-----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, R/7zUroRw2YdLIAZEcBhiARV8bgysav949d9GDP4uksUg1jQ4vZxtMypOrVHTmm4 tA2RXWfB7pY43+d/N+EFzA== 0000064892-99-000018.txt : 19990817 0000064892-99-000018.hdr.sgml : 19990817 ACCESSION NUMBER: 0000064892-99-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MENTOR CORP /MN/ CENTRAL INDEX KEY: 0000064892 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 410950791 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-07955 FILM NUMBER: 99692969 BUSINESS ADDRESS: STREET 1: 5425 HOLLISTER AVENUE CITY: SANTA BARBARA STATE: CA ZIP: 93111 BUSINESS PHONE: 8056816000 MAIL ADDRESS: STREET 1: 5425 HOLLISTER AVENUE CITY: SANTA BARBARA STATE: CA ZIP: 93111 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington D.C. FORM 10-Q Quarterly Report Under Section 13 or 15(d) Of the Securities Exchange Act of 1934 For Quarter Ended June 30, 1999 Commission File Number 0-7955 Mentor Corporation (Exact name of registrant as specified in its charter) Minnesota 41-0950791 (State of Incorporation) (I.R.S. Employer Identification Number) 201 Mentor Drive, Santa Barbara, California 93111 Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number: (805) 879-6000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 of 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 outstanding for each of the Issuer's classes of common stock as of August 13, 1999 was: Common stock, $.10 par value 24,377,337 shares Mentor Corporation INDEX Part I. Financial Information Item 1. Financial Statements (unaudited) Condensed Consolidated Statements of Financial Position -- June 30, 1999 and March 31, 1999 Consolidated Statements of Income -- Three Months Ended June 30, 1999 and 1998 Condensed Consolidated Statements of Cash Flows -- Three Months Ended June 30, 1999 and 1998 Notes to Condensed Consolidated Financial Statements-- June 30, 1999 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Part II. Other Information Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K List of Exhibits 11. Statement Regarding Computation of Per Share Earnings Mentor Corporation Condensed Consolidated Statements of Financial Position June 30, 1999 and March 31, 1999 (Unaudited) June 30, March 31, (dollars in thousands) 1999 1999 ASSETS Current assets: Cash and marketable securities $ 56,849 $ 21,621 Accounts receivable, net 38,111 37,431 Inventories 31,371 30,552 Deferred income taxes 8,619 7,919 Net assets of discontinued operations 6,158 39,899 Prepaid Expenses and Other 8,065 7,640 Total current assets 149,173 145,062 Property, plant and equipment, net of accumulated depreciation 36,624 34,995 Other assets: Patents, licenses and trademarks net of accumulated amortization 2,193 2,342 Goodwill, net of accumulated Amortization 4,746 4,885 Long term marketable securities and investment 9,786 8,356 Other assets 371 53,348 50,949 Total assets $ 202,522 $ 196,011 See Notes to Condensed Consolidated Financial Statements Mentor Corporation Condensed Consolidated Statements of Financial Position June 30, 1999 and March 31, 1999 (Unaudited) June 30, March 31, (dollars in thousands) 1999 1999 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,979 $ 5,726 Accrued compensation 4,822 7,049 Income taxes payable 1,400 3,770 Dividends payable 611 612 Sales returns 5,338 5,126 Self-insured retention 4,850 3,700 Accrued royalties 1,649 1,076 Other accrued liabilities 6,017 4,171 Short-term borrowings and current Portion of long-term debt 4,000 Total current liabilities 29,666 35,230 Long-term deferred taxes 3,491 2,163 Shareholders' equity: Common shares, $.10 par value: Authorized 50,000,000 shares Issued and outstanding: 24,451,837 shares at June 30,1999 24,548,537 shares at March 31, 1999 2,445 2,455 Capital in excess of par 19,017 21,502 Cummulative transalation Adjustment (1,869) (1,141) Unrealized gains on investments 1,549 880 Retained earnings 148,223 134,922 169,365 158,618 Total liabilities and shareholders' Equity $ 202,522 $ 196,011 See Notes to Condensed Consolidated Financial Statements Mentor Corporation Consolidated Statements of Income Three Months Ended June 30, 1999 and 1998 (Unaudited) (in thousands, except per share data) 1999 1998 Net sales $ 60,144 $ 48,084 Costs and expenses: Cost of sales 21,520 15,191 Selling, general and Administrative 24,531 19,054 Research and development 4,126 3,121 50,177 37,366 Operating income from continuing Operations 9,967 10,718 Interest expense (19) (10) Interest income 175 377 Other income (expense) 73 (67) Income from continuing operations before income taxes 10,196 11,018 Income taxes 3,220 3,705 Income from continuing operations 6,976 7,313 Income from discontinued 6,937 526 operations, net of tax Net income $ 13,913 $ 7,839 Basic earnings per share: Continuing operations .28 .29 Discontinued operations .29 .02 Basic earnings per share $ .57 $ .31 Diluted earnings per share: Continuing operations .28 .28 Discontinued operations .28 .02 Diluted earnings per share $ .56 $ .30 See notes to consolidated financial statements Mentor Corporation Condensed Consolidated Statements of Cash Flows Three Months Ended June 30, 1999 and 1998 (Unaudited) (in thousands) 1999 1998 Cash flows from continuing operating activities $ 5,198 $ 10,976 Cash flows from discontinued Operating activities 2,318 1,264 Cash flows from operating activiites 7,516 12,240 Cash flows from investing activities: Purchase of property, equipment, and intangibles (3,453) (4,676) Other (105) 18 Cash flows from continuing investing activities (3,558) (4,658) Cash flows from discontinued investing activities 38,377 (454) Cash flows from investing activities 34,819 (5,112) Cash flows from financing activities: Exercise of stock options 994 287 Dividends paid (613) (620) Reduction of debt (4,000) Repurchase of common stock (3,488) (7,107) (333) Increase (decrease) in cash, cash equivalents, and marketable securities 35,228 6,795 Cash at beginning of period 21,621 27,937 Cash at end of period $ 56,849 $ 34,732 See notes to consolidated financial statements Mentor Corporation Notes to Condensed Consolidated Financial Statements June 30, 1999 Note A The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S- X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ended March 31, 2000. The balance sheet at March 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended March 31, 1999. Note B Inventories at June 30, 1999 and March 31, 1999 consisted of: June 30 March 31 (In thousands) Raw materials $ 8,407 $ 7,640 Work in process 8,497 6,563 Finished goods 14,467 16,349 $ 31,371 $ 30,552 Note C Other assets at June 30, 1999 include the Company's equity investments in its marketing partners, Intracel Corporation and North American Scientific, Inc. (NASI). The Intracel Corporation investment is valued at cost of $6 million. In accordance with Financial Accounting Standards Board (FASB) statement 115 "Accounting of Certain Equity Investments in Debt and Equity Securities", the North American Scientific investment is carried at its fair market value of approximately $3.4 million. Unrealized gains, net of the related tax effect, are accounted for as a separate component of shareholders' equity. Note D The Company has adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and display of an alternative income measurement and its components (revenue, expenses, gains and losses) in a full set of general purpose financial statements. Total comprehensive income includes net earnings, net unrealized currency gains and losses on translation and net unrealized gains and losses on securities. The components of comprehensive income for the three months ended June 30, 1999 and 1998 are listed below: (in thousands) 1999 1998 Net income $ 13,913 $ 7,839 Foreign currency translation adjustment (728) 71 Unrealized gains on investment activities 669 (1,100) Comprehensive income $ 13,854 $ 6,810 Note E The Company has adopted Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards under which companies report information about operating segments in financial statements. The Company's operations are principally managed on a functional basis and reported on a product or geographic basis. As a result there are four reportable segments: Aesthetic and General Surgery, Surgical Urology, Clinical and Consumer Healthcare products, and International. The Aesthetic and General Surgery products segment consists primarily of breast implants, tissue expanders and the Company's Contour Genesis Ultrasonic equipment product line along with equipment and disposables for traditional liposuction. The Surgical urology segment includes impotence implants, surgical incontinence products and radioactive seeds for the treatment of prostate cancer. The Clinical and Consumer Healthcare products segment includes catheters and other products for the management of urinary incontinence. The International segment includes the operations of the Company's wholly owned international sales offices, which cover most of the Company's implantable product lines, and a small European manufacturing and distribution facility. Segment revenues include domestic sales, sales to independent foreign distributors and sales to the Company's direct international sales and offices. Selected financial information for the Company's reportable segments for the quarter ended June 30, 1999 and 1998 follows: Three Months Ended June 30, (in thousands) 1999 1998 Revenues Aesthetics and General Surgery $ 34,154 $ 27,591 Surgical Urology 10,473 6,531 Clinical and Consumer Healthcare 9,802 9,179 International 10,849 9,016 Total reportable segments 65,278 52,317 Elimination of inter-segment revenues (5,134) (4,233) Total consolidated revenues 60,144 48,084 Three Months Ended June 30, (in thousands) 1999 1998 Operating profit (loss) from continuing operations Aesthetics and General Surgery $ 11,328 $ 9,442 Surgical Urology 599 479 Clinical and Consumer Healthcare 1,204 1,812 International 1,946 1,309 Operating profit from continuing operations of reportable segments 15,077 13,042 Corporate operating loss (5,109) (2,324) Interest expense (19) (10) Interest income 175 377 Other income (loss) 72 (67) Income from continuing operations before taxes $ 10,196 $ 11,018 June 30, 1999 1998 Identifiable assets Aesthetics and General Surgery $ 50,430 $ 51,079 Surgical Urology 18,752 21,416 Clinical and Consumer Healthcare 26,450 22,632 International 22,439 18,540 Total reportable segments 118,071 113,667 Corporate and other 78,293 48,113 Net assets of discontinued operations 6,158 45,842 Consolidated assets $ 202,522 $ 207,622 Note F In May 1999, the Company announced that its Board of Directors had decided to divest the ophthalmology business, which accounted for approximately 16% of sales in fiscal 1999. Consistent with the plan to dispose of its ophthalmic business segment, the net assets and operations of the ophthalmic segment of the business, comprised of the intraocular lens products and ophthalmic equipment lines have been classified as discontinued operations. Summaries of the results of operations for discontinued operations for the quarters ended June 30, 199 and 1998 are as follows: Three Months Ended June 30, (in thousands) 1999 1998 Revenues $ 9,078 $ 8,933 Operating profit 566 684 Gain on sale of intraocular lens assets 11,300 - Income before income taxes 11,866 684 Income tax expense 4,929 158 Net income from discontinued Operations $ 6,937 $ 526 The assets and liabilities of discontinued operations have been classified in the balance sheet as net assets of discontinued operations and consist of the following: June 30, March 31, (in thousands) 1999 1999 Accounts receivable, net $ 3,311 $ 7,981 Inventory 5,321 17,687 Property, plant & equipment, net 294 3,985 Intangibles and goodwill, net 7,727 12,098 Other 328 4,525 Total assets 16,981 46,276 Current liabilities 5,964 6,377 Taxes payable 4,859 - Net assets of discontinued operations $ 6,158 $ 39,899 During the quarter ended June 30, 1999, the Company completed the sale of the assets of the intraocular lens business, for cash consideration of $38.4 million. The Company recorded a gain of $7.5 million, net of $3.8 million in taxes. Note G The Company's three quarterly interim reporting periods are each approximately thirteen week periods ending on the Friday nearest the end of the third calendar month. The fiscal year end remains March 31. To facilitate ease of presentation, each interim period is shown as if it ended on the last day of the appropriate calendar month. The actual dates on which each quarter ended are shown below: Fiscal 2000 Fiscal 1999 First Quarter July 2, 1999 June 26, 1998 Second Quarter October 1, 1999 September 25, 1998 Third Quarter December 31, 1999 January 1, 1999 Mentor Corporation Management's Discussion and Analysis of Results of Operations and Financial Condition Except for the historical information contained herein, the matters discussed in this Management's Discussion are forward- looking statements, the accuracy of which is necessarily subject to risks and uncertainties. Actual results may differ significantly from the discussion of such matters in the forward looking statements. Potential risks and uncertainties include, without limitation, those mentioned in this report and, in particular, the factors described under "Factors That May Affect Future Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999. In May 1999, the Company announced that its Board of Directors had decided to divest the ophthalmology business, which accounted for approximately 16% of sales in fiscal 1999. The Company has completed the sale of the assets of the intraocular lens business. The remaining parts of the ophthalmic business are currently being actively marketed. As a result of this decision, the Company now accounts for the ophthalmic business as a "Discontinued Operation" under Generally Accepted Accounting Principles (GAAP). Accordingly, all sales and expenses and other financial information of the ophthalmic business are reported, on a net basis, as a single line on the financials. All prior period amounts presented in this Form 10-Q have been restated to exclude the results of the ophthalmic business as appropriate. RESULTS OF OPERATIONS Sales Sales for the three months ended June 30, 1999 increased 25% to $60.1 million, compared to $48.1 million the prior year. Growth was particularly strong in sales of surgical urology products, increasing 58% compared to a year ago. Adding to urology product sales were two new products that were introduced in the last year, brachytherapy seeds for the treatment of prostate cancer, and the Suspend sling for treating female urinary incontinence. Sales of these products accounted for the majority of the increased revenues. Sales of penile implants increased 10% from the previous year, showing the first positive comparison since the introduction of Viagra, a new impotence drug, last year. The Company continues to believe that the interest created by Viagra in treating impotence bodes well for the long term prospects of penile implant sales, as Viagra will not work on all patients. Sales of Aesthetics & general surgery products were also strong in the quarter, increasing 23%. The Company is implementing a number of programs to recapture market share in this area. Clinical and consumer healthcare product sales, primarily for the management of urinary incontinence, increased 8%. Sales by Principal Product Line For the Three Months Ended June 30, Percent 1999 1998 Change Aesthetic & General Surgery Products $38,756 $31,457 23% Surgical Urology Products 10,925 6,929 58% Clinical & Consumer Healthcare Products 10,463 9,698 8% $60,144 $48,084 25% Cost of Sales Cost of sales was 35.8% for three months ended June 30, 1999 compared to 31.6% for the same period last year. Cost of sales in the period ended June 30, 1998 benefited from approximately $2.2 million in proceeds from the Company's insurance claim related to the fire at its Texas facility in 1997. In May 1998, the Company entered into a voluntary consent decree with the FDA in relation to the Texas facility. This resulted from issues the FDA had had concerning the Company's validations of this facility. The agreement required the Company to re- validate certain of the Company's manufacturing processes, strengthen its continuous quality improvement program, and to contract for an independent audit on overall GMP compliance under a schedule agreed to by the Company and the FDA. As a result of the re-validation effort, the Company has experienced a higher than normal level of operating expenses over the past two years. Mentor believes that to date it has completed in a timely fashion all the activities called for in the agreement. Specifically, the Company has completed the re-validations of the plant and has had a GMP expert consultant conduct the first annual inspection. Should the Company fail to comply with the conditions of the consent decree, under its terms, the FDA is allowed to order the Company to stop manufacturing or distributing breast implants, order a recall or take other corrective actions. The Company may also be subject to penalties of $10,000 per day until the task is completed. Selling, General and Administrative Expenses Selling, General and Administrative expenses were 40.8% of sales in the quarter compared to 39.6% in the previous year. In the first quarter, the Company began a direct consumer advertising campaign. The purpose of the ads is to educate women about breast augmentation and reconstruction, and to stimulate interest in looking at these products as an effective and affordable surgical option. The Company spent approximately $1.5 million on this campaign. Also, in the last year the Company has increased its selling efforts in both brachytherapy and in body contouring. In addition, during the first quarter, the Company launched a new brachytherapy product, the PdGold, to complement its existing IoGold seed. Research and Development Research and development expenses were 6.9% of sales for the quarter, compared to 6.5% for the prior year. The Company continues to spend funds on its premarket approval applications ("PMAAs") for its saline breast implants, silicone gel filled breast implants, and penile implants. The Company is committed to a variety of clinical and laboratory studies in connection with these products. The Company expects to complete the work on its saline filled breast implant PMAAs and its penile implant PMAA and submit the data to the FDA by the end of fiscal 2000. Other major studies underway include an alternate filler breast implant and extending the use of the Contour Genesis to include liposuction. Interest and Other Income and Expense Net interest income decreased from $367 thousand last year to $156 thousand this year, due to lower cash balances. Income Taxes The effective rate of corporate income taxes was 31.6% for the quarter, compared to 33.6% in the same period a year ago. The decrease results from tax credits in prior years not previously provided for. Discontinued Operations In May 1999, the Company announced that its Board of Directors had decided to divest the ophthalmology business, which accounted for approximately 16% of sales in fiscal 1999. As a result of this decision, the Company now accounts for the ophthalmic business as a "Discontinued Operation" under Generally Accepted Accounting Principles (GAAP). For the quarter, the Company had a loss on discontinued operations of $537, net of tax, compared to a gain of $526 thousand, net of tax, in the prior year. Also, during the quarter, the Company completed the sale of the assets of the intraocular lens business, recording a gain of $7.5 million, net of tax. Net Income Diluted earnings per share from continuing operations was $0.28 for the quarter, the same as last year. The loss from discontinued operations was $0.02 for the quarter, compared to a gain of $0.02 a year ago. Also included in discontinued operations was a gain of the sale of the intraocular lens business of $0.30. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1999, the Company's working capital was $99.8 million compared to $106.8 million at March 31, 1999. The Company's working capital needs were provided from operations. The Company generated $5.2 million of cash from continuing operations during the three months ended June 30, 1999, compared to $11.0 million the previous year. During the quarter ended June 30, 1998, the Company received $5.0 million in insurance proceeds related to its claim regarding the fire in its Texas facility. The Company anticipates investing approximately $12 million in facilities and capital equipment in fiscal 2000. The majority of the expenditures will be for facility upgrades at the Company's facilities in Texas and Santa Barbara, as well as for enhancing the Company's information technology capabilities. The Company has a line of credit for $25 million. As a result of the increased stock repurchases in fiscal 1999, the Company had a balance of $4.0 million on its line of credit at March 31, 1999. This amount was paid off during the first quarter. For the last several years, the Company has paid a quarterly cash dividend of $.025 per share. At the indicated rate of $.10 per year, the aggregate annual dividend would equal approximately $2.5 million. The Company's Board of Directors has authorized an ongoing stock repurchase program. The objectives of the program, among other items, are to offset the issuance of stock options, provide liquidity to the market and to reduce the overall number of shares outstanding. Repurchases are subject to market conditions and cash availability. In May 1999, the Board increased the repurchase authorization by 4 million shares, to a total of 4.6 million. During the quarter, the Company repurchased approximately 250 thousand shares for consideration of $3.8 million. As discussed above, during the quarter the Company completed the sale of the assets of the intraocular lens business, for cash consideration of $38.4 million. The Company's principal source of liquidity at June 30, 1999 consisted of $56.8 million in cash and marketable securities plus $25 million available under its line of credit. IMPACT OF YEAR 2000 General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non- IT Systems The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs, hardware or embedded chips that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Based on recent assessments, the Company determined that it will be required to modify or replace portions of its distribution, finance and manufacturing software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Company presently believes that with modifications or replacements of certain existing software and hardware, the Year 2000 Issue can be mitigated. However, if such modifications and replacements are not made, or are not completed in a timely manner, the Year 2000 Issue could have a material impact on the operations of the Company. The Company's plan to resolve the Year 2000 Issue involves the following key phases: inventory, assessment and remediation. The Company has categorized its systems into several areas: core systems (i.e. distribution, finance and manufacturing systems), ancillary support systems to those core systems, embedded systems, products, and third party vendors. Inventory and Assessment The Company has completed its inventory and assessment of both its domestic and international core systems, indicating most of the core systems would be adversely affected. For the ancillary support systems and embedded systems, the Company has completed its inventory and assessment. This identified two items that need to be updated. The Company has completed its inventory and assessment of its product lines and has determined that most of the products it has sold and will continue to sell do not require remediation to be Year 2000 compliant. Accordingly, the Company does not believe that the Year 2000 presents a material exposure as it relates to the Company's products. Status of Progress in Becoming Year 2000 Compliant For its domestic core system exposures related to its distribution, finance and manufacturing software, the Company has completed all required remediation. For other domestic core systems, such as desktop computers, networks and off-the shelf application software, the Company is 90% complete on the remediation phase and expects to complete upgrades and/or replacement no later than October 31, 1999. The remediation of the identified ancillary and embedded systems is expected to be complete no later than October 31, 1999. Nature and Level of Importance of Third Parties and their Exposure to the Year 2000 Other than payroll and its banking relationships, the Company has no other significant direct interfaces with third party vendors. The Company is in the process of working with key third party vendors to ensure that the Company's systems that interface directly with third party vendors are Year 2000 compliant by December 31, 1999. The Company understands that key vendors are in the process of making their systems Year 2000 compliant. Each vendor queried by the Company believed that its system would be Year 2000 compliant by the end of 1999. The Company is beginning to query its significant suppliers and subcontractors that do not share information systems with the Company (external agents). To date, the Company is not aware of any external agent with a Year 2000 issue that would materially impact the Company's results of operations, liquidity, or capital resources. The Company has no means of ensuring that external agents will be Year 2000 ready. The inability of external agents to complete their Year 2000 resolution process in a timely fashion could materially impact the Company. The effect of non- compliance by external agents is not determinable at this time. Costs The total cost to the Company of the Year 2000 project is estimated at $3.1 million and is being funded through operating cash flows. To date, the Company has incurred costs of approximately $2.4 million. This amount includes upgrading its desktop systems and office software to the latest release, which the Company would do in the normal course of business. The majority of these costs relate to new hardware and software and are being capitalized. Risks Management of the company believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. The Company has not yet completed all necessary phases of the Year 2000 program. In the event that the Company does not complete any additional phases, the Company would be constrained in taking customer orders, and might be unable to manufacture and ship certain products, or invoice customers. In addition, disruptions in the economy generally resulting from Year 2000 issues could also materially adversely affect the Company. Contingency Plans The Company currently has no contingency plans in place in the event it does not complete all phases of the Year 2000 program. The Company plans to evaluate the status of completion in August 1999 and determine whether such a plan is necessary. PART II Item 1. Legal Proceedings In regards to the litigation reported in Item 3 of the annual report on Form 10-K for the fiscal year ended March 31, 1999, there have been no material changes. Item 2. Changes in Securities No changes have been made in any registered securities. Item 3. Defaults Upon Senior Securities No event constituting a material default has occurred respecting any senior security of the Registrant. Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K 10(a) Asset Purchase Agreement, dated as of May 14, 1999 between Mentor Corporation and CIBA Vision Corporation. 11 Statement regarding computation of Per Share Earnings Pursuant to the requirement 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. MENTOR CORPORATION (Registrant) DATE: August 16, 1999 BY: /s/ANTHONY R. GETTE Anthony R. Gette President and Chief Operating Officer DATE: August 16, 1999 BY: /s/GARY E. MISTLIN Gary E. Mistlin Chief Financial Officer EXHIBIT 11 MENTOR CORPORATION AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Three Months Ended June 30, 1999 1998 Numerator: Net income $ 13,913 $ 7,839 Numerator for basic earnings per share - income available to common stockholders 13,913 7,839 Numerator for diluted earnings per share - income available to common stockholder after assumed conversions $ 13,913 $ 7,839 Denominator: Denominator for basic earnings per share - weighted-average shares 24,522 25,036 Effect of dilutive securities: Employee stock options 507 1,252 Denominator for diluted earnings per share - adjusted weighted- average shares and assumed conversions 25,029 26,288 Basic earnings per share $ .57 $ .31 Diluted earnings per share $ .56 $ .30 Exhibit 10(a) ASSET PURCHASE AGREEMENT dated as of May 14, 1999 between Mentor Corporation and CIBA Vision Corporation TURN SHOW/HIDE OFF BEFORE GENERATING TABLE TABLE OF CONTENTS Page No. ARTICLE 1 - PURCHASE AND SALE OF ASSETS 2 Section 1.1 Purchase and Sale 2 Section 1.2 Excluded Assets 6 Section 1.3 Transfer 7 Section 1.4 Transition Agreement 7 ARTICLE 2 - PURCHASE PRICE 8 Section 2.1 Purchase Price 8 Section 2.2 Accounts Receivable. 8 Section 2.3 Assumption of Liabilities. 10 Section 2.4 Purchase Price Allocation 11 ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SUBSIDIARIES 12 Section 3.1 Organization and Corporate Standing 12 Section 3.2 Corporate Power and Authority 13 Section 3.3 Financial Statements 13 Section 3.4 Absence of Certain Changes and Events 14 Section 3.5 No Violation of Law 15 Section 3.6 Real Property 15 Section 3.7 Title to Assets/Sufficiency 16 Section 3.8 Leases 17 Section 3.9 Litigation 17 Section 3.10 Employees of the Business 18 Section 3.11Collective Bargaining; Employment Contracts 18 Section 3.12 Labor Matters 19 Section 3.13 Environmental Matters. 19 Section 3.14 Permits 23 Section 3.15 Contracts 23 Section 3.16 Required Consents, Approvals and Filings 24 Section 3.17 No Conflict 24 Section 3.18 Intellectual Property 25 Section 3.19 Taxes 25 Section 3.20 Inventory 26 Section 3.21 Key Customers and Representatives 26 Section 3.22 Equipment 27 Section 3.23 Disclosure 27 Section 3.24 Disclaimer 27 ARTICLE 4 - BUYER'S REPRESENTATIONS AND WARRANTIES 28 Section 4.1 Organization 28 Section 4.2 Corporate Power and Authority 28 Section 4.3 Required Consents, Approvals and Filings 28 Section 4.4 No Conflict 29 Section 4.5 Litigation 29 Section 4.6 Financing 30 ARTICLE 5 - COVENANTS OF THE PARTIES 30 Section 5.1 Operations Pending Closing 30 Section 5.2 Access 33 Section 5.3 Preparation of Supporting Documents 34 Section 5.4Approvals of Third Parties; Satisfaction of Conditions to Closing 35 Section 5.5 Hart-Scott-Rodino Notification 35 Section 5.6 Financial and Tax Services 36 Section 5.7 Transfer Taxes 37 Section 5.8 Notice and Opportunity to Cure. 37 Section 5.9 Covenant Not to Compete 39 Section 5.10 Inventory 39 ARTICLE 6 - COVENANTS AS TO EMPLOYEES 39 Section 6.1 Employees and Employee Benefits. 39 Section 6.2 Seller Obligations 41 ARTICLE 7 - CONDITIONS TO SELLER'S OBLIGATIONS 41 Section 7.1Representations and Warranties True at Closing Date; Performance of Agreements 42 Section 7.2 Litigation 42 Section 7.3 Opinion of Counsel to Buyer 42 Section 7.4 Required Governmental Approvals 43 Section 7.5 Other Necessary Consents 43 ARTICLE 8 - CONDITIONS TO BUYER'S OBLIGATIONS 43 Section 8.1Representations and Warranties True at Closing Date; Performance of Agreements 43 Section 8.2 Litigation 44 Section 8.3 Opinion of Counsel to the Seller 44 Section 8.4 Required Governmental Approvals 44 Section 8.5 Other Necessary Consents 44 ARTICLE 9 - CLOSING 45 Section 9.1 Closing 45 Section 9.2 Termination Prior to Closing 45 Section 9.3 Termination of Obligations 47 ARTICLE 10 - INDEMNIFICATION 47 Section 10.1 Seller Indemnification. 47 Section 10.2 Buyer Indemnification 50 Section 10.3 Indemnity Claims. 51 Section 10.4 Deductible 52 Section 10.5 Notice of Claim 52 Section 10.6 Defense 52 Section 10.7 Limitation of Liability 54 Section 10.8 Exclusive Remedy; Release. 54 ARTICLE 11 - MISCELLANEOUS 55 Section 11.1 Expenses 55 Section 11.2 Entire Agreement 56 Section 11.3 Waivers 56 Section 11.4Parties Bound by Agreement; Successors and Assigns 57 Section 11.5 Counterparts 57 Section 11.6 Notices 57 Section 11.7 Brokerage 58 Section 11.8 Governing Law; Jurisdiction 59 Section 11.9 Public Announcements 59 Section 11.10 No Third-Party Beneficiaries 59 Section 11.11 Certain Definitions. 60 Section 11.12 Interpretation 61 SCHEDULES 1.1( Computer Software, Equipment and Databases g) 1.2 Excluded Assets 3.3 Financial Statements and Exceptions to Financial Statements 3.4 Absence of Certain Changes and Events 3.6( Real Property a) 3.6( Permitted Liens b) 3.7 Exceptions to Title 3.8 Equipment and Automobile Leases 3.9 Litigation 3.11 Agreements with Employees 3.12 Labor Matters 3.13 Release of Pollutants 3.14 Permits and Registrations 3.15 Contracts 3.15 Contracts Included in Assets (b) 3.16 Seller Required Consents, Approvals and Filings 3.18 Intellectual Property 3.19 Tax Matters 3.21 Key Customers (a) 3.21 Key Representatives (b) 4.3 Buyer Required Consents, Approvals and Filings 5.1 Operations Pending Closing 5.1( Actions Prior to Closing b) DEFINITIONS Term: First Defined in Section - "Accounts Receivable Listing Section 2.2(a)(1) "Adjusted Accounts Section 2.2(a) Receivable" "Affiliate" Section 11.11 "Agreement" First paragraph of Agreement "Assets" Section 1.1 "Assumed Liabilities" Section 2.3(b) "Business" Section 1.1 "Business Employees" Section 6.1(a) "Buyer" First paragraph of Agreement "Buyer Protected Parties" Section 10.1(a) "Closing" Section 9.1 "Closing Date" Section 9.1 "COBRA" Section 6.1(c) "Code" Section 2.4 "Collected Accounts Section 2.2(b)(1) Receivable" "Contracts" Section 1.1(d) "Deductible" Section 10.4 "Effective Date" First paragraph of Agreement "Environment" Section 3.13(a)(1) "Environmental Law" Section 3.13(a)(2) "Equipment" Section 1.1(e) "Excluded Accounts Section 2.2(a)(1) Receivable" "Excluded Assets" Section 1.2 "Excluded Liabilities" Section 2.3(a) "FTC" Section 5.5 "Financial Statements" Section 3.3 "Governmental Body" Section 3.13(a)(3) "Gross Accounts Receivable" Section 2.2(a)(2) "Hazardous Materials" Section 3.13(a)(5) "hazardous waste" Section 3.13(a)(5) "Hired Employees" Section 6.1(a) "HSR" Section 3.16 "Inaccuracy" Section 5.8(a) "Indemnified Party" Section 10.5 "Indemnifying Party" Section 10.5 "Intellectual Property" Section 3.18 "Justice Department" Section 5.5 "Key Customers" Section 3.21 "Key Representatives" Section 3.21 "knowledge" Section 11.11(b) "Leases" Section 1.1(f) "Losses" Section 10.1(a) "Mark" Section 1.2(g) "MCI" First paragraph of Agreement "MemoryLens" Section 1.1(j) "Mentor" Section 1.2(g) "MOI" First paragraph of Agreement "MMI" First paragraph of Agreement "Permits" Section 1.1(c) "Permitted Liens" Section 3.6 "pollutant or contaminant" Section 3.13(a)(5) "Purchase Price" Section 2.1 "Real Property" Section 3.6 "Registrations" Section 1.1(b) "Release" Section 3.13(a)(6) "Restructuring" Section 3.4 "Retained Inventory" Section 5.1(d) "Second Request" Section 5.5 "Seller" First paragraph of Agreement "Subsidiary" Second paragraph of Agreement "Subsidiaries" Second paragraph of Agreement "Seller Protected Parties" Section 10.2 "Technical Information" Section 1.1(e) "Transaction Agreements" Section 3.2 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement"), made and entered into as of this 14th day of May, 1999 (the "Effective Date"), among Mentor Corporation, a Minnesota corporation, having its principal place of business at 201 Mentor Drive, Santa Barbara, CA 93111 (the "Seller"), Mentor Ophthalmics, Inc., a Massachusetts corporation ("MOI"), Mentor Medical, Inc., a Delaware corporation ("MMI"), Mentor Caribe, Inc., a Delaware corporation ("MCI"), and CIBA Vision Corporation, a Delaware corporation, having its principal place of business at 11460 Johns Creek Parkway, Duluth, Georgia 30097, CIBA Vision AG, a Swiss corporation having its principal place of business at Riethofstrase 1, 8442, Hettlingen, Switzerland, CIBA Vision Puerto Rico, Inc., a Puerto Rico corporation having its principal place of business at ________________________________________ (together with CIBA Vision Corporation and CIBA Vision AG, collectively, the "Buyer"). WITNESSETH: WHEREAS, the Seller is the sole shareholder of MOI and MMI and, indirectly, of MCI (each, a "Subsidiary" and, collectively, the "Subsidiaries"); and WHEREAS, upon and subject to the terms and conditions of this Agreement, the Seller and the Subsidiaries desire to sell to the Buyer, and the Buyer desires to purchase from the Seller and the Subsidiaries, certain assets of the Seller and of the Subsidiaries that comprise the intraocular lens business of the Mentor Ophthalmics business division. NOW, THEREFORE, in consideration of the mutual promises and covenants and the terms and conditions set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: - - PURCHASE AND SALE OF ASSETS Purchase and Sale . Subject to the terms of this Agreement, at the Closing (as defined in Section 9.1), the Seller and the Subsidiaries will sell, convey, transfer, assign and deliver to the Buyer, and the Buyer will purchase and accept from the Seller and the Subsidiaries, all of the assets, properties and rights of every kind, nature, character or description, whether tangible or intangible, real, personal or mixed, wherever located, and whether or not reflected on the books and records of the Seller or a Subsidiary, used or held by the Seller and the Subsidiaries as of the Effective Date primarily to develop, manufacture and market intraocular lenses (the "Business"), including any additions to such assets, properties and rights in the ordinary course of business between the date hereof and the Closing, but specifically excluding (Y) the Excluded Assets (as defined in Section 1.2) and (Z) any deletions to such assets, properties and rights in the ordinary course of business between the date hereof and the Closing in accordance with this Agreement. The assets, properties and rights being sold and purchased pursuant to this Agreement are herein referred to as the "Assets". Subject to Section 1.2, the Assets include, but are not limited to: (a) All originals (where originals exist, in the case of materials used exclusively in the Business), and/or copies of records (including copies of materials not used exclusively in the Business), operating data and business files, including customer lists and files, customer credit files, advertising materials and sales literature, information relating to purchasing histories and procedures, vendor files and financial records (including all sales invoices and purchase order records and supporting documents with respect to accounts receivable (other than Excluded Accounts Receivable) and accounts payable) and other marketing information and records, regardless of the medium in which such items may have been created or stored, used primarily in the Business, which are in the possession of the Seller or a Subsidiary on the Closing Date (as defined in Section 9.1); (b) All governmental (including both United States and foreign) registrations, registration applications, temporary registrations, experimental use permits, applications and emergency use exemptions used primarily in the Business, including those listed on Schedule 3.14 hereto (the "Registrations"); (c) All governmental authorizations, licenses and permits used primarily in the Business, including those listed on Schedule 3.14 (collectively, the "Permits"); (d) All contracts, agreements and licenses (other than the Leases as defined in Section 1.1(f)) which are listed on Schedule 3.15(b), together with all consignment contracts with customers, but excluding any such contracts that expire or are terminated prior to Closing in accordance with this Agreement and such contracts where the Seller or a Subsidiary, as the case may be, is unable to obtain an assignment prior to the Closing (the "Contracts"); (e) All machinery, motor vehicles, tools, furniture, instruments, laboratory equipment, research equipment, fixtures and personal property (i) located at the Seller's Caribe, Puerto Rico facility or (ii) located at the Seller's Massachusetts facilities to the extent such items are used at such facilities exclusively in connection with the Business or (iii) refrigeration, storage and laboratory equipment located at the Seller's Massachusetts facilities and primarily used in connection with the Business (the "Equipment"); (f) All leases of Real Property set forth on Schedule 3.6(a) and leases of Equipment primarily used in the Business, including those listed on Schedule 3.8 (the "Leases"); (g) Computer, data processing and telecommunications hardware, software and systems, equipment and databases (i) located at the Seller's Caribe, Puerto Rico facility or (ii) located at the Seller's other facilities to the extent such items are used at such facilities exclusively in connection with the Business, as set forth on Schedule 1.1(g), except with respect to such items where the Seller or a Subsidiary, as the case may be, is unable to obtain an assignment; (h) All accounts receivable of the Business (excluding intercompany receivables, as described in Section 1.2(f), and the Excluded Accounts Receivable) as of the Closing; (i) All inventories of the Business, including finished goods and products, field inventory, goods and products in process and materials and supplies on hand and in transit, as of the Closing; (j) All intellectual property (including patents, unpatented know-how, copyrights, trade secrets, trade names, service marks and trademarks), whether registered or not, including, without limitation, all rights in and to the name "MemoryLens," applications for the foregoing, and any and all other intangible assets used primarily in the Business, including, without limitation, those set forth on Schedule 3.18, together with the right to bring actions for infringements (including for any infringement occurring before the Closing Date) of any such intellectual property; (k) All of the Seller's technical information and data, including, but not limited to, know-how, trade secrets, inventions, formulas, processes, designs, drawings, technology, software (including source codes), data bases, manufacturing and quality control procedures and records, product composition data and specifications, packaging specifications, material safety data sheets, customer specifications, product standards, competitive samples and reports of analyses thereof, lab notebooks, records of inventions, patent application drafts, and research and development projects, materials, results and records, wherever located, used primarily in the Business ("Technical Information"); (l) All manufacturers', vendors' and suppliers' warranties, to the extent assignable, relating directly to the Assets or the Business; (m) All of the Seller's rights and obligations with respect to confidentiality agreements and restrictive covenants (including, but not limited to, the right to enforce such obligations and covenants) in favor of the Seller or the Subsidiaries relating directly to the Assets or the Business executed by (i) present and former officers and employees and (ii) such other individuals and corporations as are identified in a written notice from the Buyer to the Seller prior to the Closing; and (n) The goodwill of Seller relating directly to the Assets or the Business. Excluded Assets . Notwithstanding anything herein to the contrary, the Assets shall not include the following (the "Excluded Assets"): (a) Cash; (b) Securities; (c) Bank deposits; (d) Assets, properties and rights of the Seller or a Subsidiary (i) not currently used primarily in the Business or (ii) currently used primarily in the Business but that are ancillary to the operation of the Business, including, without limitation, any office equipment, furniture and fixtures of the Seller or a Subsidiary located at Seller's facilities outside of Puerto Rico; (e) Any and all rights and assets, including without limitation intellectual property rights, relating to the Polytef product line, the Contour Genesis product line, the Urethein product line, the Phacoemulsification product line, Wet-Field diathermy products, the tonometry product line, or the ultrasound product line; (f) Intercompany receivables (that is, amounts owing by the Seller to a Subsidiary, by a Subsidiary to the Seller, or by one Subsidiary to another Subsidiary) and Excluded Accounts Receivable; (g) All other assets, properties, trademarks and tradenames and rights identified on Schedule 1.2, including without limitation, all rights in and to use the name "Mentor." Pursuant to this Agreement, the Buyer will acquire for sale certain existing inventory which display the "Mentor" mark. The Buyer acknowledges that the Seller and/or one or more of the Subsidiaries is the exclusive owner of the "Mentor" trade name and trademark (the "Mark"). The Buyer agrees to refrain from any action which is in any way inconsistent with the Seller's ownership of the Mark or which could damage Seller's interest in the Mark or the Seller's reputation. The Seller grants to the Buyer as of the Closing a limited license to use the Mark in an informational sense only to identify the existing inventory transferred under this Agreement and on any related advertising and promotional materials and to refrain from any use of the Mark in connection with any other products; and (h) Contracts, agreements and licenses listed on Schedule 3.15 but not listed on Schedule 3.15(b). Transfer . The sale, conveyance, transfer, assignment and delivery of the Assets by the Seller and the Subsidiaries to the Buyer will be effected by the delivery from the Seller and the Subsidiaries to the Buyer at Closing all bills of sale, endorsements, assignments and transfers as required by the Agreement plus such other instruments of transfer and conveyance in forms reasonably satisfactory to the parties. Transition Agreement . At the Closing, the Seller and the Buyer shall enter into a transition agreement providing for Buyer's utilization of Seller's assets and services for distribution of PMMA intraocular lenses from the Norwell facility, order entry, accounts receivable, and credit and collections, which assets and services are currently used in the Business on a non- exclusive basis. The term of such transition agreement shall be agreed upon at the Closing Date and shall be a minimum of two (2) months and a maximum of six (6) months, extending from the Closing Date. Services shall be provided by Seller at cost and shall not exceed a charge of $50,000 per month to Buyer. Such transition agreement shall be one of the Transaction Agreements. - - PURCHASE PRICE Purchase Price . Subject to the purchase price adjustment pursuant to Section 2.2(b), the purchase price for the Assets shall be the sum of (i) Thirty-Four Million Five Hundred Thousand Dollars ($34,500,000), plus (ii) the amount of Adjusted Accounts Receivable as determined in accordance with Section 2.2(a) (the "Purchase Price"). The Purchase Price is payable by the Buyer to the Seller at Closing in immediately available funds by wire transfer. Accounts Receivable. (a) The amount of "Adjusted Accounts Receivable" shall be determined in accordance with this Section 2.2(a): 1) The Seller has provided to the Buyer a listing of the accounts receivable of the Business as of the Effective Date (the "Accounts Receivable Listing"). Within ten days of the Effective Date, the Buyer shall identify in writing to the Seller those specific customers (if any) shown on the Accounts Receivable Listing, the accounts receivable of whom the Buyer does not wish to purchase hereunder ("Excluded Accounts Receivable"); provided, however, that the amount of the Excluded Accounts Receivable shall not exceed $250,000. The Excluded Accounts Receivable shall not be included in the Assets and shall be retained by the Seller. 2) At least ten (10) days prior to the Closing Date, the Buyer shall provide a written independent verification summary of the accounts receivable from the customers for the accounts with the ten largest balances outstanding for the period ending May 1999. If the sum of the independently verified balances for the accounts with the ten largest balances outstanding differs by more than $100,000.00 from the sum of the same balances provided by the Seller for the period ending May 1999, then the Seller and the Buyer shall renegotiate an adjusted accounts Receivable prior to the Closing Date. 3) At the Closing, the Seller shall deliver a listing of the accounts receivable of the Business (excluding the Excluded Accounts Receivable) as of the last business day preceding the Closing Date (the "Gross Accounts Receivable"). The amount of Adjusted Accounts Receivable shall be equal to the amount of the Gross Accounts Receivable, less $600,000. (b) There shall be a post-Closing adjustment to the Purchase Price in accordance with this Section 2.2(b). 1) Within 30 days following the first anniversary of the Closing Date, the Buyer shall deliver to the Seller a schedule of the Gross Accounts Receivable and the amounts collected thereon during the one year period following the Closing; the amount of the Gross Accounts Receivable collected during such period is referred to as the "Collected Accounts Receivables." For the purpose of such schedule, amounts collected during such period from a customer shall be applied to such invoice as is specified by the customer. The Seller shall have the right to audit such schedule, and the Buyer shall provide access to the relevant books and records for that purpose. 2) If the amount of the Collected Accounts Receivables exceeds the amount of the Adjusted Accounts Receivable, one-half of the difference shall be paid by the Buyer to the Seller. If the amount of the Adjusted Accounts Receivable exceeds the amount of the Collected Accounts Receivables, one-half of the difference shall be paid by the Seller to the Buyer. Such amount shall be promptly paid by the Seller to the Buyer or by the Buyer to the Seller, as the case may be, in immediately available funds by wire transfer, and shall constitute an adjustment to the Purchase Price. Assumption of Liabilities. (a) Except as specifically set forth in this Section 2.3, the Buyer will not assume, and shall not be bound by, any obligations and liabilities of the Seller or a Subsidiary of any kind or nature, known or unknown, expressed, implied, contingent or otherwise (the "Excluded Liabilities"). (b) At the Closing, pursuant to one or more written agreements in a form reasonably satisfactory to the parties, the Buyer will assume and agree to pay, perform and discharge, and to indemnify the Seller and the Subsidiaries against and hold them harmless from, the following obligations and liabilities ("Assumed Liabilities") whether imposed by contract, by operation of law, or otherwise: (i) all liabilities and obligations on or after the Closing Date under the Contracts, Permits, and Leases included in the Assets; (ii) all liabilities or obligations to third parties for personal injury, property damage, consequential damages, punitive damages or incidental damages arising from any injury, event or damage as a result of any product or good of the Business manufactured on or after the Closing Date; (iii) all obligations associated with customer orders received by the Seller or a Subsidiary that remain unfulfilled, and any purchase orders issued by the Seller or a Subsidiary that remain open, on and as of the Closing Date, provided that such customer orders or purchase orders were issued or accepted in the ordinary course of business consistent with past practices; (iv) the obligations with respect to the Hired Employees in accordance with Section 6.1 of this Agreement; and (v) all obligations and liabilities, of any nature or kind, known or unknown, fixed, accrued, absolute or contingent, related to or based upon the ownership or operation of the Business or the Assets on or after the Closing Date. Purchase Price Allocation . The Purchase Price shall be allocated by the Buyer and the Seller in accordance with the Internal Revenue Code of 1986, as amended (the "Code"), including the requirements of Section 1060 of the Code, and the Treasury Regulations promulgated thereunder. Such allocation (the "Purchase Price Allocation") shall apply to Assets used in connection with the Business as conducted in the United States as well as Assets used in connection with the Business as conducted outside the United States. The Buyer and the Seller shall negotiate in good faith to determine the Purchase Price Allocation within 90 days following the Closing Date. In the event that the parties are unable to reach an agreement concerning the Purchase Price Allocation prior to the expiration of said 90 day period, the parties shall submit the matter to a public accounting firm with a nationally recognized tax, auditing and appraisal expertise selected jointly by the Seller and the Buyer. The determination of the Purchase Price Allocation by such firm shall be binding on the parties for all tax reporting purposes. The cost of employing any such firm shall be borne one-half by the Seller and one- half by the Buyer. The Buyer and the Seller agree to each prepare (and timely file) identical Internal Revenue Service Forms 8594 (Asset Acquisition Statement Under Section 1060) based on the agreed Purchase Price Allocation and any supplemental Forms 8594 that are required in case of any subsequent adjustments to the Purchase Price. - - REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SUBSIDIARIES The Seller and each of the Subsidiaries represent and warrant to the Buyer as of the date hereof as follows: Organization and Corporate Standing . The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota and has all requisite corporate power and authority to carry on and conduct the portion of the Business it conducts and to own or lease the Assets it now owns or leases and to convey the Assets it now owns. Each of the Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has all requisite corporate power and authority to carry on and conduct the portion of the Business it now conducts and to own or lease the Assets it now owns or leases and to convey the Assets it now owns. The Seller and each Subsidiary is duly qualified and in good standing in every jurisdiction in which the conduct of the Business by it or the ownership of the Assets by it requires it to be so qualified, and the absence of such qualification would be material. Corporate Power and Authority . The Seller and each Subsidiary has the right, power and capacity to execute, deliver and perform this Agreement and all the documents and instruments referred to herein and contemplated hereby to which it is a party together with all other agreements to be signed or delivered at Closing (the "Transaction Agreements") and to consummate the transactions contemplated by this Agreement. The execution, delivery and performance of this Agreement and the Transaction Agreements, and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate action on the part of the Seller. This Agreement has been, and each of the Transaction Agreements to which it is a party after execution and delivery thereof at the Closing will have been, duly and validly executed and delivered by the Seller and/or the Subsidiaries, as the case may be, and constitute the legal, valid and binding obligation of the Seller and/or the Subsidiaries, as the case may be, enforceable in accordance with its terms. Financial Statements . Schedule 3.3 includes the following: (i) the unaudited balance sheets of the Business as of December 31, 1998 and March 31, 1999, and (ii) gross margin summaries for the 9-month period ended December 31, 1998 and the 12-month period ended March 31, 1999 (collectively the "Financial Statements"). In addition, the Seller shall provide to the Buyer (and the Financial Statements include) (i) the unaudited balance sheet of the Business as of the Closing Date, and (ii) gross margin summaries for each month (corresponding to the Seller's fiscal calendar) beginning April 1, 1999 and continuing through and including the Closing Date. Except as set forth on Schedule 3.3, the Financial Statements (i) have been prepared from the books and records of the Business and (ii) fairly present, in all material respects, the financial position of the Business as of the dates thereof, and the gross margins of the Business for the periods described therein; provided, however, that in each case, the Financial Statements do not include provision of corporate services to the Business by the Seller, including, without limitation, expenses for research and development, marketing services, accounting and other corporate services performed by the Seller on behalf of the Business; and further provided that the Financial Statements reflect the Seller's good faith effort to separate the Assets from other assets, properties and rights of the Seller or a Subsidiary not currently used primarily in the Business. Absence of Certain Changes and Events . Except (i) to the extent arising out of or relating to the transactions contemplated by this Agreement, (ii) for matters set forth on any Schedule to this Agreement, (iii) to the extent arising out of or relating to the Seller's plans announced on December 14, 1998 to restructure certain aspects of the Business, a copy of such announcement being attached hereto on Schedule 3.4 (the "Restructuring"), or (iv) as set forth on Schedule 3.4, since December 31, 1998, the Seller and the Subsidiaries have conducted the Business in the ordinary course in all material respects, and: (a) The Business has not suffered any material damage or destruction to the Assets (either individually or in the aggregate); and (b) No event has occurred with respect to the Assets or the Business that has had a material adverse effect on the Assets or Business . Notwithstanding the foregoing, the voluntary resignation or termination for cause of any Employee(s) (including but not limited to the senior managers of the Business) or any sales representative or the election by a customer or supplier to curtail or cease business relations with the Business, whether or not arising out of or in connection with the transactions contemplated by this Agreement, shall not be deemed to constitute a breach of this Section 3.4. No Violation of Law . Since December 31, 1998, the Seller has not received any written notice alleging the Seller or a Subsidiary is in material violation of any applicable local, state, United States federal or any foreign, including Puerto Rico, law, ordinance, regulation, order, injunction or decree, or any other requirement of any governmental body, agency or authority or court binding on it, relating to the Assets or the Business, and the Seller has no knowledge of any such violation. Real Property . Schedule 3.6(a) lists the locations, and sets forth the approximate square footage of the primary buildings located on all real property used or held for use in the Business that the Seller or a Subsidiary leases, has agreed (or has an option) to purchase, sell or lease, or may be obligated to purchase, sell or lease, which is included in the Assets (the "Real Property"). The Seller or a Subsidiary has a good, valid and enforceable leasehold interest in the Real Property free and clear of every material encumbrance other than the Permitted Liens. Neither the Seller nor any Subsidiary owns any Real Property in fee simple for use in the Business. The interest of the Seller and the Subsidiaries in the Real Property is subject to the Permitted Liens. "Permitted Liens" are: (A) the liens, mortgages or other encumbrances set forth on Schedule 3.6(b); (B) liens for taxes not yet due and payable; (C) carriers', warehousemen's, mechanics', material men's, repairmen's or other like liens arising in the ordinary course of business, payment for which is not yet due or which is being contested in good faith; and (D) deposits to secure the performance of utilities, leases, statutory obligations and surety and appeal bonds and other obligations of a like nature incurred in the ordinary course of business. To the Seller's knowledge, there is no pending or threatened condemnation proceeding or similar taking, or sale or other disposition in lieu thereof, affecting the Real Property or any portion thereof. To the Seller's knowledge, all of the plants, buildings, structures and other improvements included in the Real Property are, taken as a whole, in good working order and condition and repair, and, to Seller's knowledge, are not in material violation of any applicable building, fire, zoning, health, safety or similar laws, regulations or ordinances. Neither the Seller nor any Subsidiary has any reason to believe that any of the Leases described on Schedule 3.6(a) cannot be renewed or extended at commercially reasonable rates. Title to Assets/Sufficiency . The Seller or a Subsidiary has good title to all material Assets, free and clear of all material encumbrances, or has a license with the right to use the Assets for the benefit of the Business, except (i) as set forth on Schedule 3.7, and (ii) Permitted Liens. The Assets include all material assets and rights necessary for the conduct of the Business as now conducted (except (A) as set forth on Schedule 3.7, (B) contracts, agreements and licenses listed on Schedule 3.15 but not listed on Schedule 3.15(b), and (C) assets not held at a Business location or not used by the Seller or a Subsidiary primarily for the benefit of the Business, such as administrative services used by the Seller or a Subsidiary in providing administrative services to the Business (such as payroll, electronic mail and certain other information services) and corporate services used in connection with the Business (such as research and development activities in California, Seller's quality system, and marketing)). Leases . Except for the leases set forth on Schedule 3.6(a), Schedule 3.8 lists all Leases (including any capital leases) and lease-purchases and other arrangements, in each case with payments aggregating $25,000 or more per year, pursuant to which the Seller or a Subsidiary leases any Assets from third parties. Except as set forth on Schedule 3.8, (i) each Lease is in full force and effect and has not been modified or amended, and (ii) there are no disputes, oral agreements or forbearance programs in effect as to any Lease. To the Seller's knowledge, there has not occurred any default, or any event with notice or lapse of time, or both, would become a default under any Lease. Litigation . Schedule 3.9 sets forth all litigation, suits, indictments or informations, or proceedings or arbitrations pending, or to the knowledge of the Seller, threatened, before any court, arbitration tribunal, or judicial, governmental or administrative agency, relating to the Business or the Assets, in each case, that is pending, or, to the knowledge of the Seller, threatened, as of the date hereof. Further, except as set forth in Schedule 3.9, there are no material judgments, orders, writs, injunctions, decrees, indictments or informations, grand jury subpoenas or civil investigative demands, or awards against the Seller or a Subsidiary relating to the Business or the Assets, including, without limitation, any such matter that alleged that a product of the Business manufactured or sold by the Seller or any Subsidiary is or was defective, improperly designed or improperly manufactured. Since August 31, 1995, there has been no litigation or suit against the Seller or any Subsidiary for any personal injury alleged to have been caused by any products of the Business manufactured by Seller or any Subsidiary. There is no suit, investigation, action or other proceeding pending, or to the Seller's knowledge, threatened before any court, arbitration, tribunal, or judicial, governmental or administrative agency, against the Seller or a Subsidiary which would have a material adverse effect on the ability of the Seller or a Subsidiary to perform its obligations hereunder or which seeks to prevent the consummation of the transactions contemplated herein. Employees of the Business . Seller has provided to Buyer a schedule setting forth the names, positions, and current compensation of all employees of the Seller and Subsidiaries who are assigned exclusively to the Business as of the Effective Date. Collective Bargaining; Employment Contracts . There are no labor contracts or collective bargaining agreements covering any of the Business Employees (as defined in Section 6.1) and no collective bargaining agreement or union contract is currently being negotiated by the Seller or a Subsidiary. None of the Business Employees are represented by any union or labor organization. Except as set forth in Schedule 3.15 or Schedule 3.11, neither the Seller nor any Subsidiary, in connection with the operation of the Business, is bound by or subject to any written employment agreements. The Seller has provided the Buyer with copies of employee handbooks and significant written personnel policies maintained by Seller and its Subsidiaries with reference to employees employed primarily in the Business, in each case, to the extent that such handbooks or policies relate only to the Business and not to any other business of the Seller or a Subsidiary. Labor Matters . Neither the Seller nor any Subsidiary has received any written notice alleging any material violation of any applicable local, state or federal law, ordinance, regulation, order, injunction, or decree, or any other requirement of any governmental body, agency or authority or court respecting employment and employment practices relating to the Business, and the Seller has no knowledge of any such material violation. Except as set forth in Schedule 3.12, (i) neither the Seller nor any Subsidiary has received any written notification that any of the Employees have any material claim against the Seller or a Subsidiary, (ii) neither the Seller nor any Subsidiary has received written notice of any material charge of, or action or proceedings relating to unfair labor practices by the Seller or a Subsidiary in connection with the Business pending or threatened before the National Labor Relations Board, the Equal Employment Opportunity Commission, or the United States Department of Labor, and (iii) to the knowledge of the Seller, there is no labor organizing effort related to the Business, or any strike or other labor trouble actually pending or threatened against the Business. Environmental Matters. (a) As used in the Agreement, the following terms shall have the meanings indicated: 1) "Environment" -- The air, ground (surface and subsurface), or water (surface and groundwater). 2) "Environmental Law" -- Any applicable federal, state, local or other law, statute, ordinance, rule, regulation, permit, judgment, order, decree or other binding requirement of, or binding agreement with, any Governmental Body, relating to Releases of Hazardous Materials and the protection of natural resources and the Environment. 3) "Governmental Body" -- Any domestic or foreign national, regional, state (including the District of Columbia and the Commonwealth of Puerto Rico) or municipal or other local government or multi-national body, any subdivision, agency, commission, authority or instrumentality thereof, or any quasi-governmental or tribunal or other private body when such tribunal or body is exercising any regulatory or taxing authority thereunder. 4) "Governmental Permit" -- All permits, authorizations, registrations, consents, approvals, waivers, franchises, exceptions, variances, orders, certificates, judgments, decrees, licenses, exemptions, or declarations of or by any court or Governmental Body under, pursuant to or relating to Environmental Laws. 5) "Hazardous Materials" -- Any "hazardous substance" and any "pollutant or contaminant" as those terms are defined in the Comprehensive Environmental Response, Compensation & Liability Act of 1980, 42 U.S.C. 9601, et seq., as amended; any "hazardous waste" as that term is defined in the Resource Conservation and Recovery Act, 42 U.S.C. 6901, et seq., as amended; and any "hazardous material" as that term is defined in the Hazardous Materials Transportation Act, 49 U.S.C. 1801, et. seq., as amended (including as those terms are further defined, construed, or otherwise used in rules, regulations, standards, guidelines and publications issued pursuant to, or otherwise in implementation of, said Environmental Laws); and including without limitation any petroleum product or byproducts, solvent, flammable or explosive material, radioactive material, asbestos, polychlorinated biphenyls (PCBs), dioxins, dibenzofurans, heavy metals, and radon gas; and including any other substance or material that is reasonably determined to present a threat, hazard or risk to human health or the Environment. 6) "Release" -- Spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing, migration or placement into the Environment (including the abandonment or discarding of barrels, containers, and other closed receptacles containing any Hazardous Material). (b) Except as disclosed in Schedule 3.13, to Seller's knowledge: 1) The Assets and the Business are in substantial compliance with all Environmental Laws; 2) With respect to the Assets and the Business, Seller has not received any written notice of any alleged violation of any Environmental Law since December 31, 1995, to the present (whether remedied or not) nor is Seller aware of any basis for any claim of any violation of any Environmental Law; 3) Seller has obtained and is in substantial compliance with all Governmental Permits, and has submitted all applications, notices and other documents necessary to effect renewal or reissuance of all Governmental Permits, necessary for the continued conduct of the Business in the manner now conducted, and Seller is not aware of any threatened revocation or reopening of any Governmental Permit; 4) With respect to any Environmental Law, there are no conditions or circumstances at, or arising out of, the Assets or the Business, that are likely to interfere with the conduct of the Business in the manner now conducted; 5) There are no conditions or circumstances at, or arising out of, the Assets or the Business, including but not limited to on-site or off-site disposal or Release of any Hazardous Materials, which are likely to give rise to: (i) liabilities or obligations for any cleanup, remediation or corrective action under any Environmental Law, (ii) claims arising under any Environmental Law for personal injury, property damage, or damage to natural resources, (iii) liabilities or obligations incurred to enable the Assets and the Business to comply with an Environmental Law in effect as of the Closing Date, or (iv) fines or penalties arising under any Environmental Law; 6) There is no existing or threatened investigation or judicial or administrative proceeding alleging or claiming that the Seller or any Subsidiary or affiliated entity with respect to the Assets or the Business may be: (i) in violation of any Environmental Law, (ii) subject to liabilities or obligations for any cleanup, remediation or corrective action under any Environmental Law, (iii) subject to claims arising under any Environmental Law, including claims for personal injury, property damage, or damage to natural resources, (iv) subject to liabilities or obligations incurred to enable the Assets and the Business to comply with any Environmental Law, or (v) subject to any fines or penalties arising under any Environmental Law. Permits . The Permits disclosed on Schedule 3.14 are all material Permits or other authorizations of governmental authorities necessary or required for the production of products of the Business or for the conduct of the Business as currently conducted. There is no action pending, or to the Seller's knowledge, threatened, seeking the revocation, cancellation, suspension or adverse modification of any material Permit. Contracts . Schedule 3.15 sets forth a list of all material contracts, agreements and licenses used in the Business. Except as set forth on Schedule 3.15, each Contract is valid and in full force and effect and is enforceable in accordance with its respective terms. To Seller's knowledge, neither the Seller nor any Subsidiary has received any notice of any modification, termination or cancellation of any Contract. Except as set forth on Schedule 3.16, no consent, approval or authorization of any third party is required for the assignment of each Contract to the Buyer. There are no material disputes, oral agreements or forbearance programs in effect as to the Contracts and there has not occurred any material default by the Seller or a Subsidiary or, to the Seller's knowledge, any other party of any Contracts. Required Consents, Approvals and Filings . Except as set forth in Schedule 3.16, no consent or approval is required by virtue of the execution hereof by the Seller or the consummation of any of the transactions contemplated herein by the Seller to avoid the violation or breach of, or the default under, or the creation of a lien or other encumbrance on the Assets pursuant to the terms of any regulation, order, decree or award of any court or governmental agency or any Lease or Contract to which the Seller or a Subsidiary is a party or to which the Business or the Assets is subject. Except for filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR"), and as set forth on Schedule 3.16, there are no filings or similar procedures required with respect to any governmental body in connection with the consummation of the transactions contemplated hereby. No Conflict . Subject to obtaining the consents and approvals and making the filings described in Section 3.16, the execution and delivery of this Agreement by the Seller, and the consummation of the transactions contemplated herein by the Seller will not (with or without the giving of notice or the lapse of time or both): (i) violate or conflict with any of the provisions of any charter document or bylaw of the Seller; or (ii) violate, conflict with or result in a breach or default under or cause termination of any term or condition of any mortgage, indenture, contract, license, permit, instrument, or other agreement, document or instrument to which the Seller or a Subsidiary is a party or by which the Seller, a Subsidiary or the Assets may be bound, or (iii) violate any provision of law or any valid and enforceable court order, judgment, decree or ruling of any governmental authority, to which the Seller or a Subsidiary is a party or by which it or its properties may be bound, or (iv) result in the creation or imposition of any lien or other encumbrance upon any Asset, except as to clauses (i) through (iv) above, any such matters that would not (X) involve or affect the Business or the Assets, or (Y) prevent or delay the consummation of the transactions contemplated herein. Intellectual Property . Schedule 3.18 sets forth a list of all material trademarks and patents and describes the material copyrights and other intellectual property used primarily in the Business (the "Intellectual Property"). Except as set forth on Schedule 3.18, the Seller or a Subsidiary owns or is licensed under a Contract to use all the Intellectual Property and the Technical Information, free and clear of any liens or other encumbrances. All registrations listed in Schedule 3.18 are in good standing and in full force and effect in accordance with their terms. Unless otherwise noted on Schedule 3.18, none of the Intellectual Property, or Seller's ownership or use thereof, is subject to any pending or, to the knowledge of the Seller, threatened challenge. Except as noted on Schedule 3.18, Seller is not aware of any circumstances indicating that any person is or has been infringing on any rights in the Intellectual Property. To the Seller's knowledge, neither (i) the use by the Seller or any Subsidiary of the Intellectual Property, nor (ii) the making, using, selling, offering to sell, importing or exporting of the MemoryLens intraocular lens, infringes or otherwise violates the rights of any other party. Taxes . Except as set forth in Schedule 3.19, (i) all material tax and informational returns and related information required to be filed by or on behalf of the Seller or any Subsidiary relating to the Assets or the Business prior to the date hereof have been prepared and filed in accordance with applicable law, and all taxes, interest, penalties, assessments and deficiencies relating to the Assets or the Business that have become due pursuant to such returns or any assessments or otherwise have been paid in full; (ii) all such returns are true and correct in all material respects, and there is no unresolved claim concerning any federal, state, local or foreign tax liability; and (iii) all monies required to be withheld by the Seller or any Subsidiary from the employees of the Business have been collected and withheld, and either paid to the appropriate governmental agency or will be paid by the Seller on or before their due date. Inventory . A listing of inventory will be provided by the Seller to the Buyer as of the Closing Date, and will be true and correct in all material respects as of the date of such listing. Except for the Retained Inventory, each item of inventory identified in the aforementioned list has been manufactured, packaged and labeled in accordance with Good Manufacturing Practices and all other applicable requirements of the United States Food and Drug Administration. Key Customers and Representatives . Schedule 3.21(a) sets forth each customer of the Business which accounted for ten percent (10%) or more of the worldwide net sales of the Business in any of the last two fiscal years of the Business ("Key Customers"). Schedule 3.21(b) sets forth each independent sales representative who accounted for ten percent (10%) or more of the United States net sales of the Business in any of the last two fiscal years of the Business ("Key Representative"). To the knowledge of the Seller, no Key Customer or Key Representative has delivered to the Seller or a Subsidiary any notice of termination or indication or intent to terminate or modify its relationship with the Business. Equipment . A listing of Equipment will be provided by the Seller to the Buyer as of the Closing Date, and will be true and correct in all material respects as of the date of such listing. To Seller's knowledge, the Equipment which is material to the operation of the Business, as such Equipment is used by the Seller and the Subsidiaries in the operation of the Business, is in good working order and condition and repair. Disclosure . No representation or warranty by the Seller in this Agreement, nor any statement, document, certificate or schedule furnished or to be furnished by the Seller or a Subsidiary in connection with the transactions contemplated by this Agreement, shall, as of the date furnished to the Buyer and as of the Closing Date (other than changes in the ordinary course of business prior to the Closing Date), contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein not misleading. Disclaimer . EXCEPT AS SET FORTH IN THIS ARTICLE 3, (A) THE SELLER AND THE SUBSIDIARIES MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, RELATING TO THE ASSETS OR THE BUSINESS, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY AS TO VALUE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR FOR ORDINARY PURPOSES, OR ANY OTHER MATTER; AND (B) THE ASSETS AND BUSINESS OF THE SELLER AND THE SUBSIDIARIES BEING TRANSFERRED TO THE BUYER ARE CONVEYED ON AN "AS IS, WHERE IS" BASIS AS OF THE CLOSING, AND THE BUYER SHALL RELY UPON ITS OWN EXAMINATION THEREOF. - - BUYER'S REPRESENTATIONS AND WARRANTIES The Buyer represents and warrants to the Seller as of the date hereof as follows: Organization . CIBA Vision Corporation is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, CIBA Vision AG is a corporation duly organized validly existing and in good standing under the laws of Switzerland and CIBA Vision Puerto Rico is a corporation duly organized validly existing and in good standing under the laws of Puerto Rico. The Buyer has all requisite corporate power and authority to carry on and conduct its business as it is now being conducted, to own or lease its assets and properties and is duly qualified and in good standing in every jurisdiction in which the conduct of its business or ownership of its assets requires it to be so qualified. Corporate Power and Authority . The Buyer has the right, power and capacity to execute, deliver and perform this Agreement and the Transaction Agreements and to consummate the transactions contemplated by this Agreement. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action on the part of the Buyer. This Agreement has been, and each of the Transaction Agreements after execution and delivery thereof at the Closing will have been, duly and validly executed and delivered by the Buyer and constitute the Buyer's legal, valid and binding obligation, enforceable in accordance with its terms. Required Consents, Approvals and Filings . Except as set forth on Schedule 4.3, no consent or approval is required by virtue of the execution hereof by the Buyer or the consummation of any of the transactions contemplated herein by the Buyer to avoid the violation or breach of, or the default under, or the creation of a lien or other encumbrance on assets of the Buyer pursuant to the terms of any regulation, order, decree or award of any court or governmental agency or any lease, agreement, contract, mortgage, note, license, or any other instrument to which the Buyer is a party or to which it or any of its property is subject. Except for filings under HSR and applicable securities laws, and as set forth on Schedule 4.3, there are no filings or similar procedures required with respect to any governmental body in connection with the consummation of the transactions contemplated hereby. No Conflict . Subject to obtaining the consent and approvals and making the filings described in Section 4.3, the execution and delivery of this Agreement by the Buyer, and the consummation of the transactions contemplated herein by the Buyer will not, with or without the giving of notice or the lapse of time, or both, (i) violate or conflict with any of the provisions of any charter document or bylaw of the Buyer, (ii) violate, conflict with or result in breach or default under or cause termination of any term or condition of any mortgage, indenture, contract, license, permit, instrument, or other agreement, document or instrument to which the Buyer is a party or by which the Buyer or any of its properties may be bound, or (iii) violate any provision of law or any valid and enforceable court order, judgment, decree, or ruling of any governmental authority, to which Buyer is a party or by which Buyer or its properties may be bound, and except as to clause (i) through (iii) above, any such matters that would not prevent or delay the consummation of the transaction contemplated herein. Litigation . There is no suit, investigation, action or other proceeding pending, or to the Buyer's knowledge, threatened before any court, arbitration tribunal, or judicial, governmental or administrative agency, against the Buyer which would have a material adverse effect on the ability of the Buyer to perform its obligations hereunder or which seeks to prevent the consummation of the transactions contemplated herein. Financing . The Buyer will have available at Closing sufficient immediately available funds to enable the Buyer to pay the Purchase Price to the Seller and to effect the consummation of the transactions described herein. - - COVENANTS OF THE PARTIES Operations Pending Closing . The Seller hereby agrees that, except as contemplated by the Restructuring or as set forth on Schedule 5.1 or as consented to in writing by the Buyer (such consent not to be unreasonably withheld), pending the Closing, the Seller and the Subsidiaries shall operate and conduct the Business in the ordinary course and consistent with past practices of the Seller and the Subsidiaries. Pursuant thereto and not in limitation of the foregoing: (a) The Seller and the Subsidiaries will maintain, in all material respects, the Assets in their present state of repair (ordinary wear and tear excepted), and will use its commercially reasonable best efforts to preserve the good will of its business and relationships with the Employees, and customers and suppliers with whom it has business relations. Notwithstanding the foregoing, the voluntary resignation or termination for cause of any Employee(s) (including but not limited to the senior managers of the Business) or any sales representative or the election by a customer or supplier to curtail or cease business relations with the Business, shall not be deemed a breach of, or failure to comply with, this Section 5.1(a). (b) Except as set forth on Schedule 5.1(b), or in connection with the Restructuring, or without the written consent of the Buyer (such consent not to be unreasonably withheld), or as otherwise contemplated by this Agreement, the Seller and the Subsidiaries will not take any of the following actions between the Effective Date and the Closing Date: 1) Sell, transfer or otherwise dispose of any material Assets, except for inventory in the ordinary course of business and other tangible personal property retired or replaced in the ordinary course of business; 2) Enter into any material contract or commitment relating to the Business or the Assets, except purchase orders in the ordinary course of business; 3) Create any material mortgage, lien, security interest, pledge or other encumbrances, on the Assets, except for Permitted Liens; 4) Cause the Business to incur or discharge any material obligation or liability, except in the ordinary course of business; 5) Increase the rate or terms of the compensation payable to the Hired Employees, or increase or amend any employee benefit plan in which the Hired Employees participate, except increases or amendments occurring in the ordinary course of business, including normal periodic performance reviews and related compensation and benefit increases, or as required by any Contract; 6) Waive any material claims or rights; 7) Amend, terminate or assign any Contract, except in the ordinary course of business consistent with past practices; 8) Solicit any third party concerning the sale or transfer of the Assets, the Business or any part thereof (except for sale of inventory in the ordinary course of business), whether directly or through a representative or otherwise; 9) Fail to meet any material contractual obligations of the Business or fail to perform and pay their obligations as they mature in the ordinary course of business; 10) Fail to make payments and filings required to continue the Intellectual Property; or 11) Fail to comply with all laws, ordinances, regulations, orders, injunctions or decrees, or any other requirements of any governmental body applicable to the conduct of the Business or the ownership or operation of the Assets, and with the Permits; and (c) The Seller will promptly advise Buyer in writing of any material adverse change in the Assets or the conduct, operations, properties or condition (financial or otherwise) of the Business, promptly after obtaining knowledge of such change. (d) After the Effective Date, the Seller and the Subsidiaries will not discard, and will use their best efforts to segregate, any inventory which would otherwise normally be discarded in the ordinary course of business. Such inventory which would otherwise be discarded is referred to as "Retained Inventory". The foregoing agreement by the Seller and the Subsidiaries not to dispose of the Retained Inventory has been included at the request of the Buyer. THE SELLER AND THE SUBSIDIARIES MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, RELATING TO THE RETAINED INVENTORY, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY AS TO VALUE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR FOR ORDINARY PURPOSES, OR ANY OTHER MATTER. THE RETAINED INVENTORY WILL BE TRANSFERRED ON AN "AS IS, WHERE IS" BASIS AS OF THE CLOSING. Access . From the Effective Date through the Closing Date, the Seller will, and will cause the Subsidiaries to, (i) provide the Buyer with such information as the Buyer may from time to time reasonably request with respect to the Assets and the Business and the transactions contemplated by this Agreement, and (ii) provide the Buyer, upon reasonable notice and during regular business hours, access to the Real Property, books, records, offices, counsel, accountants and employees of the Business and those of the Seller and the Subsidiaries as such relate to the Business, as the Buyer may from time to time reasonably request, which access shall not be unreasonably denied. Any access will be conducted in such a manner so as not to interfere unreasonably with the operation of the business of the Seller and the Subsidiaries, and any representative of the Buyer shall, at all times while in the facilities of the Seller or a Subsidiary, be accompanied by an employee(s) or representative(s) of the Seller. The Seller shall also have the right to require, prior to entry onto any of the Real Property or the facilities of the Seller or a Subsidiary by contractors acting on behalf of the Buyer, that the Buyer provide the Seller with evidence of the contractor's insurance in form and amount reasonably satisfactory to the Seller, including contractor's insurance that names the Seller as an insured. At the Seller's request, the Buyer shall furnish to the Seller at the Buyer's expense a copy of all information obtained by the Buyer as a result of any such access by contractors acting on behalf of the Buyer. The Buyer shall inform its representatives and agents of the Confidentiality Agreement, dated December 10, 1998 by and between the Seller and the Buyer, and shall cause said representatives to abide by such Confidentiality Agreement and the Seller's rules and regulations regarding safety, security and operations. The Buyer shall and hereby does indemnify, defend and hold harmless the Seller Protected Parties (as defined in Section 10.2) from and against any and all Losses (as defined in Section 10.1) that may arise in connection with or as a result of the Buyer's access to the Real Property or the Business, and the Buyer further agrees to be responsible for and bear all costs and expenses related to any of the Buyer's access to the Real Property or the Business. Preparation of Supporting Documents . In addition to such actions as the parties may otherwise be required to take under this Agreement or applicable law in order to consummate this Agreement and the transactions contemplated hereby and by the Transaction Agreements, the parties will take such action, furnish such information, and prepare, or cooperate in preparing, and execute and deliver such certificates, agreements and other instruments as the other party may reasonably request from time to time, before, at or after the Closing, with respect to compliance with obligations of the Buyer or the Seller in connection with the transactions contemplated hereby or by the Transaction Agreements. Without limiting the foregoing, the parties agree at the Closing to execute a memorandum setting forth the control numbers of (i) the final products of the Business manufactured by the Seller or a Subsidiary prior to the Closing, and (ii) the products included in the Retained Inventory. Approvals of Third Parties; Satisfaction of Conditions to Closing . The Seller and the Buyer will use their reasonable, good faith efforts, and will cooperate with one another, to secure all necessary consents, approvals, authorizations and exemptions from governmental agencies and other third parties, including, without limitation, all consents and approvals required by Sections 7.4, 7.5, 8.4 and 8.5. In the event that any required consent or approval is not obtained prior to the Closing, the Seller and the Buyer will use their reasonable good faith efforts to obtain such consent or approval as promptly as possible after the Closing, and until such consent or approval is obtained, to cooperate with each other in reasonable arrangements (such as subcontracting, sublicensing or subleasing) designed to achieve the purposes of this Agreement. The Seller will use its reasonable, good faith efforts to obtain the satisfaction of the conditions specified in Article 8. The Buyer will use its reasonable, good faith efforts to obtain the satisfaction of the conditions specified in Article 7. Hart-Scott-Rodino Notification . The Seller and the Buyer will each promptly prepare and file a notification with the United States Justice Department (the "Justice Department") and the Federal Trade Commission (the "FTC") as required by HSR. The Seller and the Buyer will cooperate with each other in connection with the preparation of such notification, including sharing information concerning sales and ownership and such other information as may be needed to complete such notification, and providing a copy of such notification to the other prior to filing. Each of the Seller and the Buyer will keep confidential all information about the other obtained in connection with the preparation of such notification. The filing fee required under the regulations promulgated pursuant to HSR shall be shared equally by the Buyer and the Seller. The Buyer and the Seller will cooperate to respond to all inquiries and requests for further information associated with the HSR filing. A party receiving a Request for Additional Information and Documentary Material ("Second Request") from the Justice Department and/or the FTC shall notify the other party and respond thereto as soon as reasonably possible and in any event within seventy-five (75) days of receipt of such Second Request. Financial and Tax Services . It is recognized that one or more party may need tax, financial or other data after the Closing Date with respect to the Business covering fiscal periods prior to the Closing Date in order to facilitate the preparation of tax returns or in connection with any audit, investigation, litigation, amended return, claim for refund or any proceeding in connection therewith or to comply with the rules and regulations of the Internal Revenue Service, the Securities and Exchange Commission or any other governmental organization or agency. The parties will render reasonable cooperation and will afford access during normal business hours to all books, records, data and personnel concerning use and ownership of the Assets and the operation and conduct of the Business with respect to periods prior to and including the Closing Date to each other and their auditors, accountants, counsel or other authorized representatives for such purpose. The parties will also each execute such documents as the other may reasonably request in order to file any required reports or tax returns and provide the other with prompt written notice upon receipt of any written claim, notice of deficiency or proposed or actual assessment pertaining to the Business which could affect the tax liability of the other. The party requesting assistance from the other party will bear all reasonable out-of-pocket costs and expenses incurred by such assisting party (excluding salaries or wages of its employees). Transfer Taxes . All sales or transfer taxes, including but not limited to, document recording fees, real property transfer taxes, sales and excise taxes, arising out of or in connection with the consummation of the transactions contemplated herein shall be borne one-half by the Buyer and one-half by the Seller. The Buyer shall furnish the Seller with any necessary certificates of tax exemption. Notice and Opportunity to Cure. (a) If between the Effective Date and the Closing Date either party becomes aware that any of the representation(s) or warranty(ies) of the Seller and/or the Subsidiaries are or will be untrue or inaccurate ("Inaccuracy"), such party will promptly notify the other and the corresponding Schedule will be promptly supplemented or amended. In any such case, even if such Inaccuracy would be likely to be material, the Seller can elect to take any of the following actions, in which case the Buyer shall be obligated to close the transaction contemplated hereby if all other conditions to Closing in Article 8 have been satisfied: 1) prior to Closing, the Seller can cure such Inaccuracy to the reasonable satisfaction of the Buyer by correcting such Inaccuracy without any potential Loss, risk or adverse effect to the Buyer; 2) if the Inaccuracy can be cured to the reasonable satisfaction of the Buyer by the Seller's assumption of, and indemnification for, any Losses resulting from any such Inaccuracy, the Seller can agree to the unconditional and unlimited assumption of liability for, and indemnification of the Buyer for, any such Loss; or 3) if the Inaccuracy cannot be cured by the Seller prior to Closing with commercially reasonable best efforts, then the Seller can present to the Buyer a plan, reasonably satisfactory to the Buyer, to cure such Inaccuracy after the Closing including the Seller's unconditional and unlimited indemnification of the Buyer for any potential Losses resulting from any such Inaccuracy. If the Seller satisfies all conditions in any of clauses (1), (2) or (3) above, then the appropriate Schedule(s) will be updated and the Inaccuracy shall be deemed corrected for all purposes of this Agreement (including without limitation Section 10.1 hereof); provided, however, that except as contemplated hereby and by Section 3.10 hereof, the Seller shall not otherwise have any right to update such Schedules. The parties acknowledge and agree that the Seller's indemnity provided in this Section 5.8 is without regard to the provisions of Article 10 hereof. (b) If the parties discover an Inaccuracy between the Effective Date and the Closing Date, but such Inaccuracy is not material, then the parties acknowledge and agree that the condition in Section 8.1 of this Agreement will nevertheless be satisfied insofar as Section 8.1 relates to the required degree of accuracy of the representations and warranties as of the Closing Date and after the Closing the Buyer may not assert an indemnification claim against Seller under Article 10 hereof in respect of such Inaccuracy. Covenant Not to Compete . For a period of five (5) years following the Closing Date, neither the Seller, nor any Affiliate of Seller shall, directly or indirectly, as a shareholder, owner, partner, principal, agent, joint venturer, consultant, advisor, independent contractor or otherwise, alone or with any other person or entity, engage in the development, manufacture or marketing of lenses to be surgically placed in the eye. Inventory . Following the Closing, all inventory included in the Assets (except for the Retained Inventory) will be handled, packaged, labeled and distributed by the Buyer in accordance with Good Manufacturing Practices and all other applicable requirements of the United States Food and Drug Administration. - - COVENANTS AS TO EMPLOYEES Employees and Employee Benefits. (a) The Buyer anticipates that it will, but is under no obligation to, offer employment, effective as of the Closing Date, to (i) all persons who are employees of the Seller or a Subsidiary who are assigned exclusively to the Puerto Rico facility of the Business as of May 1, 1999 and (ii) selected employees of the Seller or a Subsidiary located in Santa Barbara, California or elsewhere who are assigned primarily to the Business as of May 1, 1999 (collectively, the "Business Employees"). The Buyer shall notify the Seller at least ten (10) days prior to the Closing Date as to which of the Business Employees in Puerto Rico, if any, it will not offer employment, and will offer employment to all other Business Employees in Puerto Rico at least one (1) week prior to the Closing Date. The Buyer shall also notify the Seller at least ten (10) days prior to the Closing Date as to which of the Business Employees in Santa Barbara, if any, it will offer employment, and will offer employment to such Business Employees at least one (1) week prior to the Closing Date. Neither the Seller nor the Subsidiaries will discourage (by active solicitation of employment or otherwise) any Business Employee from accepting the Buyer's offer of employment. Business Employees who accept the Buyer's offer of employment are herein referred to as the "Hired Employees." (b) The Buyer and its Affiliates will treat service and employment of Hired Employees with the Seller, the Subsidiaries, their Affiliates and any predecessor employers prior to the Closing Date as service and employment with the Buyer for purposes of Buyer's vacation policies. (c) The Buyer shall offer group health care plan coverage to all Hired Employees, their spouses and eligible dependents. The Seller shall offer continuation health care plan coverage to all Hired Employees, their spouses and eligible dependents as required by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and other applicable laws. The Buyer shall reimburse the Seller for all premiums and other out-of-pocket expenses incurred by the Seller or any Subsidiary in connection with the provision of such continuation coverage during the 60 day waiting period for Hired Employees, their spouses and eligible dependents under the Buyer's group health care plans. (d) The Seller and the Subsidiaries hereby waive, as of the Closing Date, all confidentiality obligations in their favor to which any of the Hired Employees are subject to the extent the Hired Employees need to use or disclose confidential information solely concerning the Business in connection with the continued operation of the Business after the Closing Date. Seller Obligations . The Seller shall retain all liabilities and claims for salary, bonuses, back-pay, commissions, employee plans, benefit arrangements or other employment-based claims due employees or former employees of the Seller or a Subsidiary arising prior to the Closing, including, but not limited to, obligations to any employee of the Seller or a Subsidiary and to such individual's spouse and eligible dependents under any group health care plan subject to the requirements of COBRA (subject to the provisions of Section 6.1(c)), for the payment of any severance to any Business Employee not employed by the Buyer following the Closing Date, and for any claims brought by any such Business Employee relating to any termination of employment by the Seller or any Subsidiary. The Seller shall comply with any applicable laws relating to the termination by the Seller or the Subsidiaries of any employees thereof. - - CONDITIONS TO SELLER'S OBLIGATIONS Each of the obligations of the Seller to consummate the transactions contemplated hereby will be subject to the satisfaction (or written waiver by the Seller) at or prior to the Closing Date of each of the following conditions. Representations and Warranties True at Closing Date; Performance of Agreements . Except for changes as may be contemplated by this Agreement, each of the representations and warranties of the Buyer contained in this Agreement must be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of such date unless the representation and warranty is made as of a specified date and except to the extent that the failure of such representations and warranties to be true as of the Closing Date would not, in the aggregate, have a material adverse effect on the Seller; the Buyer must have performed and complied in all material respects with the covenants and agreements set forth herein to be performed or complied with by it on or before the Closing Date, including execution and delivery of the Transaction Agreements; and the Buyer must have delivered to the Seller a certificate dated the Closing Date and signed by its duly authorized officer to all such effects. Litigation . No suit, investigation, action or other proceeding is pending, or overtly threatened, against the Buyer or the Seller, a Subsidiary or their Affiliates before any court or governmental agency which has resulted, or in the reasonable opinion of counsel for the Seller is likely to result, in the restraint or prohibition of the consummation of the transactions contemplated hereby or in a material adverse effect on the Business, the Assets, the Seller or a Subsidiary. Opinion of Counsel to Buyer . The Seller shall have received from counsel to the Buyer an opinion, dated the Closing Date, reasonably satisfactory in form and substance to the Seller. Required Governmental Approvals . All governmental authorizations, consents and approvals necessary for the valid consummation of the transactions contemplated hereby must have been obtained and must be in full force and effect. All applicable governmental pre-acquisition filing, information furnishing and waiting period requirements, including expiration of all applicable waiting periods pursuant to HSR, the absence of which would be material, must have been met or such compliance must have been waived by the governmental authority having authority to grant such waivers. Other Necessary Consents . The parties must have obtained all consents and approvals listed on Schedule 3.16 and Schedule 4.3, or, if any required consent or approval has not been obtained, the parties must have agreed to an alternative arrangement as contemplated by the second sentence of Section 5.4. - - CONDITIONS TO BUYER'S OBLIGATIONS Each of the obligations of the Buyer to consummate the transactions contemplated hereby is subject to the satisfaction (or written waiver by the Buyer) at or prior to the Closing Date of each of the following conditions. Representations and Warranties True at Closing Date; Performance of Agreements . Except for changes as may be contemplated by this Agreement, each of the representations and warranties of the Seller contained in this Agreement must be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of such date, unless the representation or warranty is made as of a specified date; the Seller must have performed and complied in all material respects with the respective covenants and agreements set forth herein to be performed or complied with by it on or before the Closing Date, including execution and delivery of the Transaction Agreements; and the Seller must have delivered to the Buyer a certificate dated the Closing Date and signed by its duly authorized officer to all such effects. Litigation . No suit, investigation, action or other proceeding is pending, or overtly threatened, against the Buyer or the Seller, a Subsidiary or their Affiliates before any court or governmental agency which has resulted, or in the reasonable opinion of counsel for the Buyer is likely to result, in restraint or the prohibition of the consummation of the transactions contemplated hereby or in a material adverse effect on the Business, the Assets or the Buyer. Opinion of Counsel to the Seller . The Buyer shall have received from Chief Counsel of the Seller an opinion, dated the Closing Date, reasonably satisfactory in form and substance to the Buyer. Required Governmental Approvals . All governmental authorizations, consents and approvals necessary for the valid consummation of the transactions contemplated hereby must have been obtained and must be in full force and effect. All applicable governmental pre-acquisition filing, information furnishing and waiting period requirements, including expiration of all applicable waiting periods pursuant to HSR, must have been met or such compliance must have been waived by the governmental authority having authority to grant such waivers. Other Necessary Consents . The parties must have obtained all consents and approvals listed on Schedule 3.16 and Schedule 4.3, or, if any required consent or approval has not been obtained, the parties must have agreed to an alternative arrangement as contemplated by the second sentence of Section 5.4. - - CLOSING Closing . The closing of the transactions contemplated hereby (the "'Closing") will take place at 9:00 a.m. Pacific Time on the "Closing Date," at the offices of the Seller located at 201 Mentor Drive, Santa Barbara, CA 93111, or at such other place as may be mutually agreeable. Subject to Section 10.5, and subject to satisfaction or waiver of the conditions to the Seller's and the Buyer's obligations set forth in Articles 7 and 8, respectively, the Closing Date will be June 30, 1999 or on the second business day following expiration of all applicable waiting periods pursuant to HSR, which date shall be selected at the Buyer's option, or such other date as the parties may mutually agree. At the Closing, the parties hereto will duly execute and deliver all documents and instruments required to be delivered, and the Buyer will make all payments to the Seller required to be paid at the Closing as provided in this Agreement. Termination Prior to Closing . Notwithstanding the foregoing, the parties will be relieved of the obligation to consummate the Closing and purchase or sell the Assets: (a) By the mutual written consent of the Buyer and the Seller; (b) By the Seller in writing, without liability, if the Buyer (i) fails to perform in any material respect its agreements contained herein required to be performed by it on or prior to the Closing Date, or (ii) materially breaches any of its representations, warranties or covenants contained herein, which failure or breach is not cured, to the reasonable satisfaction of the Seller, within twenty (20) days after the Seller has notified in writing the Buyer of such failure or breach and of its intent to terminate this Agreement pursuant to this subparagraph; (c) By the Buyer in writing, without liability, if the Seller (i) fails to perform in any material respect its agreements contained herein required to be performed on or prior to the Closing Date, or (ii) materially breaches any of its representations, warranties or covenants contained herein, which failure or breach is not cured, to the reasonable satisfaction of the Buyer, within twenty (20) days after the Buyer has notified in writing the Seller of such failure or breach and of its intent to terminate this Agreement pursuant to this subparagraph; (d) By either the Seller or the Buyer in writing, without liability, if there is issued any order, writ, injunction or decree of any court or governmental or regulatory agency binding on the Buyer or the Seller or a Subsidiary which prohibits or restrains the Buyer or the Seller from consummating the transactions contemplated hereby; provided that the Buyer and the Seller have used their reasonable, good faith efforts to have any such order, writ, injunction or decree lifted and the same has not been lifted within sixty (60) days after entry, by any such court or governmental or regulatory agency; (e) By either the Seller or the Buyer in writing, without liability, if for any reason the Closing has not occurred by July 15, 1999 other than as a result of the breach of this Agreement by the party attempting to terminate this Agreement; provided, however, that in the event that a Second Request is received by a party, such deadline of July 15, 1999 shall be extended by the number of days (not to exceed seventy-five (75)) elapsed between the receipt of the Second Request and the submission of the party's response thereto. Termination of Obligations . Termination of this Agreement pursuant to Section 9.2 will terminate all obligations of the parties hereunder, except for the obligations under Article 10 (Indemnity Claims), and this Section, and Sections 5.2 (Indemnification and Confidentiality Obligations Regarding Access), 11.1 (Expenses), 11.7 (Brokerage) and 11.9 (Public Announcements); provided that termination pursuant to subparagraphs (b), (c), or (e) of Section 9.2 will not relieve a defaulting or breaching party from any liability to the other party hereto. - - INDEMNIFICATION Seller Indemnification. (a) Except as otherwise provided in this Article 10, and in Article 6 and Sections 2.3, 5.1(d), 5.2 and 11.7, the Seller and each Subsidiary will indemnify and reimburse the Buyer for any and all claims, losses, liabilities, damages, penalties, fines, costs and expenses (including reasonable attorneys' fees and court costs) (collectively, "Losses") incurred by the Buyer and its Affiliates and their successors or assigns, and their respective directors, officers, employees, consultants and agents (the "Buyer Protected Parties"), to the extent such Losses are a result of or arise out of: 1) any material breach or inaccuracy of any representation or warranty of the Seller or any Subsidiary set forth in this Agreement; 2) any material breach of, or noncompliance by the Seller or any Subsidiary with, any covenant or agreement of the Seller contained in this Agreement to be performed after the Closing; 3) the Excluded Assets or the Excluded Liabilities; 4) any liabilities or obligations for which the Seller has assumed responsibility under Section 6.2 hereof; 5) any product liability claim alleged to have been caused by any products (except Retained Inventory) of the Business manufactured by the Seller or any Subsidiary prior to the Closing Date; 6) any and all orders, notices, claims, suits, proceedings, investigations (including, without limitation, by Governmental Bodies) or actions at law or in equity under any Environmental Law (including, without limitation, changes in law) by third parties relating to: (i) conditions associated with the Equipment, the Real Property or the Business and any related acts or omissions of Seller or any Subsidiary or predecessor entities at or prior to the Closing Date; (ii) the manufacture, generation, processing, distribution, labeling, use, presence, treatment, removal, handling, storage, disposal, transport or abandoning of any Hazardous Materials at or prior to the Closing Date from, on, at, around or under the Real Property, or properties currently or previously owned, operated or leased by Seller or any Subsidiary or predecessor, or by any third party acting on Seller's or a Subsidiary's behalf; (iii) the Release of any Hazardous Materials, or the threat of the same, on or prior to the Closing Date, into the Environment from, on, at, around or under the Real Property, or properties currently or previously owned, operated or leased by Seller or any Subsidiary or predecessor entities, or by any third party acting on Seller's behalf; (iv) worker exposure to Hazardous Materials or other personal injury or property damages relating to releases of Hazardous Materials from, on, at, around or under the Real Property prior to the Closing Date; (v) any failure by Seller or any Subsidiary or predecessor entities to obtain any Permit required to be obtained under Environmental Law prior to or as of the Closing Date. 7) any material breach of the representations and warranties provided under Section 3.19 [taxes]; and 8) the Seller's or a Subsidiary's ownership or operation of the Business or the Assets prior to the Closing Date. provided, however, that, in each case, the Seller has no obligation to indemnify the Buyer for any Loss arising from, with respect to, or resulting from Retained Inventory. (b) Notwithstanding anything in the foregoing to the contrary, subject to Section 10.3(b) (Time to Assert Claims) and Section 10.4 (Deductible), the Seller's obligation for indemnity under Section 10.1 shall be only up to a maximum aggregate liability for the Seller and the Subsidiaries as follows: (i) For claims described in clauses 5) [product liability], 6) [environmental] or 7) [taxes] of Section 10.1, there shall be no maximum aggregate liability; (ii) For claims arising out of any fraudulent misrepresentation or fraudulent breach of warranty or covenant or agreement by Seller or any Subsidiary, the maximum aggregate liability shall be the Purchase Price; (iii) For all claims not described in clause (i) or (ii) above, the maximum aggregate liability shall be $5,000,000. Buyer Indemnification . Except as otherwise provided in this Article 10 and in Article 6 and Sections 5.2 and 11.7, the Buyer will indemnify and reimburse the Seller for any and all Losses incurred by the Seller, a Subsidiary and their Affiliates and their successors or assigns, and their respective directors, officers, employees, consultants and agents (the "Seller Protected Parties"), to the extent such Losses are a result of or arise out of: 1) any material breach or inaccuracy of any representation or warranty of the Buyer set forth in this Agreement; 2) any material breach of, or noncompliance by the Buyer with, any covenant or agreement of the Buyer contained in this Agreement to be performed after the Closing; 3) the Assumed Liabilities; 4) the ownership or operation of the Business or the Assets on or after the Closing Date; and 5) the retention, sale or use of the Retained Inventory. Indemnity Claims. (a) Survival. The representations, warranties, covenants and agreements contained herein, except for covenants and agreements to be performed by the parties prior to the Closing, will not be extinguished by the Closing but will survive the Closing, subject to the limitations set forth in subsection (b) below with respect to the time periods within which claims for indemnity must be asserted. The covenants and agreements to be performed by the parties prior to the Closing shall expire at the Closing. (b) Time to Assert Claims. Except for (i) claims described in clauses 5) [product liability], or 7) [taxes] of Section 10.1, which must be asserted prior to the expiration of the applicable statute of limitations, or (ii) claims described in clause 4) [employees], which must be asserted prior to the expiration of the applicable statute of limitations or five years after the Closing Date, whichever is earlier, or (iii) claims described in clause 6) [environmental] of Section 10.1, which shall have no time limit for assertion, all claims for indemnification under this Article 10 which are not extinguished by or at the Closing in accordance with Section 10.3(a) must be asserted no later than two years after the Closing Date. Deductible . The Buyer Protected Parties may make no claim against the Seller for indemnification pursuant to Section 10.1 unless and until the aggregate amount of such claims exceeds $100,000 (the "Deductible"), in which event the Buyer Protected Parties may claim indemnification for the amount of such claims in excess of the Deductible. Notice of Claim . The Buyer Protected Party or the Seller Protected Party, as the case may be (the "Indemnified Party"), will notify the party against whom indemnification under this Agreement is sought (the "Indemnifying Party"), in writing, of any claim for indemnification, specifying in reasonable detail the nature of the Loss, and, if known, the amount, or an estimate of the amount, of the liability arising therefrom. The Indemnified Party's failure or delay in providing such notice shall not relieve the Indemnifying Party of its obligations hereunder unless (and then only to the extent that) such failure or delay prejudiced the Indemnifying Party's ability to defend such claim. The Indemnified Party will provide to the Indemnifying Party, as promptly as practicable thereafter, such information and documentation as may be reasonably requested by the Indemnifying Party to support and verify the claim asserted, so long as such disclosure would not violate the attorney- client privilege of the Indemnified Party. Defense . If the facts pertaining to a Loss arise out of the claim of any third party, or if there is any claim against a third party (other than a Buyer Protected Party or a Seller Protected Party) available by virtue of the circumstances of the Loss, the Indemnifying Party shall assume the defense or the prosecution thereof by prompt written notice to the Indemnified Party, including the employment of counsel or accountants, at the Indemnifying Party's cost and expense. If the Indemnifying Party does not assume the defense or prosecution of a claim as provided above within thirty days after notice thereof from any Indemnified Party (or within such shorter period, if any, as may be necessary to avoid default judgment or other prejudice to the Indemnified Party), the Indemnified Party may retain counsel and defend or prosecute such claim at the Indemnifying Party's cost and expense. The Indemnified Party will have the right to employ counsel separate from counsel employed by the Indemnifying Party in any such action and to participate therein, but the fees and expenses of such counsel employed by Indemnified Party will be at its expense. The Indemnifying Party will not be liable for any settlement of any such claim effected without its prior written consent, which will not be unreasonably withheld; provided that if the Indemnifying Party does not assume the defense or prosecution of a claim as provided above within thirty days after notice thereof from any Indemnified Party (or within such shorter period, if any, as may be necessary to avoid default judgment or other prejudice to the Indemnified Party), the Indemnified Party may settle such claim without the Indemnifying Party's consent. The Indemnifying Party will not agree to a settlement of any claim which provides for any relief other than the payment of monetary damages or which could have a material precedential impact or effect on the business or financial condition of any Indemnified Party without the Indemnified Party's prior written consent. Whether or not the Indemnifying Party chooses to so defend or prosecute such claim, the Indemnifying Party and the Indemnified Party will cooperate in the defense or prosecution thereof and will furnish such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials and appeals, as may be reasonably requested in connection therewith. The Indemnifying Party will be subrogated to all rights and remedies of' any Indemnified Party, except to the extent they apply against another Indemnified Party. Limitation of Liability . In calculating any amount of damages to be paid by the Indemnifying Party pursuant to this Agreement, the amount of such damages will be reduced by all reimbursements credited to or received by the Indemnified Party, relating to such damages, and will be net of any tax benefits and insurance proceeds (after giving effect to any premium increases or deductibles) received by the Indemnified Party with respect to the matter for which indemnification is claimed. Exclusive Remedy; Release. (a) The indemnification provided pursuant to this Agreement shall be the sole and exclusive remedy hereto for any Losses as a result of, with respect to or arising out of the breach of this Agreement, or any of the transactions or other agreements or instruments contemplated or entered into in connection herewith (including, but not limited to, all Exhibits attached or referenced herein); provided, however, that such indemnification shall not be the sole and exclusive remedy, and shall in no way limit the rights of the parties for fraud or willful breach or misconduct. (b) Except as specifically provided in this Article 10 and Section 11.7, neither party nor its Affiliates or representatives shall be liable to the other party for, and (except as so provided each party) hereby releases and discharges the other party and its Affiliates and representatives from, any and all Losses incurred as a result of, with respect to or arising out of the ownership or operation of the Assets or the Business. (c) Without limiting the generality of this Section 10.8, the Buyer understands and agrees that the rights accorded under this Article 10 are the sole and exclusive remedy of the Buyer against the Seller, the Subsidiaries or their Affiliates with respect to any matters relating to Environmental Laws and Intellectual Property laws. The Buyer hereby waives any right to seek contribution or other recovery from the Seller, the Subsidiaries or their Affiliates under such Environmental Laws and Intellectual Property laws, and the Buyer hereby releases the Seller, the Subsidiaries and their Affiliates from any claims, demands or causes of actions that the Buyer has or may have in the future against Seller, the Subsidiaries or their Affiliates under the Environmental Laws or Intellectual Property laws. - - MISCELLANEOUS Expenses . Except as otherwise provided herein, the Seller and the Buyer will each pay all costs and expenses incurred by each of them, or on their behalf respectively, in connection with this Agreement and the transactions contemplated hereby, including fees and expenses of their own financial consultants, accountants and counsel. Any and all real property taxes, personal property taxes, assessments, security deposits, lease rentals, utility, fuel, and other charges applicable to the Assets or the Business will be pro-rated to the Closing Date and allocated between the parties by adjustment at Closing, or as soon thereafter as shall be reasonably practicable. Entire Agreement . Other than the Confidentiality Agreement, dated December 10, 1998 by and between the Seller and the Buyer, the terms and provisions of which shall survive the execution of this Agreement and the Closing, this Agreement (including the Schedules and Exhibits) and all other agreements to be signed or delivered at Closing constitute the full understanding of the parties, a complete allocation of risks between them and a complete and exclusive statement of the terms and conditions of their agreement relating to the subject matter hereof and supersede any and all prior agreements, whether written or oral, that may exist between the parties with respect thereto; provided that this provision is not intended to abrogate any Transaction Agreements executed with or after this Agreement. Except as otherwise specifically provided in this Agreement, no conditions, usage of trade, course of dealing or performance, understanding or agreement purporting to modify, vary, explain or supplement the terms or conditions of this Agreement will be binding unless hereafter made in writing and signed by the party to be bound, and no modification will be effected by the acknowledgment or acceptance of documents containing terms or conditions at variance with or in addition to those set forth in this Agreement. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and are made a part hereof. Waivers . No waiver by a party with respect to any breach or default or of any right or remedy and no course of dealing or performance, will be deemed to constitute a continuing waiver of any other breach or default or of any other right or remedy, unless such waiver is expressed in writing signed by the party to be bound. Failure of a party to exercise any right will not be deemed a waiver of such right or rights in the future. Parties Bound by Agreement; Successors and Assigns . The terms, conditions and obligations of this Agreement will inure to the benefit of and be binding upon the parties hereto and the respective successors and assigns thereof. No Party shall transfer or assign its rights, duties or obligations hereunder or any part thereof to any other person or entity without the prior written consent of the other Party. Counterparts . This Agreement may be executed in one or more counterparts, each of which will for all purposes be deemed to be an original and all of which will constitute the same instrument. Notices . Any notice, request, instruction or other document to be given hereunder by any party hereto to any other party hereto must be in writing and delivered personally (including by overnight courier or express mail service) or sent by registered or certified mail, postage or fees prepaid, If to the Buyer: CIBA Vision Corporation 11460 Johns Creek Parkway Duluth, GA 30097-1556 Attention: General Counsel Telephone: (770) 418-3054 Facsimile: (770) 418-3018 If to the Seller: Mentor Corporation 201 Mentor Drive Santa Barbara, CA 93111 Attention: Vice President and General Counsel Telephone: (805) 879-6000 Facsimile: (805) 681-6006 With a copy to: Arnold & Porter 777 South Figueroa Street Los Angeles, CA 90017-2513 Attention: Gregory Fant, Esq. Telephone: (213) 243-4000 Facsimile: (213) 243-4199 or to such other address as may be specified from time to time in a notice given by such party. Any notice which is delivered personally in the manner provided herein will be deemed to have been duly given to the party to whom it is directed upon actual receipt by such party or the office of such party. Any notice which is addressed and mailed in the manner herein provided will be conclusively presumed to have been duly given to the party to which it is addressed at the close of business, local time of the recipient, on the fourth business day after the day it is so placed in the mail or, if earlier, the time of actual receipt. Brokerage . The Seller and the Buyer do hereby expressly warrant and represent, each to the other, that except Piper Jaffray Inc., in the case of the Seller, no broker, agent, or finder has rendered services to such party in connection with the transaction contemplated under this Agreement. The Seller shall be solely responsible for any claims for compensation or otherwise brought by Piper Jaffray, Inc. relating to the transactions contemplated hereby and hereby indemnifies and agrees to hold harmless the Buyer from and against any and all Losses arising or resulting, or sustained or incurred by the Buyer, by reason of any claim by any broker, agent, finder, or other person or entity based upon any arrangement or agreement made or alleged to have been made by the Seller in connection with the transaction contemplated by this Agreement. The Buyer hereby indemnifies and agrees to hold harmless the Seller from and against any and all Losses arising or resulting, or sustained or incurred by the Seller, by reason of any claim by any broker, agent, finder, or other person or entity based upon any arrangement or agreement made or alleged to have been made by the Buyer in connection with the transaction contemplated by this Agreement. Governing Law; Jurisdiction . The validity, interpretation and performance of this agreement and any dispute connected with this agreement will be governed by and determined in accordance with the statutory, regulatory and decisional law of the State of New York (exclusive of such state's choice or conflicts of laws rules) and, to the extent applicable, the federal statutory, regulatory and decisional law of the United States (except for the U.N. Convention on Contracts for the International Sale of Goods, April 10, 1980, U.N. Doc. A/Conf. 97/18, 19 I.L.M. 668, 671 (1980) reprinted in Public Notice, 52 Fed. Reg. 66280 (1987), which is hereby specifically disclaimed and excluded). Public Announcements . No public announcement may be made by any person with regard to the transactions contemplated by this Agreement without the prior consent of the Seller and the Buyer; provided that either party may make such disclosure to the extent required if advised by counsel that it is required to do so by applicable law or regulation of any governmental agency or stock exchange upon which securities of such party are registered. The Seller and the Buyer will discuss any public announcements or disclosures concerning the transactions contemplated by this Agreement with the other parties prior to making such announcements or disclosures. No Third-Party Beneficiaries . With the exception of the parties to this Agreement and the Seller Protected Parties or Buyer Protected Parties, there exists no right of any person to claim a beneficial interest in this Agreement or any rights occurring by virtue of this Agreement. Certain Definitions. (a) As used in this Agreement, "Affiliate" of a person or entity shall mean: (i) any other person or entity directly, or indirectly through one or more intermediaries, controlling, controlled by, or under common control with such person or entity, (ii) any officer, director, partner, employee, or direct or indirect beneficial owner of any 10% or greater of the equity or voting interests of such person or entity, or (iii) any other person or entity for which a person or entity described in clause (ii) acts in such capacity. (b) As used in the Agreement, the "knowledge" of the Seller shall mean the actual knowledge as of the date hereof of the following officers and managers of the Seller: (A) the following corporate officers and managers of Seller: (i) Chief Executive Officer, (ii) President and Chief Operating Officer, (iii) Senior Vice President and Chief Financial Officer, (iv) Corporate Counsel, (v) Vice President of IOLs and Biomaterials, (vi) Senior Vice President of Science and Technology, (vii) Vice President, Regulatory Affairs/Quality Assurance, corporate; and (B) the following officers and managers of the Seller or the Subsidiaries primarily assigned to Ophthalmics: (i) Senior Vice President, Ophthalmics, (ii) Vice President and General Manager of Manufacturing Operations, Ophthalmics, (iii) Vice President of Worldwide Sales, Ophthalmics, (iv) Vice President, Regulatory Affairs, Ophthalmics, and (v) Plant Manager - Puerto Rico. Interpretation . Words of the masculine gender will be deemed and construed to include correlative words of the feminine and neuter genders. Words importing the singular number will include the plural number and vice versa unless the context will otherwise indicate. References to Articles, Sections and other subdivisions of this Agreement are to the Articles, Sections and other subdivisions of this Agreement as originally executed. The headings of this Agreement are for convenience and do not define or limit the provisions hereof. Words importing persons include firms, associations and corporations. The terms "herein," "hereunder," "hereby," "hereto," "hereof" and any similar terms refer to this Agreement; the term "heretofore" means before the date of execution of this Agreement; and the term "hereafter" means after the date of execution of this Agreement and the word "including" shall be deemed to be followed by the words "without limitation." The terms "ordinary course of business" or "ordinary course" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives in the United States of America as of the date first above written. MENTOR CORPORATION By: /s/CHRISTOPHER CONWAY Name: Christopher Conway Title: Chief Executive Officer MENTOR OPHTHALMICS, INC. By: /s/GARY E. MISTLIN Name: Gary E. Mistlin Title: Secretary/Treasurer MENTOR MEDICAL, INC. By: /s/GARY E. MISTLIN Name: Gary E. Mistlin Title: Secretary/Treasurer MENTOR CARIBE, INC. By: /s/GARY E. MISTLIN Name: Gary E. Mistlin Title: Secretary/Treasurer CIBA VISION CORPORATION, as the Buyer By: /s/C. Glen Bradley Name: C. Glen Bradley Title: Chief Executive Officer CIBA VISION AG By: /s/L. VonBidder Name: L. VonBidder Title: President CIBA VISION PUERTO RICO, INC. By: /s/C. Glen Bradley Name: C. Glen Bradley Title: Chief Executive Officer EX-27 2
5 0000064892 FDS 1,000 3-MOS MAR-31-2000 APR-01-1999 JUN-30-1999 54518 2331 38881 0 31371 149173 36624 1744 202522 29302 0 0 0 24450 1549 202522 60144 60144 21520 50177 0 0 19 10196 3220 6976 6937 0 0 13913 .57 .56
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