obligated to pay any consideration therefor to any third party from whom such consents, approvals, releases, substitutions or amendments are requested.
(c) In the event that the Parties are unable to obtain a novation or assignment and release with respect to a particular Contract included in the Purchased Business, at the expiration of the base term of such Contract, Edwards Optionholder agrees that it will not exercise any option to renew such Contract or, to the extent such Contract provides for automatic renewal, Edwards Optionholder agrees that it will not allow such Contract to enter an auto- renewal period unless Edwards Optionholder obtains the prior written consent of Baxter Japan to such extension or auto-renewal.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1. Organization, Good Standing and Authority of Baxter Japan.
Baxter Japan hereby represents and warrants to Edwards Optionholder as follows:
Baxter Japan is a corporation duly organized and validly existing and in good
standing under the laws of Japan. Baxter Japan has full power and authority to
execute, deliver and perform this Agreement. The execution, delivery and
performance of this Agreement by Baxter Japan have been duly authorized and
approved by Baxter Japan's board of directors and stockholders. This Agreement
has been duly authorized, executed and delivered by Baxter Japan.
6.2. Organization, Good Standing and Authority of Edwards Optionholder. Edwards Optionholder represents and warrants to Baxter Japan as follows: Edwards Optionholder is a corporation duly organized and validly existing under the laws of Japan. Edwards Optionholder has full power and authority to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by Edwards Optionholder has been duly authorized and approved by Edwards Optionholder's board of directors and do not require the further authorization or consent of Edwards Optionholder or its stockholder. This Agreement has been duly authorized, executed and delivered by Edwards Optionholder.
6.3. No Other Representations or Warranties. Baxter Japan does not represent or warrant in any way (i) as to the value or freedom from encumbrance of, or any other matter concerning, any of the Purchased Business or (ii) as to the legal sufficiency to convey title to any part of the Purchased Business on the execution, delivery and filing of the Instrument of Assignment. ALL ASSETS INCLUDED IN THE PURCHASED BUSINESS ARE BEING TRANSFERRED ON AN "AS IS, WHERE IS" BASIS WITHOUT ANY REPRESENTATION
OR WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, MARKETABILITY, TITLE, VALUE, FREEDOM FROM ENCUMBRANCE OR ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, and Edwards Optionholder shall bear the economic and legal risks that any conveyances of such assets shall prove to be insufficient or that Edwards Optionholder's title to any such assets shall be other than good and marketable and free of encumbrances. Baxter Japan does not make any representation or warranty with respect to whether the consents, approvals, or filings and applications obtained or made prior to consummation of the transactions contemplated by this Agreement shall satisfy the provisions of all applicable agreements or the requirements of all applicable laws or judgments, and, subject to Section 5.6, Edwards Optionholder shall bear the economic and legal risk that any necessary consents or approvals are not obtained or that any requirements of law or judgments are not complied with.
ARTICLE VII
PRE-CLOSING COVENANTS
7.1. Operation of Japanese Edwards Business. (a) Until either (i) the Closing Date (if the Option is exercised) or (ii) the end of the Exercise Period (if the Option is not exercised), Baxter Japan shall operate and carry on the Japanese Edwards Business (pursuant to the terms of the TK Agreement (if applicable)) only in the ordinary course and substantially as presently operated and shall not, without the express written approval of Edwards Optionholder:
(i) change the primary line of business of the Japanese Edwards Business; or
(ii) sell, lease (as lessor), transfer or otherwise dispose of, or mortgage or pledge, any of the assets of the Japanese Edwards Business that, upon exercise of the Option, would constitute part of the Purchased Business (including, without limitation, Baxter Japan's rights under the Distribution Agreement), other than accounts receivable, inventory and other property sold or otherwise disposed of for fair value in the ordinary course of the Japanese Edwards Business consistent with past practice; provided, however, that this clause (ii) shall not apply to any transfer of all of the assets of the Japanese Edwards Business to an Affiliate of Baxter Japan in which case all of such transferred assets shall remain subject to the Option.
(b) If the Option is exercised, then from and after the date it receives the Notice of Exercise through and including the Closing Date, Baxter Japan shall not, without the approval of the Edwards Lifesciences Division President:
(i) make any change in the Japanese Edwards Business or its operations or make any capital expenditure in respect of the Japanese Edwards Business which shall exceed the amount budgeted therefor;
(ii) enter into any contract for the purchase or sale of real property that would be included in the Purchased Business or exercise any option to extend a Real Estate Lease;
(iii) sell, lease (as lessor), transfer or otherwise dispose of (other than to an Affiliate of Baxter Japan), or mortgage or pledge, or impose or suffer to be imposed any
lien, charge, security interest, mortgage, pledge or other defect in title on, any part of the Purchased Business, other than accounts receivable, inventory and minor amounts of personal property sold or otherwise disposed of for fair value in the ordinary course of the Japanese Edwards Business consistent with past practice and other than Permitted Encumbrances; provided, however, that this clause (iii) shall not apply to any transfer of all of the assets of the Japanese Edwards Business to an Affiliate of Baxter Japan in which case all of such transferred assets shall remain subject to the Option;
(iv) cancel any debts owed to or claims held by Japanese Edwards Business (including the settlement of any claims or litigation) other than in the ordinary course of the Japanese Edwards Business consistent with past practice;
(v) create, incur or assume, or agree to create, incur or assume, any indebtedness for borrowed money in respect of the Japanese Edwards Business or enter into, as lessee, any capitalized lease obligations (as defined in Statement of Financial Accounting Standards No. 13) in respect of the Japanese Edwards Business;
(vi) accelerate or delay collection of any notes or accounts receivable generated by the Japanese Edwards Business in advance of or beyond their regular due dates or the dates when the same would have been collected in the ordinary course of the Japanese Edwards Business consistent with past practice;
(vii) delay or accelerate payment of any account payable or other liability of the Japanese Edwards Business beyond or in advance of its due date or the date when such liability would have been paid in the ordinary course of the Japanese Edwards Business consistent with past practice;
(viii) allow the levels of raw materials, supplies, work-in-process or other materials included in the inventory of the Japanese Edwards Business to vary in any material respect from the levels customarily maintained;
(ix) institute any increase in any profit-sharing, bonus, incentive, deferred compensation, insurance, pension, retirement, medical, hospital, disability, welfare or other employee benefit plan with respect to employees of the Japanese Edwards Business; or
(x) make any change in the compensation of the employees of the Japanese Edwards Business other than changes made in accordance with normal compensation practices and consistent with past compensation practices.
7.2. Consents of Third Parties; Governmental Approvals. (a) If the Option is exercised, Baxter Japan and Edwards Optionholder will act diligently and reasonably to secure the consent, approval or waiver of any third party that is reasonably required for the consummation of transactions contemplated by this Agreement; provided, however, that neither party shall have any obligation to offer or pay any consideration in order to obtain any such consents, approvals or waivers; and provided further, that Baxter Japan shall not make any agreement or understanding affecting the Purchased Business or the Japanese Edwards Business
as a condition for obtaining any such consents, approvals or waivers except with the prior written consent of Edwards Optionholder.
(b) If the Option is exercised, Baxter Japan and Edwards Optionholder shall act diligently and reasonably, and shall cooperate with each other, to secure any consents and approvals of any Governmental Body required to be obtained by them in order to assign or transfer any Governmental Permits to Edwards Optionholder or to permit the consummation of the transactions contemplated by this Agreement; provided, however, that Edwards Optionholder shall be solely liable for the payment of any costs associated with transferring any import approvals and product registrations for the Edwards Products; and provided further, that except as stated in the previous proviso, neither party shall have any obligation to offer or pay any consideration in order to obtain any such consents or approvals; and provided further, that Baxter Japan shall not make any agreement or understanding affecting the Purchased Business or the Japanese Edwards Business as a condition for obtaining any such consents or approvals except with the prior written consent of Edwards Optionholder.
7.3. Services. If the Option is exercised, Edwards Optionholder and Baxter Japan will work together to identify any services (including those relating to occupation and use of facilities) that are needed to assure a smooth and orderly transition of the Japanese Edwards Business and, to the extent practicable, negotiate and prepare mutually acceptable agreements to govern the provision of such services after the Closing Date (the "Operating Agreements"). Schedule 7.3 sets forth a non-exclusive list of services and facilities for which Operating Agreements may be required.
7.4. Financial Statements. Until either (i) the Closing Date (if the Option is exercised) or (ii) the end of the Exercise Period (if the Option is not exercised), Baxter Japan will deliver to Edwards Optionholder, within 25 days after the end of each fiscal quarter, an unaudited balance sheet, income statement with respect to the Japanese Edwards Business, all prepared in accordance with the Agreed Accounting Policies and Allocation Methodology.
ARTICLE VIII
POST-CLOSING COVENANTS
The following covenants shall apply from and after the Closing Date:
8.1. Collection of Accounts Receivable.
(a) Baxter Japan shall be entitled to control all collection actions related to the Retained Business, including the determination of what actions are necessary or appropriate and when and how to take any such action.
(b) Edwards and its Subsidiaries shall be entitled to control all collection actions related to the Purchased Business, including the determination of what actions are necessary or appropriate and when and how to take any such action.
(c) If, after the Closing Date, Edwards Optionholder or any of its Affiliates shall receive any remittance from any account debtors with respect to the accounts receivable arising out of the Retained Business or other amounts due Baxter Japan in respect of services
rendered or products sold by Baxter Japan after the Closing Date, or Baxter Japan or any of its Affiliates shall receive any remittance from any account debtors with respect to the accounts receivable arising out of the Purchased Business or other amounts due Edwards Optionholder or its Affiliates in respect of services rendered or products sold by Edwards Optionholder or its Affiliates after the Closing Date, such party shall receive and deposit such remittance and deliver cash in an amount equal thereto to the other party as soon as practicable. In the absence of any designation of the specific invoice being paid by a customer thereby, payments from account debtors shall be applied to the earliest invoice outstanding with respect to indebtedness of such account debtor owing to either Edwards Optionholder or Baxter Japan.
(d) Each party shall deliver to the other such schedules and other information with respect to the accounts receivable included in the Purchased Business and those not included therein as each shall reasonably request from time to time in order to permit such parties to reconcile their respective records and to monitor the collection of all accounts receivable (whether or not included in the Purchased Business). Each party shall afford the other reasonable access to its books and records relating to any accounts receivable.
8.2. Agreements Relating to Edwards Optionholder and Baxter Japan.
(a) Each of Edwards Optionholder and Baxter Japan shall use commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things, reasonably necessary, proper or advisable under
applicable laws, regulations and agreements to consummate, make effective and
perform its or its Subsidiaries' allocable portion of all purchase, distribution
and other obligations under all Contracts with customers, suppliers, vendors or
other third parties relating to both the Japanese Edwards Business and the
Retained Business (the "Shared Agreements"). Each of Baxter Japan and Edwards
Optionholder shall be entitled to the rights and privileges of its allocable
portion of the Shared Agreements.
(b) Each of Edwards Optionholder and Baxter Japan shall use commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things reasonably necessary, proper or advisable under applicable laws, regulations and agreements to afford the rights and privileges of the allocable portion of the Shared Agreements to the other.
(c) Liabilities pursuant to, arising under or relating to Shared Agreements shall be allocated between Baxter Japan, on the one hand, and Edwards Optionholder on the other hand, as follows:
(i) First, if a Liability is incurred exclusively in respect of a benefit received by one party, the party receiving such benefit shall be responsible for such Liability; and
(ii) Second, if a Liability cannot be so allocated under clause
(i), such Liability shall be allocated between the parties based on
the relative proportions of total benefit received (based upon the
performance under such Shared Agreement during the twelve-month period
immediately prior to the Closing Date) under the relevant Shared
Agreement. Notwithstanding the foregoing, each party shall be
responsible for any and all Liabilities arising out of or resulting
from a breach of the relevant Shared Agreement attributable to the Japanese Edwards Business, in the case of Edwards Optionholder, or the Retained Business, in the case of Baxter Japan.
(d) If either Baxter Japan, on the one hand, or Edwards Optionholder, on the other hand, improperly receives any benefit or payment under any Shared Agreement that was intended for the other, the party receiving such benefit or payment will use commercially reasonable efforts to deliver, transfer or otherwise afford such benefit or payment to the other party.
8.3. Informal, Nondocumented Real Estate Leases. Each party may continue to occupy, from and after the Closing Date, such space in the facilities of the other party as is occupied immediately prior to the Closing Date, or such other space therein as may be mutually agreed to from time to time by Edwards Optionholder and Baxter Japan, and which occupancy is otherwise not documented by any written leasing agreement or otherwise provided for in the Operating Agreements, on the following terms and conditions:
(a) The occupying party shall pay to the other party rent with respect to such occupied space for the period from and after the Closing Date during which such space is so occupied, which rent shall be determined by the other party on the same basis on which the other party allocates rent with respect to the occupancy of space by business units of the other party or as the occupying party presently is paying, whichever is lower. Such rent shall be payable from time to time by the occupying party (but not more frequently than monthly) promptly following delivery by the other party to the occupying party of a statement therefor.
(b) The occupying party may, at any time, upon not less than 15 days' prior written notice to Baxter Japan, with a copy to Edwards Optionholder, terminate its occupancy of any or all of such space.
(c) The other party may, at any time, upon not less than 30 days' prior written notice to the occupying party, require the occupying party to cease occupancy of any or all of such space as designated in a notice sent to the occupying party.
ARTICLE IX
[INTENTIONALLY OMITTED]
ARTICLE X
EMPLOYEES AND EMPLOYEE BENEFIT MATTERS
10.1. Employment of Edwards Employees. On the Closing Date, Edwards Optionholder shall make an offer to employ each Edwards Employee at the same salary and wage rate levels (including bonus programs) paid by Baxter Japan as in effect on the Closing Date; provided, however, that Edwards Optionholder and its Affiliates retain the right to determine the compensation of all such Edwards Employees after the Closing Date. Edwards Optionholder and Baxter Japan shall use commercially reasonable efforts to accomplish any
transfers of employment required by this Section 10.1 in a timely manner. Each Edwards Employee who accepts this offer of employment is referred to as a "Transferred Employee".
10.2. Terminations/Layoff/Severance. Edwards Employees shall not be eligible for any severance benefits from Baxter Japan as a result of either their employment by Edwards Optionholder or its Affiliates or any subsequent termination of employment with Edwards Optionholder or its Affiliates.
10.3. Employee Benefit Plans. (a) Except as otherwise specifically provided in this Article X, all Transferred Employees shall cease to participate in the Baxter Japan employee benefit plans and programs (the "Baxter Plans") as of the Closing Date.
(b) No later than the Closing Date, Edwards Optionholder and/or its Affiliates shall establish its own employee benefit plans and programs for the benefit of eligible Transferred Employees including, but not limited to, a pension plan (the "Edwards Japan Pension Plan"), a long-term disability plan, a group life insurance plan and an overseas travel insurance plan (collectively, the "Edwards Plans"). Additionally, Edwards Optionholder shall continue to contribute to the "Kosei Nenkin" Old Age Employees' Pension Plan and the "Tokyo Yakugyo" Health Insurance on behalf of Transferred Employees. Notwithstanding the foregoing, Edwards Optionholder shall not contribute on behalf of the Transferred Employees to the multiemployer fund entitled the Employee Pension Fund ("EPF"); provided, however, that Edwards Optionholder shall pay cash or stock allowances similar to premiums paid under EPF to the Transferred Employees until Edwards Optionholder establishes or contributes to a program to replace EPF for such Transferred Employees.
(c) Each Transferred Employee who becomes eligible to participate in the Edwards Plans shall be credited under such plans with periods of service with any Baxter Japan Group Member for all purposes under such plans.
(d) Baxter Japan shall pay all costs associated with the provision of disability benefits to any Edwards Employee or former Edwards Employee who as of the Closing Date is receiving disability benefits from Baxter Japan.
10.4. Transfer of Account Balances and Accrued Benefits. Subject to applicable law and the provisions of the Baxter Tax Qualified Pension Plan (the "Baxter Japan Pension Plan"), as soon as administratively practicable following the Closing Date, or effective as of any other date as agreed to in writing by the plan administrator for the Baxter Japan Pension Plan and the plan administrator for the Edwards Japan Pension Plan, the accrued benefits (the "Transferred Accrued Benefits") of all Baxter Japan Pension Plan participants who are Transferred Employees shall be transferred from the Baxter Japan Pension Plan to the Edwards Japan Pension Plan. The amount of Transferred Accrued Benefits shall be determined by the actuaries for the respective plans by the Closing Date in accordance with the methodology described in Schedule 10.4. Each Transferred Employee shall receive credit for all purposes under the Edwards Japan Pension Plan for the periods of service with Baxter Japan or any of its Subsidiaries or Affiliates. The plan administrator for the Edwards Japan Pension Plan shall take any other action reasonably requested by the plan administrator for the Baxter Japan Pension Plan that is necessary or advisable, in the opinion of the plan administrator for the Baxter
Pension Plan, to maintain the tax-qualified status of the Baxter Japan Pension Plan or to avoid the imposition of any penalties with respect to such plan.
10.5. Stock Purchase Plans. Except as otherwise provided in the Baxter Stock Purchase Plan, on the Closing Date, all Transferred Employees shall cease to be eligible to purchase Baxter Common Stock under the terms of the Baxter International Inc. Employees Stock Purchase Plan for International Employees.
10.6. Workers' Compensation. As soon as administratively practicable following the Closing Date, a risk management representative for each of the parties shall agree upon the allocation between the parties of responsibility and liability for workers' compensation claims and expenses relating to current and former Edwards Employees.
10.7. Vacation Pay Policy. After the Closing Date, it is expected that Edwards Optionholder shall maintain for its employees a vacation pay policy, and Edwards Optionholder shall be responsible for costs incurred to provide vacation pay to Transferred Employees following such date. Edwards Optionholder shall assume any and all Baxter Japan Liabilities to provide to Transferred Employees vacation that such persons accrued under the Baxter Japan vacation pay policy as of the Closing Date, and no payment of such accrued vacation pay shall be made by Baxter Japan on the Closing Date.
10.8. Information to be Provided to Baxter Japan. Edwards Optionholder (or its applicable Affiliate) shall provide any information that Baxter Japan may reasonably request, including information relating to dates of termination of employment, in order to provide benefits to any eligible Transferred Employee under the terms and conditions described herein or under the applicable Baxter Plans. Any information relating to an employee's termination of employment shall be provided by Edwards Optionholder to Baxter Japan as soon as available to Edwards Optionholder or any of its Affiliates, but in any event no later than 30 days after such information is made available to Edwards Optionholder or any such Affiliates.
10.9. Transfer of Employee Files. By a specified date as agreed upon by Edwards Optionholder and Baxter Japan following the Closing Date, Baxter Japan shall transfer to Edwards Optionholder complete copies of the personnel files relating to all Transferred Employees.
10.10. Employment Solicitation. During the period beginning on the Closing Date and ending one year after the Closing Date, neither Baxter Japan nor Edwards Optionholder shall, nor shall they permit any of their respective Subsidiaries, Affiliates or agents to, directly or indirectly, except as provided in the following sentence, actively solicit or recruit for employment any then current employee of the other or of any of the other's Subsidiaries. Nothing contained in this Section 10.10 shall (i) prohibit the hiring of any employee who in good faith is believed to be actively seeking employment on his or her own initiative without prior contact initiated by any employee or agent of the company where employment is sought, or any of such company's Affiliates; provided, however, that such employee or the hiring company has obtained authorization from the Department Manager of Human Resources of his or her current employer; or (ii) prohibit Baxter Japan or Edwards Optionholder or any of their respective
Subsidiaries from hiring any person who has terminated employment with the other company. The foregoing restriction shall cease to apply one year after the Closing Date.
ARTICLE XI
INSURANCE MATTERS
11.1. Insurance Prior to the Closing Date. Edwards Optionholder does hereby agree that neither Baxter nor Baxter Japan shall have any Liability whatsoever as a result of the insurance policies and practices of Baxter or Baxter Japan in effect at any time prior to the Closing Date, including any assistance rendered to Edwards Optionholder by Baxter or Baxter Japan in the placement of its insurance program, including as a result of the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy and the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim or otherwise.
11.2. Ownership of Existing Policies and Programs. Unless otherwise agreed by the parties, Baxter or Baxter Japan, as the case may be, shall continue to own all property, casualty and liability insurance policies and programs, including primary and excess general liability, errors and omissions, automobile, workers' compensation, property, fire, crime, surety and other similar insurance policies, in effect on or before the Closing Date relating to the Japanese Edwards Business (collectively, the "Baxter Policies" and individually, a "Baxter Policy"). Between the date hereof and the Closing Date, Baxter shall not discriminate between the insurance coverage applicable to the Japanese Edwards Business and similar coverage applicable to Baxter Japan's other businesses. Nothing contained herein shall be construed to be an attempt to assign or to change the ownership of the Baxter Policies.
11.3. Procurement of Insurance for Edwards Optionholder. To the extent not already provided for by the terms of the Baxter Policies, Baxter shall use commercially reasonable efforts to cause Edwards Optionholder and its Affiliates to be named as additional insureds under Baxter Policies whose effective policy periods include the Closing Date, in respect of claims for which coverage is available under the terms and conditions of the Baxter Policies, arising out of or relating to periods prior to the Closing Date; provided, however, that nothing contained herein shall be construed to require Baxter to pay any additional premium or other charges in respect to, or waive or otherwise limit any of its rights, benefits or privileges under, any Baxter Policy in order to effect the naming of Edwards Optionholder or its Affiliates as such additional insureds.
11.4. Acquisition and Maintenance of Post-Closing Edwards Optionholder's Insurance Policies and Programs. Commencing on and as of the Closing Date, Edwards Optionholder shall be responsible for establishing and maintaining separate property, casualty and liability insurance policies and programs (including primary and excess general liability, errors and omissions, automobile, workers' compensation, property, fire, crime, surety and other similar insurance policies) for activities and claims involving Edwards Optionholder and the Japanese Edwards Business. Edwards Optionholder will exercise commercially reasonable efforts to secure liability insurance to avoid potential gaps in coverage for claims arising from events prior to the Closing Date, which gap would not exist had the Japanese Edwards Business continued to be covered with the same retroactive dates existing in the Baxter Policies in effect
on the Closing Date. Edwards Optionholder shall be responsible for all administrative and financial matters relating to insurance policies established and maintained by Edwards Optionholder for claims relating to any period on or after the Closing Date involving Edwards Optionholder. Notwithstanding any other agreement or understanding to the contrary, except as set forth in Section 11.7 with respect to claims administration and financial administration of the Baxter Policies, neither Baxter nor Baxter Japan shall have any responsibility for or obligation to Edwards or any of its Affiliates relating to property and casualty insurance matters for any period, whether prior to, on or after the Closing Date.
11.5. Edwards Optionholder Directors' and Officers' Insurance.
Baxter shall use commercially reasonable efforts to cause the persons serving as
officers and/or directors of Baxter Japan at the Closing Date to be covered for
a period of six (6) years from the Closing Date by the directors' and officers'
liability insurance policy maintained by Baxter as of the Closing Date
(including corporate reimbursement) (provided that Baxter may substitute
therefor policies of at least the same coverage and amounts containing terms and
conditions that are not less advantageous than such policy) with respect to
matters covered under the existing policy occurring prior to the Closing Date
that were committed by such officers and/or directors in their capacity as such;
provided, however, that in no event shall Baxter be required to expend with
respect to any year more than 200% of the current annual premium expended by
Baxter (the "Insurance Amount") to maintain or procure insurance coverage
pursuant hereto; and provided, further, that if Baxter is unable to maintain or
obtain the insurance called for by this Section 11.5, Baxter shall use
commercially reasonable efforts to obtain as much comparable insurance as
available for the Insurance Amount. In the event Baxter or any of its successors
or assigns (i) consolidates with or merges into any other Person and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any Person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Baxter
assume the obligations set forth in this Section 11.5. The provisions of this
Section 11.5 are intended to be for the benefit of, and shall be enforceable by,
each such officer and director and his or her heirs and representatives. As
provided in Section 12.4, any amount Edwards Optionholder is required to pay to
Baxter as an indemnity under this Agreement is reduced to the extent Baxter
receives insurance proceeds from the above coverage, but only to the extent such
proceeds are actually received by Baxter.
11.6. Pre-Closing Insurance Claims Administration. Edwards Optionholder acknowledges that Baxter has and will continue to experience losses and receive claims that are, or might be, covered by one or more Baxter Policies, and prior to the Closing Date will make decisions and commitments regarding administration of such claims, including reaching agreements and stipulations regarding such claims (collectively, "Pre-Closing Claims Administration"). Edwards Optionholder covenants not to contest or challenge in any manner any action taken by Baxter prior to the Closing Date in connection with or relating to Pre-Closing Claims Administration, or to interfere with the performance of any agreement, commitment or stipulation so made by Baxter in connection with or relating to Pre-Closing Claims Administration.
11.7. Post-Closing Insurance Claims Administration. Baxter shall have the primary right, responsibility and authority for claims administration and financial administration
of claims that relate to or affect the Baxter Policies. Upon notification by Edwards Optionholder of a claim relating to Edwards Optionholder or an Affiliate thereof under one or more of the Baxter Policies, Baxter shall cooperate with Edwards Optionholder in asserting and pursuing coverage and payment for such claim by the appropriate insurance carrier(s). In asserting and pursuing such coverage and payment, Baxter shall have sole power and authority to make binding decisions, determinations, commitments and stipulations on its own behalf and on behalf of Edwards Optionholder, which decisions, determinations, commitments and stipulations shall be final and conclusive if made to maximize the overall economic benefit of the Baxter Policies. Edwards Optionholder assumes responsibility for, and shall pay to the appropriate insurance carriers or otherwise, any premiums, retrospectively-rated premiums, defense costs, indemnity payments, deductibles, retentions or other charges (collectively, "Insurance Charges") whenever arising, which shall become due and payable under the terms and conditions of any applicable Baxter Policy in respect of any liabilities, losses, claims, actions or occurrences, whenever arising or becoming known, involving or relating to any of the assets, businesses, operations or liabilities of the Japanese Edwards Business, whether the same relate to the period prior to, on or after the Closing Date. To the extent that the terms of any applicable Baxter Policy provide that Baxter shall have an obligation to pay or guarantee the payment of any Insurance Charges relating to Edwards Optionholder, Baxter shall be entitled to demand that Edwards Optionholder make such payment directly to the Person or any of its Affiliates entitled thereto. In connection with any such demand, Baxter shall submit to Edwards Optionholder a copy of any invoice received by Baxter pertaining to such Insurance Charges together with appropriate supporting documentation, to the extent available. In the event that Edwards Optionholder fails to pay any such Insurance Charges when due and payable, whether at the request of the party entitled to payment or upon demand by Baxter, Baxter may (but shall not be required to) pay such insurance charges for and on behalf of Edwards Optionholder and, thereafter, Edwards Optionholder shall forthwith reimburse Baxter for such payment. Subject to the other provisions of this Article XI, the retention by Baxter of the Baxter Policies and the responsibility for claims administration and financial administration of such policies are in no way intended to limit, inhibit or preclude any right of Edwards Optionholder, Baxter or any other insured to insurance coverage for any Insured Claims under the Baxter Policies.
11.8. Non-Waiver of Rights to Coverage. An insurance carrier that otherwise would be obligated to pay any claim shall not be relieved of the responsibility with respect thereto, or, solely by virtue of the provisions of this Article XI, have any subrogation rights with respect thereto, it being expressly understood and agreed that no insurance carrier or any third-party shall be entitled to a windfall (i.e., a benefit they would not be entitled to receive had the Closing not occurred or in the absence of the provisions of this Article XI) by virtue of the provisions hereof.
11.9. Scope of Affected Policies of Insurance. The provisions of this Article XI relate solely to matters involving liability, casualty and workers' compensation insurance, and shall not be construed to affect any obligation of or impose any obligation on the parties with respect to any life, health and accident, dental or medical insurance policies applicable to any of the officers, directors, employees or other representatives of the parties or their Affiliates.
ARTICLE XII
INDEMNIFICATION
12.1. Indemnification by Edwards Optionholder. From and after the Closing Date, Edwards Optionholder shall indemnify and hold harmless each Baxter Japan Group Member from and against any and all Loss and Expense incurred or suffered by such Baxter Japan Group Member in connection with, relating to, arising out of or due to, directly or indirectly, any of the following items:
(a) the Japanese Edwards Business as conducted on or at any time prior to the Closing Date (other than Excluded Liabilities);
(b) the Purchased Business;
(c) the Assumed Liabilities;
(d) the breach by Edwards Optionholder of any covenant or agreement set forth in this Agreement or the Instrument of Assumption, regardless of when or where the loss, claim, accident, occurrence, event or happening giving rise to the Expense or Loss took place, or whether any such loss, claim, accident, occurrence, event or happening is known or unknown, or reported or unreported;
(e) the employee benefits provided or the actions taken or omitted to be taken with respect thereto in connection with this Agreement or otherwise relating to the provision of employee benefits to Edwards Employees, their beneficiaries, alternate payees or any other person claiming benefits through them (except to the extent such Expenses or Losses are specifically allocated to Baxter Japan pursuant to Section 12.2(e)), including Expenses or Losses arising in connection with (i) Edwards Optionholders' reduction, elimination or failure to provide any benefit accrued by its employees (including benefits accrued prior to the Closing Date) and (ii) the transfer of account balances and accrued benefits as described in Section 10.4 where such Expenses or Losses are incurred as a result of any act or omission by Edwards Optionholder (or a representative of Edwards Optionholder);
(f) the indemnifiable matters set forth in Section 5.6 and Article X; and
(g) Baxter Japan's inability to terminate the employment of any Edwards Employees following the termination or expiration of this Agreement.
12.2. Indemnification by Baxter Japan. From and after the Closing Date, Baxter Japan shall indemnify and hold harmless each Edwards Optionholder Group Member from and against any and all Loss and Expense incurred or suffered by such Edwards Optionholder Group Member in connection with, relating to, arising out of or due to, directly or indirectly, any of the following items:
(a) the business (other than the Japanese Edwards Business) conducted by Baxter Japan on or at any time prior to the Closing Date;
(b) the assets owned by Baxter Japan (other than assets included in the Purchased Business and the Shared Agreements);
(c) the Liabilities (including the Excluded Liabilities) of Baxter Japan other than the Assumed Liabilities;
(d) the breach by Baxter Japan of any covenant or agreement set forth in this Agreement or the Instrument of Assignment, regardless of when or where the loss, claim, accident, occurrence, event or happening giving rise to the Expense or Loss took place, or whether any such loss, claim, accident, occurrence, event or happening is known or unknown, or reported or unreported; and
(e) any act or omission by Baxter Japan in connection with the transfer of assets and liabilities as described in Section 10.4.
12.3. Applicability of and Limitation on Indemnification.
(a) EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE INDEMNITY OBLIGATIONS UNDER THIS ARTICLE XII SHALL APPLY NOTWITHSTANDING ANY INVESTIGATION MADE BY OR ON BEHALF OF ANY INDEMNIFIED PARTY AND SHALL APPLY WITHOUT REGARD TO WHETHER THE LOSS, LIABILITY, CLAIM, DAMAGE, COST OR EXPENSE FOR WHICH INDEMNITY IS CLAIMED HEREUNDER IS BASED ON STRICT LIABILITY, ABSOLUTE LIABILITY OR ARISES AS AN OBLIGATION FOR CONTRIBUTION.
(b) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL BAXTER JAPAN BE LIABLE TO ANY EDWARDS OPTIONHOLDER GROUP MEMBER, OR EDWARDS OPTIONHOLDER BE LIABLE TO ANY BAXTER JAPAN GROUP MEMBER, UNDER THIS AGREEMENT FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, INCLUDING LOSS OF ANTICIPATED PROFITS OR LOSS OR DIMINUTION OF REVENUES, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT OR OTHERWISE, EXCEPT TO THE EXTENT THAT SUCH LIABILITY HAS BEEN ASSERTED BY A THIRD PARTY AGAINST A PARTY ENTITLED TO INDEMNIFICATION HEREUNDER.
12.4. Adjustment of Indemnifiable Losses.
(a) The amount that either party (an "Indemnifying Party") is required to pay to any Person entitled to indemnification hereunder (an "Indemnified Party") shall be reduced (including retroactively) by any Insurance Proceeds and other amounts actually recovered by or on behalf of such Indemnified Party in reduction of the related Expense or Loss. If an Indemnified Party receives a payment (an "Indemnity Payment") required by this Agreement from an Indemnifying Party in respect of any Expense or Loss and subsequently actually receives Insurance Proceeds or other amounts in respect of such Expense or Loss, then such Indemnified Party shall pay to the Indemnifying Party a sum equal to the lesser of (i) the amount of
such Insurance Proceeds or other amounts actually received or (ii) the net amount of Indemnity Payments actually received previously. The Indemnified Party agrees that the Indemnifying Party shall be subrogated to such Indemnified Party under any insurance policy.
(b) An insurer who otherwise would be obligated to pay any claim shall not be relieved of the responsibility with respect thereto, or, solely by virtue of the indemnification provisions hereof, have any subrogation rights with respect thereto, it being expressly understood and agreed that no insurer or any other third-party shall be entitled to a "windfall" (i.e., a benefit he or she would not be entitled to receive in the absence of the indemnification provisions) by virtue of the indemnification provisions hereof.
(c) If any Indemnified Party realizes a Tax benefit or detriment in one or more Tax periods by reason of having incurred an Expense or a Loss for which such Indemnified Party receives an Indemnity Payment from an Indemnifying Party (or by reason of the receipt of any Indemnity Payment), then such Indemnified Party shall pay to such Indemnifying Party an amount equal to the Tax benefit or such Indemnifying Party shall pay to such Indemnified Party an additional amount equal to the Tax detriment (taking into account, without limitation, any Tax detriment resulting from the receipt of such additional amounts), as the case may be. The amount of any Tax benefit or any Tax detriment for a Tax period realized by an Indemnified Party by reason of having incurred an Expense or a Loss (or by reason of the receipt of any Indemnity Payment) shall be deemed to equal the product obtained by multiplying (i) the amount of any deduction or loss or inclusion in income for such period resulting from such Expense or Loss (or the receipt of any Indemnity Payment or additional amount), as the case may be (without regard to whether such deduction or loss or such inclusion in income results in any actual decrease or increase in Tax liability for such period), by (ii) the highest applicable marginal Tax rate for such period (provided, however, that the amount of any Tax benefit attributable to an amount that is creditable shall be deemed to equal the amount of such creditable item). Any payment due under this Section 12.4(c) with respect to a Tax benefit or Tax detriment realized by an Indemnified Party in a Tax period shall be due and payable within 30 days from the time the return for such Tax period is due, without taking into account any extension of time granted to the party filing such return.
12.5. Procedures for Indemnification of Third Party Claims.
(a) If any third-party shall make any claim or commence any arbitration proceeding or suit (collectively, a "Third Party Claim") against any one or more of the Indemnified Parties with respect to which an Indemnified Party intends to make any claim for indemnification against Edwards Optionholder under Section 12.1 or against Baxter Japan under Section 12.2, such Indemnified Party shall promptly give written notice to the Indemnifying Party describing such Third Party Claim in reasonable detail, and the following provisions shall apply. Notwithstanding the foregoing, the failure of any Indemnified Party to provide notice in accordance with this Section 12.5(a) shall not relieve the related Indemnifying Party of its obligations under this Article XII, except to the extent that such Indemnifying Party is actually prejudiced by such failure to provide notice.
(b) The Indemnifying Party shall have the right to assume the defense of any such Third Party Claim. If the Indemnifying Party elects not to conduct and control the defense of such Third Party Claim, the Indemnified Party shall have the right to defend, contest, settle or
compromise such Third Party Claim in the exercise of its exclusive discretion subject to the provisions of Section 12.5(c), and the Indemnifying Party shall, upon request from any of the Indemnified Parties, promptly pay to such Indemnified Parties in accordance with the other terms of this Section 12.5(b) the amount of any Expense or Loss resulting from their liability to the third- party claimant. If the Indemnifying Party assumes the defense of the Third Party Claim, the Indemnifying Party shall have the right to undertake, conduct and control, through counsel reasonably acceptable to the Indemnified Party, and at its sole expense, the conduct and settlement of such Third Party Claim, and the Indemnified Party shall cooperate with the Indemnifying Party in connection therewith, provided that (i) the Indemnifying Party shall not thereby permit any lien, encumbrance or other adverse charge to thereafter attach to any asset of any Indemnified Party; (ii) the Indemnifying Party shall not thereby permit any injunction against any Indemnified Party; (iii) the Indemnifying Party shall permit the Indemnified Party and counsel chosen by the Indemnified Party and reasonably acceptable to the Indemnifying Party to monitor such conduct or settlement and shall provide the Indemnified Party and such counsel with such information regarding such Third Party Claim as either of them may reasonably request (which request may be general or specific), but the fees and expenses of such counsel (including allocated costs of in-house counsel and other personnel) shall be borne by the Indemnified Party unless (A) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (B) the named parties to any such Third Party Claim include the Indemnified Party and the Indemnifying Party and in the reasonable opinion of counsel to the Indemnified Party representation of both parties by the same counsel would be inappropriate due to actual or likely conflicts of interest between them, in either of which cases the reasonable fees and disbursements of counsel for such Indemnified Party (including allocated costs of in-house counsel and other personnel) shall be reimbursed by the Indemnifying Party to the Indemnified Party; and (iv) the Indemnifying Party shall agree promptly to reimburse to the extent required under this Article XII the Indemnified Party for the full amount of any Expense or Loss resulting from such Third Party Claim and all related expenses incurred by the Indemnified Party. In no event shall the Indemnifying Party, without the prior written consent of the Indemnified Party, settle or compromise any claim or consent to the entry of any judgment that does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party a release from all Liability in respect of such claim.
If the Indemnifying Party shall not have undertaken the conduct and control of the defense of the Third Party Claim as provided above, the Indemnifying Party shall nevertheless be entitled through counsel chosen by the Indemnifying Party and reasonably acceptable to the Indemnified Party to monitor the conduct or settlement of such claim by the Indemnified Party, and the Indemnified Party shall provide the Indemnifying Party and such counsel with such information regarding such Third Party Claim as either of them may reasonably request (which request may be general or specific), but all costs and expenses incurred in connection with such monitoring shall be borne by the Indemnifying Party.
(c) So long as the Indemnifying Party is contesting any such Third Party Claim in good faith, the Indemnified Party shall not pay or settle any such Third Party Claim. Notwithstanding the foregoing, the Indemnified Party shall have the right to pay or settle any such Third Party Claim, provided that in such event the Indemnified Party shall waive any right to indemnity therefor by the Indemnifying Party, and no amount in respect thereof shall be claimed as an Expense or a Loss under this Section 12.5(c).
If the Indemnifying Party shall have undertaken the conduct and control of the defense of any Third Party Claim as provided above, the Indemnified Party, on not less than 30 days prior written notice to the Indemnifying Party, may make settlement (including payment in full) of such Third Party Claim, and such settlement shall be binding upon the parties for the purposes hereof, unless within said 30-day period the Indemnifying Party shall have requested the Indemnified Party to contest such Third Party Claim at the expense of the Indemnifying Party. In such event, the Indemnified Party shall promptly comply with such request and the Indemnifying Party shall have the right to direct the defense of such claim or any litigation based thereon subject to all the conditions of Section 12.5(b). Notwithstanding anything in this Section 12.5(c) to the contrary, if the Indemnified Party, in the belief that a claim may materially and adversely affect it other than as a result of money damages or other money payments, advises the Indemnifying Party that it has determined to settle a claim, the Indemnified Party shall have the right to do so at its own cost and expense, without any requirement to contest such claim at the request of the Indemnifying Party, but without any right under the provisions of this Section 12.5(c) for indemnification by the Indemnifying Party.
12.6. Procedures for Indemnification of Direct Claims. Any claim for indemnification on account of an Expense or a Loss made directly by the Indemnified Party against the Indemnifying Party and that does not result from a Third Party Claim shall be asserted by written notice from the Indemnified Party to the Indemnifying Party specifically claiming indemnification hereunder. Such Indemnifying Party shall have a period of 30 business days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 30 business day period, such Indemnifying Party shall be deemed to have accepted responsibility to make payment and shall have no further right to contest the validity of such claim. If such Indemnifying Party does respond within such 30 business-day period and rejects such claim in whole or in part, such Indemnified Party shall be free to pursue resolution as provided in Article XIII.
12.7. Remedies Cumulative. The remedies provided in this Article XII shall be cumulative and, subject to the provisions of Article XIII below, shall not preclude assertion by an Indemnified Party of any other rights or the seeking of any and all other remedies against any Indemnifying Party.
ARTICLE XIII
DISPUTE RESOLUTION
13.1. General. Any dispute arising out of or relating to this Agreement, the Instrument of Assignment or the Instrument of Assumption shall be solved in accordance with the procedures specified in this Article XIII which shall be the sole and exclusive procedures for the resolution of any such disputes.
13.2. Escalation. The parties will attempt in good faith to resolve expeditiously any dispute, claim or controversy arising out of or relating to the execution, interpretation and performance of this Agreement (including the validity, scope and enforceability of this arbitration provision) promptly by negotiations between executives who have authority to settle the controversy and who are at a higher level of management than the persons with direct responsibility for the administration of this Agreement. Either party may give the other party
written notice (an "Escalation Notice") of any dispute not resolved in the normal course of business. Within fifteen days after delivery of the Escalation Notice, the receiving party shall submit to the other a written response. The Escalation Notice and the response thereto shall include (a) a statement of each party's position and a summary of arguments supporting that position, and (b) the name and title of the executive who will represent that party and of any other person who will accompany the executive. Within 30 days after delivery of the Escalation Notice, the executives of both parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute. All reasonable requests for information made by one party to the other will be honored. All negotiations pursuant to this clause are confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence.
13.3. Arbitration. Any dispute, claim or controversy arising out of or relating to this Agreement or its breach, termination or validity which has not been resolved by the specified non-binding procedure set forth in Section 13.2 within 90 days of the date of delivery of the Escalation Notice shall be settled by binding arbitration in accordance with the CPR Non-Administered Arbitration Rules in effect on the date of this Agreement, by three independent and impartial arbitrators, none of whom shall be appointed by either party. The arbitration shall be governed by the United States Arbitration Act, 9 U. S. C. (S) (S) 1- 16, as the same may be amended from time to time, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of the arbitration shall be Lake County, Illinois or Orange County, California, and shall be determined by the party that initiated the dispute resolution process. The arbitrators may award attorneys' fees in their discretion. Otherwise, the arbitrators are not empowered to award damages in excess of compensatory damages, and each party hereby irrevocably waives any right to recover such damages.
13.4. Procedures. The parties may request limited discovery in accordance with the Federal Rules of Civil Procedure of the United States (the "F.R.C.P.") for a period of 120 days after the initiation of the arbitration process. All issues regarding compliance with discovery requests shall be decided by the arbitrators pursuant to the F.R.C.P. The parties agree that the recipient of a discovery request shall have 10 business days after the receipt of such request to object to any or all portions of such request and shall respond to any portions of such request not so objected within 30 business days of the receipt of such request. All objections shall be in writing and shall indicate the reasons for such objections. The objecting party shall ensure that all objections and responses are received by the other party within the above time periods; failure to comply with the specified time period shall be addressed as set forth in F.R.C.P. 37. Any party seeking to compel discovery following receipt of an objection shall file with the other party and the arbitrators a motion to compel, including a copy of the initial request and the objection. The arbitrators shall allow 10 business days for the responses to the motion to compel before ruling. Claims of privilege and other objections shall be determined as they would be in United States federal court in a case applying Illinois law. The arbitrators may grant or deny the motion to compel, in whole or in part, concluding that the discovery request is or is not appropriate under the circumstances, taking into account the needs of the parties and the desirability of making discovery expeditious and cost-effective. The statute of limitations of the State of Illinois applicable to the commencement of a lawsuit shall apply to the date of initial written notification of a dispute and shall be extended until commencement of arbitration if all interim deadlines have been complied with by the notifying party.
13.5. Injunctive Relief. Nothing contained in this Article XIII shall prevent either party from resorting to judicial process if injunctive or other equitable relief from a court is necessary to prevent serious and irreparable injury to one party or to others. The use of arbitration procedures will not be construed under the doctrine of laches, waiver or estoppel to affect adversely either party's right to assert any claim or defense.
ARTICLE XIV
GENERAL PROVISIONS
14.1. Notices. All notices or other communications required or permitted hereunder shall be in writing and shall be deemed given or delivered when delivered personally, or when sent by registered or certified mail or by private courier or facsimile transmission (provided that in the case of facsimile transmission, a confirmation copy of the notice shall be delivered by hand or sent by courier within two days of transmission) addressed as follows:
If to Edwards Optionholder, to:
Edwards Lifesciences (Japan) Limited
Rokubancho 2-8, Chiyoda-ku
Tokyo 102-0085 Japan
Attention: Chairman and Representative Director
Facsimile: 81-3-5213-5802
with a copy to:
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, California 92614
USA
Attention: International Counsel
Facsimile: 949-250-6868
If to Baxter Japan, to:
Baxter Limited
4, Rokubancho, Chiyoda-ku
Tokyo 102-8468 Japan
Attention: President and Representative Director
Facsimile: 81-3-5213-5111
with a copy to:
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
USA
Attention: International Counsel
Facsimile: 847-948-4634
or to such other address as such party may indicate by a notice delivered to the other party hereto.
14.2. Successors and Assigns. (a) Either party may assign any of its rights under this Agreement, but no such assignment shall relieve such party of its obligations hereunder.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their successors and permitted assigns. The successors
and permitted assigns hereunder shall include without limitation, in the case of
Edwards Optionholder, any permitted assignee as well as the successors in
interest to such permitted assignee (whether by merger, liquidation (including
successive mergers or liquidations) or otherwise). Except to the extent
otherwise provided in Section 11.5 or Article XII, nothing in this Agreement,
expressed or implied, is intended or shall be construed to confer upon any
Person other than the parties and successors and assigns permitted by this
Section 14.2 any right, remedy or claim under or by reason of this Agreement.
14.3. Access to Records after Closing. (a) For a period of ten years after the Closing Date, Baxter Japan and its representatives shall have reasonable access to all of the books and records of the Japanese Edwards Business transferred to Edwards Optionholder hereunder to the extent that such access may reasonably be required by Baxter Japan in connection with matters relating to or affected by the operations of the Japanese Edwards Business prior to the Closing Date. Such access shall be afforded by Edwards Optionholder upon receipt of reasonable advance notice and during normal business hours. Baxter Japan shall be solely responsible for any costs or expenses incurred by it pursuant to this Section 14.3(a). If Edwards Optionholder shall desire to dispose of any of such books and records prior to the expiration of such ten- year period, Edwards Optionholder shall, prior to such disposition, give Baxter Japan a reasonable opportunity, at Baxter Japan's expense, to segregate and remove such books and records as Baxter Japan may select.
(b) For a period of ten years after the Closing Date, Edwards
Optionholder and its representatives shall have reasonable access to all of the
books and records relating to the Japanese Edwards Business which Baxter Japan
or any of its Affiliates may retain after the Closing Date. Such access shall be
afforded by Baxter Japan and its Affiliates upon receipt of reasonable advance
notice and during normal business hours. Edwards Optionholder shall be solely
responsible for any costs and expenses incurred by it pursuant to this Section
14.3(b). If Baxter Japan or any of its Affiliates shall desire to dispose of any
of such books and records prior
to the expiration of such ten-year period, Baxter Japan shall, prior to such disposition, give Edwards Optionholder a reasonable opportunity, at Edwards Optionholder's expense, to segregate and remove such books and records as Edwards Optionholder may select.
14.4. Entire Agreement; Amendments. This Agreement and the Exhibits and Schedules referred to herein and the documents delivered pursuant hereto contain the entire understanding of the parties hereto with regard to the subject matter contained herein or therein, and supersede all prior agreements, understandings or letters of intent between or among any of the parties hereto. This Agreement shall not be amended, modified or supplemented except by a written instrument signed by an authorized representative of Edwards Optionholder and by the President of Baxter Japan.
14.5. Interpretation. Article titles and headings to sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. The Schedules and Exhibits referred to herein shall be construed with and as an integral part of this Agreement to the same extent as if they were set forth verbatim herein.
14.6. Waivers. Any term or provision of this Agreement may be waived, or the time for its performance may be extended, by the party or parties entitled to the benefit thereof. Any such waiver shall be validly and sufficiently authorized for the purposes of this Agreement if, as to any party, it is authorized in writing by an authorized representative of such party. The failure of any party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of any party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach.
14.7. Expenses. All costs and expenses incident to its negotiation and preparation of this Agreement will be paid by Baxter Japan. Each party will pay all costs and expenses incident to its performance and compliance with all agreements and conditions contained herein on its part to be performed or complied with.
14.8. Partial Invalidity. Wherever possible, each provision hereof shall be interpreted in such manner as to be effective and valid under applicable law, but in case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such provision shall be ineffective to the extent, but only to the extent, of such invalidity, illegality or unenforceability without invalidating the remainder of such invalid, illegal or unenforceable provision or provisions or any other provisions hereof, unless such a construction would be unreasonable.
14.9. Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be considered an original instrument, but all of which shall be considered one and the same agreement, and shall become binding when one or more counterparts have been signed by each of the parties hereto and delivered to each of Baxter Japan and Edwards Optionholder.
14.10. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws (as opposed to the conflicts of law provisions) of the State of Illinois.
14.11. Submission to Jurisdiction. Baxter Japan and Edwards Optionholder hereby irrevocably submit in any suit, action or proceeding arising out of or related to this Agreement or any of the transactions contemplated hereby or thereby to the jurisdiction of the United States District Court for the Northern District of Illinois and the jurisdiction of any court of the State of Illinois located in Chicago and waive any and all objections to jurisdiction that they may have under the laws of the State of Illinois or the United States.
14.12. Termination. (a) Anything contained in this Agreement to the contrary notwithstanding, this Agreement may be terminated at any time by mutual written consent of Edwards Optionholder and Baxter Japan. This Agreement shall terminate automatically if the Exercise Period expires prior to exercise of the Option.
(b) If this Agreement is terminated pursuant to this Section 14.12, all further obligations of the parties under this Agreement shall be terminated without further liability of any party to the other, provided that nothing herein shall relieve any party from liability for its willful breach of this Agreement.
14.13. Survival of Obligations. All representations, warranties, covenants and obligations contained in this Agreement shall survive the consummation of the transactions contemplated by this Agreement.
14.14. Currency. All payments under this Agreement shall be denominated in Yen.
******
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and year first above written.
BAXTER LIMITED
By: /s/ James Robert Hurley
------------------------
Name: James Robert Hurley
Title: President and
Representative Director
|
EDWARDS LIFESCIENCES (JAPAN)
LIMITED
By: /s/ Takashi Tsumori
-------------------
Name: Takashi Tsumori
Title: Chairman and
Representative Director
|
For purposes of Article XI only:
BAXTER INTERNATIONAL INC.
By: /s/ Thomas J. Sabatino, Jr.
----------------------------
Name: Thomas J. Sabatino, Jr.
Title: General Counsel and
Corporate Vice President
|
Japanese Edwards Business
The Cardiovascular Group sells or is engaged in the development of following product categories in Japan through its three business units (Cardiovascular Surgery, or CVS, Anesthesia and Medication Delivery, or AMD, and Vascular and Interventional Cardiology, or VIC):
. Tissue and mechanical heart valves and rings, pericardial patches, oxygenators, and cardiopulmonary bypass circuits including reservoirs and arterial filters, cardioplegia devices, heart-lung machines, centrifugal pumps, arterial and venous cannulae, CDI oxygen monitor cells, Novacor left ventricular assist devices
. Thermo-dilution (Swan-Ganz) catheters, pacing catheters, central venous catheters, venous introducers, Invos cerebral tissue oxygen monitor devices, VIA continuous arterial blood gas monitor devices, Lifespan PTFE endovascular grafts, Fogarty atraumatic occlusion clips and clamps, Intramed angioscopy equipment, Thrombex PMT clot extraction catheters
. Direct blood pressure monitor kit, disposable pressure transducers, Embolectomy (Fogarty) catheters, Lifepath abdominal aortic aneurysm endovascular graft system, Datascope intra-aortic balloon pumps and catheters, VasoSeal collagen hemostasis devices, UniCath percutaneous transluminal coronary angioplasty balloon catheters and stents, Medtronic pacemakers
The Cardiovascular Group in Japan also manufacturers Custom Pac cardiopulmonary circuits and direct blood pressure monitor kits at the Miyazaki plant.
BILL OF SALE AND ASSIGNMENT
Pursuant to that certain Option Agreement dated as of March 31, 2000 (the "Option Agreement") by and between Baxter Limited, a Japanese corporation ("Baxter Japan"), and Edwards Lifesciences (Japan) Limited, a Japanese corporation ("Edwards Optionholder"), for good and valuable consideration paid to Baxter Japan by or on behalf of Edwards Optionholder, the receipt of which is hereby acknowledged by Baxter Japan, Baxter Japan does hereby sell, transfer, assign, convey and deliver to Edwards Optionholder the Purchased Business (all capitalized terms not defined herein shall have the meanings specified in the Option Agreement); provided, however, as to any lease, contract, agreement, permit or other authorization or rights included in the Purchased Business that cannot be conveyed, assigned, transferred, contributed, set over or delivered effectively without the consent of a third party, which consent has not been obtained, this Bill of Sale and Assignment shall be of no force or effect until such requisite consent is obtained, whereupon this Bill of Sale and Assignment shall become of full force and effect with respect thereto.
EXCEPT FOR THE REPRESENTATIONS, WARRANTIES AND OTHER AGREEMENTS SPECIFICALLY PROVIDED FOR IN THE OPTION AGREEMENT, ALL OF THE ASSETS SOLD HEREUNDER ARE SOLD TO EDWARDS OPTIONHOLDER "AS IS" WITHOUT ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, MARKETABILITY, TITLE, VALUE, FREEDOM FROM ENCUMBRANCE OR ANY REPRESENTATION OR WARRANTY, EXPRESSED OR IMPLIED.
This Bill of Sale and Assignment shall be binding upon Baxter Japan, its successors and assigns, and shall inure to the benefit of Edwards Optionholder, its successors and assigns.
IN WITNESS WHEREOF, Baxter Japan has caused this instrument to be duly executed and delivered as of ____________________.
BAXTER LIMITED
By: _____________________________
Name:
Title:
Pursuant to that certain Option Agreement dated as of March 31, 2000 (the "Option Agreement") by and between Baxter Limited, a Japanese corporation ("Baxter Japan"), and Edwards Lifesciences (Japan) Limited, a Japanese corporation ("Edwards Optionholder"), for good and valuable consideration paid to Edwards Optionholder by or on behalf of Baxter Japan, the receipt of which is hereby acknowledged by Edwards Optionholder, Edwards Optionholder does hereby assume and agree to pay, perform or otherwise discharge, in accordance with their terms and subject to the respective conditions thereof, the Assumed Liabilities (all capitalized terms not defined herein shall have the meanings specified in the Option Agreement).
This Instrument of Assumption shall be binding upon the successors and assigns of Edwards Optionholder and shall inure to the benefit of the successors and assigns of Baxter Japan.
IN WITNESS WHEREOF, Edwards Optionholder has caused this instrument to be duly executed and delivered as of ____________.
EDWARDS LIFESCIENCES (JAPAN) LIMITED
By:__________________________
Name:
Title:
See attached.
The IV Business consists of the importation and distribution of the products that Operator currently sells or plans to sell in Japan in the following product categories:
. Infusors, TUR solutions and sets, EIS infusion pumps and Interlink products, epidural trays and Sabratek pumps,
together with any improved versions of such products introduced after date hereof. For the avoidance of doubt, the IV Business shall not include any products subsequently acquired by Operator or its Affiliates as a result of an
acquisition or similar transaction that closes after date hereof.
EXHIBIT 10.18
JAPAN DISTRIBUTION AGREEMENT
dated as of April 1, 2000
by and between
BAXTER LIMITED
and
EDWARDS LIFESCIENCES LLC
ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION............................ 1 ARTICLE II DISTRIBUTION OF PRODUCTS..................................... 7 ARTICLE III RESTRICTIONS ON EDWARDS; EXCLUSIVITY........................ 7 ARTICLE IV TERM......................................................... 8 ARTICLE V PRICES AND FEES............................................... 8 ARTICLE VI INVOICING AND PAYMENTS....................................... 9 ARTICLE VII BAXTER'S DUTIES............................................. 11 ARTICLE VIII EDWARDS' DUTIES............................................ 11 ARTICLE IX STANDARD OF CARE; CONSULTATION............................... 11 ARTICLE X TRANSFER OF TITLE AND RISK OF LOSS............................ 12 ARTICLE XI WARRANTIES................................................... 12 ARTICLE XII TRADEMARKS.................................................. 13 ARTICLE XIII TERMINATION................................................ 14 ARTICLE XIV INDEMNITY................................................... 15 ARTICLE XV COMPLIANCE WITH LAWS......................................... 21 ARTICLE XVI INSURANCE................................................... 23 ARTICLE XVII FORCE MAJEURE.............................................. 23 ARTICLE XVIII CONFIDENTIALITY........................................... 23 ARTICLE XIX LIMITATION OF LIABILITY AND REMEDIES........................ 25 ARTICLE XX DISPUTE RESOLUTION........................................... 26 ARTICLE XXI ASSIGNMENT.................................................. 28 ARTICLE XXII MISCELLANEOUS PROVISIONS................................... 28 |
EXHIBITS AND SCHEDULES
Exhibit A -- Japanese Edwards Business
Exhibit B - Direct Reporting Positions
Schedule A -- Baxter's Duties
Schedule B -- Edwards' Duties
Schedule C -- Products
Schedule D -- Product Prices
Schedule E -- Service Levels
Schedule F - Agreed Accounting Policies and Allocation Methodology
JAPAN DISTRIBUTION AGREEMENT
RECITALS
Prior to the Effective Date, Baxter Japan performed certain sales, marketing, customer service, and distribution functions in connection with Edwards' business.
Baxter (as defined below) is willing to continue to perform such functions without interruption commencing as of the Effective Date, provided that Edwards is willing to commit to supplying Edwards' products to Baxter on a long-term basis.
Baxter and Edwards desire that Baxter continue to perform such functions as Edwards' distributor pursuant to the terms and conditions set forth in this Agreement.
AGREEMENT
In consideration of the mutual undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, Baxter and Edwards agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. As used in this Agreement:
the foregoing. Edwards Lifesciences Corporation and Baxter International shall not be deemed to be Affiliates of each other.
(i) any federal, state, local or foreign net income, gross income, gross receipts, consumption, windfall profit, severance, property, production, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, value-added, transfer, stamp or environmental tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, addition to tax or additional amount imposed by any Governmental Body; and
(ii) any liability of either party for the payment of amounts with respect to payments of a type described in clause (i) above as a result of being a member of an affiliated, consolidated, combined or unitary group, or as a result of any obligation of either party under a tax sharing arrangement or tax indemnity arrangement.
1.2 Other Terms. Terms defined in other Sections (or in any Schedule) will have the meanings therein provided.
1.3 Rules of Construction. In this Agreement, unless a clear, contrary intention appears:
(a) the singular number includes the plural number and vice versa;
(b) reference to any Person includes such Person's successors and assigns that are permitted by this Agreement;
(c) reference to any gender includes the other gender;
(d) reference to any Section or Schedule means such Section of this
Agreement or such Schedule to this Agreement, as the case may be, and reference
in any Section or other provision to any clause means such clause of such
Section or provision;
(e) "herein," "hereunder," "hereof," "hereto," and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Section or other provision hereof;
(f) "including" (and with correlative meaning "include") means "including but not limited to";
(g) relative to the determination of any period of time, "from" means "from and including," "to" means "to but excluding," and "through" means "through and including";
(h) reference to any law (including statutes and ordinances) means such law (including all rules and regulations promulgated thereunder) as amended, modified, codified or reenacted, in whole or in part, and in effect at the time of determining compliance or applicability;
(i) accounting terms used herein shall have the meanings historically attributed to them by Baxter International and its subsidiaries based upon Baxter International's internal financial policies and procedures in effect prior to the date of this Agreement;
(j) the provisions contained in the Schedules shall control over any conflicting provisions contained in the body of this Agreement; and
(k) the headings contained in this Agreement are for reference only and are not to be used in construing this Agreement.
1.4 Construction. The parties acknowledge that they negotiated this Agreement with the benefit of legal representation, and no rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against either party shall apply. Subject to Section 22.5, this Agreement shall be interpreted and construed to the maximum extent possible so as to uphold the enforceability of each of the terms and provisions hereof, it being understood and acknowledged that this Agreement was entered into by the parties after substantial negotiations and with full awareness by the parties of the terms and provisions hereof and the consequences thereof.
ARTICLE II
DISTRIBUTION OF PRODUCTS
2.1 Grant of Distribution Rights. With respect to sales of all Products in the Territory, Edwards hereby grants to Baxter and Baxter hereby accepts the right (which shall be exclusive except as provided herein) to distribute the Products to customers in the Territory. In connection therewith, Baxter shall perform sales support, marketing support, customer service, physical distribution, and distribution-related activities as set forth in ARTICLE VII.
2.2 Exceptions and Limitations. Edwards reserves all rights not expressly granted to Baxter hereunder. Subject to Section 21.3, Baxter may appoint subagents or subdistributors to fulfill its obligations hereunder, provided that Baxter shall be responsible for the acts and omissions of such subagents and subdistributors, if any, as if such subagents and subdistributors were employees of Baxter.
2.3 Relationship. Baxter shall maintain the principal contractual relationship with the customer for sales, sales support, credit, collections, and customer service in connection with the provision of the Products. Edwards shall use reasonable efforts to cooperate with Baxter and to facilitate Baxter's fulfillment of its obligations hereunder.
ARTICLE III
RESTRICTIONS ON EDWARDS; EXCLUSIVITY
3.1 Restrictions on Edwards.
(a) Edwards and Edwards Lifesciences shall not, and shall cause their Affiliates, and any other Person acting on behalf of any of them or their Affiliates, not to distribute or grant, directly or indirectly, to any Person other than Baxter the right to distribute the Products to customers in the Territory, provided that Edwards shall have the right:
(i) to distribute Products to customers within the Territory other than through Baxter if and to the extent Baxter is unable to so distribute the Products due to (A) regulatory requirements; or (B) Baxter being otherwise prohibited or prevented from selling and/or distributing the Products to any customer or class of customers other than by customer decision; and
(ii) to sell and distribute Products to customers within the Territory other than through Baxter if (A) Baxter's rights under this Agreement are assigned to a Competitor, or (B) Baxter becomes a Competitor by selling products other than the Products.
(iii) except as set forth in Section 3.3, sell and distribute products that are not Products as defined herein through relationships that do not include Baxter.
(b) This Agreement shall in no way limit the right of Edwards and its Affiliates to market, sell, or otherwise distribute the Products outside the Territory.
3.2 Exceptions. Edwards shall have the right to request exceptions to the foregoing restrictions on a case-by-case basis in connection with sales to specific customers. Such exceptions shall require written approval of Baxter's President, but such approval shall not be unreasonably withheld.
3.3 Product Exclusivity.
(a) Prior to directly or indirectly selling or distributing to customers in the Territory any product (other than a Product) developed by Edwards or manufactured by or on behalf of Edwards, Edwards shall notify Baxter's President regarding Edwards' intent with respect to such product. Baxter shall have the right, but not the obligation, to add such product to Schedule C and this Agreement, and if so added, such product shall be deemed to be one of the Products. Edwards may delete from Schedule C and this Agreement any Product, the manufacture and sale of which has been generally discontinued by Edwards. On or before November 30 of each Contract Year, Edwards shall provide to Baxter an updated version of Schedule C including any Product additions or deletions expected to occur in the subsequent Contract Year. In addition, Edwards shall notify Baxter at least 90 days prior to generally discontinuing the manufacture and sale of any Product.
ARTICLE IV
TERM
ARTICLE V
PRICES AND FEES
5.1 Product Prices. For each Product ordered by Baxter and supplied by Edwards, Baxter shall pay to Edwards the applicable purchase price set forth in Schedule D.
5.2 Price Changes.
(b) The Percentage Discount shall be calculated for each Contract Year and shall be set at a level designed to yield to Baxter an overall net operating profit with respect to such sales of the Products by the Edwards Lifesciences division of Baxter Japan that will be equivalent, as a percentage of sales, to the simple average of the net operating profit of the cardiovascular division of Baxter Japan for the years 1990 through 1997. The Percentage Discount may vary from Product to Product, as mutually agreed by the parties, so long as the overall projected result is consistent with this target. For each Contract Year, Edwards, in consultation with Baxter, shall prepare the estimates of the ASP for each Product and the sales volume for each Product. For each Contract Year, Baxter, in consultation with Edwards and based upon Edwards' estimates of sales volumes, shall prepare the estimates of Baxter's Costs to distribute the Products and the total sales discounts, returns and allowances for the Products.
(c) The purchase prices paid by Baxter for the Products shall be subject to a quarterly adjustment to produce a margin to Baxter that is equivalent to that which would have resulted if the actual ASPs for such quarter were equal to the estimated ASPs used in determining the Percentage Discount.
5.3 Other Fees. Edwards shall pay or reimburse Baxter for any other fees, costs or expenses set forth in this Agreement including paying to Baxter any agreed-upon amounts in connection with the FCA services described in Section 6.3 of Schedule A.
ARTICLE VI
INVOICING AND PAYMENTS
6.1 Invoicing. Edwards shall bill Baxter by submitting invoices to Baxter for payment of amounts due under this Agreement. Such invoices will specify the Products ordered and Baxter's purchase order number and will be accompanied by or be followed by such other supporting detail as Baxter may reasonably request.
6.2 Payment. Baxter will pay or cause its Affiliates to pay all amounts due pursuant to this Agreement within 60 days after the date of each invoice hereunder.
6.3 Overdue Payments. If any amounts due hereunder have not been received by the due date, such overdue amounts shall bear interest from the due date at the rate of 1% per month, or portion thereof, until received.
6.4 Disputed Amounts. Either party shall have the right to withhold any amounts due hereunder if such party in good faith disputes the amount claimed by the other party to be due
hereunder and such party notifies the other party of such dispute on or before the applicable due date. The foregoing right to withhold payment of disputed amounts shall be limited to amounts disputed in good faith, and interest will accrue in accordance with Section 6.3 and be payable on the net amount determined to be due. Any such dispute shall be resolved in accordance with ARTICLE XX.
6.5 Suspension of Performance. In addition to any other rights available to it at law or in equity, upon ten days' prior Notice to Baxter, Edwards may cease acceptance of orders and suspend supply of Products hereunder if an undisputed amount due hereunder has not been paid by Baxter within 30 days after its due date, and such suspension may continue until such payment has been made.
6.6 No Acknowledgement. Neither payments made by Baxter nor the acceptance of payments by Edwards in the amount of or less than the amount shown on any invoice from Edwards shall be construed as an acceptance or agreement with the amount so stated or the amount received. Either party may recover from the other the amount of any overpayment or underpayment. Without limiting the generality of the foregoing, Edwards may supplement any invoice it renders to Baxter hereunder for less than the full amount to which it is entitled; provided that such supplement is made within a reasonable time after the date of the invoice being supplemented.
ARTICLE VII
BAXTER'S DUTIES
During the Term, Baxter shall maintain the facilities and personnel necessary to fulfill its obligations and responsibilities hereunder including the duties set forth in Schedule A.
ARTICLE VIII
EDWARDS' DUTIES
During the Term, Edwards shall maintain the facilities and personnel necessary to fulfill its obligations and responsibilities hereunder including the duties set forth in Schedule B.
ARTICLE IX
STANDARD OF CARE; CONSULTATION
9.1 General. Each party will use (and will cause its Affiliates to use) commercially reasonable efforts in the performance of its obligations hereunder and will do so with the same degree of care, skill and prudence customarily exercised when engaged in similar activities for itself and its Affiliates. Subject to the provisions of ARTICLE XIX, if a party's performance is inaccurate, incomplete, or untimely, such party shall, if practicable, promptly perform or reperform such obligations. In performing its responsibilities hereunder, each party shall accord the other party and such other party's Affiliates the same priority as it provides itself and its Affiliates under comparable circumstances. Without limiting the generality of the foregoing, in connection with its performance hereunder, neither party will discriminate against the other party or any of such other party's Affiliates solely because the other party or one of such other party's Affiliates is the recipient of such performance. The parties shall consult with each other with respect to performance of their obligations hereunder. Each party shall give due consideration to any suggestion by the other to improve performance.
9.2 Overall Level of Service. Each party will use commercially reasonable efforts to perform its obligations with the same levels of efficiency, accuracy and effectiveness as such obligations were performed immediately prior to the effective date of this Agreement. In addition, Baxter will use commercially reasonable efforts to perform its obligations in accordance with the service levels set forth in Schedule E but shall not be liable for damages caused by any failure to meet the specified service levels in the absence of gross negligence or willful misconduct. The parties agree to consult with each other with respect to such service levels and their respective performance in attaining same. Each party shall consider any suggestion by the other to improve such party's performance, but such party shall have no obligation to accept or implement any such suggestion that it does not, in its sole discretion, deem advisable and in its best interests.
9.3 Annual Meetings. Baxter and Edwards shall hold an annual meeting to discuss (a) the performance of the Japanese Edwards Business as well as product and market developments relevant to the coming year's operations, and (b) budget projections affecting the projected price discounts. The annual meeting shall be held at Edwards Lifesciences headquarters in Irvine, California, or at such other location as the parties may agree, and shall be
attended by the CEO and General Counsel of each of Baxter International and Edwards Lifesciences (or their respective designees) and the Representative Directors of Baxter Japan. The date of the annual meeting shall be determined by mutual agreement of the parties.
ARTICLE X
TRANSFER OF TITLE AND RISK OF LOSS
Title to the Products and the risk of loss of such Products shall transfer from Edwards to Baxter at the time that Baxter or Baxter's designee takes delivery of the Products from Edwards DDU at the port of entry in Japan.
ARTICLE XI
WARRANTIES
11.1 Product Warranty. The following shall apply to all Products sold or transferred to Baxter Japan prior to or after the Effective Date. Edwards warrants to Baxter that, at the time of delivery to Baxter (or Baxter's designee): (a) the Products have been manufactured by Edwards in accordance with Good Manufacturing Practices as required by the United States Food and Drug Administration and Edwards quality control processes and standards which processes and standards shall meet the minimum requirements of the Ministry of Health and Welfare of Japan for medical devices and associated products; (b) the Products conform to the Product specifications in all material respects; (c) the Products will be free from defects in materials and workmanship under normal use and service for a period of twelve months commencing on the date that such Products are received by Baxter Japan; (d) the Products shall not be subject to expiration for a minimum of nine months thereafter; (e) the design and material of product packaging (and the quality systems and procedures governing packaging and transportation operations) are adequate to prevent damage to the Products including moisture damage, insect damage, and/or contamination with dust or dirt; and (f) Edwards shall have good and marketable title to all Products free and clear of all liens or encumbrances (other than any created by Baxter).
11.2 Disclaimer. THE FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES OF ANY KIND, WHETHER STATUTORY, WRITTEN, ORAL, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND MERCHANTABILITY. IN NO EVENT, WHETHER AS A RESULT OF BREACH OF CONTRACT, TORT LIABILITY (INCLUDING NEGLIGENCE) OR OTHERWISE, SHALL EDWARDS BE LIABLE TO BAXTER FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
11.3 Limitation of Liability. ANY LIABILITY OF EDWARDS TO BAXTER UNDER THE
WARRANTY CONTAINED IN THIS ARTICLE XI SHALL BE LIMITED TO THE TOTAL PRICE PAID
BY BAXTER FOR THE PRODUCTS THAT ARE THE SUBJECT OF SUCH LIABILITY PLUS ALL COSTS
FOR FREIGHT AND OTHER DIRECT EXPENSES INCURRED BY BAXTER WITH RESPECT TO SUCH
PRODUCTS. SUBJECT TO THE FOREGOING, IF, AT THE TIME OF DELIVERY TO BAXTER (OR
BAXTER'S DESIGNEE), A PRODUCT FAILS TO CONFORM IN ALL MATERIAL RESPECTS TO THE
PRODUCT SPECIFICATIONS, THEN EDWARDS SHALL EITHER (AT EDWARDS' OPTION) (a) REPLACE SUCH PRODUCT WITHOUT ANY ADDITIONAL CHARGE TO BAXTER, OR (b) REFUND TO BAXTER THE PURCHASE PRICE PLUS ALL COSTS FOR FREIGHT AND OTHER DIRECT EXPENSES INCURRED BY BAXTER.
ARTICLE XII
TRADEMARKS
12.2 Infringement. Baxter shall notify Edwards promptly of any infringement or improper use by any third party of the trademarks or trade names connoting Edwards if it comes to Baxter's attention that such infringement or improper use is taking place. In connection therewith, Baxter shall provide to Edwards all related information of which Baxter has knowledge. Edwards shall have sole discretion and control with regard to any proceedings related to infringement or improper use of its trademarks and trade names. Baxter may choose to be represented by its own counsel in any such proceedings, but such representation shall be solely at Baxter's expense.
12.3 Equitable Remedies. Baxter acknowledges that Edwards may not have an
adequate remedy at law for the breach by Baxter of any covenant contained in
Section 12.1. Accordingly, if Baxter breaches any such covenant, Edwards may,
in addition to the other remedies that may be available to Edwards, file a suit
in equity to enjoin Baxter from any further breach of any of the terms of
Section 12.1.
ARTICLE XIII
TERMINATION
13.1 Change in Control.
(i) In the event of a Change in Control of Edwards, Edwards shall give Notice to Baxter within 30 days after the occurrence of such Change in Control. Baxter may terminate this Agreement in whole, or solely with respect to Edwards' rights set forth in Section 7 of Schedule A, in the event of any such Change in Control with respect to Edwards, by giving Notice of such termination to Edwards as provided below.
(ii) Baxter may exercise the rights of termination described in the
preceding paragraph (i) by providing to Edwards a Notice of termination,
specifying the date of termination, at any time within the 60-day period
immediately following the receipt by Baxter of the applicable Notice of
Change in Control given by Edwards pursuant to the first sentence of
Section 13.1(a)(i).
(iii) The date of termination specified by Baxter in the Notice of termination for a termination in whole shall be the last day of a calendar month that is not earlier than the third full calendar month following the date of the Notice of termination and not later than the sixth full calendar month following the date of the Notice of termination. The date of termination specified by Baxter in the Notice of termination for a termination solely with respect to Edwards' rights set forth in Section 7 of Schedule A shall be the last day of a calendar month that is not earlier than the first full calendar month following the date of the Notice of termination and not later than the third full calendar month following the date of the Notice of termination.
information of Baxter from disclosure to or use by any Affiliate of Edwards other than a Person that, immediately prior to the occurrence of the Change in Control, was an Affiliate of Edwards that regularly accessed such confidential information for a reasonable business purpose.
13.2 Other Terminations. Each party shall have the right to terminate this Agreement effective upon delivery of Notice to the other party if the other party materially defaults in the performance of any of its covenants or obligations contained in this Agreement (including a failure to comply with the Foreign Corrupt Practices Act (as amended)), and such default is not remedied to the nondefaulting party's reasonable satisfaction within 30 days after Notice to the defaulting party of such default, or if such default is not capable of rectification within 30 days, if the defaulting party has not promptly commenced to rectify the default within such 30-day period or is not proceeding diligently to rectify the default.
13.3 Procedures Upon Termination. Upon any termination of this Agreement, each party shall complete its work in process and otherwise cooperate with the other party as reasonably necessary to avoid disruption of the normal business operations of such other party, and such termination shall not affect either party's rights that arose prior to the effective date of such termination. Except as otherwise required pursuant to ARTICLE XVIII and Section 22.10, each party shall destroy or return to the other party all records made or obtained in the course of performance hereunder that contain information that is protected from disclosure by such party under ARTICLE XVIII. If either party elects to destroy any records as permitted above, such party shall provide the other party with written confirmation of such destruction.
13.4 Continued Service. If this Agreement expires or is terminated pursuant to this ARTICLE XIII, Baxter and Edwards shall comply fully with this Agreement and use reasonable efforts to adequately service existing customers of the Products until such expiration or termination becomes effective. Edwards shall reimburse Baxter for (a) any termination or severance payments actually paid by Baxter to any Edwards Japan Employees as a result of the termination or expiration of this Agreement, and (b) any Losses incurred by Baxter as a result of Baxter's inability to terminate the employment of any Edwards Japan Employees following such termination or expiration.
13.5 Sell-Off. Notwithstanding any provision of this Agreement or any other agreement between Baxter, Edwards, and/or their respective Affiliates, the parties acknowledge that Baxter and its Affiliates shall be entitled to continue to sell or otherwise dispose of the Products within the Territory from and after the effective date of the expiration or termination of this Agreement if such Products were owned by Baxter on the date of such expiration or termination; provided that Baxter shall not substantially increase its inventory of Products in anticipation of such expiration or termination.
ARTICLE XIV
INDEMNITY
14.1 Baxter's Obligation. Except as provided in Section 14.2(a)(v)(B) and 14.4, Baxter shall indemnify and hold harmless Edwards and each of its Affiliates, directors, officers, employees, agents and counsel and each of the heirs, executors, successors and assigns of any of
(a) any fines, penalties or other sanctions imposed by a Governmental Body that (i) arise out of the operation of the Other Japanese Businesses at any time prior to the fifth anniversary of this Agreement and (ii) affect the Japanese Edwards Business;
(b) any failure of the Other Japanese Businesses to comply, at any time prior to the fifth anniversary of this Agreement, with any applicable Administrative and Legal Requirements;
(c) any exercise of control or influence over the operation of the Japanese Edwards Business during the first five years of this Agreement by a Baxter Japan Officer or Director, without the approval of the Mutually Approved President; and
(d) any and all Third-Party Claims that arise out of or relate to:
(i) any actual or alleged patent, copyright or trademark infringement, or misappropriation or violation of any other proprietary right, arising out of Baxter's performance pursuant to this Agreement (but not arising out of or relating to any of the proprietary rights in the Products as delivered); or
(ii) any tort claim (including any claim for personal injury, wrongful death or property damage) to the extent such claim arises from any grossly negligent act or omission or willful misconduct by Baxter (or its employees or agents) in the course of its performance pursuant to this Agreement, including any misrepresentation concerning the characteristics or method of usage of Products or relating to the storage, handling or delivery of Products.
Expenses shall be reimbursed or advanced when and as incurred promptly upon submission of statements to Baxter by Edwards or any Edwards Indemnified Party.
14.2 Edwards' Obligation.
(i) any fines, penalties or other sanctions imposed by a Governmental Body that (A) arise out of the operation of the Japanese Edwards Business at any time prior to the fifth anniversary of this Agreement and (B) affect the Other Japanese Businesses;
(ii) any failure of the Edwards Japanese Business to comply, at any time prior to the fifth anniversary of this Agreement, with any applicable Administrative and Legal Requirements;
(iii) any exercise of control or influence over the operation of Other Japanese Businesses during the first five years of this Agreement by an officer or director of the Edwards Lifesciences division of Baxter Japan and without the approval of Baxter's President;
(iv) any claim or Action that is brought by a Edwards Employee against
Baxter Japan and that relates to or arises out of events that occurred at any
time prior to the fifth anniversary of this Agreement, other than a claim or
Action that arises out of (x) an event or action described in Section 14.1(c) or
(y) the gross negligence or willful misconduct of a Baxter Japan Employee; and
(v) any and all Third-Party Claims that arise out of or relate to:
(A) any tort claim (including any claim for personal injury, wrongful death or property damage) to the extent such claim arises from any grossly negligent act or omission or willful misconduct by Edwards (or its employees or other agents) in the course of its performance pursuant to this Agreement;
(B) defects in the Products;
(C) any actual or alleged patent, copyright or trademark infringement, or misappropriation or violation of any other proprietary right related to a Product;
(D) any actual or alleged breach of any warranty (including written warranties included within the Product packaging) or obligation, if any, accompanying the Products, subject to the limitations in ARTICLE XI to the extent provided therein; and
(E) any claim for personal injury, wrongful death or property damage arising out of the use of a Product.
Expenses shall be reimbursed or advanced when and as incurred promptly upon submission of statements to Edwards by Baxter or any Baxter Indemnified Party.
(b) Notwithstanding the foregoing, none of the Baxter Indemnified
Parties shall be entitled to indemnification under clause (i), (ii) or (iii) of
Section 14.2(a) for (i) any Expenses or Losses that are included in the Profits
and Losses allocated under the TK Agreement
14.3 Applicability of Indemnification. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE INDEMNITY OBLIGATION UNDER THIS ARTICLE XIV SHALL APPLY NOTWITHSTANDING ANY INVESTIGATION MADE BY OR ON BEHALF OF ANY INDEMNIFIED PARTY AND SHALL APPLY WITHOUT REGARD TO WHETHER THE LOSS, LIABILITY, CLAIM, DAMAGE, COST OR EXPENSE FOR WHICH INDEMNITY IS CLAIMED HEREUNDER IS BASED ON STRICT LIABILITY, ABSOLUTE LIABILITY OR ARISES AS AN OBLIGATION FOR CONTRIBUTION.
14.4 Adjustment of Indemnifiable Losses.
(c) If any Indemnified Party realizes a Tax benefit or detriment in one or more Tax periods by reason of having incurred a Loss for which such Indemnified Party receives an Indemnity Payment from an Indemnifying Party (or by reason of the receipt of any Indemnity Payment), then such Indemnified Party shall pay to such Indemnifying Party an amount equal to the Tax benefit or such Indemnifying Party shall pay to such Indemnified Party an additional amount equal to the Tax detriment (taking into account, without limitation, any Tax detriment resulting from the receipt of such additional amounts), as the case may be. The amount of any Tax benefit or any Tax detriment for a Tax period realized by an Indemnified Party by reason of having incurred a Loss (or by reason of the receipt of any Indemnity Payment) shall be deemed to equal the product obtained by multiplying (i) the amount of any deduction or loss or inclusion in income for such period resulting from such Loss (or the receipt of any Indemnity Payment or additional amount), as the case may be (without regard to whether such deduction or loss or such
(d) All Indemnity Payments under this ARTICLE XIV shall be denominated in Yen.
14.5 Procedures for Indemnification of Third-Party Claims.
(a) In the event of a Third-Party Claim against any one or more of the
Indemnified Parties with respect to which an Indemnified Party intends to make
any claim for indemnification against Baxter under Section 14.1 or against
Edwards under Section 14.2, such Indemnified Party shall promptly give written
notice to the Indemnifying Party describing such Third-Party Claim in reasonable
detail, and the following provisions shall apply. Notwithstanding the foregoing,
the failure of any Indemnified Party to provide notice in accordance with this
Section 14.5(a) shall not relieve the related Indemnifying Party of its
obligations under this ARTICLE XIV, except to the extent that such Indemnifying
Party is actually prejudiced by such failure to provide notice.
and the Indemnifying Party and in the reasonable opinion of counsel to the Indemnified Party representation of both parties by the same counsel would be inappropriate due to actual or likely conflicts of interest between them, in either of which cases the reasonable fees and disbursements of counsel for such Indemnified Party (including allocated costs of in-house counsel and other personnel) shall be reimbursed by the Indemnifying Party to the Indemnified Party; and (iv) the Indemnifying Party shall agree promptly to reimburse to the extent required under this ARTICLE XIV the Indemnified Party for the full amount of any Expense or Loss resulting from such Third-Party Claim and all related expenses incurred by the Indemnified Party. In no event shall the Indemnifying Party, without the prior written consent of the Indemnified Party, settle or compromise any claim or consent to the entry of any judgment that does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party a release from all Liability in respect of such claim. If the Indemnifying Party shall not have undertaken the conduct and control of the defense of any Third-Party Claim as provided above, the Indemnifying Party shall nevertheless be entitled through counsel chosen by the Indemnifying Party and reasonably acceptable to the Indemnified Party to monitor the conduct or settlement of such claim by the Indemnified Party, and the Indemnified Party shall provide the Indemnifying Party and such counsel with such information regarding such Third-Party Claim as either of them may reasonably request (which request may be general or specific), but all costs and expenses incurred in connection with such monitoring shall be borne by the Indemnifying Party.
14.6 Procedures for Indemnification of Direct Claims. Any claim for indemnification on account of an Expense or a Loss made directly by the Indemnified Party against the Indemnifying Party and that does not result from a Third-Party Claim shall be asserted by written notice from the Indemnified Party to the Indemnifying Party specifically
claiming indemnification hereunder. Such Indemnifying Party shall have a period of 30 business days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 30 business-day period, such Indemnifying Party shall be deemed to have accepted responsibility to make payment and shall have no further right to contest the validity of such claim. If such Indemnifying Party does respond within such 30 business-day period and rejects such claim in whole or in part, such Indemnified Party shall be free to pursue resolution as provided in ARTICLE XX
14.7 No Third-Party Beneficiaries. Except to the extent expressly provided otherwise in this ARTICLE XIV, the indemnification provided for in this Agreement shall not inure to the benefit of any third party or parties and shall not relieve any insurer or other third party who otherwise would be obligated to pay any claim or assume the responsibility with respect thereto, or, solely by virtue of the indemnification provisions hereof, provide any subrogation rights with respect thereto, and each Party agrees to waive such rights against the other to the fullest extent permitted.
14.8 Remedies Cumulative. The remedies provided in this ARTICLE XIV shall be cumulative and, subject to the provisions of ARTICLE XIX below, shall not preclude assertion by an Indemnified Party of any other rights or the seeking of any and all other remedies against any Indemnifying Party.
ARTICLE XV
COMPLIANCE WITH LAWS
15.1 Baxter Compliance. Baxter shall comply (or cause compliance) in all material respects with all laws, rules, regulations and directives applicable to the conduct of Baxter's business or the possession of Products pursuant to this Agreement including the following:
(a) giving prompt written notice to Edwards if Baxter should become aware of any defect or condition (actual or alleged) which may alter the quality of the Products in any material respect or may render any of the Products in violation of any applicable law, rule, regulation or directive including any violation which could require any alteration of the specifications of any Product, affect the sale of any Product, cause revocation of any regulatory approval with respect to any Product or its sale hereunder, or give rise to a claim against Edwards by any person, and Baxter shall promptly notify Edwards upon becoming aware of any changes in any laws, rules, regulations or directives applicable to the manufacture, sale, packaging, labeling, possession or use of the Products;
(b) keeping appropriate records of all lot coded Products and serial numbered Products shipped to customers; and
(c) complying with Edwards' reasonable instructions regarding the return or disposal of any Products affected by holds or recalls.
15.2 Edwards Compliance. Edwards shall comply (or cause compliance) in all material respects with all laws, rules, regulations and directives applicable to the conduct of
Edwards' business or the manufacture, packaging, labeling and sale to Baxter of Products pursuant to this Agreement including the following:
(a) giving prompt written notice to Baxter if Edwards should become aware of any defect or condition (actual or alleged) which may alter the quality of the Products in any material respect or may render any of the Products in violation of any applicable law or regulation of the Territory, including, without limitation, any violation which could require any alteration of the specifications of any Product, affect the sale of any Product, cause revocation of any federal, state or other regulatory approval with respect to any Product or its sale hereunder or give rise to a claim against Baxter by any person; and
(b) giving prompt written notice to Baxter of any and all Products affected by holds or recalls and, if Edwards requests that Baxter return or dispose of any of such Products, promptly reimburse Baxter for the price paid by Baxter for such returned or disposed Products along with any direct costs of returning or disposing of such Products.
15.3 Specific Federal Requirements.
(b) The services provided hereunder will be provided in compliance with applicable Equal Employment Opportunity requirements including, where applicable, those set forth in Section 202 of Executive Order 11246, as amended.
15.4 Additional Requirements.
(a) Baxter will periodically confirm that the Products to be imported are produced under and in accordance with appropriate manufacturing and quality control systems, and such confirmation will include reviewing the current the United States Food and Drug Administration Certificate to Foreign Government (CFG) document which certifies that the applicable manufacturing plant is in compliance with current Good Manufacturing Practice requirements.
(b) Edwards will promptly communicate to Baxter any proposed change or changes in the Products having the potential to impact product quality, safety or efficacy, and such changes may include changes in or to: (i) the design of the Product; (ii) the composition or source of any raw material; (iii) the method of producing, processing or testing the Product;
(iv) the subcontractors that produce, process or test; (v) the site of manufacture; (vi) labeling; (vii) the design or material of any packaging component; and (viii) the sterilization method, condition or site. Such communications will be directed to Baxter Japan's Regulatory and Scientific Affairs Director and QA Manager.
(c) Edwards will promptly communicate to Baxter any decision by Edwards to recall or hold any Product if such decision is related to the Product's quality, safety or efficacy, and such communication shall include: (i) Product code number of affected Products, (ii) lot or serial number(s) of affected Products, (iii) the reason for such hold or recall, and (iv) instructions for the disposition of the Products. Such communications will be directed to the President of Baxter.
ARTICLE XVI
INSURANCE
Each party is responsible for carrying any insurance desired by it in its sole discretion, including comprehensive general liability insurance, insurance to cover its facilities, products liability insurance and business interruption insurance.
ARTICLE XVII
FORCE MAJEURE
The obligations of either party to perform under this Agreement shall be
excused during each period of delay caused by matters (not including lack of
funds or other financial causes) such as strikes, supplier delays, shortages of
raw materials, government orders or acts of God, that are reasonably beyond the
control of the party obligated to perform; provided that nothing contained in
this Agreement shall affect either party's ability or discretion with respect to
any strike or other employee dispute or disturbance and all such strikes,
disputes or disturbances shall be deemed to be beyond the control of such party.
A condition of force majeure shall be deemed to continue only so long as the
affected party shall be taking all reasonable actions necessary to overcome such
condition. If either party shall be affected by a condition of force majeure,
such party shall give the other party prompt Notice thereof, which Notice shall
contain the affected party's estimate of the duration of such condition and a
description of the steps being taken or proposed to be taken to overcome such
condition of force majeure. Any delay occasioned by any such cause shall not
constitute a default under this Agreement, and the obligations of the parties
shall be suspended during the period of delay so occasioned. During any period
of force majeure, the party that is not directly affected by such condition of
force majeure shall be entitled to take any reasonable action necessary to
mitigate the effects of such condition of force majeure, and the provisions of
Section 3.1 shall be suspended to the extent necessary to permit any such
action, and any financial obligations shall be adjusted in a fair and equitable
manner.
ARTICLE XVIII
CONFIDENTIALITY
18.1 Baxter Information. Edwards shall hold (and shall use reasonable efforts to cause its employees and representatives to hold) in confidence (in a manner consistent with
Edwards' treatment of its own confidential information) all information concerning Baxter (a) contained in any of the Schedules to this Agreement or otherwise received by Edwards from Baxter after the Effective Date relating to the determination of the fees and charges payable hereunder, (b) obtained from Baxter using access to Baxter's information through any interface between Baxter's systems and Edwards' systems maintained in connection with Baxter's provision of services hereunder, (c) obtained from Baxter in the course of an audit pursuant to Section 6.7, or (d) furnished to or obtained by Edwards after the Effective Date in the course of its receipt of services hereunder. Edwards shall not use such information for any purpose other than as contemplated under this Agreement or for verifying compliance with this Agreement.
18.2 Edwards Information. Baxter shall hold (and shall use its reasonable efforts to cause its employees and representatives to hold) in confidence (in a manner consistent with Baxter's treatment of its own confidential information) all information concerning Edwards (a) furnished to or obtained by Baxter after the Effective Date in the course of providing services hereunder, or (b) obtained from Edwards using access to Edwards' information through any interface between Baxter's systems and Edwards' systems maintained in connection with Baxter's provision of services hereunder. Baxter shall not use such information for any purpose other than as contemplated under this Agreement or for verifying compliance with this Agreement.
18.3 General.
(a) Each party shall be responsible for preventing unauthorized access by such party's agents and employees to data transferred to or otherwise made available to the other party under this Agreement.
(b) The obligations of confidentiality and nondisclosure imposed under this ARTICLE XVIII shall not apply to data and information that the recipient can demonstrate:
(i) is published or is or otherwise becomes available to the general public as part of the public domain without breach of this Agreement by the recipient;
(ii) has been furnished or made known to the recipient by a third party without any obligation on the recipient to keep it confidential and under circumstances that are not known to the recipient to involve a breach of the third party's obligations to the other party;
(iii) was developed independently of information furnished to the recipient under this Agreement; or
(iv) was known to the recipient at the time of receipt thereof from the other party, was not improperly obtained from the other party and is not otherwise subject to (a) the confidentiality restrictions contained in the Reorganization Agreement dated as of March 15, 2000, between Baxter International and Edwards Lifesciences or (b) any other obligation to keep it confidential.
18.4 Injunctive Relief. Each party (the "first party") acknowledges that the other party would not have an adequate remedy at law for the breach by the first party of any one or more of
the covenants contained in this ARTICLE XVIII and agrees that, in the event of such breach, the other party may, in addition to the other remedies which may be available to it, apply to a court for an injunction to prevent breaches of this ARTICLE XVIII and to enforce specifically the terms and provisions of this Article.
18.5 Required Disclosures. The provisions of this Section shall not preclude disclosures required by law; provided, however, that each party will use reasonable efforts to notify the other, prior to making any such disclosure, and permit the other to take such steps as it deems appropriate (including obtaining a protective order) to minimize any loss of confidentiality.
ARTICLE XIX
LIMITATION OF LIABILITY AND REMEDIES
19.1 Damages.
(a) Except for the right to recover Lost Profits and Harm to
Reputation under clauses (a) and (b) of Section 14.1 and clauses (i) and (ii) of
Section 14.2(a) and except for damages asserted by a third party against a party
entitled to indemnification hereunder, in no event, whether based on contract,
indemnity, warranty, tort (including negligence), strict liability or otherwise,
shall either party or any of its directors, officers, employees or agents, be
liable for incidental, consequential, special, exemplary, or punitive damages.
The foregoing limitation and disclaimer shall apply irrespective of whether the
possibility of such incidental, consequential, special, exemplary, or punitive
damages had been disclosed in advance or could have reasonably been foreseen.
(b) The limitations and disclaimers of obligations and liabilities contained in this ARTICLE XIX are intended to apply to the fullest extent permitted by law; provided that such limitations and disclaimers shall not limit amounts payable with respect to any express indemnity provided for in this Agreement.
19.2 Exclusive Remedies.
(a) Except in the case of the gross negligence or willful misconduct of Baxter or its Affiliates, Edwards' exclusive remedies against Baxter for any breach of, or other act or omission arising out of or relating to, this Agreement or Baxter's performance hereunder shall be:
(i) the right to receive refunds of the amount of any payment in excess of amounts owed under this Agreement;
(ii) the right to require reperformance of any obligation to the extent required pursuant to ARTICLE IX;
(iii) the right to indemnification as provided in Section 14.1;
(iv) the right to injunction, specific performance or other equitable nonmonetary relief when available under applicable law;
(v) the right to terminate this Agreement for material breach as set forth in Section 13.2; and
(vi) the right to actual damages for breach of ARTICLE XVIII.
(b) Except in the case of the gross negligence or willful misconduct of Edwards or its Affiliates, Baxter's exclusive remedies against Edwards for any breach of, or other act or omission arising out of or relating to, this Agreement or Edwards' performance hereunder shall be:
(i) the right to indemnification as provided in Section 14.2;
(ii) the right to require Edwards to repair or replace (at Edwards' option and expense) any Product that proves not to be in conformity with applicable labeling or specifications, and Edwards shall pay the transportation and other costs incurred by Baxter with respect to any Products returned to Baxter for repair or replacement under this Section 19.2(b)(ii), or, at Edwards' option, reimburse Baxter for any such costs;
(iii) the right to injunction, specific performance or other equitable nonmonetary relief when available under applicable law;
(iv) the right to terminate this Agreement for material breach as set forth in Section 13.2; and
(v) the right to actual damages for breach of ARTICLE XVIII.
ARTICLE XX
DISPUTE RESOLUTION
20.1 General. Any dispute arising out of or relating to this Agreement shall be resolved in accordance with the procedures specified in this ARTICLE XX, which shall be the sole and exclusive procedures for the resolution of any such disputes.
20.2 Escalation. The parties will attempt in good faith to resolve any claim or controversy arising out of or relating to the execution, interpretation and performance of this Agreement (including the validity, scope and enforceability of this mediation and arbitration provision) promptly by negotiations between executives who have authority to settle the controversy and who are at a higher level of management than the persons with direct responsibility for the administration of this Agreement. Any party may give the other party written notice of any dispute not resolved in the normal course of business. Within fifteen days after delivery of the notice, the receiving party shall submit to the other a written response. The notice and the response shall include (a) a statement of each party's position and a summary of arguments supporting that position, and (b) the name and title of the executive who will represent that party and of any other person who will accompany the executive. Within 30 days after delivery of the notifying party's notice, the executives of both parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute. All reasonable requests for information made by one party to the other
will be honored. All negotiations pursuant to this clause are confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence.
20.3 Arbitration. Any dispute arising out of or relating to this Agreement or its breach, termination or validity which has not been resolved by the specified non-binding procedure within 90 days of the initiation of the date of delivery of notice shall be settled by binding arbitration in accordance with the CPR Non-Administered Arbitration Rules in effect on the date of this Agreement, by three independent and impartial arbitrators, none of whom shall be appointed by either party. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. (S)(S) 1-16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of the arbitration shall be Lake County, Illinois, or Orange County, California, and shall be determined by the party that initiated the dispute resolution process. The arbitrators may award attorneys' fees in their discretion. Otherwise, the arbitrators are not empowered to award damages in excess of compensatory damages, and each party hereby irrevocably waives any right to recover such damages.
20.4 Procedures. The parties may request limited discovery in accordance with the Federal Rules of Civil Procedure for a period of 120 days after the initiation of the arbitration process. All issues regarding compliance with discovery requests shall be decided by the arbitrators pursuant to the Federal Rules of Civil Procedure. The parties agree that the recipient of a discovery request shall have ten business days after the receipt of such request to object to any or all portions of such request and shall respond to any portions of such request not so objected within 30 business days of the receipt of such request. All objections shall be in writing and shall indicate the reasons for such objections. The objecting party shall ensure that all objections and responses are received by the other party within the above time periods; failure to comply with the specified time period shall be addressed as set forth in F.R.C.P. 37. Any party seeking to compel discovery following receipt of an objection shall file with the other party and the arbitrators a motion to compel, including a copy of the initial request and the objection. The arbitrators shall allow ten business days for the responses to the motion to compel before ruling. Claims of privilege and other objections shall be determined as they would be in United States federal court in a case applying Illinois law. The arbitrators may grant or deny the motion to compel, in whole or in part, concluding that the discovery request is or is not appropriate under the circumstances, taking into account the needs of the parties and the desirability of making discovery expeditious and cost-effective. The statute of limitations of the State of Illinois applicable to the commencement of a lawsuit shall apply to the date of initial written notification of a dispute and shall be extended until commencement of arbitration if all interim deadlines have been complied with by the notifying party.
20.5 Injunctive Relief. Nothing contained in this ARTICLE XX shall prevent either party from resorting to judicial process if injunctive or other equitable relief from a court is necessary to prevent serious and irreparable injury to one party or to others. The use of arbitration procedures will not be construed under the doctrine of laches, waiver or estoppel to affect adversely either party's right to assert any claim or defense.
ARTICLE XXI
ASSIGNMENT
21.1 General. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, provided, however, that, except as provided below, Edwards shall not Transfer its interest in the Agreement, including Transfers by operation of law such as by way of merger or consolidation, without Baxter's prior written consent, which consent may not be unreasonably withheld.
21.2 Transfers by Baxter. Baxter may Transfer its rights and obligations hereunder to any Person to which Baxter shall Transfer the business and assets of Baxter related to Baxter's fulfillment of its obligations hereunder, provided that any such acquiring Person shall assume in writing the portion of Baxter's obligations hereunder relating to the business and assets so Transferred, and shall deliver a signed copy of such assumption instrument to Edwards. Baxter shall have no further liability in connection with any of its obligations so assumed by such acquiring Person.
21.3 Delegation. Baxter shall have the right to delegate performance of any of its obligations hereunder to any Person that is not a Competitor of Edwards, but no such delegation shall relieve Baxter of any liability therefor except as otherwise provided in Section 21.2.
ARTICLE XXII
MISCELLANEOUS PROVISIONS
22.1 Notices. All notices and other communications required under this Agreement shall be in writing and shall be deemed to have been given if delivered by hand, or sent by courier or facsimile transmission (provided that in the case of facsimile transmission, a confirmation copy of the notice shall be delivered by hand or sent by courier within 2 days of transmission), addressed:
To Baxter:
Baxter Limited
4, Rokubancho, Chiyoda-ku
Tokyo 102-8468 Japan
Attention: President
(facsimile number: 81-3-5213-5111)
with a copy to:
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
USA
Attention: General Counsel
(facsimile number: 847-948-4634)
To Edwards:
Edwards Lifesciences LLC
17221 Red Hill Avenue
Irvine, California 92614
USA
Attention: International Counsel
(facsimile number: 949-250-6868)
with copies to:
Edwards Lifesciences Limited
Rokubancho 2-8, Chiyoda-ku
Tokyo 102-0085 Japan
Attention: Chairman and Representative Director
(facsimile number: 81-3-5213-5802)
and
Edwards Lifesciences Corporation
17221 Red Hill Avenue
Irvine, California 92614
USA
Attention: General Counsel
(facsimile number: 949-250-6868)
until notice of a change in address or addressee is given as provided in this
Section 22.1. All notices given in accordance with this Section 22.1 shall be
effective, if delivered by hand or by courier, at the time of delivery, and, if
communicated by facsimile transmission, at the time of transmission.
22.2 Entire Agreement. This Agreement is the entire agreement between the parties hereto with respect to the subject matter hereof, there being no prior written or oral promises or representations not incorporated herein.
22.3 Choice of Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Illinois and the federal laws of the United States of America applicable therein, as though all acts and omissions related hereto occurred in Illinois. Subject to ARTICLE XX (including the right to obtain judgment upon the award rendered by the arbitrators in any court having jurisdiction thereof), any lawsuit arising from or related to this Agreement shall only be brought in the United States District Court for the Northern District of Illinois, the Circuit Court of Lake County, Illinois, the United States District Court for the Central District of California, or the Superior Court of Orange County, California, and the specific choice from among the foregoing shall be determined by the party initiating such lawsuit. To the extent permissible by law, the parties hereby consent to the jurisdiction and venue of such courts. Each party hereby waives, releases and agrees not to assert, and agrees to cause its Affiliates to waive, release and not assert, any rights such party or its Affiliates may have under any foreign law or regulation that would be inconsistent with the terms of this Agreement as governed by Illinois law.
22.4 Amendment; Waiver. No amendment or modification of the terms of this Agreement shall be binding on either party unless reduced to writing and signed by (a) in the case of Baxter, its President, and (b) in the case of Edwards, its President. The waiver by either party of any particular default by the other party shall not affect or impair the rights of the party so waiving with respect to any subsequent default of the same or a different kind; nor shall any delay or omission by either party to exercise any right arising from any default by the other affect or impair any rights which the nondefaulting party may have with respect to the same or any future default.
22.5 Severability. If any provision of this Agreement is held to be invalid, illegal, void or otherwise unenforceable in any jurisdiction by reason of any rule of law, administrative decision, judicial decision, public policy or otherwise, such provision shall be ineffective in such jurisdiction to the extent of such invalidity, illegality, voidness or unenforceability without affecting, impairing or invalidating any remaining provisions of this Agreement. Any such invalid, illegal, void or otherwise unenforceable provisions shall be replaced by valid enforceable substitute provisions that are as similar as possible to such invalid, illegal, void or otherwise unenforceable provisions with respect to the economic and other commercial effects upon the parties, which substitute provisions shall be established pursuant to the dispute resolution procedure set forth in ARTICLE XX.
22.6 Relationship of the Parties. By virtue of this Agreement, neither party shall be deemed the other party's agent, partner, joint venturer, or legal representative, and neither party has express or implied authority to bind the other in any manner whatsoever.
22.7 Survival. The rights and obligations of the parties under ARTICLE IX, ARTICLE XI, ARTICLE XIV, ARTICLE XVIII, ARTICLE XIX, and ARTICLE XX and Sections 6.7, 13.1(c), 13.3, 13.4 and 13.5, as well as all rights and obligations with respect to any
amounts that remain unpaid under ARTICLE VI hereof as of the date of termination or expiration, shall survive any termination or expiration of this Agreement.
22.8 Counterparts. For convenience of the parties hereto, this Agreement may be executed in one or more counterparts, each of which shall be deemed an original for all purposes.
22.9 Beneficiaries. Except for the provisions of ARTICLE XIV, which are also for the benefit of the other Persons indemnified, this Agreement is solely for the benefit of the parties hereto and their respective Affiliates, successors and permitted assigns and shall not confer upon any other Person any remedy, claim, liability, reimbursement or other right in excess of those existing without reference to this Agreement.
22.10 Records Retention.
(a) Each party will retain all information obtained or created in the course of performance hereunder in accordance with the records retention guidelines of the other party existing from time to time. Each party has advised the other of its respective guidelines as in effect on the Effective Date and will advise the other party of any subsequent changes therein.
(b) The following provisions of this Section apply only to records required for tax purposes as identified in Edwards' record retention guidelines. In accordance with Baxter's records retention policy as of the date hereof with respect to such records, Baxter shall retain (as necessary for a period of up to 10 years or more) all information needed for tax audits which was obtained or created in the course of performance hereunder with respect to Edwards. If any particular hardware or software is necessary to access any information to be retained by Baxter pursuant to this Section 22.10(b), then Baxter shall ensure that it has the continuing right to use such hardware and software for as long as Baxter is obligated to retain such information hereunder. Baxter has advised Edwards of Baxter International's records retention policy currently in effect. Baxter will provide Edwards (and afford Edwards full access to, and the right to inspect and copy at any reasonable time) such information and use of such equipment and software upon Edwards' reasonable request, at no cost to Edwards (other than reasonable out-of-pocket expenses of Baxter). At the expiration of the applicable records retention period, Baxter may dispose of the information upon prior Notice to Edwards. For a period of 45 days immediately following such Notice, Edwards shall have the right to remove and take title to all such information (in any form including books, records, computer tapes, and computer disks). Edwards shall reimburse Baxter for any reasonable out-of-pocket expenses incurred to retain such information after this Agreement is terminated or expires.
(c) The foregoing record retention requirements are in addition to any record retention requirements that are contained in the Reorganization Agreement between Baxter International and Edwards Lifesciences dated as of March 15, 2000. In the event of any conflict in the period for retention of records between this Agreement and the Reorganization Agreement, the longest retention period shall be applicable.
* * * * * *
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their authorized representatives as of the effective date of this Agreement.
BAXTER LIMITED EDWARDS LIFESCIENCES LLC
By: /s/ James Robert Hurley By: /s/ Jay P. Wertheim
------------------------- ---------------------
Name: James Robert Hurley Name: Jay P. Wertheim
Title: President and Representative Title: Assistant Secretary
Director
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For purposes of Sections 3.1 and 3.3(b) only:
EDWARDS LIFESCIENCES CORPORATION
By: /s/ Bruce P. Garren
-------------------
Name: Bruce P. Garren
Title: Corporate Vice President
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EXHIBIT A
JAPANESE EDWARDS BUSINESS
The Cardiovascular Group sells or is engaged in the development of following product categories in Japan through its three business units (Cardiovascular Surgery or CVS, Anesthesia and Medication Delivery or AMD, Vascular and Interventional Cardiology or VIC);
. Tissue and mechanical heart valves and rings, pericardial patches, oxygenators, and cardiopulmonary bypass circuits including reservoirs and arterial filters, cardioplegia devices, heart-lung machines, centrifugal pumps, arterial and venous cannulae, CDI oxygen monitor cells, Novacor left ventricular assist devices
. Thermo-dilution (Swan-Ganz) catheters, pacing catheters, central venous catheters, venous introducers, Invos cerebral tissue oxygen monitor devices, and VIA continuous arterial blood gas monitor devices, Lifespan PTFE endovascular grafts, Fogarty atraumatic occlusion clips and clamps, Intramed angioscopy equipment, Thombex PMT clot extraction catheters
. Direct blood pressure monitor kit, disposable pressure transducers, Embolectomy (Fogarty) catheters, Lifepath abdominal aortic aneurysm endovascular graft system, Datascope intra-aortic balloon pumps and catheters, VasoSeal collagen hemostasis devices, UniCath percutaneous transluminal coronary angioplasty balloon catheters and stents, Medtronic pacemakers
The Cardiovascular Group in Japan also manufacturers Custom Pac cardiopulmonary circuits and direct blood pressure monitor kits at Miyazaki plant.
EXHIBIT B
DIRECT REPORTING POSITIONS
Name Responsibilities
--------------------------------------------------------------
Kosuke Kato GM, CVS
Manufacturing
Akihiko Honda GM, AMD
Pawan Tomkoria GM, VIC
Logistics
Hitoshi Fukuhara Finance
Information Services
Shinsaku Murakawa Business Development
Communications
Masami Ikezawa Human Resources
General Administrative
Takeshi Aizawa Regulatory Affairs
Quality Control
Open Legal
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SCHEDULE A
BAXTER'S DUTIES
1.1 Baxter shall generate sales interest in the Products.
1.2 Baxter shall promote sales of the Products, and such promotion shall be at a level that is no less than the level of promotion by Baxter prior to the Effective Date.
1.3 Baxter shall participate with Edwards in quarterly reviews of Baxter's performance relative to applicable service levels.
1.4 Baxter shall permit Edwards to offer sales incentives directly to Baxter sales personnel in accordance with Baxter's marketing plan.
2.1 Baxter shall provide all appropriate marketing services that are reasonably commensurate with the Product sales targets agreed upon by the parties.
2.2 Baxter shall develop and implement a marketing plan for the Territory and shall use reasonable efforts to ensure that such plan complements Edwards' overall marketing strategy.
2.3 Baxter shall maintain its own communications resources and, prior to publication, shall submit to Edwards for Edwards' approval all Baxter promotional/ communication endeavors specifically referring to the Products.
4.1.1 Baxter will be responsible for the management of all Baxter
facilities.
4.1.2 Except as otherwise agreed, Baxter will adhere to existing
receiving, storage, and shipping practices including such
practices applicable to time-/ temperature-sensitive Products.
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4.2.1 Baxter shall take and process customer orders for the Products.
4.2.2 Baxter will pick, pack, and ship each customer order in
accordance with the terms of the order or other terms agreed
upon between Baxter and the customer.
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4.3.1 Baxter shall be responsible for the selection and routing
(private fleet or commercial carrier) of each customer order.
4.3.2 Baxter shall pay for freight for all outbound shipments (i.e.,
----
shipments to customers).
2
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4.3.3 Baxter will be responsible for freight claims and will be
responsible for resolving with customers any disputes regarding
product deliveries, shortages, and overages.
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4.6.1 Product/Service Specifications. Baxter shall forward to
------------------------------
Edwards any requests for Product information that is not
reasonably available to Baxter.
4.6.2 Service Commitment. Baxter shall use commercially reasonable
------------------
efforts to provide high-quality, professional customer service
to customers of the Products.
4.6.3 Order Tracing. Baxter shall maintain the ability to identify
-------------
to customers the location of Products in the order process.
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4.7.1 Credit and Collection. Baxter shall be responsible for all
---------------------
collection and credit approval processes for all invoices.
Baxter shall have the sole authority to issue credits.
4.7.2 Credits for Shortages, Damages, and Misdeliveries. Baxter
-------------------------------------------------
shall issue credits and resolve customer issues. Baxter shall
communicate with Edwards regarding same if there are recurring
problems that may affect Edwards' responsibilities.
4.7.3 Pricing Disputes. Baxter will handle pricing disputes between
----------------
Baxter and its customers.
4.7.4 Back Order Status and Resolution. Baxter will be accountable
--------------------------------
for managing customer communication of back orders to provide
accurate and timely information on resolution. Appropriate
product substitution information will be communicated to
customer. Baxter will transmit back order details in the same
manner as such details were transmitted immediately prior to
the Effective Date.
4.7.5 Product Complaint. Initial customer complaints will be logged
-----------------
by Baxter customer service and forwarded to Edwards' Vice
President of Regulatory
3
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Affairs (or such person's designee) at a frequency to be agreed
upon by the parties. Such complaints may be escalated for
resolution per applicable regulatory procedures.
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4.8.1 Baxter will negotiate the delivered price for the Products.
4.8.2 Baxter shall process all billing to the customer.
5.1 The parties shall mutually agree upon a strategy for all communications by Baxter with applicable regulatory authorities in connection with the Products.
5.2 Baxter shall be responsible for communications with applicable regulatory authorities in the Territory if such regulatory authorities require notification in connection with their regulation of the Products.
6.1 Baxter shall cooperate with Edwards in performing any FCA by identifying affected Products and customers, developing an action- specific management plan detailing specific responsibilities, and notifying customers of any such action. Baxter shall encourage customers to follow instructions related to any hold or recall situation.
6.2.1 identification of customers who received the Product involved
in the FCA;
6.2.2 notification to customers of the FCA in accordance with the FCA
strategy developed by Edwards;
6.2.3 retrieval of affected Products from customers and storage of
such Products inside a Baxter facility for up to six months
from the date of initiation of the FCA;
6.2.4 if instructed by Edwards, shipment of Products affected by the
FCA to Edwards, freight collect;
6.2.5 minor inspection of Products by Baxter if required by the FCA
strategy developed by Edwards;
6.2.6 discard and destruction of Products by Baxter utilizing
nonhazardous waste disposal methods;
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6.2.7 preparation of an FCA report for Edwards that identifies all
customers that received the affected Product, defines the
number of Product units returned to Baxter, specifies the
number of Product units used by the Customer, and specifies any
evidence of harm or injury related to the use of the affected
Product; and storage of Products affected by an FCA for periods
longer than six months or storage of such Products in rented
trailers; an incoming inspection of all Products for open FCAs
for periods longer than 12 months from the date of initiation
of the FCA; and
6.2.8 payment of third-party invoices for any of the services listed
above.
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6.3 At Edwards' request and with Edwards' approval, Baxter shall perform
FCA services not included above for additional compensation to be
agreed upon. Edwards will be invoiced separately for such additional
services. Examples of additional FCA services addressed by this
Section include:
6.3.1 payment of all third-party invoices related to expenses
incurred by Baxter that arise out of the need for Edwards to
issue an FCA for Products;
6.3.2 inspection (if more than minor) or rework of Products by
Baxter;
6.3.3 storage of Products affected by an FCA for periods longer than
six months or storage of such Products in rented trailers; and
6.3.4 incoming inspection of all Products for open FCAs for periods
longer than 12 months from the date of initiation of the
FCA.
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6.4 Baxter shall use commercially reasonable efforts to accomplish the FCA tasks identified within the time periods specified by Edwards in its FCA strategy. If extraordinary volume or other circumstances make such time periods impracticable, Edwards and Baxter will make reasonable adjustments by extending time periods, setting priorities or otherwise.
6.5 Subject to local restrictions regarding disposition of affected Products, routine dispositions (as designated by Edwards) shall be issued to Baxter's facilities within five business days, and Baxter shall process such dispositions within five business days thereafter.
6.6 Subject to local restrictions regarding disposition of affected Products, expedited or extraordinary dispositions (as designated by Edwards) shall be issued to Baxter's facilities within one business day, and Baxter shall process such dispositions within one business day.
6.7 Reconciled disposition reports for quantity variance shall be negotiated between Baxter and Edwards at the time of disposition.
6.8 The necessity for and content of sampling plans and protocols shall be negotiated by the parties at the time of the FCA.
SCHEDULE B
EDWARDS' DUTIES
1.2 Edwards shall develop and provide to Baxter a recommended price list for the Products.
1.3 Edwards shall work with Baxter to develop mutually agreed-upon sales targets.
2.1 Edwards shall develop a marketing plan and shall provide Baxter with access to Edwards' global marketing, strategic and other information that Baxter will need in order to fulfill its duties under this Agreement and to maintain and expand the Japanese Edwards Business. Edwards shall provide reasonable assistance and advice regarding clarification and implementation of Edwards' marketing strategy.
2.2 Edwards shall maintain its own communications resources and will coordinate communications messages with Baxter where appropriate. If Baxter is required to obtain Edwards approval regarding a communication, Edwards shall not unreasonably withhold or delay such approval.
7.1 Edwards shall provide to Baxter in a format to be agreed upon by the parties all information reasonably required by Baxter to perform Baxter's duties in connection with Product FCAs. Such information shall include, without limitation, product identifiers, reason priority, and any information related to disposition plans.
7.2 Edwards shall have sole authority to initiate any FCA. If Edwards is required to initiate an FCA for any Product, Edwards' Vice President, Quality (or such person's designee) shall notify the senior Baxter quality or regulatory officer for the Territory (or such person's designee).
7.3 Edwards shall cooperate with Baxter in performing any FCA by identifying affected Products and customers, developing an action- specific management plan detailing specific responsibilities, and notifying customers of any such action. Edwards and Baxter shall encourage customers to follow instructions related to any FCA situation.