-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H87bmM0UJ56DaW1hQcWYaRWomn2Ks3ZItItOm3N/f17OjgmuCZhz9kjViJh/vnue arqeHibqLj13Dw1VYW+kPg== 0000940180-97-000711.txt : 19970815 0000940180-97-000711.hdr.sgml : 19970815 ACCESSION NUMBER: 0000940180-97-000711 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEPUY INC CENTRAL INDEX KEY: 0001019900 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 351989795 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12229 FILM NUMBER: 97663186 BUSINESS ADDRESS: STREET 1: PO BOX 988 STREET 2: 700 ORTHOPAEDIC DRIVE CITY: WARSAW STATE: IN ZIP: 46581-0988 BUSINESS PHONE: 2192678143 MAIL ADDRESS: STREET 1: PO BOX 988 STREET 2: 700 ORTHOPAEDIC DRIVE CITY: WARSAW STATE: IN ZIP: 46581-0988 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ----------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to __________________ Commission file number: 001-12229 DEPUY, INC. (Exact Name of Registrant as Specified in Its Charter)
DELAWARE 35-1989795 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 700 ORTHOPAEDIC DRIVE, WARSAW, INDIANA 46581-0988 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (219) 267-8143
Indicate by check [X] whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes--X No ______ The number of shares of Common Stock, par value $.01 per share, outstanding as of August 13, 1997 was 98,580,000. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DEPUY, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
(Unaudited) June 30, December 31, 1997 1996* ----------- ------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 124,421 $209,387 Short-term investments 5,389 4,640 Accounts receivable, net of allowances of $15,250 (1997) and $8,534 (1996) 152,927 126,465 Inventories at lower of cost or market 164,473 151,406 Deferred income taxes 46,446 29,366 Prepaid expenses and other current assets 31,761 25,455 ---------- -------- Total current assets 525,417 546,719 ---------- -------- NONCURRENT ASSETS Goodwill, net of accumulated amortization of $72,346 (1997) and $78,373 (1996) 339,974 238,233 Other intangible assets, net of accumulated amortization of $2,777 (1997) and $698 (1996) 4,986 1,894 Deferred income taxes 24,000 18,348 Investment in affiliate 3,004 2,648 Other assets 9,087 10,934 ---------- -------- 381,051 272,057 Property, plant and equipment, net 101,652 89,601 ---------- -------- Total assets $1,008,120 $908,377 ========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt payable to affiliates $ 19,013 $ 30,295 Short-term debt 28,170 31,413 Accounts payable 31,694 30,515 Accounts payable to affiliates, net 605 709 Income taxes payable 37,152 17,384 Accrued royalties 21,256 18,580 Accrued employee compensation 22,965 18,237 Other accrued expenses 52,144 30,468 ---------- -------- Total current liabilities 212,999 177,601 ---------- -------- NONCURRENT LIABILITIES Long-term debt payable to affiliates 907 15,413 Long-term debt 9,639 4,754 Long-term employee benefits 19,112 17,141 Noncurrent deferred income tax liability 19,652 18,925 Other noncurrent liabilities 20,084 401 ---------- -------- Total noncurrent liabilities 69,394 56,634 ---------- -------- CONTINGENCIES (NOTE 7) MINORITY INTEREST 5,362 3,514 ---------- -------- SHAREHOLDERS' EQUITY Common stock, $.01 par value, 130,000,000 shares authorized, shares outstanding of 98,580,000 986 986 Additional paid-in capital 674,671 675,144 Retained earnings 80,569 17,108 Net unrealized appreciation on securities 365 360 Minimum pension liability adjustment (236) (236) Cumulative translation adjustment (35,990) (22,734) ---------- -------- Total shareholders' equity 720,365 670,628 ---------- -------- Total liabilities and shareholders' equity $1,008,120 $908,377 ========== ========
*The balance sheet of December 31, 1996, has been derived from the audited financial statements at that date. See accompanying notes to these Consolidated Financial Statements. DEPUY, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited, in thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 1997 1996 1997 1996 --------- --------- --------- --------- Net sales $204,744 $175,935 $392,586 $349,014 Cost of sales 67,439 53,098 123,440 106,516 -------- -------- -------- -------- Gross profit 137,305 122,837 269,146 242,498 -------- -------- -------- -------- Selling, general and administrative expenses 76,634 64,971 146,165 128,228 Research and development expenses 7,809 4,969 13,641 10,004 Goodwill amortization 4,412 3,537 7,591 6,592 Special items, net 7,551 - 8,459 - -------- -------- -------- -------- Operating income 40,899 49,360 93,290 97,674 -------- -------- -------- -------- Interest expense, affiliate 236 1,303 684 2,473 Interest expense, other 1,346 420 2,090 976 Other income, net (835) (1,762) (3,157) (2,327) -------- -------- -------- -------- Income before taxes, minority interest and equity in earnings of unconsolidated affiliate 40,152 49,399 93,673 96,552 -------- -------- -------- -------- Provisions for income taxes 7,617 21,179 29,928 41,359 Minority interest 595 552 968 822 Equity in earnings of unconsolidated affiliate 556 568 984 1,230 -------- -------- -------- -------- Net income $ 32,496 $ 28,236 $ 63,761 $ 55,601 ======== ======== ======== ======== Net income per share (pro forma for 1996) $0.33 $0.32 $0.65 $0.62 ======== ======== ======== ======== Weighted average number of shares outstanding (pro forma for 1996) 98,580 90,000 98,580 90,000 ======== ======== ======== ========
See accompanying notes to these Consolidated Financial Statements 2 DEPUY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands)
Six Months Ended June 30, --------------------- 1997 1996 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 63,761 $ 55,601 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,891 13,865 Gain on sale of assets (32,122) - Deferred income taxes (22,091) (2,325) Other, net 1,233 760 Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable (5,136) (16,355) Inventories 6,996 (12,821) Amounts payable to or receivable from affiliates, net (1,159) 22,335 Prepaid expenses and other current assets 4,058 (10,202) Other noncurrent assets 8,274 (886) Accounts payable (5,395) (448) Accrued employee compensation and other 12,157 5,875 Other current and noncurrent liabilities 14,501 1,665 Income taxes payable 14,720 7,438 --------- -------- Net cash provided by operating activities 76,688 64,502 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (12,331) (13,132) Business acquisitions, net of cash acquired (144,417) (51,851) Purchases of short-term investments (749) - Proceeds from sale of assets 45,517 - --------- -------- Net cash used for investing activities (111,980) (64,983) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Payments of short-term debt (27,637) (13,519) Proceeds from issuance of short-term debt 4,388 1,092 Payments of long-term debt (28,493) (18,996) Proceeds from issuance of long-term debt 3,870 - Advances from affiliate - 34,991 Dividends paid to affiliate (300) (3,770) --------- -------- Net cash used for financing activities (48,172) (202) --------- -------- Effect of exchange rate changes on cash (1,502) (1,483) --------- -------- Decrease in cash and cash equivalents (84,966) (2,166) Cash and cash equivalents at beginning of period 209,387 46,909 --------- -------- Cash and cash equivalents at end of period $ 124,421 $ 44,743 ========= ========
See accompanying notes to these Consolidated Financial Statements 3 DEPUY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA) JUNE 30, 1997 NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements of DePuy, Inc. (the "Company") have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the periods reported have been included. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's 1996 Annual Report on Form 10-K and the Company's Registration Statement on Form S-1 (Registration Statement No. 333-09345) filed with the Securities and Exchange Commission. Certain reclassifications have been made to prior periods to conform to the classifications adopted in 1997. NOTE 2 - ORGANIZATION / ACQUISITIONS DePuy, Inc. (the "Company") was formed as the result of a worldwide reorganization completed by its parent, Corange Limited ("Parent"), to realign its worldwide orthopaedic operations into a stand-alone entity in order to sell shares of the realigned entity to the public through an Initial Public Offering. Prior to the public offering, various actions were taken to form the Company including (i) the consolidation of the worldwide operations of DePuy under Corange U.S. Holdings, Inc., an Indiana corporation ("CUSHI"), (ii) the transfer of Boehringer Mannheim Corporation ("BMC") out of the CUSHI consolidated group, and (iii) the merging of CUSHI downstream into DePuy, Inc., which was created on July 26, 1996 for purposes of becoming the holding company for the DePuy worldwide operations, with DePuy, Inc. as the surviving company in the merger, the effect of which was to reincorporate CUSHI in Delaware under the name "DePuy, Inc." None of these actions involved outside minority shareholders. Accordingly, the consolidation of the entities was accounted for on a predecessor basis. Pursuant to a registration statement filed with the Securities and Exchange Commission that became effective on October 30, 1996, the Company issued, through an Initial Public Offering, 7,780,000 shares of its common stock at $17.50 per share which generated net proceeds after expenses, discounts and commissions of approximately $126,000. In November 1996, an additional 800,000 shares were sold pursuant to an underwriter's over allotment provision generating net proceeds of approximately $13,000. The Company plans to use the net proceeds from the sale of shares of its common stock primarily to finance the expansion of the Company's business, provided suitable acquisitions can be identified and negotiated. The Company's primary business is the development, manufacture and sale of orthopaedic joint implants (primarily hips, knees and shoulders), spinal implants, related surgical instruments, trauma products and sports medicine soft goods. 4 DEPUY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) On March 11, 1996, the Company acquired all of the outstanding shares of common stock of Orthopedic Technology, Inc. ("DePuy OrthoTech"), a manufacturer of orthopaedic products, primarily for the sports medicine market, for $46,300. At March 31, 1996, $36,055 had been paid in cash with the remaining $10,245 recorded as an accrued liability. This liability was subsequently paid upon tender of the outstanding shares. For the year ended September 30, 1995, DePuy OrthoTech reported net sales of $18,400 and net income of $600 (unaudited). The purchase method of accounting was applied to this acquisition and a total of $41,551 was allocated to goodwill. The acquisition was funded by available internal resources. The operating results of DePuy OrthoTech have been included in the consolidated statements of income from the date of acquisition and are not material to consolidated net sales or consolidated net income. On April 2, 1997, the Company purchased 89.6% of the shares of Landanger-Camus ("Landanger") or 1,939,452 shares which were held by members of the Landanger family and certain minority shareholders. The purchase was followed by a tender offer whereby the Company offered to purchase the remaining 10.4% of the shares, which were owned by the public. The total purchase price, including acquisition costs, approximates $150,000 (translated at the February 28, 1997 exchange rate of FF5.7/U.S.$). Landanger, headquartered in France, is a manufacturer of hip implants and a distributor of orthopaedic devices and supplies. For the year ended August 31, 1996, Landanger reported sales of $99,500 and net income of $8,000 (unaudited and translated at the average exchange rate of 5.0 for the fiscal year). NOTE 3 - SPECIAL ITEMS Effective March 28, 1997, the Company entered into an agreement to sell the pharmaceutical business of DePuy International Limited. The pharmaceutical and related businesses achieved 1996 sales of approximately $14,000, principally from infection control and skin treatment products sold to hospitals in the United Kingdom. The transaction was completed through a management buy-out and resulted in a one-time, pre-tax gain of $8,000. In addition, the Company recognized special charges totaling $8,900 during the first quarter of 1997, primarily related to the cost of instrumentation sets in connection with reorganizing various distribution channels to increase implant sales. Effective May 29, 1997, the Company entered into an agreement to sell the healthcare business of DePuy International Limited. The healthcare and related businesses achieved 1996 sales of approximately $17,000 principally from incontinence care products sold to hospitals in the United Kingdom. The transaction resulted in a one-time gain of $26,900. In addition, the Company recognized special charges totaling $34,500 during the second quarter of 1997, consisting of a $17,400 charge to recognize minimum obligations to former distributors, $7,900 provision for impairment in value of assets primarily related to foreign operations, $5,200 provision for integration and reorganization expenses within existing DePuy entities as a consequence of the Landanger acquisition, and $4,000 provision for purchased research and development. 5 DEPUY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 - CAPITALIZATION AND UNAUDITED PRO FORMA NET INCOME PER SHARE Prior to the reorganization and Initial Public Offering described in Note 2, the total equity of the Company was recorded as shareholder's net investment. As a result of the reorganization and Initial Public Offering, which was effective October 30, 1996, the Company recorded the par value of the 98,580,000 shares outstanding as $986 of common stock. In addition, certain identifiable components of equity including cumulative translation adjustment, net unrealized appreciation on securities and minimum pension liability adjustment, were capitalized separately as of the date of the offering. The remaining equity of the Company totaling $675,144 was recorded as additional paid-in capital resulting in the liquidation of the shareholder's net investment balance. Retained earnings of $17,108 at December 31, 1996, represents the net income of the Company subsequent to the effective date of the Initial Public Offering. NOTE 5 - INVENTORIES Inventories consisted of the following:
June 30, December 31, -------- ------------ 1997 1996 -------- ------------ Finished products $134,239 $122,035 Work in process 11,349 10,392 Raw materials 18,885 18,979 -------- -------- $164,473 $151,406 ======== ========
NOTE 6 - INCOME TAXES The difference between the Company's effective and statutory tax rates is primarily attributable to the tax-free gain realized on the sale of the stock of the healthcare business during the second quarter of 1997 as described in Note 3 and to the lower tax rate applied to the gain realized on the sale of assets of the pharmaceutical business during the first quarter of 1997. In addition, the effective tax rate is impacted by state income taxes, nondeductible goodwill, and the effect of international operations. 6 NOTE 7 - CONTINGENCIES The Company is subject to a number of investigations, lawsuits and claims during the normal course of business. Management does not expect that resulting liabilities beyond provisions already recorded will have a materially adverse effect on the Company's consolidated financial position, results of operations or cash flows. The loss provisions recorded have not been reduced for any material amounts of anticipated insurance recoveries. NOTE 8 - ACCOUNTING CHANGES In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share". This Statement, which must be adopted in 1997, specifies the computation, presentation and disclosure requirements for earnings per share for entities with publicly held common stock or potential common stock. The Company does not believe that the adoption of this standard will have a material effect on its results of operations. 7 DEPUY, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table summarizes the selected financial information expressed as a percentage of net sales for each reporting period:
Percentage of Net Sales Percentage of Net Sales Three Months Ended Six Months Ended June 30, June 30, ------------------------ ------------------------ 1997 1996 1997 1996 ------------------------ ------------------------ Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 32.9 30.2 31.4 30.5 ------ ------ ------ ------ Gross profit 67.1 69.8 68.6 69.5 ------ ------ ------ ------ Selling, general & administrative expense 37.4 36.9 37.2 36.7 Research and development 3.8 2.8 3.5 2.9 Goodwill amortization 2.2 2.0 1.9 1.9 Special items, net 3.7 - 2.2 - ------ ------ ------ ------ Operating income 20.0 28.1 23.8 28.0 ------ ------ ------ ------ Interest expense 0.8 1.0 0.7 1.0 Other income (0.4) (1.0) (0.8) (0.7) ------- ------- ------- ------- Income before taxes, minority interest and equity in earnings of unconsolidated affiliate 19.6 28.1 23.9 27.7 ------- ------- ------- ------- Provisions for income taxes 3.7 12.1 7.6 11.9 Minority interest 0.3 0.3 0.3 0.2 Equity in earnings of unconsolidated affiliate 0.3 0.3 0.2 0.3 ------- ------ ------- ------- Net income 15.9% 16.0% 16.2% 15.9% ======= ======= ======= ======= The following table summarizes sales by product line and geographical location: Three Months Ended Six Months Ended June 30, June 30, --------------------------------- -------------------------------- 1997 1996 1997 1996 ------ ------ ------ ------ Reconstructive products $145.6 $119.8 $272.8 $242.2 Spinal implants 15.1 11.1 29.0 19.5 Trauma products 14.8 13.3 30.0 26.6 Sports medicine 12.4 12.8 24.7 21.8 Other products 16.8 18.9 36.1 38.9 ------ ------ ------ ------ Total sales $204.7 $175.9 $392.6 $349.0 ====== ====== ====== ====== U.S. sourced sales $107.9 $100.4 $217.2 $199.3 International sourced sales 96.8 75.5 175.4 149.7 ------- ------ ------ ------ Total sales $204.7 $175.9 $392.6 $349.0 ======= ====== ====== ====== Sales to customers located in the United States $ 99.9 $ 94.9 $200.8 $186.2 Sales to customers located outside the United States 104.8 81.0 191.8 162.8 ------- ------ ------ ------ Total sales $204.7 $175.9 $392.6 $349.0 ======= ======= ====== ======
8 Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996 Net sales were $392.6 million for the six months ended June 30, 1997, representing an increase of $43.6 million, or 12% over the same period in the prior year. Continued penetration of the spinal implant market caused total sales to increase by 3%. The acquisitions of DePuy OrthoTech in March 1996 and Landanger in April 1997 resulted in additional sales growth of 7%. The effects of foreign exchange rates in 1997 compared with 1996 and the sale of the pharmaceutical and healthcare businesses resulted in an unfavorable impact on sales of 2% and 1%, respectively. The remaining 5% increase primarily related to the growth in sales of joint reconstructive products. The components of the worldwide sales improvement were as follows: Acquisitions 7% Volume and product mix 7% Net pricing changes 1% Effect of foreign exchange rates -2% Divestitures -1% U.S. sourced sales to unaffiliated customers rose $17.9 million, or approximately 9%. This growth was primarily attributable to the acquisition of DePuy OrthoTech in March 1996 and to increased sales of spinal and joint reconstructive implants. International sourced sales to unaffiliated customers rose $25.7 million, or 17%. This increase in sales was primarily attributable to the acquisition of Landanger in April 1997 resulting in international sales growth of 13%. The continued expansion in the European and Asia/Pacific regions also caused sales to grow by 5% and 4%, respectively, during the six months ended June 30, 1997, exclusive of the effects of foreign exchange. The negative effect of foreign exchange rates caused the increase in international sales to be 5% less than it otherwise would have been during such six-month period. The Company's gross profit for the six months ended June 30, 1997 was $269.1 million, or 68.6% of sales, as compared to 69.5% of sales for the prior six- month period. During the second quarter of the year, certain one-time inventory adjustments related to discontinued, obsolete and excess products were recorded resulting in a 1.5% decrease in gross margin. This decrease was partially offset by various manufacturing efficiencies obtained through cost controls. Selling, general and administrative expense totaled $146.2 million for the first six months of 1997, or 37.2% of sales, as compared to 36.7% in the first six months of the prior year. The primary reasons for this increase as a percent of sales were the high general and administrative expenses attributable to the Landanger acquisition and to additional costs incurred for the expansion of the Company's business in the spinal and international markets. Research and development expense increased to $13.6 million, or 3.5% of sales during the first six months of 1997 as compared to 2.9% reported in the same period in 1996. This increase was largely due to the acquisition of Landanger. The Company continues to make investments in technological advancements in order to remain competitive in the orthopaedic market and to provide its customers with the latest technology available. 9 Goodwill amortization totaled $7.6 million for the first six months of the year, representing a $1.0 million increase compared to the same period in the prior year. This increase primarily related to the recording of additional goodwill related to the acquisitions of DePuy OrthoTech in March 1996 and Landanger in April 1997. Special items, net reported during the first six months of 1997 includes an $8.0 million gain on the sale of the pharmaceutical business of DePuy International Limited, effective March 28, 1997, and a $26.9 million gain on the sale of the healthcare business of DePuy International Limited, effective May 29, 1997, described in Note 3 to the financial statements. These gains were partially offset by special charges totaling $43.4 million including: . $8.9 million of costs incurred to reorganize the distribution channels of the Company, . a $17.4 million charge to recognize minimum obligations to former distributors, . a $7.9 million provision for impairment in value of assets primarily related to foreign operations, . a $5.2 million provision for integration and reorganization expenses within existing DePuy entities as a consequence of the Landanger acquisition, and . a $4.0 million provision for purchased research and development, as described in Note 3 to the financial statements. Interest expense was $2.8 million through June 30, 1997, representing a $.7 million decrease over the same period in the prior year, primarily due to lower average debt balances and slightly lower interest rates. Other income, net totaled $3.2 million for the first six months of the year as compared to $2.3 million reported in the prior year, representing an increase of $.9 million. This increase mainly resulted from higher interest income, partially offset by foreign currency losses. The effective income tax rate for the period was 31.9% as compared to 42.8% reported in the same period of the prior year. The 10.9% decrease in the rate was primarily the result of the tax-free gain realized on the sale of the healthcare business and a lower tax rate applied to the gain realized on the sale of the pharmaceutical business. Net income for the six months ended June 30, 1997 was $63.8 million, or 16.2% of sales, representing a 15% increase over the same period in the prior year. This increase was attributable to a 10% increase in operating profit, excluding special items and one-time inventory adjustments and to a lower effective income tax rate. Quarter Ended June 30, 1997 Compared to Quarter Ended June 30, 1996 Net sales were $204.7 million for the quarter ended June 30, 1997, representing an increase of $28.8 million, or 16% over the same period in the prior year. Continued penetration of the spinal implant market caused total sales to increase by 2%. The acquisition of Landanger in April 1997 resulted in additional sales growth of 11%. The effects of foreign exchange rates in the second quarter of 1997 compared with the same quarter in 1996 resulted in an unfavorable sales impact of 3%. The remaining 6% increase related primarily to the growth in sales of joint reconstructive products. 10 The components of the worldwide sales improvement were as follows: Acquisitions 11% Volume and product mix 8% Net pricing changes 2% Effect of foreign exchange rates - 3% Divestiture - 2% U.S. sourced sales to unaffiliated customers rose $7.5 million, or approximately 7%. This growth was primarily attributable to increased sales of spinal and joint reconstructive implants. International sourced sales to unaffiliated customers rose $21.3 million, or 28%. The majority of this increase resulted from sales growth related to the acquisition of Landanger of 26%. In addition, continued expansion in the European and Asia/Pacific regions caused sales to grow by 4% and 5%, respectively, during the three months ended June 30, 1997, exclusive of the effects of foreign exchange. The effect of foreign exchange rates resulted in an unfavorable impact on international sourced sales of 7% for the quarter. The Company's gross profit for the three months ended June 30, 1997 was $137.3 million, or 67.1% of sales, as compared to 69.8% of sales for the same quarter in the prior year. The decrease in gross margin as a percent of sales resulted from one-time inventory adjustments related to discontinued, obsolete and excess products resulting in a 2.8% decrease in margin. Selling, general and administrative expense totaled $76.6 million for the second quarter of 1997, or 37.4% of sales, as compared to 36.9% in the same period of the prior year. The primary reason for this increase as a percent of sales was the higher general and administrative expenses attributable to the Landanger acquisition and the cost for the expansion of the Company's business in the spinal and international markets. Research and development expense increased to $7.8 million or 3.8% of sales during the second quarter of 1997 as compared to $5.0 million, or 2.8% of sales during the same period in 1996 as a result of higher expenses related to the Landanger acquisition and to the timing of expenditures. The Company continues to make investments in technological advancements in order to remain competitive in the orthopaedic market and to provide its customers with the latest technology available. Goodwill amortization totaled $4.4 million for the three months ended June 30, 1997, compared to $3.5 million in the prior year. The $.9 million increase related to the recording of additional goodwill for the Landanger acquisition. Special items, net reported during the second quarter of 1997 includes a $26.9 million gain on the sale of the healthcare business of DePuy International Limited, effective May 29, 1997, described in Note 3 to the financial statements. This gain was partially offset by special charges totaling $34.5 million primarily resulting from: . a $17.4 million charge to recognize minimum obligations to former distributors, . a $7.9 million provision for impairment in value of assets primarily related to foreign operations, 11 . a $5.2 million provision for integration and reorganization expenses within existing DePuy entities as a consequence of the Landanger acquisition, and . a $4.0 million provision for purchased research and development. Interest expense was $1.6 million for the quarter, representing a $.1 million decrease from the prior year. Other income, net totaled $.8 million for the second quarter of the year as compared to $1.8 million reported in the prior year, representing a decrease of $1.0 million. This decrease mainly resulted from increased foreign currency losses, partially offset by higher interest income. The effective income tax rate for the period was 19.0% compared to 42.9% reported in the same period of the prior year. The 23.9% decrease was primarily the result of the tax-free gain realized on the sale of the healthcare business. Excluding the special items, the effective income tax rate for the period was 42.5%, slightly lower than the prior year. LIQUIDITY AND CAPITAL RESOURCES Prior to the reorganization described in Note 2 to the financial statements, the Company's cash flow in the United States was pooled with that of Corange's other U.S. operations. Effective with the Company becoming a public company, all cash generated is now maintained in its own accounts and is available for use by the Company. In addition to the net proceeds received from the Initial Public Offering effective October 30, 1996, cash generated from operations is the principal source of funding available and provides adequate liquidity to meet the Company's operational needs. Cash and cash equivalents totaled $124.4 million at June 30, 1997, compared with $209.4 million at December 31, 1996. The decrease is primarily due to the Company temporarily financing the Landanger acquisition with existing cash. Working capital at June 30, 1997, was $312.4 million, representing a $56.7 million decrease from December 31, 1996. The annualized inventory turnover ratio for the six months ended June 30, 1997 and June 30, 1996 was 1.7. The annualized accounts receivable turnover rate was 5.9 for the first two quarters of 1997, increasing slightly from 5.6 in the same period in 1996. Operating activities generated $76.7 million of cash in the first six months of 1997 as compared to $64.5 million in the same period in the prior year. Cash flows resulted from the timing of tax payments and changes in working capital, partially offset by receipt of payment during the first six months of 1996 of an affiliate receivable outstanding at December 31, 1995. In addition, the special items discussed in Note 3 affected several line items, such as other current and noncurrent liabilities and gain on sale of assets. Cash flows used for investing activities totaled $112.0 million through the second quarter of 1997 including $144.4 million paid in consideration for the acquisition of Landanger (net of cash received), capital expenditures of $12.3 million and purchases of short-term investments of $.8 million, partially offset by proceeds received from the sale of the pharmaceutical and healthcare businesses of DePuy International of $45.5 million. In the first six months of 1996, cash flows used for investing activities of $65.0 million included $45.9 million consideration paid for the acquisition of DePuy OrthoTech in March, 1996 (net of cash received), $6.0 million of deferred payments made in 1996 related to the acquisitions of ACE Medical Company in March 1994 and of CMW Laboratories in November 1994, and $13.1 million for capital expenditures. Cash flows used for financing activities were $48.2 million in 1997 and included a net decrease in debt of $47.9 million and dividends of $.3 million. During the first six months of 1996, cash flows used for financing activities totaled $.2 million resulting from a net decrease in debt of $31.4 million and dividends of $3.8 million paid to another affiliate, partially 12 offset by $35.0 million of advances received from an affiliate as part of the centralized cash management system described above (funds used for the DePuy OrthoTech acquisition). The Company anticipates that it will pay dividends annually, provided that funds are legally available therefore and subject to the discretion of the Board of Directors. Capital expenditures are expected to be approximately $27 million in 1997, primarily consisting of purchases of machinery and equipment. In addition to these funding requirements, the Company expects to continue to evaluate potential acquisitions to expand its business. The Company has historically been able to fund its capital and operating needs through its cash flow from operations and expects to be able to continue to do so in the future. The Company believes that with its current cash position and its ability to obtain additional cash, either through the issuance of additional shares of common stock or utilization of credit lines, it has the ability to fund its acquisition strategy. FACTORS AFFECTING FUTURE PERFORMANCE The orthopaedic industry is experiencing a period of significant transition as a result of health care reform. While cost containment issues have existed for several years outside of the United States, these are relatively recent phenomena in the U.S. orthopaedic market. Trends in the U.S. market, which have had an impact on the Company, include the increased movement toward the provision of health care through managed care and significant emphasis on cost control. The advent of managed care in the orthopaedic products industry has meant greater attention to tradeoffs of patient need and product cost, so-called demand matching, where patients are evaluated as to their age, need for mobility, and other parameters, and are then matched with a replacement product that is cost effective in light of such evaluation. From about the middle of 1995 onward, this has led to an increase in unit sales of lower-priced, cemented products, which now constitutes an increasing share of the Company's overall unit sales. In addition, price discounting has become more prevalent in the industry resulting in reduced margins for products sold to buying groups under preferred supplier arrangements. The shift in product mix and trends toward industry discounting have had an impact on the Company's sales with respect to hip replacement systems and, to a lesser extent, knee replacement systems. Although it is uncertain how these issues will affect future performance, the Company experienced a reduction in the rate at which prices were declining during the last year and a reduction in the shift to lower-priced cemented products. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable 13 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS Not Applicable ITEM 2 - CHANGES IN SECURITIES Not Applicable ITEM 3 - DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 1, 1997, the Company held its annual meeting of stockholders, at which meeting the stockholders elected Messrs. Richard A. Gilleland and M.L. Lowenkron as directors for three years terms. The votes were 91,041,561 shares for, 0 shares against and 6,440 shares abstaining. Messrs. Richard C. Bolesky, Gerald C. Hanes, Robert Volz, James A. Lent and Anthony Williams continued as directors of the Company. In addition to the election of directors, the stockholders took the following actions: (1) approved the Company's 1996 Equity Incentive Plan with a vote of 86,854,910 shares in favor, 2,875,775 shares opposed, with 19,162 shares abstaining and 1,298,154 shares broker non-votes; (2) approved the Company's Employee Stock Option/Purchase Plan with a vote of 89,044,381 shares in favor, 691,751 shares opposed, with 13,715 shares abstaining and 1,298,154 shares broker non-votes; (3) approved the Company's Senior Executive Incentive Compensation Plan and the performance goals set forth therein under which incentive compensation is to be paid to executive officers of the Company pursuant to the Plan with a vote of 90,893,724 shares in favor, 132,112 shares opposed, with 22,165 shares abstaining and 0 broker non-votes; and (4) confirmed the appointment of Price Waterhouse LLP as auditor for the Company for the year ended December 31, 1997 with a vote of 91,037,259 shares in favor, 6,205 shares opposed, with 4,537 shares abstaining and 0 broker non-votes. ITEM 5 - OTHER INFORMATION Not Applicable ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 2.1 Share Purchase Agreement dated February 28, 1997 between DePuy, Inc. and Patrick Landanger, Maryvonne Guibert, Michel Colombier, Renee Landanger, Louis Landanger, Martine Bonnaventure and Guy Bonnaventure (English Translation)* 2.2 Indemnification Agreement dated April 1, 1997 between DePuy Orthopedie S.A. and Patrick Landanger, Eric Landanger, Maryvonne Guibert (English Translation)* 14 2.3 Partial Trademark Assignment and Trademark Coexistence Agreement dated April 1, 1997 between Landanger-Camus, and Landanger S.A.R.L. and Patrick Landanger, Eric Landanger, Maryvonne Guibert, Renee Landanger and Louis Landanger (English Translation)* * Does not include certain schedules and similar attachments. A list briefly identifying the contents of all omitted schedules has been provided in the relevant Exhibit. The Company will furnish supplementally to the Securities and Exchange Commission upon request a copy of any omitted schedule. 27.1 Financial Data Schedule (b) Reports on Form 8-K During the three-month period ended June 30, 1997, the Company filed a Form 8-K, dated April 4, 1997, reporting under "Item 5. Other Events" the Company's press release of April 2, 1997 relating to the Company's acquisition of Landanger-Camus. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 14, 1997 DEPUY, INC. By: /s/ Steven L. Artusi ----------------------------------------- Steven L. Artusi Senior Vice President, General Counsel and Secretary Date: August 14, 1997 By: /s/ Thomas J. Oberhausen ------------------------------------------- Thomas J. Oberhausen Senior Vice President and Chief Financial and Accounting Officer EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO. - ------------- ----------------------------------------- -------- 2.1 Share Purchase Agreement dated February 28, 1997 between DePuy, Inc. and Patrick Landanger, Maryvonne Guibert, Michel Colombier, Renee Landanger, Louis Landanger, Martine Bonnaventure and Guy Bonnaventure (English Translation)* 2.2 Indemnification Agreement dated April 1, 1997 between DePuy Orthopedie S.A. and Patrick Landanger, Eric Landanger, Maryvonne Guibert (English Translation)* 2.3 Partial Trademark Assignment and Trademark Coexistence Agreement dated April 1, 1997 between Landanger-Camus, and Landanger S.A.R.L. and Patrick Landanger, Eric Landanger, Maryvonne Guibert, Renee Landanger and Louis Landanger (English Translation)* 27.1 Financial Data Schedule
* Does not include certain schedules and similar attachments. A list briefly identifying the contents of all omitted schedules has been provided in the relevant Exhibit. The Company will furnish supplementally to the Securities and Exchange Commission upon request a copy of any omitted schedule. EX-2.1 2 SHARE PURCHASE AGREEMENT On behalf of the Registrant, the undersigned hereby certifies that the following exhibit provides a fair and accurate English translation of the material contained in the original, the official language of which is French. DEPUY, INC. By: /s/ Steven L. Artusi --------------------- Steven L. Artusi Senior Vice President, General Counsel and Secretary By: /s/ Thomas J. Oberhausen ------------------------ Thomas J. Oberhausen Senior Vice President and Chief Financial and Accounting Officer EXHIBIT 2.1 SHARE PURCHASE AGREEMENT DATED 28 FEBRUARY 1997 BETWEEN DEPUY, INC. AND PATRICK LANDANGER ERIC LANDANGER MARYVONNE GUIBERT MICHEL COLOMBIER RENEE LANDANGER LOUIS LANDANGER MARTINE BONNAVENTURE GUY BONNAVENTURE COUDERT FRERES 52, AVENUE DES CHAMPS-ELYSEES 75008 PARIS FRANCE SHARE PURCHASE AGREEMENT BETWEEN : - - DePuy, Inc., a corporation incorporated and existing under the laws of Delaware, United States of America, having its principal office at 700 Orthopaedic Drive, Warsaw, IN 46581-0988, United States of America, represented by James Lent, duly authorized for the purposes hereof, (hereinafter referred to as the "Purchaser"), ON THE ONE HAND, AND : - - Mr. Patrick Landanger, a French citizen domiciled at 85, quai d'Orsay, 75007 Paris, France; - - Mr. Eric Landanger, a French citizen domiciled at 15, rue des Acacias, 52000 Jonchery, France; and - - Ms. Maryvonne Guibert, a French citizen domiciled at 9, boulevard Gambetta, 52000 Chaumont, France; (hereinafter referred to individually as a "Majority Shareholder" and collectively as the "Majority Shareholders"), and - - Mr. Michel Colombier, a French citizen domiciled at 512, chemin Viralamande, 69140 Rillieux La Pape, France; - - Mrs. Renee Landanger, a French citizen domiciled at 10, rue de Dijon, 52000 Chaumont, France; - - Mr. Louis Landanger, a French citizen domiciled at 10, rue de Dijon, 52000 Chaumont, France; - - Mrs. Martine Bonnaventure, a French citizen domiciled at 260, avenue du Stade, 45770 Saran, France; and - - Mr. Guy Bonnaventure, a French citizen domiciled at 260, avenue du Stade, 45770 Saran, France (hereinafter referred to individually as a "Minority Shareholder", and collectively as the "Minority Shareholders"), (the Majority Shareholders and the Minority Shareholders being hereinafter referred to individually as a "Seller", and collectively as the "Sellers"), ON THE OTHER HAND, (hereinafter referred to individually as a "Party", and collectively as the "Parties"). 2 WITNESSETH WHEREAS, the Majority Shareholders own two hundred and nine thousand six hundred and sixty-seven (209,667) shares representing one hundred percent (100%) of the shares and voting rights in 3L, a societe anonyme with a capital of 209,667,000 French Francs divided into 209,667 shares with a par value of 1,000 French Francs each, having its registered office at Z.I. "La Vendue", rue du Val, 52000 Chaumont, France, and registered with the Registry of Commerce and Companies of Chaumont under number B 393 985 411 (hereinafter referred to as "3L"); WHEREAS, the Sellers own eight hundred and five thousand nine hundred and twenty-four (805,924) shares representing thirty-seven point two five percent (37.25%) of the shares and voting rights in Landanger-Camus, a societe anonyme with a capital of 21,636,700 French Francs divided into 2,163,670 shares with a par value of 10 French Francs each, having its registered office at Z.I. "La Vendue", rue du Val, 52000 Chaumont, France, and registered with the Registry of Commerce and Companies of Chaumont under number B 347 558 371 (hereinafter referred to as "Landanger-Camus"); WHEREAS, 3L owns one million one hundred and thirty-three thousand five hundred and twenty-nine (1,133,529) shares representing fifty-two point thirty-nine percent (52.39%) of the shares and voting rights in Landanger-Camus; WHEREAS, the Sellers and 3L together own one million nine hundred and thirty- nine thousand four hundred and fifty-three (1,939,453) shares representing ninety percent (90%) of the shares and voting rights in Landanger-Camus; WHEREAS, nine point three six percent (9.36%) of the Landanger-Camus shares are publicly traded on the Second Market (Second Marche) of the Paris Stock Exchange; WHEREAS, the Sellers wish to sell their direct and indirect controlling stake in Landanger-Camus via the sale of all of the shares and voting rights they hold in 3L and the shares and voting rights they hold in Landanger-Camus; and WHEREAS, the Purchaser wishes to purchase all of the shares and voting rights in 3L and all of the shares and voting rights held by the Sellers in Landanger- Camus; NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, the Purchaser and the Sellers hereby agree as follows : 3 SECTION 1 DEFINITIONS The following terms will have the meanings as set forth in the following Sections:
- - "Additional Price" Section 2.2.4 - - "Closing" Section 3.1 - - "Closing Date" Section 3.1 - - "Determination Date" Section 2.2.2(d) - - "Escrow Agreement" Section 2.2.2(a) - - "Group" Section 2.1.1 - - "Indemnification Agreement" Section 5.1.1 - - "Landanger-Camus" Recitals - - "Landanger-Camus Group" Section 2.2.2 - - "Landanger-Camus Shares" Section 2.1.1 - - "Majority Shareholder / Majority Shareholders" Page 1 - - "Majority Shareholders' Group" Section 7.1 - - "Minority Shareholder / Minority Shareholders" Page 1 - - "Notional Price" Section 2.2.2(b) - - "Party" / "Parties" Page 1 - - "Purchaser" Page 1 - - "Purchaser's Group" Section 2.1.1 - - "Seller" / "Sellers" Page 1 - - "Shares" Section 2.1.2 - - "Subsidiaries" Section 3.2(e) - - "TIPS" Section 2.2.4 - - "3L" Recitals - - "3L Shares" Section 2.1.1 - - "X%" Section 2.2
SECTION 2 PURCHASE AND SALE OF SHARES SECTION 2.1 - PURCHASE AND SALE OF SHARES - ----------------------------------------- 2.1.1 Subject to satisfaction of the conditions precedent set forth in Section 4 below and in accordance with the terms hereof: (i) the Majority Shareholders will sell to the Purchaser, or to any company belonging to the Group (as such term is defined in the last paragraph of this Section 2.1.1) of the Purchaser (hereinafter referred to as the "Purchaser's Group"), on the Closing Date (as such term is defined in Section 3.1 below), two hundred and nine thousand six hundred and sixty-seven (209,667) shares representing one hundred percent (100%) of the shares and voting rights in 3L (hereinafter referred to as the "3L Shares"); and (ii) the Sellers will sell to the Purchaser, or to any company belonging to the Purchaser's Group, on the Closing Date, eight hundred and five thousand nine hundred and twenty-four (805,924) shares representing all of the shares 4 and voting rights held by the Sellers in Landanger-Camus (hereinafter referred to as the "Landanger-Camus Shares"). For purposes hereof, a "Group" is composed of all companies and entities which are directly or indirectly controlled by the Purchaser, or which directly or indirectly control the Purchaser, or which are under the direct or indirect control of the same ultimate company or entity as the Purchaser. 2.1.2 Subject to satisfaction of the conditions precedent set forth in Section 4 below and in accordance with the terms hereof, the Purchaser will purchase, or will cause any company belonging to the Purchaser's Group to purchase, from the Majority Shareholders and the Sellers on the Closing Date : (i) the 3L Shares; and (ii) the Landanger-Camus Shares. The 3L Shares and the Landanger-Camus Shares are collectively referred to herein as the "Shares". SECTION 2.2 - PURCHASE PRICE - ---------------------------- The price to be paid by the Purchaser to the Sellers for the Shares will be determined as follows. For purposes of the calculations contained in this Section, the percentage of the total number of shares and voting rights in Landanger-Camus held by 3L and the Sellers as of the Closing Date is hereinafter referred to as "X%". 2.2.1 The value of 100% of the shares and voting rights in Landanger-Camus has been fixed at seven hundred and seventy-seven (777) million French Francs. 2.2.2 By no later than thirty (30) days following signature of this Share Purchase Agreement, the Sellers will provide the Purchaser with the unaudited consolidated balance sheet (bilan) of the companies listed in Exhibit 2.2.2(a) hereto (the "Landanger-Camus Group") as of 28 February 1997, drawn up in accordance with the same consistently applied accounting principles, policies and methods as those used for the financial statements as of 31 August 1996 (copies of such financial statements as of 31 August 1996, including the consolidated balance sheet, being attached hereto as Exhibit 2.2.2). (a) Any negative difference - net of any tax deduction arising from the items generating such difference, provided that such tax deduction has not yet been recorded - in the consolidated net asset value of the Landanger-Camus Group (such as same is defined in Exhibit 2.2.2(c) hereto) as of 28 February 1997 pursuant to the unaudited consolidated balance sheet of the Landanger-Camus Group, as compared to 31 August 1996, will be deducted from the 777 million French Franc amount described in Section 2.2.1 above and shall be transferred to an escrow account to be opened by the Closing Date. The terms and conditions of functioning of this escrow account are as set forth in Exhibit 2.2.2(b) hereto, and will be reiterated in a contract 5 (hereinafter referred to as the "Escrow Agreement") to be executed at the latest on the Closing Date. It will in particular be provided in the Escrow Agreement that the costs of such escrow account will be borne in equal parts among the Sellers on the one hand, and the Purchaser on the other hand. The amount resulting from the difference between 777 million French Francs and the above negative difference, if any, will constitute the notional price for 100% of the shares and voting rights in Landanger- Camus (hereinafter referred to as the "Notional Price"). It is hereby agreed that (i) the loss, if any, resulting from the transfer of the Surgical Instruments Activity contemplated in Section 4.4 below will not be taken into account for purposes of calculating such difference; and (ii) that the dividend declared out of the profits achieved by Landanger-Camus as of 31 August 1996 will be taken into account for such purpose. (b) By no later than thirty (30) days following receipt of the unaudited consolidated balance sheet of the Landanger-Camus Group from the Sellers, the Purchaser shall deliver to the Sellers the unaudited consolidated balance sheet of the Landanger-Camus Group as of 28 February 1997, audited by the accountants appointed by the Purchaser, the Purchaser to bear the cost of such audit. (c) Within fifteen (15) days following receipt of the consolidated balance sheet of the Landanger-Camus Group as of 28 February 1997, as audited by the Purchaser's accountants, the Sellers shall notify in writing either (i) their acceptance of the calculation made by the Purchaser's accountants, or (ii) that they dispute such calculation. If they dispute one or several items contained therein, then the Paris Office of Ernst & Young shall be retained by the Purchaser and the Sellers to conduct an additional review of the consolidated balance sheet of the Landanger-Camus Group as of 28 February 1997. No later than fifteen (15) days after the engagement of Ernst & Young (as evidenced by its written acceptance), the Purchaser and the Sellers shall submit briefs to Ernst & Young setting forth their respective positions regarding the items in dispute, should they deem it necessary. Ernst & Young shall render its decision resolving the items in dispute and determining the consolidated net asset value within thirty (30) days after its engagement. The Purchaser and the Sellers shall be bound by such determination which shall be final. The fees and expenses of Ernst & Young shall be shared equally by the Purchaser and the Sellers. (d) The sums escrowed shall be released within fifteen (15) days from either (i) the final determination by Ernst & Young referred to in Section 2.2.2(c) above, or (ii) the Sellers' notification of their acceptance of the calculation by the accountants appointed by the Purchaser as referred to in Section 2.2.2(c) above, in accordance with the following rules: - Should either (i) accountants named by the Purchaser (in the event the Sellers accept their calculation), or (ii) Ernst & Young (in the 6 contrary event) confirm a negative difference in the consolidated net asset value of the Landanger-Camus Group up to the amount determined pursuant to the unaudited consolidated balance sheet of the Landanger-Camus Group, the amount of such negative difference shall be returned to the Purchaser, the balance of the sums escrowed being paid to the Sellers. - Should either (i) the accountants named by the Purchaser (in the event the Sellers accept their calculation), or (ii) Ernst & Young (in the contrary event) rebut the existence of a negative difference in the consolidated net asset value of the Landanger- Camus Group , the whole amount of the sums escrowed shall be paid to the Sellers. - Should either (i) the accountants named by the Purchaser (in the event the Sellers accept their calculation), or (ii) Ernst & Young (in the contrary event) find the existence of a negative difference with the consolidated net asset value of the Landanger-Camus Group in excess of that determined pursuant to the unaudited consolidated balance sheet of the Landanger-Camus Group, the whole amount of the sums escrowed shall be returned to the Purchaser, and the Sellers shall refund to the Purchaser the part of the Notional Price paid pursuant to Section 2.2.3 hereto which corresponds to the balance of the negative difference not covered by the sums escrowed, and which will be paid from the escrow account mentioned in the first paragraph of Section 2.2.4. In the event that the decrease in the TIPS is implemented before (i) the date of final determination by Ernst & Young referred to in Section 2.2(c) above, or (ii) the Sellers' acceptance of the calculation by the accountants appointed by the Purchaser as referred to in Section 2.2(c) above (the "Determination Date"), then the portion of the Additional Price determined pursuant to Section 2.2.4(b) below which should have been paid to the Sellers will be escrowed until the Determination Date and the balance of the negative difference which was not covered by the sum escrowed pursuant to Section 2.2(a) above will be paid out of the sums escrowed pursuant to this Section. 2.2.3 At the Closing, the Purchaser will pay to the Sellers X% of the Notional Price. 2.2.4 If, at the Closing, the decrease in the Tarif Interministeriel des Prestations Sanitaires (hereinafter referred to as the "TIPS") which will regulate the prices of hip implants on the French market listed in Exhibit 2.2.4 hereto is not implemented, the Purchaser will transfer to the escrow account described in Section 3.3 below 48 million French Francs (hereinafter referred to as the "Additional Price"). (a) The terms and conditions of such escrow account are set forth in Exhibit 2.2.2(b) hereto. (b) A portion of the Additional Price will be paid to the Sellers from the escrow account following implementation of the decrease in the TIPS after the 7 Closing, pursuant to the terms set forth in Section 2.2.4(c) below, the amount of such portion to be calculated pursuant to the average percentage decrease in the TIPS as set forth below :
AVERAGE PERCENTAGE OF DECREASE PORTION OF THE ADDITIONAL PRICE IN THE TIPS TO BE PAID TO THE SELLERS (IN MILLIONS OF FRENCH FRANCS) - ----------------------------------------------------------------- From 0% to 5% 48 x X% 6% 40 x X% 7% 32 x X% 8% 24 x X% 9% 16 x X% 10% 8 x X% 11% and over 0 x X% - -----------------------------------------------------------------
The average percentage decrease in the TIPS, if any, will be equal to the percentage of reduction in (i) the hypothetical value of the aggregate sales of Landanger-Camus for each of the hip implants listed in Exhibit 2.2.4 hereto with respect to the three (3) month period from 1 September to and including 30 November 1996 which would have resulted had the TIPS decrease been in effect during such three-month period, compared to (ii) the actual value of the aggregate sales for each such hip implants listed in Exhibit 2.2.4 hereto with respect to such three (3) month period. Only one reduction in the TIPS, whether implemented before or after the Closing, will be taken into account (and only if within the time limit set forth in Section 2.2.4(c) below). The portion of the Additional Price not paid to the Sellers pursuant to the provisions hereinabove will be repaid to the Purchaser at the same time as the portion of the Additional Price owed to the Sellers is paid to them. (c) Subject to the provision contained in the last paragraph of Section 2.2.2(d) above, the disbursement of the funds escrowed pursuant to this Section 2.2.4 will take place by the tenth (10th) business day following the implementation of the decrease in the TIPS; provided, however, if such decrease is not implemented within nine (9) months of the Closing Date, the escrow created by this Section 2.2.4 will be terminated, and the amount escrowed will be paid to the Sellers within the two (2) week period following expiry of such nine (9) month period. 2.2.5 Subject to the provision contained in the last paragraph of Section 2.2.2(d) above, if the decrease in the TIPS is implemented before Closing, a portion of the Additional Price determined pursuant to Section 2.2.4(b) above will be paid directly by the Purchaser to the Sellers at the Closing at the same time and to the same bank account as the sum determined pursuant to Section 2.2.3 above. 2.2.6 All sums to be paid pursuant to this Section 2 will be paid in cash (en numeraire), in French Francs. All sums due to the Sellers and/or the Purchaser from the escrow account will be paid inclusive of interest earned thereon. 8 2.2.7 All sums to be paid pursuant to this Section 2 to the Sellers will be paid to the accounts mentioned in Section 3.3(b). The Sellers will decide amongst themselves how such sums will be allocated between them. The Sellers hereby release the Purchaser from any liability or responsibility of any nature whatsoever relating to such allocation or, when payment is made by the Purchaser, the receipt by each of them of their respective portion of the price. SECTION 3 CLOSING SECTION 3.1 - CLOSING - CLOSING DATE - ------------------------------------ Subject to the terms and conditions of this Share Purchase Agreement, and subject to satisfaction of all of the conditions precedent set forth in Section 4 below, the sale and purchase of the Shares contemplated hereby will take place at a closing (hereinafter referred to as the "Closing") will take place on 1 April 1997 at the offices of Coudert Freres, 52, avenue des Champs-Elysees, 75008 Paris, France, or at such other place and/or date as the Parties may agree (the day on which the Closing takes place being hereinafter referred to as the "Closing Date"). MISSING MATERIAL - ---------------- SECTION 3.2 - DOCUMENTS TO BE DELIVERED BY THE SELLERS AT CLOSING - ----------------------------------------------------------------- At the Closing, the Sellers will deliver or will cause to be delivered to the Purchaser: (a) all clearances and authorizations required from the Sellers for the sale of the Shares; (b) duly signed share transfer forms (ordres de mouvement) for the Shares in favor of the Purchaser or any company of the Purchaser's Group and, more generally, all documents required to carry out such transfers. (c) the share transfer register (registre des mouvements de titres) and the individual shareholders' accounts (comptes d'actionnaires) of 3L on which the transfer of the shares in 3L to the Purchaser will be recorded immediately, as well as any other documentation evidencing due completion of the transfer of the Landanger-Camus Shares; (d) the registers containing the minutes of the meetings of the shareholders of 3L and Landanger-Camus, the Board of Directors (conseil d'administration) of 3L, the Directorate (directoire) and Supervisory Board (conseil de surveillance) of Landanger-Camus, and the corresponding corporate bodies of the Subsidiaries (as such term is defined in Section 3.2(e) below) in which 3L and/or Landanger-Camus have a majority shareholding; (e) resignation letters signed by the managers ("gerants") and members of the Board of Directors, Directorate and Supervisory Board (as the case may be) of 3L and Landanger-Camus, as well as by all of the members of similar corporate bodies of the companies (hereinafter referred to as the "Subsidiaries"), all of the above members and companies being listed in Exhibit 3.2(e) hereto, such resignations to take effect upon appointment of the resigning persons' successors, as well as 9 evidence of transfer of their shares in such companies to the majority shareholders thereof; (f) resignation letters, with effect as of the Closing Date at the latest, signed by those shareholders (except for Michel Colombier and Maryvonne Guibert, whose employment will continue) having employment contracts with 3L, Landanger-Camus or any of the Subsidiaries, including those listed in Exhibit 3.2(f) hereto; (g) resignation letters from the statutory auditors of 3L, Landanger-Camus and the Subsidiaries, such resignations to take effect upon appointment of the replacement statutory auditors; (h) receipt in respect of the payment by the Purchaser of the portion of the price for the Shares paid as of the Closing Date; (i) an executed copy of the Escrow Agreement; (j) all documents evidencing satisfactory completion of the operations described in Sections 4.3, 4.4 and 4.6; (k) execution copies of agreements implementing the principles set forth in Section 6 below, and copies of the relevant registration certificates issued by the Institut National de la Propriete Industrielle; and (l) a lease for a two (2) year term as from Closing and terminable with a three (3) month notice period from the lessee, for the premises located Z.A.E. de Findrol, 74250 Fillinges and used by Landanger-Camus for its operation as of the date hereof, the financial terms of such lease to be the same as those of the current lease. SECTION 3.3 - DOCUMENTS DELIVERED BY THE PURCHASER AT CLOSING - ------------------------------------------------------------- At Closing, the Purchaser will deliver or cause to be delivered to the Sellers: (a) all clearances and authorizations required from the Purchaser for the purchase of the Shares; (b) evidence of a wire transfer to the order of the Sellers in the amount of the portion of the price to be paid for the Shares as of the Closing Date, pursuant to Section 2, to the following account opened with Banque Paribas; (c) evidence of a wire transfer in the amount set forth in Section 2.2.4 above to the following escrow account with Banque Paribas, if necessary; and (d) executed copies of the agreements referred to in Sections 3.2(i) and (k) above. SECTION 3.4 - OTHER FORMALITIES AT CLOSING - ------------------------------------------ All deliveries of documents to be made or actions to be taken at Closing will be deemed to have taken place simultaneously on the Closing Date. 10 SECTION 4 CONDITIONS PRECEDENT The sale and the purchase of the Shares are subject to the following conditions precedent : SECTION 4.1 - SHAREHOLDINGS IN 3L, LANDANGER-CAMUS AND THE SUBSIDIARIES - ----------------------------------------------------------------------- 4.1.1 The Majority Shareholders hold two hundred and nine thousand six hundred and sixty-seven (209,667) shares in 3L, representing one hundred percent (100%) of the shares and voting rights in such company, as well as seven hundred and sixty-nine thousand two hundred and seventy-four (769,274) shares in Landanger-Camus, representing thirty-five point fifty-five percent (35.55%) of the shares and voting rights in such company. 4.1.2 3L holds at least one million one hundred and thirty-three thousand five hundred and twenty-nine (1,133,529) shares in Landanger-Camus, representing fifty-two point thirty-nine percent (52.39%) of the shares and voting rights in such company. 4.1.3 3L and/or Landanger-Camus hold, directly and indirectly, the number of shares and voting rights in the Subsidiaries representing the percentage thereof set forth in Exhibit 4.1.3 hereto. SECTION 4.2 - PRIOR ADMINISTRATIVE AUTHORIZATIONS AND CLEARANCES - ---------------------------------------------------------------- All governmental, administrative and other approvals, authorizations and clearances, whether national or supranational, required to complete the transactions contemplated herein have been obtained. In particular : (a) the Treasury Department (Tresor) of the Ministry of Finance and Economy has not challenged the acquisition of the Shares; and (b) in the event that prior to the Closing, the Purchaser has notified the acquisition of the Shares to the Minister of Finance and Economy pursuant to the Ordonnance of 1 December 1986 on French merger control, such acquisition has not been referred by the Minister to the Competition Council. (c) Others, including any notification to, authorization by or clearance from, any authorities in the United States of America or in any country in which 3L, Landanger-Camus or any of the Subsidiaries are active, as may be required. SECTION 4.3 - GEYSER S.A. AND AED SOFT - -------------------------------------- 4.3.1 All of the four thousand five hundred and sixty-four (4,564) shares held by Landanger-Camus in Geyser S.A., and all of the seven hundred (700) shares held by Landanger-Camus in AED Soft will have validly been transferred, pursuant to applicable laws and regulations, to one or more third parties in such manner that neither the Purchaser, 3L, Landanger- Camus nor any of the Subsidiaries will incur any liability whatsoever, including without limitation any present or contingent tax liabilities, resulting from such transfer or relating to Geyser S.A. and AED Soft. 11 4.3.2 All outstanding repurchase obligations of Landanger-Camus with respect to the outstanding shares of Geyser S.A. will have been assumed by a third party in such manner that neither the Purchaser, 3L, Landanger-Camus nor any of the Subsidiaries will incur any obligation or liability with respect thereto, including without limitation any present or contingent tax liabilities. This will apply (without limitation) to the put options (promesses d'achat ) currently or formerly held by the following persons, for the following number of shares in Geyser S.A. :
- Mr. Boileau 5 shares - Ms. Rolland 5 shares - Mr. Rolland 5 shares - Mr. Roetynck 550 shares - Ms. Brouard 550 shares - Mr. Ognier 1,830 shares
4.3.3 Purchaser acknowledges that the rights (though an exclusive worldwide (except France), free, irrevocable license) under a patent concerning the use of the procedure for producing bone substitute materials ("SUPERCRIT") held by Boots, a Swiss company, are not included among the rights of the Medinov Subsidiary (but only insofar as such rights apply to applications for human bone). SECTION 4.4 - SURGICAL INSTRUMENTS ACTIVITY - ------------------------------------------- The general surgical instruments activity carried out by Landanger-Camus (consisting in products used in general surgery and the corresponding sterilization boxes, but excluding all trauma products and all orthopedic ancillary instruments), together with, pursuant to Article L.122-12 of the French Labor Code, the employees of Landanger-Camus assigned to such surgical instruments activity (and all obligations and liabilities in respect of such employees) as same are listed in Exhibit 4.4 hereto, will have been transferred, pursuant to applicable laws and regulations, to a single third party company, and the shares received by Landanger-Camus in consideration for such activity will have been sold to any of the Sellers for a price equal to the value of the activity as determined by the court-appointed auditor, in such way that neither the Purchaser, 3L, Landanger-Camus nor any of the Subsidiaries will incur any liability, including without limitation any present or contingent tax liabilities, resulting from the transfer of such activity, the transfer or non- transfer of the employees of Landanger-Camus within the framework of the transfer of the activity, and more generally, connected with such activity prior or subsequent to its transfer. SECTION 4.5 - TRADENAMES - TRADEMARKS - ------------------------------------- The agreements implementing the principles set forth in Section 6 below will have been executed, and all steps connected therewith will have been taken. SECTION 4.6 - GUARANTY - ---------------------- The Majority Shareholders and Michel Colombier will have put in place the Guaranty referred to in Section 4.2.2 of the Indemnification Agreement, and will have provided the Purchaser with a certified copy thereof. SECTION 4.7 - INDEMNIFICATION AGREEMENT - --------------------------------------- 12 An Indemnification Agreement, based substantially on the model attached hereto as Exhibit 4.7 but subject to further negotiation, will have been executed. SECTION 4.8 - CONSEQUENCES OF NON-FULFILLMENT OF CONDITIONS PRECEDENT - --------------------------------------------------------------------- If any of the conditions precedent set forth in Sections 4.1 to 4.7 above have not been satisfied by 1 April 1997 at the latest, the Purchaser may decide (i) not to purchase the Shares, without incurring any liability of any nature whatsoever, or (ii) to waive such condition(s) precedent. SECTION 5 COVENANTS SECTION 5.1 - SELLERS' COVENANTS - -------------------------------- 5.1.1 Disclosure ---------- The Sellers undertake that, without prejudice to any of the Purchaser's rights hereunder, they will disclose forthwith in writing to the Purchaser any matter or development which may arise or become known to the Sellers after the date hereof which is inconsistent with any of the representations and warranties set out in the Indemnification Agreement (the "Indemnification Agreement") to be signed by the Closing Date, or which might make any of them inaccurate or misleading, or which would be likely to result in one of the obligations or conditions set forth herein not being satisfied or fulfilled on time or which might delay or prevent the Closing. 5.1.2 Free Access ----------- As from the date hereof and subject to the giving of reasonable prior notice, the Sellers will cause 3L, Landanger-Camus, the Subsidiaries, their employees, officers, representatives and advisers to give the Purchaser and its employees, officers, representatives and advisors free access, under the best possible conditions during normal business hours, to the premises, accounts, records, employees and advisors of 3L, Landanger-Camus and the Subsidiaries. As from the date hereof, the Sellers will provide all necessary assistance to ensure that the transition period inherent to the transfer of ownership and control of the Shares and the integration of 3L, Landanger-Camus and the Subsidiaries into the Purchaser's group takes place in the best possible conditions, and so that the Purchaser may monitor compliance by the Sellers of all of their obligations, covenants, representations and warranties referred to in this Share Purchase Agreement and in the Indemnification Agreement. In addition, the Sellers agree that the Purchaser and its employees, officers, representatives and advisors will have the right, as from the date hereof, to meet with executives ("cadres") of 3L, Landanger-Camus and the Subsidiaries, and that the Sellers will co-operate, and will cause all persons (including its employees, officers, representatives and advisors) or entities belonging to or working for any company of the Sellers group to co-operate, so as to assist and facilitate the contacts by the Purchaser of such persons. 13 5.1.3 Cooperation ----------- The Sellers undertake, and will cause their representatives and advisors, as well as 3L, Landanger-Camus and the Subsidiaries and their employees, officers, representatives and advisors, to fully cooperate with and assist the Purchaser, its employees, officers, representatives and advisors in order to prepare for and to realize the transfer of ownership and control of 3L and Landanger-Camus as provided in this Share Purchase Agreement. In particular, they will fully cooperate with the Purchaser, its employees, officers, representatives and advisors with respect to the determination of the purchase price for the Shares pursuant to Section 2 above and to all obligations, procedures, public tender offers and as well as any squeeze-out which would take place under the regulations of the Paris Stock Exchange in connection with or as a result of the purchase of the Shares by the Purchaser. Moreover, as of the Closing, they will take all necessary steps to adequately inform all customers and licensors of completion of the transactions contemplated herein. 5.1.4 No Dividends ------------ The Sellers will cause 3L and Landanger-Camus not to pay any dividend or interim dividend (acompte sur dividendes) to its shareholders as from the date hereof. SECTION 5.2 - PURCHASER'S COVENANTS - ----------------------------------- 5.2.1 Disclosure ---------- The Purchaser undertakes that, without prejudice to any of the Sellers' rights hereunder, it will disclose forthwith in writing to the Sellers any matter or development which may arise or become known to the Purchaser after the date hereof which is inconsistent with any of the representations and warranties of the Purchaser to be set out in the Indemnification Agreement or which might make any of them inaccurate or misleading, or which would be likely to result in one of the obligations or conditions set forth herein not being satisfied or fulfilled on time or which might delay or prevent the Closing. 5.2.2 The Purchaser will submit to the Sellers : ---------------------------------------- (a) the final draft declaration to the Treasury Department of the Ministry of Finance (Tresor) pursuant to the regulations governing foreign investments in France; (b) should the Purchaser decide to notify the acquisition of the Shares pursuant to the Ordonnance of 1 December 1986 on French merger control, the final draft of the notification to the Minister of the Economy; and (c) any notification to, authorization by or clearance from, any authorities in the United States of America or in any country in which 3L, Landanger-Camus or any of the Subsidiaries are active. 14 SECTION 5.3 - CONDUCT OF BUSINESS PRIOR TO THE CLOSING - ------------------------------------------------------ During the period from the date of execution hereof to the Closing, the Sellers will cause 3L, Landanger-Camus and the Subsidiaries to conduct their businesses with due care and only in the ordinary course of business, to maintain the integrity of their assets and, in particular, their prospects and business relationships, and to not increase their liabilities other than in the ordinary course of business and in no event by more than one million (1,000,000) French Francs. Without in any respect limiting the generality of the foregoing, prior to the Closing, the Sellers will ensure, in particular, that 3L, Landanger-Camus and the Subsidiaries will not, without the Purchaser's prior written consent : (a) sell, transfer or otherwise dispose of any of their assets, except for : (i) sales of inventory in the ordinary course of business; (ii) the operations provided for in Sections 4.3 and 4.4 above; and (iii) the transfer [to Landanger-Camus of the shares of the SCIs ORTHOTIM and GAM owning the premises located in Villeurbanne; (b) mortgage, pledge or encumber, or grant any privilege or guarantee, affecting any of their assets; (c) increase the remuneration or employment benefits of any of their employees, officers, representatives or advisors; (d) initiate any collective or individual termination of employment agreements, other than for faute grave or faute lourde; (e) conclude any new employment agreement, or terminate or modify, in any manner whatsoever, any employment agreements in force as of the date hereof, with the exception of those entered into between any shareholders and Landanger-Camus, 3L or any of the Subsidiaries, which must be terminated at the latest on the Closing Date, except for Michel Colombier's contract and Maryvonne Guibert's contract; (f) modify, terminate or cancel any contracts by which they are bound under circumstances which would affect their business relations, prospects, relationship with developers and licensors or the operations contemplated in this Share Purchase Agreement; (g) enter into or renew any material contract with respect to their assets or business, except in the ordinary course of business or as contemplated under this Share Purchase Agreement; (h) maintain levels of inventory of their products inconsistent with their past practices, subject to usual seasonal variations and customer demands; (i) operate credit control, cash collection and payment inconsistent with recent past practice; (j) pay any obligation or liability relating to or in respect of their business, other than current liabilities in the ordinary course of their business, or waive, release or settle any rights or claims of 3L, Landanger-Camus or the Subsidiaries relating to or in 15 respect of their businesses exceeding two hundred and fifty thousand (250,000) French Francs in the aggregate; (k) authorize or propose any of the foregoing, or enter into any agreement, commitment or undertaking, written or oral, to do any of the foregoing; or (l) incur any capital expenditure in excess of fifty thousand (50,000) French Francs for a single investment, or one hundred thousand (100,000) French Francs per company in the aggregate. SECTION 5.4 - FURTHER ACTION - ---------------------------- The Sellers and the Purchaser will make all reasonable efforts to take, or cause to be taken, all appropriate action as may be required to carry out the provisions hereof and consummate and make effective the transactions described herein. In the event that at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Share Purchase Agreement, each Party will take such further action at its own cost (including the execution and delivery of such further instruments and documents) as the other Party may reasonably request. SECTION 6 TRADEMARKS - TRADENAMES - CORPORATE NAME SECTION 6.1 - ----------- Landanger-Camus and the Subsidiaries, for their activities as of the Closing Date : (a) are hereby granted the exclusive right to use the names "Landanger" and "Landanger-Camus"; (b) have been, or will be by the Closing Date at the latest, registered as the exclusive owners of such names with the Institut National de la Propriete Industrielle in France, and with similar organizations in other countries where these companies carry out their respective activities as of the Closing Date; and (c) will retain the exclusive possibility to be registered as the owners of such names for such activities in any other countries. SECTION 6.2 - ----------- Only in respect of the activities indicated in Sections 4.3 and 4.4 above, the Sellers, or the corporate entity created to carry out such activities : (a) are hereby granted the exclusive right to use the name "Landanger"; (b) have been, or will be by the Closing Date at the latest, registered as the exclusive owners of such names with the Institut National de la Propriete Industrielle in France, and with similar organizations in any other countries in which the activities described in Sections 4.3 and 4.4 above are carried out as of the Closing Date; and 16 (c) will retain the exclusive possibility to be registered as the owners of such names for the activities described in Sections 4.3 and 4.4 above in any other countries. SECTION 6.3 - ----------- Landanger-Camus is hereby definitively granted the exclusive right to use the patronymic "Landanger-Camus" as its corporate name. SECTION 6.4 - ----------- For any activities other than those carried out by 3L, Landanger-Camus and the Subsidiaries as of the Closing Date and the activities described in Sections 4.3 and 4.4 above, neither Party will have the possibility to use the names "Landanger" and "Landanger-Camus" and to be registered as the owner of same without the prior written consent thereto of the other Party. All necessary steps, and in particular contractual steps, will be taken at the latest by the Closing in order to validly implement the above. SECTION 7 NON COMPETITION SECTION 7.1 - ----------- The Majority Shareholders and Michel Colombier hereby undertake, for each of them and on behalf of each of the companies in which they will retain a direct or indirect interest (hereinafter referred to as the "Majority Shareholders' Group"), that neither the Majority Shareholders nor any company of the Majority Shareholders' Group nor Michel Colombier will carry on with, or assist in the carrying-on with, or be involved in, directly or indirectly, whether alone or with any other individual or entity, whether for their own account or for that of any other person, firm or company, the manufacture, sale, marketing, research or development of orthopaedic devices or, more generally, compete in any manner whatsoever with any activity carried out, or products manufactured and/or sold, by 3L, Landanger-Camus or the Subsidiaries as of the Closing Date. This non-compete obligation will not apply to (i) the activities described in Sections 4.3 and 4.4 above, (ii) the acquisition, use and sale of Kirchner and Steiman surgical pins, or to (iii) passive investments in public companies, a minority part of activity thereof could compete with the activities carried out by 3L, Landanger-Camus or the Subsidiaries. This non-compete obligation will apply in France for a period of four (4) years from the Closing Date, and for a period of one (1) year from the Closing Date in Germany, Switzerland, Spain, Italy, The Netherlands, Belgium, the Scandinavian countries, the United Kingdom, the United States of America, India, China and Austria. The restrictions contained in this Section 7 are considered to be reasonable by the Parties. In the event any restriction is found to be void, but would be valid if a part of it were deleted or the period or geographical area of application reduced, such restriction will apply with such modification as may be required to render such restriction valid and effective. 17 SECTION 7.2 - ----------- The Majority Shareholders and Michel Colombier undertake to not directly or indirectly offer or effectively entrust to any individual in the employ of 3L, Landanger-Camus or any of the Subsidiaries on the Closing Date, any job, task or mission of any nature whatsoever, whether or not remunerated, nor to respond positively to any request of such nature made by an individual in the employ of 3L, Landanger-Camus or any of the Subsidiaries on the Closing Date. This undertaking will apply for two (2) years as from the Closing Date. SECTION 8 TERMINATION OF THE SHARE PURCHASE AGREEMENT SECTION 8.1 - TERMINATION BY MUTUAL AGREEMENT - --------------------------------------------- This Share Purchase Agreement may be terminated, and the transactions contemplated herein abandoned, for any reason and at any time prior to the Closing with the mutual written consent of the Purchaser and the Sellers. This Share Purchase Agreement will be terminated automatically if the Closing has not taken place by 30 April 1997, unless the Parties decide to extend in writing such deadline. SECTION 8.2 - TERMINATION BY THE PURCHASER - ------------------------------------------ This Share Purchase Agreement may be terminated by the Purchaser, and the transactions contemplated herein abandoned, in case of non-fulfillment of the conditions set forth in Sections 4.1 to 4.7 by 30 April 1997 at the latest. SECTION 8.3 - SURVIVAL UPON TERMINATION - --------------------------------------- Upon its termination pursuant to this Section 8, this Share Purchase Agreement will become null and void, with no liability for any Party hereto, provided, however, that in the event of the cause of such termination being a default on the part of any Party, the Purchaser or the Sellers, as the case may be, will retain all of their rights to claim damages and remedies arising as a result of such default, and breach, and further provided, however, that upon any termination pursuant to this Section 8, Sections 9.1 (Confidentiality), 9.2 (Expenses - Taxes), 9.4 (Public Announcements) and 9.12 (Governing Law - Disputes) hereof will survive such termination. 18 SECTION 9 GENERAL PROVISIONS SECTION 9.1 - CONFIDENTIALITY - ----------------------------- (a) All information and documents provided to either Party within the framework of the transaction contemplated herein is deemed to be confidential in nature, irrespective of whether or not the transaction is consummated. Any analyses, compilations, studies or other documents prepared by either Party, its employees, officers, representatives or advisors within the framework of said transaction will be kept confidential by such Party. Neither Party will use or disclose, and represents that its employees, officers, representatives and advisors will not use or disclose, such information during a period of five (5) years from the date hereof, except to the extent such information : - was known to the receiving Party prior to receipt thereof from the other Party, and was not subject to a confidentiality commitment; or - is or becomes generally known to the public; or - is received by the receiving Party from a source not subject to a confidentiality commitment; or - has been or is gathered or obtained by the receiving Party independently from the confidential information disclosed by the other Party. (b) In particular, the Parties undertake to keep the contents of this Share Purchase Agreement and the Indemnification Agreement confidential, subject to disclosure as may be required pursuant to (i) proceedings conforming with the provisions of Section 9.12 hereof, (ii) any tax audit, (iii) French or United States securities regulation requirements, (iv) competition and labor law requirements in France or in any country in which 3L, Landanger-Camus or the Subsidiaries conduct their respective activities, (v) any other requirement of a public authority, or (vi) a press release issued pursuant to Section 9.4 below. SECTION 9.2 - EXPENSES - TAXES - ------------------------------ Except as otherwise specified in this Share Purchase Agreement, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection herewith and the transactions contemplated herein, will be borne by the Party incurring such costs and expenses, irrespective of whether or not the Closing takes place. The Purchaser will pay the registration taxes (droits d'enregistrement) and stamp duties (droits de timbre) due in connection herewith. All expenses and taxes resulting from the operations described in Sections 4.3, 4.4 and 4.6 will be borne exclusively by the Sellers, irrespective of whether or not the Closing takes place. 19 SECTION 9.3 - NOTICES - --------------------- All notices, claims, demands and other communications hereunder will be made in writing, given or made by delivery in person, by courier service, registered mail (postage prepaid, return receipt requested), telecopy, telegram or telex, to the respective Parties at the following addresses (or at such other addresses as may be specified in a notice given in accordance with this Section 9.3) : (a) If to the Purchaser : DePuy, Inc. P.O. Box 988 700 Orthopaedic Drive Warsaw Indiana 46581-0988 U.S.A. Telecopy : (00-1) 219 269 5675 Attention : Legal Department DePuy International Ltd. St. Anthony's Road Leeds Yorkshire LS11 8DT U.K. Telecopy : (00-44) 113 272 4192 Attention : Legal Department with a copy to : Coudert Brothers 1114 Avenue of the Americas New York, N.Y. 10036-7703 U.S.A. Telecopy : (00-1) 626 4120 Attention : Jeffrey Cohen and to : Coudert Freres, 52, Avenue des Champs-Elysees 75008 Paris France Telecopy : (00-33) 1 53 83 60 60 Attention : Olivier de Precigout (b) If to the Sellers : Mr. Patrick Landanger 5, avenue Pol Antoine 52000 Chaumont France Telecopy : (00-33) _______________ 20 Mr. Eric Landanger 15, rue des Acacias 52000 Jonchery France Telecopy : (00-33) _______________ Ms. Maryvonne Guibert 9, boulevard Gambetta 52000 Chaumont France Telecopy : (00-33) _______________ Mr. Michel Colombier 512, chemin Viralamande 69140 Rillieux La Pape France Telecopy : (00-33) _______________ Mrs. Renee Landanger 10, rue de Dijon 52000 Chaumont France Telecopy : (00-33) ___________________ Mr. Louis Landanger 10, rue de Dijon 52000 Chaumont France Telecopy : (00-33) ______________ Mrs. Martine Bonnaventure 260, avenue du Stade 45770 Saran France Telecopy : (00-33) ___________________ Mr. Guy Bonnaventure 260, avenue du Stade 45770 Saran France Telecopy : (00-33) __________________ with a copy to : Desfilis, Juchs & Associes 49 bis, Avenue F.D. Roosevelt 75508 Paris France Telecopy : (00-33) 1 45 63 29 68 Attention : Maitre J.L. Desfilis 21 A notice will be deemed to have been duly made or given : (a) in the case of personal delivery, by the giving of a receipt of delivery of such notice from the addressee, or from any person working at its above- mentioned address, (b) in the case of a registered letter or a courier delivery, upon first presentation of such notice at the address of the addressee; and (c) in the case of a transmission by telecopy, telegram or telex, upon the existence of proof of transmission, confirmed by registered letter with return receipt requested sent at the latest on the first business day following the date of such transmission. SECTION 9.4 - PUBLIC ANNOUNCEMENTS - ---------------------------------- Neither Party hereto will make, or cause to be made, any press releases or public announcements in respect of this Share Purchase Agreement, the Indemnification Agreement or the transactions contemplated hereby and thereby without prior approval of the other Party, and the Parties will cooperate as to the timing and contents of any such announcement. Nothing in this Section 9.4 will prevent a Party from supplying any information as may be required by any public authority or as will be required by law, but such Party will furnish notice thereof to the other Party as soon as practicable given the circumstances. SECTION 9.5 - SEVERABILITY - -------------------------- If any term or other provision of this Share Purchase Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Share Purchase Agreement will, nevertheless, remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties will negotiate in good faith to modify this Share Purchase Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. SECTION 9.6 - LANGUAGES - ----------------------- This Share Purchase Agreement is entered into and executed in the French and English languages. In the event of any disputes concerning the construction or meaning of this Share Purchase Agreement, the French version will prevail. SECTION 9.7 - ENTIRE AGREEMENT - ------------------------------ Except as provided in the Indemnification Agreement, this Share Purchase Agreement constitutes the entire agreement of the Parties hereto with respect to the subject matter hereof, and supersedes all agreements and undertakings, both written and oral, between the Sellers and the Purchaser, or any of the companies of the group to which each Party belongs, prior to the date hereof with respect to the subject matter herein. 22 SECTION 9.8 - WAIVERS, MODIFICATIONS OR AMENDMENTS - -------------------------------------------------- No waiver, modification or amendment of any provision of this Share Purchase Agreement will be valid, or of any force or effect, unless made in writing and signed by each of the Parties hereto, and specifying with particularity the nature and extent of such waiver, modification or amendment. Any such waiver, modification or amendment will in no event be construed to be a general waiver, abandonment, modification or amendment of any of the provisions of this Share Purchase Agreement, but the same will be strictly limited and restricted to the extent and occasion specified in such writing or writings signed by the Parties. SECTION 9.9 - SECTION HEADINGS - EXHIBITS - ----------------------------------------- The table of contents to this Share Purchase Agreement and the headings of particular Sections herein are inserted only for convenience and are in no way to be construed as part of this Share Purchase Agreement or as a limitation of the scope of the particular Sections to which they refer. Each Exhibit to this Share Purchase Agreement constitutes an integral part hereof; and all references to this Share Purchase Agreement will include all Exhibits hereto. SECTION 9.10 - ASSIGNMENT - SUCCESSORS AND ASSIGNS - -------------------------------------------------- Neither this Share Purchase Agreement nor any rights, liabilities or obligations hereunder may be assigned without the express written consent of the other Party hereto (which consent will be given or refused at the discretion of each of the Parties), although the Purchaser will be entitled to assign all of its rights and undertakings hereunder to any company belonging to the Purchaser's Group as specified in Section 2.1 above, the Purchaser remaining liable for performance of the obligations of assignee herein and in the Indemnification Agreement. This Share Purchase Agreement will be binding upon and inure to the benefit of successors and permitted assigns of the Parties hereto. SECTION 9.11 - SPECIFIC PERFORMANCE - ----------------------------------- The Parties hereto agree that they will be entitled to specific performance of the terms hereof, insofar as permitted under French law. SECTION 9.12 - GOVERNING LAW - DISPUTES - --------------------------------------- This Share Purchase Agreement will be governed by, and construed in accordance with, French law. 23 All disputes arising in connection with this Share Purchase Agreement will be settled by the competent Paris courts. Executed in ten (10) original counterparts, In Paris, On 28 February 1997 FOR THE SELLERS : FOR THE PURCHASER : /s/ Patrick Landanger /s/ James Lent - --------------------- -------------- Patrick Landanger DePuy, Inc. By : James Lent Title : Chairman of the Board and Chief Executive Officer /s/ Eric Landanger - ------------------ Eric Landanger /s/ Maryvonne Guibert - --------------------- Maryvonne Guibert /s/ Michel Columbier - -------------------- Michel Colombier /s/ Mrs. Renee Landanger - ------------------------ Mrs. Renee Landanger /s/ Mr. Louis Landanger - ----------------------- Mr. Louis Landanger /s/ Mrs. Martine Bonnaventure - ----------------------------- Mrs. Martine Bonnaventure /s/ Mr. Guy Bonnaventure - ------------------------ Mr. Guy Bonnaventure 24 TABLE OF CONTENTS
SECTION 1 DEFINITIONS......................................................... 3 SECTION 2 PURCHASE AND SALE OF SHARES......................................... 3 Section 2.1 - Purchase and Sale of Shares................................ 3 Section 2.2 - Purchase Price............................................. 4 SECTION 3 CLOSING............................................................. 8 Section 3.1 - Closing - Closing Date..................................... 8 Section 3.2 - Documents to be Delivered by the Sellers at Closing........ 8 Section 3.3 - Documents Delivered by the Purchaser at Closing............ 9 Section 3.4 - Other Formalities at Closing............................... 9 SECTION 4 CONDITIONS PRECEDENT................................................ 10 Section 4.1 - Shareholdings in 3L, Landanger-Camus and the Subsidiaries.. 10 Section 4.2 - Prior Administrative Authorizations and Clearances......... 10 Section 4.3 - Geyser S.A. and AED Soft................................... 10 Section 4.4 - Surgical Instruments Activity.............................. 11 Section 4.5 - Tradenames - Trademarks.................................... 11 Section 4.6 - Guaranty................................................... 11 Section 4.7 - Indemnification Agreement.................................. 11 Section 4.8 - Consequences of Non-Fulfillment of Conditions Precedent.... 12 SECTION 5 COVENANTS........................................................... 12 Section 5.1 - Sellers' Covenants......................................... 12 5.1.1 Disclosure................................................. 12 5.1.2 Free Access................................................ 12 5.1.3 Cooperation................................................ 13 5.1.4 No Dividends............................................... 13 Section 5.2 - Purchaser's Covenants...................................... 13 5.2.1 Disclosure................................................. 13 5.2.2 The Purchaser will submit to the Sellers:.................. 13 Section 5.3 - Conduct of Business Prior to the Closing................... 14 Section 5.4 - Further Action............................................. 15 SECTION 6 TRADEMARKS - TRADENAMES - CORPORATE NAME............................ 15 Section 6.1.............................................................. 15 Section 6.2.............................................................. 15 Section 6.3.............................................................. 16 Section 6.4.............................................................. 16 SECTION 7 NON COMPETITION..................................................... 16
25 Section 7.1.......................................... 16 Section 7.2......................................... 17 SECTION 8TERMINATION OF THE SHARE PURCHASE AGREEMENT..... 17 Section 8.1 - Termination by Mutual Agreement....... 17 Section 8.2 - Termination by the Purchaser.......... 17 Section 8.3 - Survival Upon Termination............. 17 SECTION 9GENERAL PROVISIONS.............................. 17 Section 9.1 - Confidentiality....................... 18 Section 9.2 - Expenses - Taxes...................... 18 Section 9.3 - Notices 19 Section 9.4 - Public Announcements.................. 21 Section 9.6 - Languages 21 Section 9.7 - Entire Agreement...................... 21 Section 9.8 - Waivers, Modifications or Amendments.. 22 Section 9.9 - Section Headings - Exhibits........... 22 Section 9.10 - Assignment - Successors and Assigns.. 22 Section 9.11 - Specific Performance................. 22 Section 9.12 - Governing Law - Disputes............. 22
LIST OF EXCLUDED SCHEDULES -------------------------- Exhibit 2.2.2.A List of companies included in the scope of consolidation Exhibit 2.2.2 Landanger-Camus consolidated financial statements year ended 31st August 1996 Exhibit 2.2.2 (b) Conditions of opening and operation of the escrow accounts Exhibit 2.2.2 (c) Definition of net asset value Exhibit 2.2.4 Comparative study of hip implants sales made by Landanger- Landos S.A. and Medinov-A.M.P. S.A. towards private clinics only and during the period from September 1st, 1996 to November 30, 1996 Exhibit 3.2.E List of managers and members Exhibit 3.2.F List of sellers beneficially of an employment agreement with 3L, Landanger-Camus or one of its subsidiaries Exhibit 4.1.3 Direct or indirect interests held by 3L and/or Landanger- Camus Exhibit 4.4 List of salaried employees transferred to the company Landanger SARL (in the course of formation) Exhibit 4.7 Form of Indemnification Agreement EX-2.2 3 INDEMNIFICATION AGREEMENT On behalf of the Registrant, the undersigned hereby certifies that the following exhibit provides a fair and accurate English translation of the material contained in the original, the official language of which is French. DEPUY, INC. By: /s/ Steven L. Artusi --------------------- Steven L. Artusi Senior Vice President, General Counsel and Secretary By: /s/ Thomas J. Oberhausen ------------------------ Thomas J. Oberhausen Senior Vice President and Chief Financial and Accounting Officer Exhibit 2.2 =========================== INDEMNIFICATION AGREEMENT =========================== DATED APRIL 1, 1997 BETWEEN DEPUY ORTHOPEDIE S.A. AND PATRICK LANDANGER ERIC LANDANGER MARYVONNE GUIBERT COUDERT FRERES 52, AVENUE DES CHAMPS-ELYSEES 75008 PARIS FRANCE INDEMNIFICATION AGREEMENT BETWEEN : - - DePuy Orthopedie S.A., a limited liability company with a capital of FRF4,430,000, having its registered office at 2 rue du Bois Sauvage, 91000 Evry, represented by Bruce de Grange, "Director General", duly authorized for the purposes hereof, (hereinafter referred to as the "Beneficiary"), ON THE ONE HAND, AND : - - Mr. Patrick Landanger, a French citizen domiciled at 85, quai d'Orsay, 75007 Paris, France; - - Mr. Eric Landanger, a French citizen domiciled at 15, rue des Acacias, 52000 Jonchery, France; and - - Ms. Maryvonne Guibert, a French citizen domiciled at 9, boulevard Gambetta, 52000 Chaumont, France; (hereinafter referred to individually as a "Guarantor", and collectively as the "Guarantors"), ON THE OTHER HAND, hereinafter referred to individually as a "Party", and collectively as the "Parties". -2- WITNESSETH WHEREAS, the Majority Shareholders own two hundred thousand six hundred and sixty seven (209,667) shares representing one hundred percent (100%) of the shares and voting rights in 3L, a societe anonyme with a capital of 209,667,000 French Francs divided into 209,667 shares with a par value of 1,000 French Francs each, having its registered office at Z.I. "La Vendue", rue du Val, 52000 Chaumont, France, and registered with the Registry of Commerce and Companies of Chaumont under number B 393 985 411 (hereinafter referred to as "3L"); WHEREAS, at the date of signature of the Share Purchase Agreement (as this term is defined below), the Sellers owned eight hundred and five thousand nine hundred and twenty-four (805,924) shares representing thirty-seven point twenty five percent (37.25%) of the shares and voting rights in Landanger-Camus, a societe anonyme with a capital of 21,636,700 French Francs divided into 2,163,670 shares with a par value of 10 French Francs each, having its registered office at Z.I. "La Vendue", rue du Val, 52000 Chaumont, France, and registered with the Registry of Commerce and Companies of Chaumont under number B 347 558 371 (hereinafter referred to as "Landanger-Camus"); WHEREAS, at the date of signature of the Share Purchase Agreement, 3L owned one million one hundred and thirty-three thousand five hundred and twenty-nine (1,133,529) shares representing fifty-two point thirty-nine percent (52.39%) of the shares and voting rights in Landanger-Camus; WHEREAS, at the date of signature of the Share Purchase Agreement (as this term is defined below), the Sellers and 3L together owned one million nine hundred and thirty-nine thousand four hundred and fifty-three (1,939,453) shares representing eighty-nine point sixty-four percent (89.64%) of the shares and voting rights in Landanger-Camus; WHEREAS, at the date of signature of the Share Purchase Agreement (as this term is defined below), nine point thirty six percent (9.36%) of the Landanger-Camus shares were publicly traded on the Second Market (Second Marche) of the Paris Stock Exchange; WHEREAS, under a share purchase agreement signed on 28 February 1997 (hereinafter referred to as the "Share Purchase Agreement"), the Sellers have agreed to sell to the Purchaser their direct and indirect controlling stake in Landanger-Camus via the sale of all of the shares and voting rights they hold in 3L, and the shares and voting rights they hold in Landanger-Camus, subject to satisfaction of several conditions precedent contained therein; WHEREAS, the Share Purchase Agreement was executed, and the transactions contemplated therein will be completed subject to conditions precedent, and in consideration of the mutual representations and warranties of the Parties. WHEREAS, pursuant to Section 9.10 of the Share Purchase Agreement, the Purchaser assigned all its rights and obligations thereunder to the Beneficiary. -3- NOW, THEREFORE, the Parties have agreed on the terms contained herein, and that this Indemnification Agreement will be interpreted and construed in light of the terms of the Share Purchase Agreement. SECTION 1 - DEFINITIONS The following terms will have the meanings as set forth in the following Sections. All terms contained herein beginning with a capital letter and not contained in the list set forth below are defined in the Share Purchase Agreement, and will have the meanings set forth therein. "Contracts" Section 2.12.1 "Environmental Law" Section 2.9.1 "Financial Statements" Section 2.4.1 "Guarantor" / "Guarantors" Page 1 "Guaranty" Section 4.2.2 "Indemnified Claims" Section 4.4.1 "Indemnitee" Section 4.4.1 "Indemnitor" Section 4.4.1 "Intellectual Property" Section 2.8.1 "Landanger-Camus" Recitals "Loss" / "Losses" Section 4.2.1 "Minority Shareholdings" Section 2.1.4(a) "Party" / "Parties" Page 1 "Parties' Losses" Section 4.4.1 "Permits" Section 2.2.3 "Personal Property" Section 2.11.2 "Plans" Section 2.14.1 "Beneficiary" Page 1 "Real Property" Section 2.10.1 "Share Purchase Agreement" Recitals "Subsidiaries" Section 2.1.3(a) "Taxes" Section 2.15.1 "3L" Recitals SECTION 2 - REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS The Guarantors hereby jointly and severally (solidairement) make the following representations and warranties to the Beneficiary. Unless specifically provided otherwise, these representations and warranties are made as of the date hereof. SECTION 2.1 - SHAREHOLDINGS - --------------------------- 2.1.1 Shares in 3L ------------ (a) The share capital of 3L amounts to 209,667,000 French Francs, divided into 209,667 3L Shares having a par value of 1,000 French Francs each, validly issued, subscribed to and paid up in their entirety. Each 3L share carries a voting right, and a right to share in the profits. -4- (b) The Majority Shareholders have full and valid title to all of the 3L Shares, free of any encumbrances, pledges, liens, claims or rights of any third party, and have full authority and capacity to sell all of the 3L Shares to the Beneficiary. (c) 3L has not issued any securities (valeurs mobilieres) other than those referred to in sub-section 2.1.1(a) above. There is no option, right or obligation to subscribe to, acquire, sell, pledge or grant any right over the 3L Shares. No other voting rights have been granted. (d) With the exception of the shares held in Landanger-Camus, 3L does not own any shares or securities of, nor does it have any direct or indirect interests or shareholdings in, any corporation, company, partnership, business entity, joint venture or any other enterprise, or any commitment or obligation to purchase any such interests or shareholdings, or any other assets other than the shares held in Landanger-Camus and the cash necessary to face the liabilities of 3L existing as of the Closing Date. 2.1.2 Shares in Landanger-Camus ------------------------- (a) The share capital of Landanger-Camus amounts to 21,636,700 French Francs, divided into 2,163,670 Landanger-Camus Shares having a par value of 10 French Francs each, validly issued, subscribed to and paid up in their entirety. Each of the above shares carries a voting right, and a right to share in the profits. The above shares are traded on the Second Market (second marche) of the Paris Stock Exchange. 201,670 of the above shares are identifiable bearer shares (actions au porteur identifiable), and 1,961,992 are registered shares (actions nominatives). (b) The Sellers and 3L have full and valid title to one million nine hundred and thirty-nine thousand four hundred and fifty-three (1,939,453) Landanger-Camus Shares representing eighty-nine point sixty-four percent (89.64%) of the shares and voting rights in Landanger-Camus, free of any encumbrances, pledges, liens, claims or rights of any third party. The Sellers have full authority to sell all of the Landanger-Camus Shares to the Beneficiary. (c) Landanger-Camus has not issued any securities (valeurs mobilieres) other than those referred to in sub-section 2.1.2(a) above. There is no option, right or obligation to subscribe to, acquire, sell, pledge or grant any right over any Landanger-Camus Shares. No other voting rights have been granted. (d) Except as provided in Sections 2.1.3 and 2.1.4 below, Landanger-Camus does not own any shares or securities of, nor does it have any direct or indirect interests or shareholdings in, any corporation, company, partnership, business entity, joint venture or any other enterprise. -5- 2.1.3 Shares in the Subsidiaries -------------------------- (a) Landanger-Camus has a direct or indirect majority shareholding in, or effective control over, the companies listed in Exhibit 2.1.3(a) hereto (hereinafter referred to as the "Subsidiaries"). The shareholdings of third-party shareholders in the Subsidiaries are also described in such Exhibit. (b) Landanger-Camus has full and valid title to its shareholdings in the Subsidiaries, free of any encumbrances, pledges, liens, claims or right of any third party, and there is no agreement, law, regulation or any other factor which would result in all or part of such shareholdings being lost, transferred, removed, pledged or blocked as a result of the purchase of the Shares by the Beneficiary. (c) The Subsidiaries have not issued any securities (valeurs mobilieres) with the exception of those indicated in Exhibit 2.1.3(c) hereto. There is no option, right or obligation to subscribe to, acquire, sell, pledge or grant any right over, the Sellers' shareholdings in the Subsidiaries. (d) Except as shown in Exhibit 2.1.3(d) hereto, the Subsidiaries do not own any shares or securities of, nor do they have any direct or indirect interests or shareholdings in, any corporation, company, partnership, business entity, joint venture or any other enterprise. 2.1.4 Minority Shareholdings ---------------------- (a) Landanger-Camus and the Subsidiaries have minority shareholdings in the companies listed in Exhibits 2.1.4(a) and 2.1.3(d) hereto(hereinafter referred to as the "Minority Shareholdings"). (b) Landanger-Camus has full and valid title to the Minority Shareholdings, free from any encumbrances, pledges, liens, claims or right of any third party, and there is no agreement, law, regulation or any other factor which would result in all or part of such Minority Shareholdings being lost, transferred, removed, pledged or blocked as a result of the purchase of the Shares by the Beneficiary. (c) The companies in which Landanger-Camus and the Subsidiaries own Minority Shareholdings have not issued any securities (valeurs mobilieres) with the exception of those indicated in Exhibits 2.1.4(c) and 2.1.3(d) hereto. To the best knowledge of the Guarantors, there is no option, right or obligation to subscribe to, acquire, sell, pledge or grant any right over, the Minority Shareholdings. (d) Except as shown in Exhibits 2.1.4(d) and 2.1.3(d) hereto, (i) the companies in which Landanger-Camus and the Subsidiaries own a Minority Shareholding of 33% or more do not own any shares or securities of, nor do they have any direct or indirect interests or shareholdings in, any corporation, company, partnership, business entity, joint venture or any other enterprise, and (ii) to the best knowledge of the Guarantors, the companies in which Landanger-Camus and the Subsidiaries own a Minority Shareholding of less than 33% do not own any shares or securities of, nor do they have any direct or -6- indirect interests or shareholdings in, any corporation, company, partnership, business entity, joint venture or any other enterprise. SECTION 2.2 - ORGANIZATION - -------------------------- 2.2.1 3L and Landanger-Camus are societes anonymes validly organized under the laws of France. The Subsidiaries and the companies in which Landanger-Camus and the Subsidiaries have Minority Shareholdings are companies of the form described in Exhibits 2.2.1 and 2.1.3(d) hereto, and are validly organized under the laws of the countries in which they are incorporated. 2.2.2 None of 3L, Landanger-Camus, the Subsidiaries or the companies in which Landanger-Camus holds Minority Shareholdings are, nor never have been, insolvent. Nor have they ever suspended their payments or been subject to any judicial recovery or liquidation proceedings. 2.2.3 3L, Landanger-Camus, the Subsidiaries and the companies in which Landanger-Camus holds Minority Shareholdings are duly qualified to carry out their respective activities, and do so in accordance with applicable laws and regulations, as well as with their respective corporate purposes. In particular, they have obtained from all relevant public authorities all authorizations, permits, approvals for, and made all notifications required in connection with, the conduct, ownership and operation of their respective activities and assets (hereinafter referred to as the "Permits"). They are in full compliance with all of the Permits, each of which is valid. 2.2.4 No legal or administrative proceeding to revoke, cancel or not renew any Permit is pending or threatened and, except as disclosed in Exhibit 2.2.4 hereto, no Permit is scheduled to expire within the three (3) year period following the Closing Date. 2.2.5 Except as disclosed in Exhibit 2.2.5 hereto, 3L, Landanger-Camus, the Subsidiaries and the companies in which Landanger-Camus holds Minority Shareholdings have good and valid title to all of their respective assets, free and clear of any encumbrances, pledges, liens, claims or rights of any third party. The sale of the Shares by the Sellers will not adversely affect such title. SECTION 2.3 - AUTHORITY - NO CONFLICTS - NO APPROVALS - ----------------------------------------------------- 2.3.1 The Sellers have full authority and capacity to execute the Share Purchase Agreement and the Indemnification Agreement, and to perform same. 2.3.2 All prior authorizations, clearances or approvals of any kind whatsoever from any corporate body of 3L, Landanger-Camus or the Subsidiaries, or from any third party, including public or administrative authorities, whether national or supranational, including those mentioned in Section 4 of the Share Purchase Agreement, required for execution of the Share Purchase Agreement and of this Indemnification Agreement, and the performance by the Sellers and the -7- Guarantors of their respective obligations under such agreements, have been validly obtained. 2.3.3 The Share Purchase Agreement and this Indemnification Agreement have been duly executed by the Sellers and the Guarantors, and constitute the legal, valid and binding obligation of the Sellers and the Guarantors, enforceable against them in accordance with the terms of such agreements. SECTION 2.4 - FINANCIAL STATEMENTS - ---------------------------------- 2.4.1 The consolidated financial statements of Landanger-Camus as of 31 August 1996 have been signed off by the statutory auditors of Landanger-Camus without qualification, and the financial statements of 3L and the Subsidiaries as of the close of their respective last financial year have been signed off by the statutory auditors of each of these companies. The above-mentioned financial statements of 3L, Landanger-Camus and the Subsidiaries have been approved by the shareholders of these companies within the time period required therefor by applicable laws. True and complete copies of the above-mentioned financial statements (hereinafter referred to as the "Financial Statements") and of the legally-required reports of 3L, Landanger-Camus and the Subsidiaries' respective statutory auditors are attached hereto as Exhibit 2.4.1. 2.4.2 The Financial Statements : (i) are correct and give in all respects a true and fair view of the assets, liabilities and financial situation of the relevant company as of their respective dates or in respect of the periods covered thereby; (ii) give a true and fair view of the results of the operations and shareholders' equity of the relevant company; and (iii) have been prepared in a careful, diligent and professional manner, and in accordance with applicable rules and Generally Accepted Accounting Principles. 2.4.3 Without limiting the generality of the foregoing, the accounts receivable, loans, advances, and any other sums owed to 3L, Landanger- Camus or the Subsidiaries as recorded in the Financial Statements and not paid or settled as of the Closing Date, or incurred since the close of the Financial Statements and not paid or settled as of the Closing Date : (i) are valid; (ii) are not subject to any dispute, set-off or counterclaim; and (iii) are collectible. Except as otherwise disclosed in Exhibit 2.4.3 hereto, none of such assets are subject to any prior assignment, lien or security interest. -8- 2.4.4 Accounts receivable owed by Geyser S.A. to 3L, Landanger-Camus and/or the Subsidiaries will be paid by Geyser S.A. by 31, May 1997 at the latest. Any such account receivable not paid by 15 July, 1997 will bear interests at a rate equal to the French legal interest rate (published in the French Official Journal) plus three (3) points per year. For any such accounts receivable owed by Geyser S.A. and not paid by 31 May 1997, 3L, Landanger-Camus or the Subsidiaries will send to Geyser S.A. a formal notice by registered mail with return receipt requested. If such account receivable is not paid by Geyser S.A. within eight (8) days from the sending of such formal notice, and even if Geyser S.A. disputes the validity or amount of such account receivable, the Guarantors will indemnify the Beneficiary for the full amount of such account receivable and interest thereon, within thirty (30) days from receipt by the Guarantors of a notice from the Beneficiary stating that Geyser S.A. has not paid such account receivable together with a copy of the formal notice initially sent by 3L, Landanger-Camus or the Subsidiaries to Geyser S.A., notwithstanding any provision to the contrary in this Indemnification Agreement and particularly in Section 4.2.3(a) hereto or in other agreements. 2.4.5 Except as disclosed in Exhibit 2.4.5 hereto, there is no potential liability or liabilities which could result from any court judgment, out-of-court settlement, administrative decision, binding order, event or factor of whatever nature, (i) in an amount, individually or in the aggregate, in excess of one (1) million French Francs and (ii) which was not recorded in the Financial Statements, or which has been revealed since such date not in the ordinary course of business and consistent with recent past practice. 2.4.6 The excess of debt over cash of Landanger-Camus (to be calculated pursuant to Exhibit 2.4.6 hereto) on a consolidated basis is not greater than as of 31 August 1996 (as set forth in Exhibit 2.4.6) subject to differences only due to seasonal fluctuations, i.e. to facts, operations or transactions that occur regularly every year at the same time period of the year and provided they have occurred in the ordinary course of business and are consistent with recent practice. SECTION 2.5 - GEYSER S.A. - AED SOFT - SURGICAL INSTRUMENTS ACTIVITY - -------------------------------------------------------------------- 2.5.1 The operations described in Sections 4.3 and 4.4 of the Share Purchase Agreement have been completed in their entirety, in accordance with all applicable laws and regulations, without any infringement of any obligations or commitments, whether legal, contractual or other, and none of the Beneficiary, 3L, Landanger-Camus or any of the Subsidiaries will incur any liabilities whatsoever, including without limitation any tax liabilities, resulting therefrom. -9- 2.5.2 All amounts owed as of the Closing Date, or which might fall due thereafter, for whatever reason to 3L, Landanger-Camus or any of the Subsidiaries, by Geyser S.A., or AED Soft or regarding the surgical instruments activity (as such term is described in Section 4.4 of the Share Purchase Agreement) are listed in Exhibit 2.5.2 hereto. Such sums will be entirely, timely and validly paid by such companies, or by the entity which will carry out the Surgical Instrument Activity, subject to section 2.4.4 regarding the amounts owed by Geyser S.A. to 3L, Landanger-Camus or the Subsidiaries. SECTION 2.6 - CONDUCT OF BUSINESS PRIOR TO THE CLOSING - ------------------------------------------------------ During the period from the date of execution of the Share Purchase Agreement to the Closing, 3L, Landanger-Camus and the Subsidiaries have carried out their respective businesses with due care and only in the ordinary course of business, have maintained the integrity of their assets and, in particular, their prospects and business relationships, and have not increased their liabilities other than in the ordinary course of business and in no event by more than one million (1,000,000) French Francs. Without in any respect limiting the generality of the foregoing, prior to the Closing, 3L, Landanger-Camus and the Subsidiaries have not, without the Beneficiary's prior written consent : (a) sold, transferred or otherwise disposed of any of their assets, except for: (i) sales of inventory in the ordinary course of business; (ii) the operations provided for in Sections 4.3 and 4.4 of the Share Purchase Agreement; and (iii) the transfer to Landanger-Camus of the shares of the SCIs ORTHOTIM and GAM respectively Lessee under a financing lease (preneur a credit bail) and owning the premises located in Villeurbanne; (b) mortgaged, pledged or encumbered, or granted any privilege or guarantee affecting, any of their assets; (c) increased the remuneration or employment benefits of any of their employees, officers, representatives or advisors; (d) initiated any collective or individual termination of employment agreements, other than for faute grave or faute lourde; (e) concluded any new employment agreement, or terminated or modified, in any manner whatsoever, any employment agreements in force as of the date hereof, with the exception of those entered into between any shareholders and Landanger-Camus, 3L or any of the Subsidiaries, which must be terminated at the latest on the Closing Date (except for Michel Colombier's contract and Maryvonne Guibert's contract, in accordance with Section 2.13.5 below); (f) modified, terminated or canceled any contracts by which they are bound under circumstances which would affect their business relations, prospects, -10- relationship with developers and licensors or the operations contemplated in the Share Purchase Agreement; (g) entered into or renewed any Material contract with respect to their assets or business, except in the ordinary course of business or as contemplated under the Share Purchase Agreement; a contract is deemed "Material" when it has a direct or indirect impact of thirty thousand (30,000) French Francs or more; (h) maintained levels of inventory of their products inconsistent with their past practices, subject to usual seasonal variations and customer demands; (i) operated credit control, cash collection and payment inconsistent with recent past practice; (j) paid any obligation or liability relating to or in respect of their business, other than current liabilities in the ordinary course of their business, or waived, released or settled any rights or claims of 3L, Landanger-Camus or the Subsidiaries relating to or in respect of their businesses exceeding two hundred and fifty thousand (250,000) French Francs in the aggregate per company; (k) authorized or proposed any of the foregoing, or entered into any agreement, commitment or undertaking, written or oral, to do any of the foregoing; or (l) incurred any capital expenditure in excess of fifty thousand (50,000) French Francs for a single investment, or one hundred thousand (100,000) French Francs in the aggregate per company; SECTION 2.7 - LITIGATION AND COMPLIANCE - --------------------------------------- 2.7.1 Except as otherwise disclosed in Exhibit 2.7.1 hereto, there is no pending or threatened action, claim, suit, arbitration or proceeding against 3L, Landanger-Camus or any of the Subsidiaries. 2.7.2 3L, Landanger-Camus and the Subsidiaries have conducted, and continue to conduct their respective businesses in all Material respects in compliance with applicable laws and regulations (including, without limitation, all applicable tax, social security, criminal, customs, labor, consumer protection, competition, zoning and product regulations); non compliance is deemed "Material" when it has a direct or indirect impact of thirty thousand (30,000) French Francs or more. 2.7.3 Except as otherwise disclosed in Exhibit 2.7.3 hereto, none of 3L, Landanger-Camus or any of the Subsidiaries have received: (i) any notification from any public authority of any violation of any such laws or regulations, or (ii) any notification or correspondence relating to any inquiry implying any such violation. 2.7.4 There is no court judgment, out-of-court settlement, administrative decision, binding order, event or factor of whatever nature, nor any risk of same, which could result in a prohibition to manufacture, sell or otherwise deal with -11- a product which is Material to the activities of 3L, Landanger-Camus and the Subsidiaries; a product is deemed "Material" to the activities of 3L, Landanger-Camus and the Subsidiaries when sales of such product are above thirty thousand (30,000) French Francs per year. 2.7.5 Notwithstanding the generality of the above provisions, there is no action against any of 3L, Landanger-Camus or the Subsidiaries, or any of their employees, corporate officers (mandataires sociaux) or shareholders, nor to the best knowledge of the Guarantors any risk of same, nor any potential liability for any of 3L, Landanger-Camus or the Subsidiaries, relating to: (i) a violation of Article L.365-1 of the French Public Health Code, with the exception of the action currently pending against an officer of Medinov AMP and/or (ii) a violation of Articles L. 209-1 and following of the French Public Health Code (Huriet Law) and/or (iii) any criminal offense. 2.7.6 Notwithstanding the generality of the above provisions, there is no action against any of 3L, Landanger-Camus or the Subsidiaries, nor any risk of same, nor any potential liability for any of 3L, Landanger- Camus or the Subsidiaries resulting from any breach of the stock exchange regulations. SECTION 2.8 - INTELLECTUAL PROPERTY - ----------------------------------- 2.8.1 3L, Landanger-Camus and the Subsidiaries own all French and foreign intellectual property rights (including droits d'auteurs), copyrights, drawings, logos, patents and patent applications, manufacturing and trade secrets, manufacturing marks, trademarks or service marks, inventions, know-how, and licenses or sublicenses relating thereto which they use in the conduct of their respective activities (hereinafter referred to as the "Intellectual Property") as same is listed in Exhibit 2.8.1.A hereto, except for: (i) those which are in the public domain, and (ii) the intellectual property right owned and licensed by third parties, as same is specifically identified in said Exhibit 2.8.1.B hereto. 2.8.2 Exhibit 2.8.1.A lists the respective commercial names pertaining to said Intellectual Property when applicable. 2.8.3 In respect of all Intellectual Property which is registered as of the date hereof, all the applications submitted have been duly filed and/or registered and/or issued, and/or renewed when applicable, are valid and in full force and effect, and in compliance with all applicable laws and regulations and all annual renewal fees relating thereto have been paid. 2.8.4 Except as otherwise disclosed in Exhibit 2.8.4 hereto and to the best knowledge of the Guarantors, none of the Intellectual Property infringes or otherwise violates any right of any third party in any country, and more generally, there are no known or threatened claims of infringement of any intellectual property rights of any third party. No claims or demands by any other person pertaining to any of the Intellectual Property have been made or are threatened. -12- 2.8.5 To the best knowledge of the Guarantors, none of the Intellectual Property is subject to any infringement or other violation by a third party, under any form, and in any country. SECTION 2.9 - ENVIRONMENTAL CONDITIONS - -------------------------------------- 2.9.1 None of 3L, Landanger-Camus nor any of the Subsidiaries has been or is in breach of any environmental laws, regulations or injunctions (hereinafter referred to as the "Environmental Law"). In particular, there are no substances present on or under the premises used by any of them, or in connection with the conduct and operation of their respective activities which constitute a breach of any Environmental Law. 2.9.2 None of 3L, Landanger-Camus nor any of the Subsidiaries is subject to any liabilities (including liabilities for cleaning up and/or remediation, and/or costs for personal injury or property damage) as a result of any Material breach of any Environmental Law; a breach is deemed "Material" when it has a direct or indirect impact of thirty thousand (30,000) French Francs or more. 2.9.3 No expenditures are required in connection with the activities of any of 3L, Landanger-Camus or any of the Subsidiaries, as same are presently conducted, in order to comply with any Environmental Law. SECTION 2.10 - REAL PROPERTY - ---------------------------- 2.10.1 Exhibit 2.10.1.A hereto lists (together with a map) each parcel of real property owned by 3L, Landanger-Camus and the Subsidiaries (hereinafter referred to as the "Real Property"). 3L, Landanger-Camus and the Subsidiaries have full and valid title to all Real Property, free from any mortgages, liens, pledges or other encumbrances. Exhibit 2.10.1.B hereto lists each parcel of real property leased by 3L, Landanger-Camus and the Subsidiaries (hereinafter referred to as the "Leased Real Property") stating for each parcel: (i) the address of the parcel, (ii) the name and address of the owner, (iii) the type of lease, (iv) date of entry into force and the term of the lease and (v) the amount of the rent. 3L, Landanger-Camus and the Subsidiaries have full and valid deeds to lease all the Leased Real Property, free from any encumbrances. 2.10.2 All documents necessary to prove the title of 3L, Landanger-Camus and the Subsidiaries to the Real Property and the existence of valid leases to the benefit of 3L, Landanger-Camus and the Subsidiaries for the Leased Real Property are in the possession of the relevant company. -13- 2.10.3 To the best knowledge of the Guarantors, the Real Property and the Leased Real Property is free from defects, in a good state of repair, and in good working order, and is capable of being properly used in connection with the respective activities of 3L, Landanger-Camus and the Subsidiaries. 2.10.4 With the exception of the real property located at Fillinge and described in Exhibit 2.10.4 hereto, no third party owns any real property required in connection with the conduct of the respective activities of 3L, Landanger-Camus and the Subsidiaries. The commercial lease currently in effect for the real property located at Fillinge will be terminated as from the Closing Date at no cost to 3L, Landanger-Camus or the Subsidiaries and a short-term lease with a term of two years as from the Closing Date and terminable at any time with a three (3) month notice period from the lessee will be entered into by the Closing Date. SECTION 2.11 - PERSONAL PROPERTY - -------------------------------- 2.11.1 As of the date of close of the Financial Statements, 3L, Landanger- Camus and the Subsidiaries had full and valid title to, free and clear from any charges, liens, pledges or other encumbrances, all of the personal tangible and intangible property as reflected in the Financial Statements. 2.11.2 On the Closing Date, 3L, Landanger-Camus and the Subsidiaries will have full and valid title to, free and clear from any charges, liens, pledges or other encumbrances, such personal property, as well as to all personal tangible and intangible property acquired in the ordinary course of business as defined in Section 2.6 hereof, with the exception of personal tangible and intangible property which have been disposed of since the date of close of the Financial Statements in the ordinary course of business (the resulting personal property on the Closing Date is hereinafter referred to collectively as the "Personal Property"). 2.11.3 The Personal Property is free and clear from any charges, liens, pledges or other encumbrances, from defects, is in a good state of repair and in good working order, and is capable of being properly used in connection with the respective activities of 3L, Landanger- Camus and the Subsidiaries, except as disclosed in Exhibit 2.11.3 hereto. 2.11.4 No third party owns any other personal property, whether tangible or intangible, required for the conduct of the respective activities of 3L, Landanger-Camus or the Subsidiaries except as disclosed in Exhibit 2.11.4 hereto. SECTION 2.12 - MATERIAL CONTRACTS - --------------------------------- 2.12.1 All Material outstanding contracts, purchase orders, licenses and sub- licenses (both domestic and foreign), leases (whether for real or personal property), loan agreements, agreements regarding subsidies granted to 3L, Landanger-Camus or the Subsidiaries, mortgages and other undertakings of any kind, whether written or oral, to which 3L, Landanger-Camus or any of the -14- Subsidiaries is a party, or to which any of the assets, liabilities or activities of any of these companies is subject (hereinafter referred to as the "Contracts"), are valid, binding and in full force and effect, comply with all applicable laws and regulations, have been concluded on an arm's length basis; contracts, purchase orders, licenses and sub-licenses, leases, loan agreements, agreements regarding subsidies are deemed "Material" when they have a direct or indirect impact of thirty thousand (30,000) French Francs or more. 2.12.2 All Contracts with a duration of more than one year or involving the payment or receipt of sums in excess of 300,000 French Francs per year are listed in Exhibit 2.12.2 hereto. 2.12.3 Except as otherwise disclosed in Exhibit 2.12.3 hereto, none of 3L, Landanger-Camus or any of the Subsidiaries are in default under any of the Contracts, or is aware of any default committed by any contracting party thereto. 2.12.4 All consents or approvals from any contracting party to any of the Contracts required for the sale of the Shares by the Sellers and/or the Purchase of the Shares by the Beneficiary have been validly obtained. 2.12.5 The transfer to the Beneficiary of title to the Shares will not, directly or indirectly, conflict in any way with the provisions, or result in a breach, suspension, amendment or termination, of any of the Contracts (including without limitation product licence agreements with product developers, agreements regarding Intellectual Property rights, loan agreements and agreements regarding subsidies granted to 3L, Landanger-Camus or the Subsidiaries) or give to the other contracting third party a right to terminate or amend same. 2.12.6 None of 3L, Landanger-Camus or any of the Subsidiaries have received a notification of the intent of any contracting third party to terminate or to not renew any of the Contracts. 2.12.7 Without limiting the generality of the foregoing, none of 3L, Landanger-Camus or the Subsidiaries is a party to any Contract which is unrelated to their respective activities. SECTION 2.13 - LABOR MATTERS - ---------------------------- 2.13.1 Exhibit 2.13.1 hereto sets forth the number of employees, categorized by activity or country, working as of the Closing Date at the sites of 3L, Landanger-Camus and the Subsidiaries. 2.13.2 3L, Landanger-Camus and the Subsidiaries comply in all Material respects with applicable labor and social security laws and regulations; non-compliance is deemed "Material" when it has a direct or indirect impact of thirty thousand (30,000) French Francs or more. -15- 2.13.3 Except as otherwise disclosed in Exhibit 2.13.3 hereto, no corporate officer (mandataire social), employee or agent of 3L, Landanger-Camus or the Subsidiaries has any rights exceeding the statutory requirements (including those existing in collective bargaining agreements which apply to the company concerned), including in case of termination of their functions. 2.13.4 No trade union or labor disputes or work stoppages involving 3L, Landanger- Camus or the Subsidiaries are pending or, to the best knowledge of the Guarantors, threatened, except as disclosed in Exhibit 2.13.4 hereto. 2.13.5 Except as disclosed in Exhibit 2.13.5 hereto, none of the Sellers will have an employment agreement with 3L, Landanger-Camus or any of the Subsidiaries as of the Closing Date. If any of the Sellers had employment agreements prior to the Closing, same will be terminated (except as disclosed in Exhibit 2.13.5 hereto) at no cost to 3L, Landanger-Camus or the Subsidiaries. SECTION 2.14 - EMPLOYEE BENEFIT MATTERS - --------------------------------------- 2.14.1 Exhibit 2.14.1 hereto lists all benefit plans, profit-sharing plans (whether mandatory or voluntary), company savings plans, stock option plans, retiree, medical or life insurance plans, and retirement and severance agreements for the benefit of any officer or employee of 3L, Landanger-Camus and the Subsidiaries (hereinafter collectively referred to as the "Plans"). Each of the Plans complies in all Material respects with all applicable laws; non-compliance is deemed "Material" when it has a direct or indirect impact of thirty thousand (30,000) French Francs or more. 2.14.2 Adequate reserves have been recorded in the accounts of 3L, Landanger- Camus and the Subsidiaries in order to cover all the benefits and advantages provided for in the Plans. 2.14.3 Entitlements to paid vacation accrued as of the respective dates of the Financial Statements but unused are adequately provided for in the Financial Statements. SECTION 2.15 - TAXES AND SOCIAL SECURITY CHARGES - ------------------------------------------------ 2.15.1 For purposes of this Indemnification Agreement, the term "Taxes" will include all forms of taxation and other public duties, whether in France or elsewhere, including but not limited to income tax (impot sur le revenu), corporation income tax (impot sur les societes), capital gains tax (impot sur les plus-values), value added tax (taxe sur la valeur ajoutee), business tax (taxe professionnelle), other local taxes (autres impots locaux), registration duties (droits d'enregistrement), customs and excise duties (droits de douanes), stamp duties (droit de timbre), social security and pension institutions (URSSAF), payments into voluntary or mandatory private health care schemes, unemployment contributions (ASSEDIC), any other governmental past or present local taxes, duties or social charges, any other contributions to public, semi-public or private bodies organisms, as well as any interest or penalties incurred in connection with any of the foregoing. -16- 2.15.2 Until the Closing Date : (a) all of the Tax returns required to be filed with respect to 3L, Landanger-Camus and the Subsidiaries have been timely filed; (b) all such returns are or will be correct and complete in all Material respects; non-compliance is deemed "Material" when it has a direct or indirect impact of thirty thousand (30,000) French Francs or more. (c) no adjustment relating to such returns has been proposed or imposed by any tax or social security authority; (d) there have not been actions or proceedings for the assessment or collection of Taxes pending or, to the best knowledge of the Guarantors, threatened against 3L, Landanger-Camus or any of the Subsidiaries, except as otherwise disclosed in Exhibit 2.15.2(d) hereto; (e) all Taxes shown on such returns or otherwise due have been timely and properly paid, or adequate reserves have been provided on the Financial Statements to pay same; (f) any Taxes falling due by the Closing Date have been timely and properly paid by 3L, Landanger-Camus and the Subsidiaries; and (g) all reserves and liabilities for Tax have been adequately and correctly accounted for in the accounts of 3L, Landanger-Camus and the Subsidiaries; (h) there have not been nor will be disallowed transfer prices for intragroup services and assets and no disguised profit distributions and similar operations. SECTION 2.16 - UNDISCLOSED LIABILITIES - --------------------------------------- With the exception of the liabilities shown in the Financial Statements or which have been incurred by 3L, Landanger-Camus or the Subsidiaries in the ordinary course of business as described in Section 2.6 hereof since the date of close of the Financial Statements, none of 3L, Landanger-Camus or any of the Subsidiaries have any liabilities of whatever nature, whether certain, contingent, future or otherwise. None of 3L, Landanger-Camus or any of the Subsidiaries have granted any warranty to, or stands surety for, any third party for any reason whatsoever. No shareholder of 3L, Landanger-Camus or any of the Subsidiaries has any right against 3L, Landanger-Camus or any of the Subsidiaries. SECTION 2.17 - DIVIDENDS - RECAPITALIZATION AND PURCHASE OF SHARES - ------------------------------------------------------------------ 2.17.1 The dividend declared out of the profits of Landanger-Camus for the financial year ended on 31 August 1996 has not exceeded seven million five hundred -17- and seventy two thousand eight hundred and forty five (7,572,845) French Francs. No precompte tax (tax for previous deduction) is due in connection with this dividend. No dividend has been paid out of the profits of 3L and the Subsidiaries for their respective last financial year. 2.17.2 Since the close of the financial year covered by the Financial Statements, none of 3L, Landanger-Camus or the Subsidiaries have : (a) authorized the issue or have issued any securities other than those reflected in the Financial Statements; or (b) directly or indirectly redeemed or purchased any of their shares or securities, or agreed to take any such action. SECTION 2.18 - INSURANCE - ------------------------ 2.18.1 3L, Landanger-Camus and the Subsidiaries maintain insurance of the type and covering amounts appropriate for the ownership and operation of their assets, and the conduct of their respective activities. 2.18.2 Exhibit 2.18.2 hereto lists all pending events, claims, disputes and litigations involving insurance policies relating to 3L, Landanger- Camus or the Subsidiaries as well as all the insurance policies relating to 3L, Landanger-Camus or the subsidiaries. There are no other pending claims under the insurance policies from which 3L, Landanger-Camus and the Subsidiaries currently benefit. 2.18.3 None of 3L, Landanger-Camus or the Subsidiaries are in Material breach or default of, and no event has occurred which will constitute such a breach or default or permit termination or modification of, any such insurance policy; a breach is deemed "Material" when it has a direct or indirect impact of thirty thousand (30,000) French Francs or more. To the best knowledge of the Guarantors, all insurance premiums due on or before the Closing Date have been paid in full by 3L, Landanger- Camus and the Subsidiaries. SECTION 2.19 - INTERESTED PARTIES - --------------------------------- 2.19.1 None of the Sellers, or any shareholder, corporate officer (mandataire social) or employee of 3L, Landanger-Camus or the Subsidiaries, or any individual related to any such persons, or any affiliate or other legal entity or enterprise directly or indirectly affiliated or associated with any of such persons : (i) has directly or indirectly entered into any oral or written agreement with 3L, Landanger-Camus or any of the Subsidiaries, with the exception of the employment agreements for employees of such companies, including but not limited to those involving the payment of any fee, commission, pension, life annuity or any other sum whatsoever, except as otherwise disclosed in Exhibit 2.19.1(i) hereto; or (ii) has any right, or has claims in respect thereof, directly or indirectly, in whole or in part, over any of the Real Property, the Leased Real -18- Property, the Personal Property, or the Intellectual Property used by 3L, Landanger-Camus and the Subsidiaries, except as otherwise disclosed in Exhibit 2.19.1(ii) hereto. 2.19.2 Any outstanding shareholders' loans and current accounts (comptes courants d'actionnaire) of 3L, Landanger-Camus or the Subsidiaries will have been paid or reimbursed prior to the Closing Date. SECTION 2.20 - PRODUCT LIABILITY - -------------------------------- All products manufactured and/or sold by 3L, Landanger-Camus and the Subsidiaries comply in all Material respects with all applicable rules, regulations, purchase orders and standards; non-compliance is deemed "Material" when it has a direct or indirect impact of thirty thousand (30,000) French Francs or more. There have not been any recalls or required adaptation or modification of such products prior to the Closing Date, except as disclosed in Exhibit 2.20 hereto. SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE BENEFICIARY The Beneficiary hereby represents and warrants as follows : SECTION 3.1 - ORGANIZATION - -------------------------- The Purchaser is a corporation validly organized under the laws of the State of Delaware, United States of America. The Beneficiary, to whom the Purchaser has assigned its rights and obligations under the Share Purchase Agreement, is a corporation validly organized under the laws of France. SECTION 3.2 - AUTHORITY - NO CONFLICTS - NO APPROVALS - ----------------------------------------------------- The Beneficiary has full authority and capacity to execute the Share Purchase Agreement and the Indemnification Agreement, and to perform same. The execution of the Share Purchase Agreement and the Indemnification Agreement and the performance by the Beneficiary of its obligations under such agreements have been authorized by the Beneficiary's Board of Directors and do not require any prior authorization, clearance or approval of any kind whatsoever from any third party, including public or administrative authorities, whether national or supranational, other than those set forth in Section 4.2 of the Share Purchase Agreement. The Share Purchase Agreement and the Indemnification Agreement have been duly executed by the Purchaser and the Beneficiary, and constitute the Beneficiary's legal, valid and binding obligation enforceable against them in accordance with the terms of such Agreements. There is no litigation which would prevent the Beneficiary from performing its obligations under the Share Purchase Agreement and the Indemnification Agreement. -19- SECTION 4 - INDEMNIFICATION SECTION 4.1 - SURVIVAL OF REPRESENTATIONS AND WARRANTIES - -------------------------------------------------------- 4.1.1 The representations and warranties of the Guarantors and the Beneficiary contained in this Indemnification Agreement and the Exhibits hereto are valid as of the date of signature of the Share Purchase Agreement and will remain in force from the date of signature of the Share Purchase Agreement until the Closing Date, and for a further period of three (3) years following the Closing Date. Notwithstanding the foregoing, the representations and warranties pertaining to tax and social security matters will remain in force until expiry of a sixty (60) day period following expiry of the applicable statute of limitations. Any claim to be made pursuant hereto will therefore have to be made within the above-mentioned period. 4.1.2 No claim may be made pursuant hereto on the basis of any representation or warranty which has expired pursuant to sub-section 4.1.1 above. SECTION 4.2 - REFUND OF PART OF THE PRICE BY THE GUARANTORS - ----------------------------------------------------------- 4.2.1 Except as otherwise limited, the Guarantors will jointly and severally (solidairement) refund a part of the price paid by the Beneficiary for the Shares, such refunded sums being equal to any and all losses, liabilities, damages, costs and expenses, including, without limitation, interest, penalties and reasonable attorneys' fees and expenses (hereinafter referred to as a "Loss" or "Losses") suffered directly or indirectly by the Beneficiary, 3L, Landanger-Camus and/or the Subsidiaries arising out of or resulting from any inaccuracy in or breach of any representation or warranty made by the Guarantors in this Indemnification Agreement, it being understood, however, that no Loss shall be deemed to have occurred if it has been sufficiently and adequately reserved in the unaudited consolidated balance sheet of the Landanger-Camus Group as of 28 February 1997 to be delivered to the Purchaser or Beneficiary pursuant to Section 2.2.2 of the Share Purchase Agreement. Moreover, the following is expressly specified: (a) any sum paid by the Guarantors to the Beneficiary pursuant to this Section is deemed to be a refund (remboursement) of part of the purchase price paid by the Beneficiary for the Shares pursuant to the Share Purchase Agreement. (b) any Loss caused by a third party claim, and for which a final decision is made in accordance with the stipulations of this Indemnification Agreement that the Beneficiary must be refunded by the Guarantors in respect of such Loss, will include interest at a rate equal to the Paris Interbank Offered Rate-one year plus 1.5 point on the amount of any payment made by 3L, Landanger-Camus or the Subsidiaries as a result of a third party claim, as from the date on which a payment was made, or a Loss was suffered, by 3L, Landanger- -20- Camus or the Subsidiaries as a result of such third party claim, until the date on which such Loss is refunded by the Guarantors; and (c) in the event of a claim by the Beneficiary pursuant to its right to be refunded, the Guarantors may in no way claim that they are relieved in whole or in part (including by way of a reduction of the amount recoverable and/or another concept of mitigation of damages) of any or all of their obligation to refund based on the fact that the Beneficiary was or should have been aware of the situation, whether by virtue of : (x) investigations conducted by or on behalf of the Beneficiary, (y) information provided to the Beneficiary prior to the date hereof other than as expressly provided otherwise in this Indemnification Agreement, or (z) any other information which the Beneficiary may have received at any time relating to the subject claim. 4.2.2 At Closing, the Guarantors will provide the Beneficiary with a first demand bank guaranty (garantie bancaire a premiere demande) (hereinafter referred to as the "Guaranty") given by Paribas Luxembourg, the purpose of which is to guarantee the payment(s) to be made by the Guarantors to the Beneficiary pursuant to this Indemnification Agreement. The amount of the Guaranty will be sufficient to cover: (a) during the year from the Closing Date to the date of the first anniversary thereof : ten percent (10%) of the price for the Shares paid to the Guarantors pursuant to Section 2.2 of the Share Purchase Agreement, provided that if after the Closing, the Beneficiary pays a portion or the total of the Additional Price pursuant to Section 2.2.4 of the Share Purchase Agreement, the amount of the Guaranty will be increased to cover 10% of the Additional Price paid to the Guarantors; (b) during the year from the first anniversary of the Closing Date to the date of the second anniversary thereof: six percent (6%) of the price for the Shares and the Additional Price paid to the Guarantors pursuant to Section 2.2 of the Share Purchase Agreement; (c) during the year from the second anniversary of the Closing Date to the date of the third anniversary thereof: three percent (3%) of the price for the Shares and the Additional Price paid to the Guarantors pursuant to Section 2.2 of the Share Purchase Agreement. The functioning of the Guaranty and the related escrow account is described in the "Irrevocable first demand guarantees n 97/03/0014 and 97/03/0015" and the related Escrow Agreement signed this day between the Beneficiary, the Guarantors and the Banque Paribas Luxembourg S.A. -21- 4.2.3 The Guarantors' obligation to refund the Beneficiary in accordance with this Indemnification Agreement will be subject to the following limitations: (a) The Guarantors will not be obligated to refund to the Beneficiary a portion of the price in accordance with the provisions of this Section 4: (i) in respect of any single Loss in an amount not exceeding fifty thousand (50,000) French Francs, it being understood that if there is more than one single Loss of the same nature or having the same cause, the amounts of each of such single Losses will be added together to form one and the same single Loss, this for purposes of calculating whether or not the threshold of fifty thousand (50,000) French Francs is reached and assessing whether or not a reduction in the price is due; or (ii) if the aggregate amount of all single Losses is under seven million (7,000,000) French Francs. The provisions under Section 2.4.4 hereto will not be taken into account for calculating this amount. (b) The aggregate amount of the refund paid by the Guarantors to the Beneficiary pursuant to the terms of this Indemnification Agreement will not exceed the purchase price paid by the Beneficiary for the Shares, as stipulated in Section 2.2 of the Share Purchase Agreement; (c) Any proceeds actually recovered by 3L, Landanger-Camus or any of the Subsidiaries, as the case may be, in respect of any Loss, in particular under any insurance policy or indemnification agreement or guarantee, as well as the net amount of any tax impact favorable to 3L, Landanger-Camus or any of the Subsidiaries as a result of a Loss, will reduce the amount of such Loss; and INSERT "INSERT 1" (d) Any amount recovered by the Beneficiary or 3L, Landanger-Camus or the Subsidiaries from third parties with respect to a Loss which has given rise to a refund by the Guarantors will be promptly repaid to the Guarantors. SECTION 4.3 - INDEMNIFICATION BY THE BENEFICIARY - ------------------------------------------------ Except as otherwise limited herein, the Beneficiary will indemnify the Guarantors in respect of any and all liabilities, damages, costs and expenses (including reasonable attorneys' fees and expenses) suffered by them arising out of or resulting from any inaccuracy in, or breach of, any representation or warranty made by the Beneficiary contained in this Indemnification Agreement. SECTION 4.4 - GENERAL INDEMNIFICATION PROVISIONS - ------------------------------------------------ 4.4.1 For the purposes of this Section 4.4: (i) the term "Indemnitee" will refer to the person or persons refunded in respect of part of the purchase price or indemnified, or entitled to be refunded or indemnified, or claiming to be entitled to be refunded or indemnified, pursuant to the provisions of Sections INSERT 1 The amount of the Loss will be reduced by any reserve which no longer appears in the accounts ("the surplus reserve"), and further provided that the surplus reserve and the Loss belong to the same category of accounts being defined as the same accounts with three figures as the same appear in the Plan comptable general. -22- 4.2 or 4.3, as the case may be, (ii) the term "Indemnitor" will refer to the person or persons having the obligation to refund or indemnify pursuant to such provisions, and (iii) the term "Parties' Losses" will refer to the Losses of either Party hereto, 3L, Landanger-Camus or the Subsidiaries, as the case may be. The obligations and liabilities of an Indemnitor under this Section 4 with respect to Losses subject to the refund or indemnification provided for in this Article (hereinafter referred to as the "Indemnified Claims") will be governed by and contingent upon the following additional terms and conditions, it being understood that the refund or indemnification will only be available hereunder if the following terms and conditions are followed. 4.4.2 An Indemnitee will give the Indemnitor notice of any matter that may give rise to a right to a refund or indemnification under this Indemnification Agreement within thirty (30) days after being made aware thereof and, together with such notice, the Indemnitee will provide to the Indemnitor all information in its possession with respect to the claim and will provide such further information and assistance as may be reasonably requested by the Indemnitor. When the Beneficiary is the Indemnitee within the meaning given to such term in this Section, the Beneficiary must also notify the Banque Paribas Luxembourg S.A. in conformity with the irrevocable first demand guarantees mentioned in Section 4.2.2 of this Agreement, such obligation remaining valid until expiry of said guarantees. The Indemnitor will be entitled to assume and control the defense of such Indemnified Claim at its expenses and through counsel of its choice by notifying the Indemnitee of its intention to do so within fifteen (15) days of receipt of such notice from the Indemnitee. The Indemnitee will cooperate with the Indemnitor in such defense, and make available to it all such witnesses, records, materials and information in its possession or under its control relating thereto as is reasonably required by the Indemnitor, and will transmit without delay to the Indemnitor any information, notification, court or arbitration decision or proposal to settle relating thereto which it receives. Similarly, in the event the Indemnitee is conducting the defense against any Indemnified Claim, the Indemnitor will cooperate with the Indemnitee in such defense and make available to it at Indemnitor's expense all such witnesses, records, materials and information in its possession or under its control relating thereto as is reasonably required by the Indemnitee. In any event, the Party conducting the defense against any Indemnified Claim will keep the other party reasonably informed of the development of such Indemnified Claim. 4.4.3 No Indemnified Claim may be settled by the Indemnitor or the Indemnitee without the written consent of the Indemnitee or, as the case may be, the Indemnitor, which consent will not be unreasonably withheld or delayed. -23- 4.4.4 Subject to the previous sections, in no event will the Beneficiary be prevented from settling any claim by a third party on the grounds that a pending dispute exists between the Beneficiary and the Guarantors on any other claim. 4.4.5 For purposes of this Section 4, a final decision shall be made with the consequence that the Indemnitee will be entitled to be refunded or indemnified by the Indemnitor upon a decision, judgment, decree or other order by any court of competent jurisdiction, which decision, judgment, decree or other order has become final with respect to the Indemnitee (i.e., all allowable appeals have been exhausted by either ----- party to the action or the time period within which such appeal may be filed has expired). SECTION 5 - GENERAL PROVISIONS SECTION 5.1 - CONFIDENTIALITY - ----------------------------- 5.1.1 All information and documents provided to either Party within the framework of the transaction contemplated herein is deemed to be confidential in nature, irrespective of whether or not the transaction is consummated. Any analyses, compilations, studies or other documents prepared by either Party, its employees, officers, representatives or advisors within the framework of said transaction will be kept confidential by such Party. Neither Party will use or disclose, and represents that its employees, officers, representatives and advisors will not use or disclose, such information during a period of five (5) years from the date hereof, except to the extent such information : (i) was known to the receiving Party prior to receipt thereof from the other Party, and was not subject to a confidentiality commitment; or (ii) is or becomes generally known to the public; or (iii) is received by the receiving Party from a source not subject to a confidentiality commitment; or (iv) has been or is gathered or obtained by the receiving Party independently from the confidential information disclosed by the other Party. 5.1.2 In particular, the Parties undertake to keep the contents of this Indemnification Agreement and of the Share Purchase Agreement confidential, subject to disclosure as may be required pursuant to: (i) proceedings conforming with the provisions of Section 5.12 hereof, (ii) any tax audit, (iii) French or United States securities regulation requirements, (iv) competition and labor law requirements in France or in any country in which 3L, Landanger-Camus or the Subsidiaries conduct their respective activities, (v) any other requirement of a public authority, or (vi) a press release issued pursuant to Section 5.4 below. -24- SECTION 5.2 - EXPENSES - TAXES - ------------------------------ Except as otherwise specified in this Indemnification Agreement, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection herewith and the transactions contemplated herein, will be borne by the Party incurring such costs and expenses, irrespective of whether or not the Closing takes place. The Beneficiary will pay the registration taxes (droits d'enregistrement) and stamp duties (droits de timbre) due in connection herewith. All expenses and taxes resulting from the operations described in Sections 4.3, 4.4 and 4.6 of the Share Purchase Agreement will be borne by the Sellers, irrespective of whether or not the Closing takes place. SECTION 5.3 - NOTICES - --------------------- All notices, claims, demands and other communications hereunder will be made in writing, given or made by delivery in person, by courier service, registered mail (postage prepared, return receipt requested), telecopy, telegram or telex, to the respective Parties at the following addresses (or at such other addresses as may be specified in a notice given in accordance with this Section 5.3): (a) If to the Beneficiary: DePuy Orthopedie S.A. 2 rue du Bois Sauvage 91000 Evry Telecopy: 01 60 78 17 73 Attention: Bruce de la Grange DePuy, Inc. P.O. Box 988 700 Orthopaedic Drive Warsaw Indiana 46581-0988 U.S.A. Telecopy: (00-1) 219 269 5675 Attention: Legal Department DePuy International Ltd. St. Anthony's Road Leeds Yorkshire LS11 8DT U.K. Telecopy: (00-44) 113 272 4192 Attention: Legal Department with a copy to: Coudert Brothers 1114 Avenue of the Americas -25- New York, N.Y. 10036-7703 U.S.A. Telecopy: (00-1) 626 4120 Attention: Jeffrey Cohen and to: Coudert Freres, 52, Avenue des Champs-Elysees 75008 Paris France Telecopy: (00-33) 1 53 83 60 60 Attention: Olivier de Precigout (b) If to the Guarantors: Mr. Patrick Landanger 85, quai d'Orsay 75007 Paris France Mr. Eric Landanger 15, rue des Acacias 52000 Jonchery France Ms. Maryvonne Guibert 9, boulevard Gambetta 52000 Chaumont France with a copy to: Desfilis, Juchs & Associes 49 bis, Avenue F.D. Roosevelt 75508 Paris France Telecopy: (00-33) 1 45 63 29 68 Attention: Maitre J.L. Desfilis A notice will be deemed to have been duly made or given: (a) in the case of personal delivery, by the giving of a receipt of delivery of such notice from the addressee, or from any person working at its above- mentioned address, (b) in the case of a registered letter or a courier delivery, upon first presentation of such notice at the address of the addressee; and -26- (c) in the case of a transmission by telecopy, telegram or telex, upon the existence of proof of transmission, confirmed by registered letter with return receipt requested sent at the latest on the first business day following the date of such transmission. SECTION 5.4 - PUBLIC ANNOUNCEMENTS - ---------------------------------- Neither Party hereto will make, or cause to be made, any press releases or public announcements in respect of this Indemnification Agreement, the Share Purchase Agreement or the transactions contemplated hereby and thereby without prior approval of the other Party, and the Parties will cooperate as to the timing and contents of any such announcement. Nothing in this Section 5.4 will prevent a Party from supplying any information as may be required by any public authority or as will be required by law, but such Party will furnish notice thereof to the other Party as soon as practicable given the circumstances. SECTION 5.5 - SEVERABILITY - -------------------------- If any term or other provision of this Indemnification Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Indemnification Agreement will, nevertheless, remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties will negotiate in good faith to modify this Indemnification Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. SECTION 5.6 - LANGUAGES - ----------------------- This Indemnification Agreement is entered into and executed in the French and English languages. In the event of any disputes concerning the construction or meaning of this Indemnification Agreement, the French version will prevail. SECTION 5.7 - ENTIRE AGREEMENT - ------------------------------ Except as provided in the Share Purchase Agreement, this Indemnification Agreement constitutes the entire agreement of the Parties hereto with respect to the subject matter hereof, and supersedes all agreements and undertakings, both written and oral, between the Guarantors and the Beneficiary, or any of the companies of the group to which each Party belongs, prior to the date hereof with respect to the subject matter herein. SECTION 5.8 - WAIVERS, MODIFICATIONS OR AMENDMENTS - -------------------------------------------------- -27- No waiver, modification or amendment of any provision of this Indemnification Agreement will be valid, or of any force or effect, unless made in writing and signed by each of the Parties hereto, and specifying with particularity the nature and extent of such waiver, modification or amendment. Any such waiver, modification or amendment will in no event be construed to be a general waiver, abandonment, modification or amendment of any of the provisions of this Indemnification Agreement, but the same will be strictly limited and restricted to the extent and occasion specified in such writing or writings signed by the Parties. SECTION 5.9 - SECTION HEADINGS - EXHIBITS - ----------------------------------------- The table of contents to this Indemnification Agreement and the headings of particular sections herein are inserted only for convenience and are in no way to be construed as part of this Indemnification Agreement or as a limitation of the scope of the particular sections to which they refer. Each Exhibit to this Indemnification Agreement constitutes an integral part hereof; and all references to this Indemnification Agreement will include all Exhibits hereto. SECTION 5.10 - ASSIGNMENT - SUCCESSORS AND ASSIGNS - -------------------------------------------------- Neither this Indemnification Agreement nor any rights, liabilities or obligations hereunder may be assigned without the express written consent of the other Party hereto (which consent will be given or refused at the discretion of each of the Parties), although the Beneficiary will be entitled to assign all of its rights and undertakings hereunder to any company belonging to the Beneficiary's Group, as specified in Section 2.1 of the Share Purchase Agreement, the Beneficiary remaining liable for performance of the obligations of assignee herein and in the Share Purchase Agreement. This Indemnification Agreement will be binding upon and inure to the benefit of successors and permitted assigns of the Parties hereto. SECTION 5.11 - SPECIFIC PERFORMANCE - ----------------------------------- The Parties hereto agree that they will be entitled to specific performance of the terms hereof, insofar as permitted under French law. SECTION 5.12 - GOVERNING LAW - DISPUTES - --------------------------------------- This Indemnification Agreement will be governed by, and construed in accordance with, French law. -28- All disputes arising in connection with this Indemnification Agreement will be settled by the competent Paris courts. Executed in five (5) original counterparts, In Paris, On April 1, 1997 FOR THE GUARANTORS: FOR THE BENEFICIARY: Patrick Landanger Bruce de la Grange - ----------------- ------------------ Patrick Landanger DePuy Orthopedie S.A. By : Bruce de la Grange Title : Directeur General Eric Landanger - -------------- Eric Landanger Maryvonne Guibert - ----------------- Maryvonne Guibert LIST OF EXCLUDED SCHEDULES Exhibit 2.1.3(a) List of direct or indirect majority-owned subsidiaries Exhibit 2.1.3(c) Share issuances by subsidiaries Exhibit 2.1.3(d) Subsidiary holdings Exhibit 2.1.4(a) List of minority shareholdings Exhibit 2.1.4(c) Shares issuances by minority shareholdings Exhibit 2.1.4(d) Holdings by minority shareholdings Exhibit 2.2.1 Organization of subsidiaries and minority shareholdings Exhibit 2.2.4 Permits Exhibit 2.2.5 Title to assets Exhibit 2.4.1 Financial statements Exhibit 2.4.3 Liens Exhibit 2.4.5 Contingent liabilities Exhibit 2.4.6 Calculation of debt over cash Exhibit 2.5.2 Debts due by Geyser S.A. to Landanger-Camus and its subsidiaries Exhibit 2.7.1 Litigation Exhibit 2.7.3 Compliance with governmental regulations Exhibit 2.8.1.A Patents and trademarks Exhibit 2.8.1.B Patent and trademark licenses Exhibit 2.8.4 Infringement Exhibit 2.10.1.A Real property Exhibit 2.10.1.B Leased real property Exhibit 2.10.4 Fillinge real property Exhibit 2.11.3 Personal property liens Exhibit 2.11.4 Third party personal property interests Exhibit 2.12.2 Contracts Exhibit 2.12.3 Administrative Proceedings Exhibit 2.12.5 Patents Exhibit 2.13.1 Employees Exhibit 2.13.3 Employee compensation Exhibit 2.13.4 Labor relations Exhibit 2.13.5 Employment agreements Exhibit 2.14.1 Employee benefit plans Exhibit 2.15.2(d) Tax assessments Exhibit 2.18.2 Insurance claims Exhibit 2.19.1(i) Related party transactions Exhibit 2.19.1(ii) Related party rights in assets Exhibit 2.20 Product liability EX-2.3 4 TRADEMARK ASSIGNMENT On behalf of the Registrant, the undersigned hereby certifies that the following exhibit provides a fair and accurate English translation of the material contained in the original, the official language of which is French. DEPUY, INC. By: /s/ Steven L. Artusi --------------------- Steven L. Artusi Senior Vice President, General Counsel and Secretary By: /s/ Thomas J. Oberhausen ------------------------ Thomas J. Oberhausen Senior Vice President and Chief Financial and Accounting Officer EXHIBIT 2.3 PARTIAL TRADEMARK ASSIGNMENT AND TRADEMARK COEXISTENCE AGREEMENT BETWEEN: - - Landanger-Camus, a joint stock company with a capital of FF 21,636,700, registered with the Commercial Registry of Chaumont under the number B 347 558 371, having its registered office at Z.I. "La Vendue," rue de Val, 52000 Chaumont, represented by Patrick Landanger, President of the Directory, duly authorized for the purposes hereof, (hereinafter referred to as "the Assignor"), ON THE ONE HAND, AND: - - Landanger S.A.R.L., a limited liability company with a capital of FF 1,100,000, having its registered office at 9 boulevard Marechal de Lattre de Tassigny, 52000 Chaumont, in the process of being registered with the Commercial Registry of Chaumont. (hereinafter referred to as "the Assignee"), and - - Mr. Patrick Landanger, a French citizen domiciled at 85, quai d'Orsay, 75007 Paris, France; - - Mr. Eric Landanger, a French citizen domiciled at 15, rue des Acacias, 52000 Jonchery, France; and - - Ms. Maryvonne Guibert, a French citizen domiciled at 9, boulevard Gambetta, 52000 Chaumont, France; - - Mrs. Renee Landanger, a French citizen domiciled at 10, rue de Dijon, 52000 Chaumont, France; - - Mr. Louis Landanger, a French citizen domiciled at 10, rue de Dijon, 52000 Chaumont, France; (hereinafter referred to as "the Landanger Family") ON THE OTHER HAND, -2- WITNESSETH - ---------- 1. Under a share purchase agreement signed on 28 February 1997 (hereinafter referred to as the "Share Purchase Agreement"), Patrick Landanger, Eric Landanger, Maryvonne Guibert, Michel Colombier, Renee Landanger, Louis Landanger, Martine Bonnaventure and Guy Bonnaventure (hereinafter referred to as the "Sellers") have agreed to sell to DePuy, Inc., a corporation incorporated and existing under the laws of Delaware, United States of America, having its principal office at 700 Orthopaedic Drive, Warsaw, IN 46581-0988, United States of America, who itself has transferred all of its rights and obligations under the Share Purchase Agreement to DePuy Orthopedie S.A., a limited liability corporation with a capital of FF 4,430,000, having its registered office at 2, rue du Bois Sauvage, 91000 Evry (hereinafter referred to as the "Purchaser") their direct and indirect controlling stake in Landanger-Camus via the sale of all of the shares and voting rights they hold in 3L, and the shares and voting rights they hold in Landanger-Camus, subject to satisfaction of several conditions precedent contained in the Share Purchase Agreement. Pursuant to the Share Purchase Agreement, the Purchaser has acquired in particular the indirect control of Landanger-Landos, a subsidiary of Landanger- Camus. 2. One of the conditions precedent provided under the Share Purchase Agreement is stated in Section 4.4 of said Agreement, which states that the general surgical instruments activity carried out by Landanger-Camus (consisting in products used in general surgery and the corresponding sterilization boxes, but excluding all trauma products and all orthopedic ancillary instruments) will have been transferred, pursuant to applicable laws and regulations, to a single third party company, and the shares received by Landanger-Camus in consideration for such activity will have been sold to any of the Sellers. 3. The transfer of the activity described above in paragraph 2 has been implemented by a Mix Contribution Agreement dated March 20, 1997 to the benefit of Landanger S.A.R.L. 4. Article 6 of the Share Purchase Agreement states: "Section 6.1 Landanger-Camus and the Subsidiaries, for their activities as of the Closing Date : (a) are hereby granted the exclusive right to use the names "Landanger" and "Landanger-Camus"; (b) have been, or will be by the Closing Date at the latest, registered as the exclusive owners of such name with the Institut National de la Propriete Industrielle in France, and with similar organizations in other countries where these companies carry out their respective activities as of the Closing Date; and (c) will retain the exclusive possibility to be registered as the owners of such names for such activities in any other countries. -3- Section 6.2 ----------- Only in respect of the activities indicated in Sections 4.3 and 4.4 above, the Sellers, or the corporate entity created to carry out such activities : (a) are hereby granted the exclusive right to use the name "Landanger"; (b) have been, or will be by the Closing Date at the latest, registered as the exclusive owners of such name with the Institut National de la Propriete Industrielle in France, and with similar organizations in any other countries in which the activities described in Sections 4.3 and 4.4 above are carried out as of the Closing Date; and (c) will retain the exclusive possibility to be registered as the owners of such names for the activities described in Sections 4.3 and 4.4 above in any other countries. Section 6.3 ----------- Landanger-Camus is hereby definitively granted the exclusive right to use the patronymic "Landanger-Camus" as its corporate name. Section 6.4 ----------- For any activities other than those carried out by 3L, Landanger-Camus and the Subsidiaries as of the Closing Date and the activities described in Sections 4.3 and 4.4 above, neither Party will have the possibility to use the names "Landanger" and "Landanger-Camus" and to be registered as the owner of same without the prior written consent thereto of the other Party. All necessary steps, and in particular contractual steps, will be taken at the latest by the Closing in order to validly implement the above." 5. In addition, Section 3.2 of the Share Purchase Agreement provides that at the Closing, the Sellers will deliver or will cause to be delivered to the Purchaser executed copies of agreements implementing the principles set forth in Section 6 of the Share Purchase Agreement, and copies of the relevant registration certificates issued by the National Institute of Industrial Property. 6. The Sellers wish to use the name Landanger only for the general surgical instruments activity described in Article 4.4 of the Share Purchase Agreement. -4- 7. In order to implement the agreement provided under the Share Purchase Agreement, the parties hereto agree, in the terms described below, upon a partial assignment of the trademark "Landanger", of which the Assignor is the holder. Such partial assignment is made together with a coexistence agreement of the two "Landanger" trademarks resulting from the assignment and of the commercial names "Landanger", in order to avoid risks of confusion, the Assignor and the Assignee having close respective fields of activity. This Partial Trademark Assignment and Trademark Coexistence Agreement will be interpreted and construed in light of the terms of the Share Purchase Agreement. ARTICLE 1 - DEFINITION ---------- 1.1 All terms contained herein beginning with a capital letter and not defined below are defined in the Share Purchase Agreement, and will have the meaning set forth therein. 1.2 "Trademark" designates: (i) the French nominal trademark LANDANGER filed at the INPI under number 845 160 on March 17, 1987, registered under number 1399097 in classes 10, 11, 9, 12, 20, 35, 37, 42, and published in the BOPI 1987 volume 34 page 78 and renewed on January 27, 1997 pursuant to filing number 000944. The Trademark is filed for the goods and services listed in the registration certificate attached hereto (Exhibit 1) ; and (ii) the foreign nominal trademarks LANDANGER, in the countries a list of which is annexed hereto (Exhibit 2). ARTICLE 2 - ASSIGNMENT ---------- 2.1 The Assignor assigns to the Assignee, who accepts, the ownership of the Trademark only for the products and services listed in Exhibit 3 and only for such products and services corresponding to the surgical and sterilisation instruments business transferred by Landanger-Landos to Landanger S.A.R.L. and mentioned in Section 4.4 of the Share Purchase Agreement, as exercised as of the Closing Date. 2.2 Landanger-Camus retains the full and entire ownership of the Trademark for goods and services corresponding to its activities and the activities of its Subsidiarie s. 2.3 Landanger S.A.R.L. and the Landanger Family will not in any manner whatsoever, directly or indirectly, and particularly by way of any other entity which they may create, use the Trademark for: (i) the manufacturing, sale, marketing, research or development of orthopaedic devices ; (ii) any products or services competing in any manner whatsoever with any products or services manufactured, sold or offered by 3L, Landanger-Camus or the Subsidiaries ; and -5- (iii) more generally, for any products or services manufactured, sold or offered other than within the exercise of the general surgical instruments business mentioned in Section 4.4 of the Share Purchase Agreement. 2.4 The formalities regarding this partial assignment of the Trademark in France and in all other countries where the Landanger S.A.R.L. exercises its activities will be carried out by Landanger S.A.R.L. at its expense. ARTICLE 3 - THE COEXISTENCE OF TRADEMARKS ----------------------------- 3.1 The Assignor and Assignee agree to accept as necessary for the implementation of the agreements referred to above, the coexistence of their respective LANDANGER nominal trademarks, without this coexistence agreement broadening the scope of the assignment as defined in Article 2 and according to the following conditions: - the packaging of goods bearing the nominal trademark LANDANGER belonging to the parties should be such that they might not be confused with one another; - the Trademark belonging to the Assignee as a result of this assignment will always be used with a different logotype than that usually used by the Assignor for the Trademark, except for the existing inventory as of the date hereof. 3.2 Landanger S.A.R.L. and the Landanger Family accept the coexistence of their nominal trademark LANDANGER for the goods and services listed above in section 2.1, with the exclusive right of Landanger-Camus to use the name and/or the trademark LANDANGER-CAMUS for all the activities exercised by Landanger-Camus or the Subsidiaries. 3.3 Landanger S.A.R.L. and the Landanger Family accept the coexistence of their nominal trademark LANDANGER for the goods and services listed above in section 2.1, with the exclusive right of Landanger-Landos to use the name and/or the trademark LANDANGER-LANDOS for all the activities exercised by Landanger-Landos. ARTICLE 4- PRICE ----- The present assignment is free of charge for the reasons stated in the preamble. ARTICLE 5- GUARANTEES ---------- The Assignor does not grant any guarantees other than those resulting from the Trademark's material existence, as it has been filed, registered and renewed under the control of the Landanger Family. -6- In the event that the Trademark would be declared void or lost by a court decision, Landanger S.A.R.L. and the Landanger would not have any right to any compensation of any kind whatsoever. ARTICLE 6 - GOVERNING LAW ------------- This agreement is governed by French law. ARTICLE 7 - JURISDICTION ------------ All disputes arising from the present agreement will be settled by the competent Paris courts. ARTICLE 8 - PUBLICATION ----------- All powers are given to the holder of an original copy of this document to secure or carry out all formalities, registration, publication, and filing everywhere and in all administrative agencies when necessary. Executed in Paris, in four (8) counterparts, one of which for the National Institute of Industrial Property ("Institut National de Propriete Industrielle"). On April 1st, 1997 Landanger-Camus Landanger S.A.R.L. - ------------------------- ---------------------------- Landanger-Camus Landanger S.A.R.L. Patrick Landanger Eric Landanger - --------------------------- ------------------------ Patrick Landanger Eric Landanger Maryvonne Guibert Renee Landanger - --------------------------- ------------------------- Maryvonne Guibert Renee Landanger Louis Landanger - ------------------------- Louis Landanger LIST OF EXCLUDED SCHEDULES Exhibit 1 Registration certificate of French nominal trademark LANDANGER Exhibit 2 List of countries of foreign nominal trademark LANDANGER Exhibit 3 Products and Services EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND AS OF JUNE 30, 1997, FOR THE THREE MONTHS IN THE PERIODS ENDED JUNE 30, 1996 AND JUNE 30, 1997 AND FOR THE SIX MONTHS IN THE PERIODS ENDED JUNE 30, 1996 AND JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 124,421 5,389 152,927 15,250 164,473 525,417 101,652 112,857 1,008,120 212,999 0 0 0 986 719,379 1,008,120 392,586 392,586 123,440 123,440 29,691 0 2,774 93,673 29,928 63,761 0 0 0 63,761 0.65 0.65
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